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Spark Spread Options: Linking Spot and Futures Markets for Gas and Electricity

THE RAPID DEREGULATION OF THE BULK POWER MARKET has exposed utilities and power generators to the harsh reality of spot price volatility. This new reality begs the question: How can merchant generators, independent power producers and investor-owned utilities analyze their risk exposure when energy prices vary daily or even hourly?

The answer lies with spark spread options (em the link between electric power and gas prices.

Evaluating Power Plant Property Taxes Under Deregulation

THREE FACTORS (em RESTRUCTURING, TECHNOLOGY AND environmental controls (em now create both reason and opportunity for electric utilities to lower their property taxes, which often make up a substantial cost of doing business.

Property tax valuation is fairly straightforward. Most states compute property taxes on fair market value, or what a hypothetical buyer and seller would agree the property is worth, with both parties having knowledge of the relevant facts and neither compelled to buy or sell.

Should Metering Stay at the Stand-Alone Disco?

MANY STATES ARE CONSIDERING THE IDEA OF opening billing and metering to competition at traditional distribution companies. %n1%n Electric utility executives can no longer assume that a regulated monopoly distribution company, or "disco," will retain control of both the "wires" function and billing and metering services. %n2%n

This new prospect raises questions: Should a disco seek to retain billing and metering as a regulated monopoly, complete with the obligation to serve all customers requesting electric connections?

Integrating Metering & Information Systems

YEAR 2000. MILLENNIUM. DEREGULATION. Each word strikes fear into the heart of meter manufacturers and utilities alike. Like the turning of the century, deregulation is coming for the electric utility industry, and sooner than we think. How will it affect the metering industry?

The first real indication can be found in California. There, by order of the state public utilities commission, the customer's energy supplier (the energy service provider or the utility distribution company) will, for the time being, own the meter.

Selling Energy to the Federal Government

THE FEDERAL GOVERNMENT IS THE NATION'S SINGLE largest energy consumer. It buys billions of dollars of electricity and natural gas from utilities each year. Deregulation, and the competition it brings, will change how the government buys these services.

For utilities that signed contracts with the government in the past few years, the future may be here. Utilities must read their contracts carefully; they must know which rules apply to them, and try to comply. Noncompliance can lead to criminal and civil penalties for the utility and its employees.

Restructuring Hearings: Much Work Is Left Congress Lacks Consensus; Administration Offers No Input

AT HIS 21ST HEARING ON FEDERAL ELECTRIC Restructuring, Rep. Dan Schaefer (R-Colo.), chairman of the House Subcommittee on Energy and Power, said the two-day proceedings were the "beginning" of developing consensus on legislation.

Fellow subcommittee members spoke out on competitive issues at the Oct. 21 hearing, which highlighted their lack of consensus. The Clinton Administration was represented by the Department of Energy's Deputy Secretary, Elizabeth Moler, who said nothing about its restructuring plans.

News Digest

MAINE YANKEE PRUDENCE. The Maine Public Utilities

Commission will investigate the prudence of Maine Yankee Atomic Power Co.'s decision to close its nuclear plant permanently.

The PUC said Oct. 22 that unrecovered investment in Maine Yankee combined with the loss in plant value could cause additional stranded assets for plant owners Central Maine Power Co., Bangor Hydro-Electric Co., and Maine Public Service Co. If imprudent action is found, the PUC said it would take steps to ensure that Maine's electric ratepayers do not bear any related costs.

Inside Washington

USE OF U.S. ECONOMY UPHELD FOR EQUITY CALCULATIONS

The Federal Energy Regulatory Commission, in seven rate cases involving interstate natural gas pipelines, has upheld a new policy on the appropriate long-term growth rate to be used in computing their return on equity. Five of the pipelines contested FERC's new policy, as announced in Opinion 396-b.

The Commission defended the rate-setting method, but decided to allow the pipelines a chance to prove why the rules should not apply to them. The contesting pipelines are: Trailblazer Pipeline Co. (Docket No.

Frontlines

QUESTION: WHAT DO JOHN ANDERSON (ELCON),

Karl Stahlkopf (EPRI) and Matthew Holden (former commissioner at the FERC) have in common that may affect the course of electric restructuring?

Answer: Each belongs to Phil Sharp's task force on electric system reliability, and each embodies a different set of needs and aspirations, making it quite unlikely that we'll see agreement any time soon on what Congress or the Clinton Administration should do to reform the system.

Former Energy Secretary Hazel O'Leary announced the Task Force on Electric System Reliability last year.