A new approach to rate design.

As energy markets have evolved in the late 1990s away from cost-based transactions to competitive market-based transactions, the exposure to market risks for the variable cost of supply has substantially increased.¹ Reflected in these market risks are the diminishing reserves for North American gas supply, which has created conditions of extreme volatility in gas supply. The added market risk is compounded by the sensitivity of some retail load customers to weather conditions.

What is the right and prudent level of spending on service?

Times have changed for electric utilities. The combination of deregulation, mergers, major storms, and widespread outages has shifted the industry's emphasis to reliability. That wasn't always true. Even 20 years ago, the growth of load was adding so much to ratebases and driving such large rate increases that regulators spent a lot of time reviewing plans for capacity additions-and challenging utilities for over-spending.

Frontlines

Do-nothing regulators scare off investment, raising prospects for yet another large-scale power failure.

Last summer's blackout is slowly fading from the radar screen. The silver lining that might have moved some to action has now tarnished.

Benchmarks

Strange bedfellows may provide a new supply option.

Justifiable concerns associated with high natural gas prices have led analysts to consider the implications for new capacity development over the next decade. Expectations regarding the continued dominance of natural gas-fired units have begun to change. For example, in its , the U.S. Energy Information Administration (EIA) expects 112 GW of new coal-fired generating capacity to be constructed between 2003 and 2025-a 51 percent increase over EIA's 2003 forecast.