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Fortnightly Magazine - December 2007

Earning on Conservation

An earnings-equivalence model helps utilities and regulators calculate appropriate returns for conservation investments.

Traditionally, utility shareholders and their utilities have a bias toward supply-side resources as opposed to demand-side reduction programs. Reductions in demand may result in excess supply-side resources that are likely to be excluded from rate base because they do not meet the “used and useful” standard. However, there is a solution: Allow energy utilities to benefit from earnings rewards for demand-side reduction. From an earnings perspective, such a solution would place demand-side alternatives on par with supply-side projects.

Byline: 

Dr. Michael R. Schmidt

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Biomass Fuel Foibles

Fuel-supply risks stunt the growth of biomass power.

Utilities can meet state renewable portfolio standards—and reduce greenhouse gases—by burning biomass fuel. Whether utilities are prepared to jump into the biomass game, however, depends on how effectively they can manage fuel risks.

Byline: 

Elizabeth Striano

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Vintage, Voltage or Votes

AEP rekindles debate over grid pricing, but should the outcome hinge on majority rule?

You might have thought the Feds closed the book on any broad, region-wide sharing of sunk transmission costs—especially after FERC ruled last spring in Opinion No. 494 that PJM could stick with license-plate pricing (LPP) for transmission lines already planned and built. If you thought that, you weren’t alone. Of 25 transmission owners (TOs) in the Midwest ISO (MISO), 24 voted recently to do the same for their market as well.

Byline: 

Bruce W. Radford

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Carbon Wargames

U.S. utilities gain strategic insights by playing out a carbon-constraint scenario.

Uncertainties over natural-gas prices, carbon regulation, and clean-technology alternatives are inhibiting investment in new power plants. An emissions “wargame” from Booz, Allen & Hamilton shows how companies might react to large, multidimensional changes in the generation landscape. The exercise raises strategic questions about competitive positions on the climate battlefront.

Byline: 

Timothy P. Gardner and James C. Hendrickson

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Sticker Shock!

Increasing prices for materials, equipment and services are driving utility infrastructure costs into uncharted territory.

The evidence is overwhelming: After a decade of relatively stable, or even declining, construction costs, the industry is now facing a prolonged period of elevated construction price tags. What are the causes behind this trend, and how might the cost increases translate into higher rates?

Byline: 

Greg Basheda and Marc Chupka

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2025: A Murky Mix

Which power technologies will dominate?

U.S. power-plant construction tends to follow fads. Identifying these trends is easier than determining the primary drivers and issues that contributed to them. Understanding how these drivers affect power-planning decisions can help utilities predict generation-construction trends in the future and avoid getting caught in a group-think trap.

Byline: 

David J. Walls, John Higgins and Steven Tobias

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Hot-Potato Policy

DOE loan guarantees degenerate into a political game.

Once upon a time, the U.S. Congress started a game of hot potato. The potato, otherwise known as the EPAct Title XVII Loan Guarantee Program, has been bouncing around Washington, D.C., since 2005. But now that the industry is getting a good look at the potato, it looks decidedly funky—stuffed with caveats and half-measures. Whether that’s good or bad depends largely on whether you believe the government belongs in the potato game in the first place.

Byline: 

Michael T. Burr, Editor-in-Chief

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People

American Electric Power named Michael Rencheck senior vice president and chief nuclear officer for its D.C. Cook Nuclear Plant in Bridgman, Mich. The American Public Power Association elected Roger B. Kelley to its board of directors. OGE Energy Corp. named Danny P. Harris as COO. Glen Justis joined Deloitte & Touche LLP as a director in the global energy markets group of the organization’s regulatory and capital markets practice. And others...

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Horse-Manure Crisis

Freakonomics author Steven D. Levitt suggests science and market forces will eliminate the climate-change problem with minimal effort.

Freakonomics author Steven Levitt compares the carbon buildup to horse manure in the 1890s. “Everything we know from the past and what I know from talking to scientists tells me technology is likely to be the solution,” he says.

Byline: 

Michael T. Burr

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Letters to the Editor

(December 2007) John Ferguson responds to “Creating the Perfect Regulator”: "Burr identifies four fundamental goodness traits: omniscience, Solomonic wisdom, clairvoyance and righteousness. Inherent in these traits, but not specifically addressed by Burr, is the ability to recognize and reject advice from those interested in telling the regulator what the advisors think the regulator wants to hear instead of what the regulator should hear."

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