Fortnightly Magazine - September 2010

Hybrid Finance

A solution to high electricity prices in restructured states.

New baseload generation is needed in many areas of the United States, but financing new plants will be particularly challenging in restructured states where generation facilities are no longer included in rate base and therefore not financed through the traditional rate-of-return paradigm. A market hybrid approach—in which new baseload plants would be partially owned and financed by the regulated distribution company with the other portion owned and financed by the unregulated generation company—would combine the advantages of lower cost capital and regulatory oversight associated with traditional rate of return regulation, with the cost control and efficiency associated with competitive markets.

Presumed Power

Growing gas storage depends on fair regulatory treatment.

FERC’s final rule authorizing new natural gas storage facilities seems to presume market power for pipelines and new storage. FERC should consider changing that presumption to more accurately reflect Congress’s intent in EPAct 2005.

The 40 Best Energy Companies

(September 2010) Capital spending and commodity prices are driving changes in financial performance. The 2010 Fortnightly 40 report shows growing success for companies with substantial unregulated assets. As the industry resumes its Big Build, regulatory relationships will determine the long-term strength of utility shareholder returns.

Retail Resurgence

Beyond-the-meter technologies challenge the utility monopoly.

Smart metering and beyond-the-meter technologies are challenging the utility monopoly model. Now, regulated utilities must re-think their customer relationships as a revitalized retail sector provides growth opportunities.

Extreme Efficiency

Performance standards are a valid idea—if targets are achievable.

Performance standards are a valid and necessary idea to drive conservation, but only if targets are realistic and achievable. So far, success has been determined by program rationality. A uniform, market-based approach would give retailers flexibility to spur innovation.

Deja vu or New Horizons?

State regulators face mandates without consensus.

New federal and state policy mandates are pulling state regulators in many directions. The patchwork of regulations has created a new level of complexity for utility investment decisions and political risk for utilities and state regulators alike.

Transactions (September 2010)

In July 2010, ComEd brought $500 million worth of 10-year notes to market; Massey Energy acquired Marmet Dock from Kanawha River Terminals; Beacon Power raised $25 million in equity from Aspire Capital; other transactions involved Plains All-American Pipeline and Black Hills Corp.

ITC Holdings: Riding the Wires

When DTE Energy divested its transmission business back in 2003, the future of independent transmission companies (transcos) looked uncertain. A few transcos persevered, however, and this year for the first time the F40 survey includes one of them.

Avoiding a Train Wreck

Fundamental issues set companies and regulators on a collision course.

Industry leaders see a disaster coming, as the need for infrastructure investments collides with the economic interests of utility shareholders and customers. In a shaky economy and a politically charged campaign season, proposals for new capital expenditures are certain to cause trouble. Avoiding the train wreck will require real leadership in finding compromise solutions.