Regulators Forum: Shifting Winds, Shifting Strategies


State regulators grapple with investments, supply planning, and structural issues.

State regulators grapple with investments, supply planning, and structural issues.

Fortnightly Magazine - November 2005
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Nothing changes the landscape like a hurricane.

As Gulf Coast utilities struggled to recover from the disaster of two major hurricanes striking within weeks of each other, the rest of the country was bracing for shockwaves in fuel prices. After a year of precipitous price increases, projections of even higher natural-gas prices this winter are shedding a different light on state ratemaking and resource-planning priorities.

The opposing challenges of higher gas prices and rising environmental concerns have put utility regulators in a difficult position: How can they bring rate stability while minimizing environmental impacts? At the same time, they are grappling with trends in consolidation, competition, transmission planning, and distribution service quality.

Each state brings a different view of the changing utility landscape. For insight, Fortnightly brought together regulators from several states to discuss their plans and priorities for today and the future.


Life After Katrina

Despite facing colossal challenges in the wake of Hurricane Katrina, Mississippi's utilities successfully restored power to most affected areas within three weeks—a heroic effort by any measure. In the aftermath, however, utility regulators must answer questions they've never considered before—questions about how ratepayers in one of America's poorest states will absorb rebuilding costs that will mount into the billions, and how to help utilities deal with the fact that nearly 15 percent of their electricity loads—and therefore their rate bases—were wiped out in a single blow.

Mississippi PSC Commissioner Michael Callahan took a break from storm-recovery efforts to speak with Fortnightly in late September. Though Callahan paints a bleak picture of the state's utility systems in the wake of Katrina, he also shows remarkable optimism about the possibilities that might emerge from the devastation it left behind.

Q: Tell me about Hurricane Katrina. How were utilities in Mississippi affected?

A: It was utter devastation. For all practical purposes, the whole transmission system was gone. Nobody in southeastern Mississippi had power. For many companies, disaster-response plans A, B, and C all were wiped out. They had no buildings left for staging their response.

Mississippi Power Co. was the hardest hit. They lost all their main offices. Their storm center was Plant Watson, the coal-fired power plant, but they had to evacuate it because the plant was virtually destroyed by the storm surge. It's still physically standing but the storm surge washed through there and damaged a lot of equipment.

For the first three days, the big problem was that there was no way to communicate. And the roads were clogged with evacuees from Louisiana, which made it extremely hard to get around. Then, by Saturday after the storm, we were on the verge of stopping restoration efforts because we were running out of gasoline to fuel our trucks.

That first weekend was a very frustrating and tense time. I knew we were in for rough going when I actually had to separate two of my directors whose tempers had reached the breaking point.

We had to do a lot of things that weren't