Fortnightly Magazine - October 15 1997

Investor-Owned Utilities: Adjusting the Focus

Throughout the 1990s, investor-owned utilities have redefined the way they do business to position themselves for competition better. The downside of these efforts is higher rates for small customers and employee layoffs.

Today, IOUs are more focused on improved efficiency. IOUs are concentrating on keeping large customers, investing less in their utility systems and retiring debt.

Though IOUs continue to dominate electric generation nationwide (74 percent), electric output has increased by only 8.1 percent since 1990.


With benefits unclear, PUCs will "go slow."

California, New Hampshire, Massachusetts, Nevada, Pennsylvania, Rhode Island, and Vermont have given customers the right to choose their electric providers.

Other states are considering similar legislation.

In Congress, U.S. representatives Schaefer (R-Colo.), Markey (D-Mass.), DeLay (R-Tex.), and U.S. Sen. Bumpers (D-Ark.) and others have slapped bills on the table that would give choice to electric customers on a national scale.


Let me tell a story. A consultant I know works as the lead negotiator for a Native American tribe that sells fuel to electric generating plants. On occasion he visits the reservation to discuss business plans with the tribe, exploring various scenarios for utility restructuring.

Recently, this consultant said he found himself in the ceremonial council lodge, instructing tribal leaders on decision trees and discounted cash flows. When he finished, the younger members conferred briefly in their native language.

OASIS Problems, Solutions Brought to FERC's Attention

The Federal Energy Regulatory Commission invited industry representatives to Washington, D.C., in July to talk about the electric utility industry's implementation of OASIS, or open-access, same-time information system, which is used to monitor and schedule electric transmission capacity.

It ended up with an earful about problems on the on-line system.

Gerry Cauley, of the industry's volunteer "How Working Group," said, "Overall, the OASIS does provide comparable access," and the system is seeing reservation activity at expected levels.


The board of the California ISO selected Jeffrey D. Tranen as its first CEO. Tranen is former president of the New England Power Co., senior v.p. of the New England Electric System and chair of NEPOOL. The ISO starts operation Jan. 1, 1998.

Charles F. Gay, Ph.D., former director of the DOE's National Renewable Energy Laboratory, was hired as president and CEO of ASE Americas Inc. Klaus Albrecht, former president and CEO, will serve on ASE's board and as senior v.p.-business development.

In Brief...

Sound bites from state and federal regulators.

Area Code Overlays. Colorado adopts overlay plan to ease telephone-number shortage in Denver area, and will introduce a single new area code over the area served by 303 code. PUC says the approved plan meets FCC requirements to ensure new area codes do not disadvantage new providers. Docket No. 97A-103T, July 29, 1997 (Colo.P.U.C.).

Water Main Extensions. Interpreting a recent policy statement, state regulators approve proposal by Pennsylvania-America Water Co.


A $35 million, 45-mile Texas-to-Mexico natural gas pipeline is set to be ready by mid-December. With a capacity of 212 MMBtu/d, the 24-inch diameter pipeline will supply the 700-megawatt Samalayuca I and II power plants, set partially to open in 1998. El Paso Natural Gas Co. and El Paso International Co. are partnered with Pemex Gas Y Petroquimica Basica in the 50-50 joint venture.

El Paso International also has signed a joint development pact with Furnas Centrais Eletricas S.A., BHP of Brazil Energy, Centrais Electricas Brasileiras S.A., and British Gas of Brazil.

Illinois Court Faults Notion of Higher Risk for ComEd

An Illinois appeals court has questioned the idea that Commonwealth Edison Co. faces a higher degree of risk than other utilities (and thus deserves a higher return on equity), but also has affirmed the "used and useful" status of the company's Byron 2 and Braidwood 1 & 2 nuclear units, as approved by the Illinois Commerce Commission in a 1995 rate case order, which had helped justify a $303-million increase in annual rates.

California PUC Issues Final Rate Unbundling Order

The California Public Utilities Commission issued its final order on unbundling rates for generation, transmission and distribution functions performed by the state's three largest investor-owned utilities on Aug. 1.

The commission also determined how to calculate transition costs and addressed customer billing and education issues. (Decision 97-08-056, Docket A. 96-12-009 et al.)

The utilities affected are Pacific Gas and Electric, San Diego Gas & Electric, and Southern California Edison.

Rates by Function.

LDC to Recoup Loss from PUC Error On Goodwill

The Minnesota Supreme Court has ruled that Minnegasco may recover revenues it had lost when the state public utility commission improperly cut rates to recognize goodwill supposedly contributed by ratepayers to an unregulated affiliate.

An intermediate appeals court had agreed that the rate cut was improper, but had believed that the rule against retroactive rate making had barred any commission move to recoup the money for the utility.

The case involved an unregulated utility affiliate that performed appliance repair service.