In an age of costly electricity and cheap efficiency, smart utilities will sell less electricity and more efficiency.
Efficiency gains, if not properly managed, can quietly take away most of the present market for electricity. But they also offer alert utilities an unprecedented opportunity to control risk, improve cash flow, secure market share, save operating costs, and become once more a declining-cost industry.
We begin the new year with a recap of the major rulings issued last year by state public utility commissions (PUCs).
Electricity took center stage as state commissioners began in earnest to examine rising competition in the power generation market. The seemingly endless number of privately sponsored seminars, conferences, and reports on the issue might suggest that regulators are following rather than leading on policy.
Retail wheeling has been repeatedly condemned by opponents who claim that it would cause rate discrimination between customer classes. They allege that it would unfairly reduce rates for large customers, while raising them for small ones. But discriminatory rate structures already result from the selective discounts that utilities grant their large customers.
The debate over the merits of pool-based markets as opposed to reliance on bilateral transactions and the invisible hand of competition began without much care taken to define the details of the bilateral alternative. On closer examination, however, we find the two approaches have much in common, being more like different pews than different churches. A further debate that emphasizes only the few differences would not inform so much as distract from solving the common problems.
Vikram S. Budhraja
Vice President of Planning and Technology
Southern California Edison Co.
The transition to a competitive generation marketplace is underway. Customers want choices, flexibility, and competitive prices. Producers want open nondiscriminatory access to markets. Regulators want a smooth transition to the new system based on competitive efficiency, not cost-avoidance or cost-shifting among customer groups. And policymakers want a system that protects consumers without sacrificing environmental and energy policy objectives.
2 percent of California's gross state product. Competitively priced electricity is vital to California's $800-billion-a-year economy, one would think.
The Idaho Public Utilities Commission (PUC) has approved a Utah Power & Light Co. proposal to buy out a QF contract with Firth Cogeneration Partners Ltd., which the PUC found cost-efficient less than eight months ago. The utility said that the grandfathered avoided-cost contract rates were too high, and that lower-cost supplies were available from other sources.
While granting authority for the buyout, the PUC denied approval for accounting treatment and rate recovery of $4.4 million in cancellation fees suggested by the utility.
Much attention has been paid to revolutionary rate-reform plans advanced to meet perceived competition in energy markets. So much, in fact, that the increasing popularity of the special discount rate has gone virtually unnoticed.
The California Public Utilities Commission (CPUC) has modified its policies on incentive mechanisms for utility demand-side management (DSM) efforts, while adopting new shareholder incentives for Pacific Gas & Electric Co., San Diego Gas & Electric Co., Southern California Edison Co., and Southern California Gas Co.
The California Public Utilities Commission (CPUC) has reaffirmed an earlier ruling permitting telecommunications utilities subject to price-cap regulation to use accrual accounting for post-retirement benefits other than pensions (PBOPs) under SFAS 106. It also warned that it may change its existing policy, which allows recovery of the costs of the accounting change as an exogenous cost under the price-cap form of regulation. The CPUC explained that "strong arguments can be made" that PBOP costs are within the utilities' control and simply normal costs of doing business.