Fortnightly Magazine - October 15 1999

People

Commissioner Lauren "Bubba" McDonald of the Georgia Public Service Commission was appointed to a three-year term on the National Association of Regulatory Utility Commissioners' (NARUC) Committee on Electricity.

Peabody Group named Jiri Nemec, previously group executive of Northern Appalachian operations, group executive of Midwest operations. Nemec replaced Mathew A. Haaga, who resigned. James A. Beck Jr., previously group executive of Southern Appalachian operations, was appointed to oversee all of Peabody's Appalachian operations in West Virginia.

David W.

Benchmarks

Gas competition is heating up in Chicago, and Gulf suppliers may be the losers.

Chicago promises to be an exciting market in the natural gas industry during the next few years, as it becomes home to more than a billion cubic feet per day (Bcfd) of Canadian supplies. The birthplace of the electric blues is poised to become center stage for a super-charged competition among gas producers from Canada, the Rocky Mountains and the Mississippi delta.

By late 2000, the Alliance Pipeline in the Midwest will enjoy 1.2 Bcfd of additional natural gas capacity.

News Digest

Mergers & Acquisitions

CP&L + Florida Progress. Carolina Power & Light announced Aug. 23 that it would purchase Florida Progress Corp. for $5.3 billion in a combination that would create the nation's ninth-largest utility in terms of generating capacity, with $6.7 billion in annual revenues and 2.5 million customers in three states. CP&L would pay a premium (between 16.5 percent and 21 percent) over the pre-announcement share price of FP stock.

Off Peak

Global water shortages loom, but most U.S. utilities don't have long-range supply plans.

By 2050, according to estimates from Population Action International, one-fourth of the world's population likely will live in countries blighted by chronic or recurring shortages of fresh water. But are global water shortages perceived as an imminent threat in the United States? Not at most U.S. water utilities, it appears.

Paradigm Buster: Why Distributed Power Will Rewrite Open-Access Rules

The T&D grid, once deemed a bottleneck, will now face pressure from both ends. Is it still the same old monopoly?

Some 30-odd years ago physicist and philosopher Thomas S. Kuhn coined the phrase "paradigm shift" to describe a radical change in a mental framework for interpreting facts. His key work, "The Structure of Scientific Revolutions," published in 1962, focused on the role of paradigms in scientific thought - such as the Copernican sun-centered solar system or Planck's work in quantum mechanics.

Price Spike Roulette: Can Utilities Play By Wall Street's Rules?

Lessons learned from Cinergy's losses in commodity markets.

After a second summer of extreme weather, contract defaults and consequent financial losses to energy companies, the financial community and shareholders are holding utilities ever more accountable when it comes to managing risk, say analysts. Moreover, they're showing zero tolerance for failure.

On Aug.

Twenty Billion or Bust

The minimum stake that marketers must bring to the table.

Conventional wisdom says any commodity marketer requires scale and scope in order to succeed. But what constitutes scale and scope? Some specifics follow.

* Size. Balance sheet of sufficient size and strength to withstand the volatility of commodity prices. Minimum total asset base of $20 billion.

* Flexibility.

Collaring the Risk of Real-Time Prices: A Merchant Strategy for Utilities

Options and insurance each has a niche, but price collars are cheaper and more adaptable to market risk and customer behavior.

During the summers of 1998 and 1999, wholesale prices in the Midwest soared to $7,000 or more per megawatt, in comparison to a more typical summer price of $30 to $50 per megawatt. In a competitive environment, electricity suppliers - that is generators, utilities, marketers, etc. - will offer a variety of pricing products ranging from flat rates to real-time pricing (RTP). By varying degrees, price risk will be passed to the end-user.

Frontlines

A retiree from Kansas writes the FERC to ask why it lets utilities "punish" their customers.

When senior citizens with time on their hands start taking an interest in utility regulation, you just know that's big trouble for bureaucrats. Ask James Hoecker, chairman of the U.S. Federal Energy Regulatory Commission.

Last month Hoecker opened his email box to find a short message from one Hersch Davis, a retiree from Wichita, Kan. Davis wrote the chairman on Sept.

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