Weighing the outlook for new plant investment in gas-fired power and related infrastructure.
The jury is still out on the type and size of additional energy infrastructure desirable in the Northeast United States, but enough data is in to make a few guarded observations.
The situation is fluid.
State PUCs
Distributed Generation. California opened a rulemaking proceeding to consider regulatory reforms in electricity distribution service, with a possible focus on distributed generation. The commission emphasized that its intent was not to define new policies, but to gather information. Comments are due March 17, and the commission intends to consider a proposal from the assigned commissioner this summer. Rulemaking 98-12-015, Dec. 17, 1998 (Calif. P.U.C.).
Gas Transportation Rates.
ON TUESDAY, NOVEMBER 3, THREE WEEKS AFTER I wrote this column, California voters narrowly defeated Proposition 9. In case you missed it, that was the ballot initiative that would have cut off funding for nuclear power in California through securitization or any other fancy financing for stranded costs. A "yes" vote would have told utilities, in effect, to "take these bonds and shove it."
But the voters said "no," however, and I'll tell you why - even before the first ballot was cast.
In the end, Prop 9 failed for the same reason that George McGovern lost to Richard Nixon in 1972.
ELECTRIC POWER SYSTEMS ARE HEAVILY DEPENDENT ON computers and communications. The electric power industry is reputed to be the third largest user of computers and communications, behind government and the banking industry. When regulators and legislators make decisions regarding the electric power industry, their decisions often carry implications for the industry's computer systems. However, it is rare for these implications to attract significant consideration or influence in the deliberative process.
ANYONE AT ALL CLOSE TO the securitization scene agrees on at least one thing: The referenda in California and Massachusetts seeking to roll back restructuring have cast such a pall over the bond issues put out late last year by the California electric utilities to finance their stranded costs that any new issuer hoping for the same 'AAA' rating may as well get prepared to sacrifice his or her firstborn to the rating agencies.
CANADA MAY CLAIM ONLY A SMALL SHARE OF THE world's high-profile power developers, but that hasn't stopped its financial institutions from becoming big players. These public and private lenders have made available billions of dollars to nearly any project willing to use Canadian consultants or equipment.
Furthermore, the government is willing to back its country's products with political risk insurance as part of the package. In a world where power projects are becoming expensive and pose greater market and political risk, Canadian involvement is welcomed.
TWO YEARS HAVE ELAPSED SINCE CONGRESS PASSED THE Telecommunications Act of 1996 to "provide a pro-competitive, de-regulatory national policy framework designed to accelerate rapidly private sector deployment of advanced telecommunications and information technologies and services to all Americans." %n1%n
Today, however, telephone deregulation has reached an impasse. Few customers enjoy competitive alternatives for local exchange service. Concentration in long-distance markets appears to be increasing.
PURRED BY FLAT POWER DEMAND AT HOME IN RESIDENTIAL and industrial markets, U.S. utilities are taking huge risks in Latin America. Why? They are enticed by the promise of high-yield returns on generation, distribution and transmission deals.
Yet only some of the companies getting in on the ground floor of privatization or winning concessions in the Latin American energy market stand to make huge profits. Others, too slow to beat competitors, or not savvy enough to skirt political and regulatory land mines, could lose their shirts.
CONSUMER FRAUD. The National Association of Attorneys
General, meeting Nov. 18 in Washington, D.C., to discuss electric restructuring, issued a warning to electric consumers on fraudulent schemes and abusive practices by scam artists. The warning encourages consumers to check their electric bills for unusual provider names or charges, and to avoid participating in contests that require a signature that can be used to switch an account.
RATE REDUCTION BONDS.
All three may apply, especially if regulators go wrong and let ISOs make the business decisions.
Electricity transmission is a real business. With more than $50 billion of net plant, another $3 billion annually in capital expenditures and yearly operating income that could reach $5 billion per year under normal circumstances, the power grid is roughly twice the size of the natural gas pipeline industry. One would never know that from current events, however. Utility management treats transmission as an inconvenient stepchild.