Fortnightly Magazine - February 1 1997

Top utility executives are winning pay hikes these days, but only at the cost of risky stock options that put a premium on company performance.

"Higher overall pay levels, and especially the increased use of long-term incentive plans, point to the trend in the utility industry toward heightened risk-and-reward pay strategies," according to Executive Compensation in the Utility Industry, a recently released report compiled by William M. Mercer Inc.

The use of at-risk pay incentives becomes even more pronounced as the size of the utility increases.

The eight utility

owners of the 560-megawatt Connecticut Yankee nuclear plant have decided to shut down the facility rather than make expensive repairs estimated at over $100 million, after having estimated plant costs at five cents per kilowatt-hour, or about 20-50 percent above the cost of replacement power.

Northeast Utilities, a 49-percent owner, said it would lay off about two-thirds of the plant's 322 employees. Other plant owners include Boston Edison, New England Electric System, the Cambridge Light Co., and Eastern Utilities Associates. t

Lori A.

Applicants can only hope that a prompt review won't be even more difficult

By a unanimous vote, on December 18, 1996, the Federal Energy Regulatory Commission (FERC) issued Order No. 592, stating how it intends to evaluate utility mergers. The anticipation has ended, yet those hoping for a new approach and a quicker review are bound to be disappointed.

Order 592 is a "Policy Statement." As such, it only announces intentions; it imposes no new obligations and is not subject to judicial review until implemented in a specific case.

Models can overcome a key oversight (em

that both supply and demand affect competition.

This past December, the Federal Energy Regulatory Commission (FERC) issued a policy statement describing important changes in how it will evaluate proposed mergers under the Federal Power Act's public interest standard. These changes should lead to significant improvements (em not only in the evaluation of mergers, but also for other matters that affect market power, %n1%n including industry restructuring and market-based pricing.