Moody's Investors Service has concluded that a properly structured securitization backed by the future cash flow from a utility's stranded investments can achieve a credit rating higher than the rating of the senior debt of the utility.
Moody's said this ability bodes well for the increasing number of investor-owned utilities expected to issue up to $75 billion of such securities by 2000 to recover uneconomic investments.
Everybody's got an opinion on electric competition, and they're dying to be asked.
Last year the Colorado Public Utilities Commission opened Docket No. 96Q-313E, In the Matter of the Inquiry Into Electric Utility Industry Restructuring. Then, after weighing several options, and rather than preempt the policy discussion, the PUC mailed a 26-page questionnaire to 360 people identified as "having an interest" in electric utility issues, including investor-owned electric utilities, rural electric cooperatives, municipal utilities and others.
What it learned could fill a book ....
As the U.S. Congress works to pass federal legislation introducing competition into the electric utility industry, one of the most divisive issues regulators and policymakers must grapple with is that of stranded cost. In a recent study completed by Resource Data International, we have found that an important issue will be how "negative" stranded costs are handled.
At the heart of our study is a detailed, plant-by-plant, analysis of stranded costs for every utility in the country. We estimate that the total above-market stranded cost nationally is $202 billion.
Peabody COALSALES Co. agreed to provide Minnesota Power as much as 2.5 million tons of low-sulphur coal each year. Coal will be supplied by Peabody affiliate Big Sky Coal Co. Big Sky's contract with the power company ends in May; the new agreement runs through 1999. Terms of the deal weren't released.
The Georgia Public Service Commission begins a series of workshops on electric industry restructuring next month. The workshops will examine national efforts, consumer ramifications and environmental and energy efficiency issues. Stranded costs also will be targeted.
Perhaps the only political prediction bound to come true this year is that the words ôelectric restructuringö will reverberate in nearly every stateÆs legislative chamber.
So says Matthew Brown, director of the energy project at the National Conference of State Legislatures.
But other factors support BrownÆs prediction. Public Utilities FortnightlyÆs informal survey of most states turned up similar results. Legislators know that the Clinton Administration and the U.S. Congress plan to introduce a federal bill this year.
The Vermont Public Service Board (PSB) has issued its draft utility restructuring plan, proposing competitive wholesale and retail markets for generation with regulated monopolies for transmission and distribution (Docket No. 5854). The state's largest investor-owned utilities would be required to functionally separate their generation and distribution functions into corporate subsidiaries.The plan builds on the Vermont Restructuring Principles adopted by the PSB last May.
Retail customer choice is scheduled as early as January 1, 1998.
Stranded-
Cost
Recovery: All FERC'ed Up
By Michael T. Maloney, Robert E.
McCormick, and Chad A. McGowan
The "lost-revenues" approach in Order 888 ignores the fact that cash flow drives
asset valuation . . .
. . . the key to measuring uneconomic investment.
The Maine Public Utilities Commission (PUC) has released for comment its Draft Plan on Electric Industry Restructuring, which would allow all retail customers to choose their generation supplier beginning in January 2000. The draft permits customers to aggregate, and does not require reciprocity based on retail access in other states or Canada.
Investor-owned utilities (IOUs) would have to structurally separate generation by January 2000, and divest all generation assets by January 2006.
Despite two years of debate, little progress has been made toward a solution to the issue of stranded costs. And since the two sides have almost no common ground, any accommodation seems unlikely. Utilities that seek stranded-cost recovery appear to have the upper hand at present, but the stiffest resistance still lies ahead. The Federal Energy Regulatory Commission's Order 888 clearly favors utilities, but customer reaction signals a shift to another venue.
Investors are taking stock
of utility exposure to price competition.The utility trade press and even the general financial press have featured the views of regulators, utility executives, legislators, and various consumer advocates on the stranded-cost question. Stranded costs easily represent the most contentious issue facing the electric industry as it moves to an era of competition.