How a sample electric company could reduce risk of loss by upgrading performance to industry benchmarks. Competition in electric generation will expose utility costs that exceed those of alternative suppliers. Roughly speaking, these above-market ("transition") costs should track the difference between the new market price and the embedded cost set by traditional cost-of-service regulation.
The problem has attracted no shortage of proposals.
Sound bites from state and federal regulators.
Natural Gas Briefs
Gas Rate Indexing. Alabama continues its a rate stabilization and equalization (RSE) procedure for Alabama Gas Corp. (rates adjusted quarterly to conform return on equity to a preset range). Commission says RSE plan has helped company address recent gas market changes such as supply diversification, system bypass, and competition. Docket No. 25600, Oct. 7, 1996 (Ala.P.S.C.).
Gas Motor Vehicles. Peoples Natural Gas Co.
Southern California Gas Co. (SCG) has begun using monthly forecasts to set prices for its core commercial and industrial natural gas customers, ending the practice of forecasting gas costs more than one year in advance and then computing the bill using a projected, annual weighted-average cost of gas (WACOG).
Monthly gas pricing is expected for residential customers when the California PUC reaches a decision in SCG's Biennial Cost Allocation Proceeding.
The Idaho Public Utilities Commission (PUC) has ruled that electricity futures contracts or other types of "derivatives" or risk management instruments (e.g., options, forward contracts, swaps, etc.) do not fall subject to certain state regulations that exact fees and require PUC approval for security issues by utilities.
It distinguished the two categories: risk management instruments aim to shelter utilities from losses, while security issues usually provide a source of funding. Utilities, it said, need not file a confidential copy of its risk management plan with the commission.
Idaho Power Co. (IP) has joined with Intermountain Gas Co., U S WEST, and TCI Cable in the Joint Utilities Trench Program, which places electric, gas, and telecommunications, wires, cables, pipes, and conduits into a single trench rather than individual trenches for each service provider.
The arrangement applies to new residential and commercial subdivisions, apartment complexes, and residential services. By using a single, joint trench, developers expect to reduce overall installation time for electric, gas, and telephone service in a new subdivision by as much as 70 percent.
Top utility executives are winning pay hikes these days, but only at the cost of risky stock options that put a premium on company performance.
"Higher overall pay levels, and especially the increased use of long-term incentive plans, point to the trend in the utility industry toward heightened risk-and-reward pay strategies," according to Executive Compensation in the Utility Industry, a recently released report compiled by William M. Mercer Inc.
The use of at-risk pay incentives becomes even more pronounced as the size of the utility increases.
Nevada Power Co. (NP) has announced a tentative agreement for the largest rate reduction in its history, reflecting lower purchased power prices, lower overall fuel costs, and improvements in efficiency.
The eight utility
owners of the 560-megawatt Connecticut Yankee nuclear plant have decided to shut down the facility rather than make expensive repairs estimated at over $100 million, after having estimated plant costs at five cents per kilowatt-hour, or about 20-50 percent above the cost of replacement power.
Northeast Utilities, a 49-percent owner, said it would lay off about two-thirds of the plant's 322 employees. Other plant owners include Boston Edison, New England Electric System, the Cambridge Light Co., and Eastern Utilities Associates. t
Lori A.
Let's hope that by now we all prefer market solutions to government mandates. Markets are generally more efficient and equitable. Recent experiences with deregulation for airlines and telecommunications have vindicated Adam Smith's notion that the "invisible hand" can prove superior to regulation.
Unfortunately, this knowledge offers little comfort today to natural gas pipelines (em even to those companies not saddled with a surplus of transportation capacity.
Applicants can only hope that a prompt review won't be even more difficult
By a unanimous vote, on December 18, 1996, the Federal Energy Regulatory Commission (FERC) issued Order No. 592, stating how it intends to evaluate utility mergers. The anticipation has ended, yet those hoping for a new approach and a quicker review are bound to be disappointed.
Order 592 is a "Policy Statement." As such, it only announces intentions; it imposes no new obligations and is not subject to judicial review until implemented in a specific case.