Fortnightly Magazine - January 2008

Letters to the Editor

Before the hearings started, I felt the number of critical cyber assets for a medium size utility would be on the order of several thousand, not 20 as some major utilities are identifying under the CIP standards. This should be a red flag for the industry.

Texas Ring Fence

TXU’s buyout structure creates a potential model for utility M&A and refinancing deals

2007 was a big year for TXU Corp., as it went private in the largest leveraged buyout in history. To sweeten the deal for environmentalists and regulators, TXU made structural and financial concessions. Now TXU’s ring-fencing structure might become a template for future utility M&A and refinancing deals.

Setting the Standard

NERC’s new cyber security rules may minimize cost of compliance, but they leave utilities guessing on how to identify risks.

Liam Baker, vice president for regulatory affairs at US Power Generating, questions whether his company’s power plants and control systems in New York and Massachusetts must comply with the electric industry’s new mandatory standards for cyber security. Baker voiced his doubts in written comments he filed in October with FERC.

Linking Risk and ROE

Financial-risk coverage is falling short in utility returns

When setting the allowed returns on common equity of jurisdictional utilities, state regulatory authorities apply the virtually universal standard that the allowed returns should be similar to returns on common equity investments in companies of equivalent risk. Such returns generally are accepted as fair if they are no higher than necessary and still sufficient to attract investment. Despite the universality of this regulatory standard, our investigation of recent allowed returns by state commissions shows that a key risk—financial risk—as measured by accepted, measurable metrics, has not been a factor affecting the level of allowed returns in the United States in recent years.

People

Duke Energy named Lynn J. Good group executive and president – commercial businesses. AGL Resources announced John W. Somerhalder II, the company’s president and CEO, has been named chairman of the board. Energy West announced several changes in its management team. And others...

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