About a year ago I stuck my neck out to predict that electric utilities might end up with stranded investment in transmission lines. I suggested that financial commodities trading-longs, shorts, and hedges-might supplant physical product movements. It's happened in natural gas, where the interstate pipelines have suffered from "decontracting" and capacity "turnback"-a phenomenon that has tended to move from West to East.
Here's another view, from attorney George Galloway (Stoel, Rives, Boley, Jones and Grey, Portland, OR), counsel for PacifiCorp:
"An interesting thing is starting to happen in the West. Transmission may turn out to be last year's battle. Most of the power that is bought and sold doesn't go anywhere. It's the normal trading function."
Galloway continues: "Transmission constraints don't seem to be that important anymore. We may err if we put too much emphasis on transmission bottlenecks going forward in deregulation."
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William McCarley, the current general manager of the Los Angeles Department of Water and Power (LADWP), has a problem, and darned if I know the answer.
McCarley sounds as if he wants to play the merger game. He harbors doubts over how well the LADWP can compete against Southern California Edison and San Diego Gas & Electric (SDG&E). In fact, SDG&E recently announced a merger with Pacific Enterprises, the holding company that owns Southern California Gas, the nation's largest investor-owned natural gas local distribution company (LDC).
But how do you merge with an municipal utility?