Frontlines

Engineers Have Their Day

 

Off Peak

July 15, 2000

Gas Price Pains

By Regina R. Johnson

Didn't Congress fix this problem a decade ago?

Then:

Gas Executives' Forum

 

New technologies cloud the future for the traditional electric utility, but offer hope to the gas industry in boosting residential demand.

Investors apparently were paying attention in January when a Web-based analyst predicted Plug Power's stocks could gain 10,000 percent or more by 2010. Before month's end, the fuel cell manufacturer, which doesn't expect to turn a profit before 2004, saw a ninefold increase from the $16 closing day share price at its October initial public offering. That month Avista Corp.

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.

A line-by-line case study of two high-priced portfolios, comparing fixed, variable and capital costs against forecasts of regional market prices.

A multi-billion-dollar wave of utility divestiture and power plant auctions has taken place during the last 18 months. Table 1 details some of these transactions, including the purchase price on a dollar-per-kilowatt basis and as a multiple of net book value. These measures frequently are cited as indications that buyers paid too much.

Auctioning gas imbalances offers advantages over bidding on available pipeline capacity.

In a Notice of Proposed Rulemaking issued last summer, the Federal Energy Regulatory Commission proposed a series of auctions for all unutilized short-term rights in pipeline capacity, with the most frequent auction being for transmission rights for the next day. All transporters and the pipeline would be required to release available short-term capacity rights to be auctioned. (See FERC Docket RM98-10-000, Regulation of Short-term Nat. Gas Transp.

Shaky merger policy finds the FERC at war with itself.

"IN HIS DELIGHTFUL ARTICLE, "THE FOLKLORE OF Deregulation," published this summer in the Yale Journal on Regulation, federal judge Richard Cudahy notes the ethereal nature of "virtual electricity." This new product, he explains,"exists only as a blip on a computer screen and will never give one a shock." "Reality," he notes, has "retreated to the money part of the system."

We could use a dose of that reality in looking at electric utility mergers.