Giving up today's customer to retail wheeling could help cut losses tomorrow.
Estimates of stranded investment for U.S. investor-owned electric utilities (IOUs) range from as little as $20 billion to as much as $500 billion (em more than double the shareholder equity in U.S. utilities.
Electric utilities incur indirect financial costs when they turn to unregulated generators (NUGs) to buy power. These indirect costs can lead to lower bond ratings and undermine competitive advantage, depending upon the type of contract.
In this case we analyzed the combined effects of NUG power purchases on generating and capital costs for a representative utility (Utility A) with a relatively large amount of NUG purchased power.
Ann R. Chamberlain will manage rates and regulations, and plan and procure gas supplies in her new v.p. position with Virginia Natural Gas, Inc. She steps up from assistant v.p.
Boston Pacific Co., Inc. has added John T. Chang to the company's international power project development practice. He comes from Iroquois Gas Transmission System. Jonathan d'E. Coony was promoted to consultant and will continue work on financial evaluation of power projects in Indonesia, Pakistan, and other countries.
As electric restructuring spreads around the nation and the world, the idea of a "PoolCo" spot market (pool) gains credence. Pools already exist in England, Australia, Norway, Alberta, and Argentina. On December 20,1 the California Public Utilities Commission formally proposed a pool, called the California Power Exchange, to begin operation as of January 1, 1998.
allow choice between price, reliability, and scheduling.
Customers with a choice are demanding, and getting, lower electric bills. These customers generally include municipals and large industrials. Municipals, as wholesalers, gained access to alternative suppliers via the Energy Policy Act of 1992.
New business opportunities, improved internal communications, and energy information services: three solid reasons electric utilities should form a telecommunications strategy (if they haven't already). Yet, while these motivations are compelling, none really demands utility participation.
Northern States Power Co. (NSP) and Wisconsin Energy Corp. (parent company of Wisconsin Electric Power Co., WEPCO, and Wisconsin Natural Gas Co.), have announced plans to merge, a move NSP says will create the tenth-largest investor-owned utility in the United States, based on market capitalization. The new company (em Primergy Corp. (em would operate as a registered public utility holding company and parent company of NSP and WEPCO, with the gas subsidiary perhaps spun off to comply with the Holding Company Act.
The electric power industry lies in the midst of major change, including a shift to market-based wholesale prices. Market players and regulators will recognize that competition requires a shift in thinking on key issues such as resource planning before the market is developed enough to provide adequate price information.
Ratings Reveal Risk
In an interesting article (Oct. 15, 1994), Professor Brooks Marshall suggests that bond ratings are a poor predictor of equity risk, based on a regression of utility risk measures on measures of utility bond ratings. For utility variables, he used 1) stock beta and 2) risk premiums based on analysts' expected forecasts. For bond rating measures, he used 1) average yields for various classes of bonds and 2) a numerical ranking.