On Saturday, November 11, WPL Holdings, Inc. announced its three-way merger with IES Industries Inc. and Interstate Power Co. to form Interstate Energy. The very next day, in a full-page ad that ran in Milwaukee Journal-Sentinel, Madison Gas & Electric Co. launched its counteroffensive, featuring Boris the Pig.
"Hi (em I'm Big Boris," the ad begins. (The face of a handsome pig with a large snout stares back at the reader.) "My friends and I crave Radical Electric Deregulation.
In thinking about transmission pricing for a competitive electric industry, we should remember that the fundamental objective of competition is to increase economic efficiency. Improved economic efficiency, after all, leads to better use of resources, lower costs, and long-term benefits for consumers.
As the generation side of the electric industry becomes increasingly deregulated and transmission migrates toward common carrier status, an easily administered and fairly applied pricing system must be developed. The concepts of "postage stamp" tariffs and "contract paths" lose all logical viability. They possess no totally encompassing tie between the provider of the service and the revenues for that service.
By its Notice of Proposed Rulemaking on wholesale electric competition, commonly called the "Mega-NOPR" (or "Giga-NOPR"), the Federal Energy Regulatory Commission (FERC) has announced big plans for electric transmission.
The FERC would require "functional" unbundling of transmission from generation. The Mega-NOPR requires utilities that own transmission to file tariffs for point-to-point and network transmission services, based on guidelines in pro forma tariffs published by the FERC.
Bunker Hill. Gettysburg. Pearl Harbor. Iwo Jima. The Cold War. Each of these famous conflicts resonates in our history books. Despite the end of the Cold War, we may face another battle, this time between the Federal Energy Regulatory Commission (FERC) and the states over jurisdiction.
For the partners in a utility merger, the celebration must wait. After opening the most delicate of dialogues, and then negotiating the price and closing the deal, the merger partners must yet gain the approval of regulators. The application may lie sealed in its FedEx pouch, safely on its way to Washington.
Differences of opinion make for good horse races and bad jokes about economists, and those who are studying the recent wave of electric utility merger announcements have not let us down. Some of these economists optimistically believe that the mergers act as forces for competition, since they will combine corporate assets and staffs to bolster operating efficiency and market acumen at the merged companies. Other economists, who see transmission as the root of monopoly power, are more pessimistic.
The Virginia State Corporation Commission (SCC) has approved a plan by two natural gas local distribution companies (LDCs), Washington Gas Light Co. and Delmarva Power and Light Co., to join with other regional LDCs to form a cooperative to provide for the coordination and use of common capacity, storage, transportation, and supply assets. According to the LDCs, the East Coast Natural Gas Cooperative was a necessary response to recent changes in the gas industry, which shifted responsibility for arranging gas supplies from interstate pipelines to LDCs.
State regulators continue to update methods of pricing telecommunications services, using price caps for local exchange carriers (LECs) while expanding existing pricing flexibility for interexchange carriers (IXCs). The emerging trend toward inviting competitors to serve the local market, including basic local exchange service, also continues. Some of the activity mirrors ongoing developments at the federal level, such as major regulatory reforms under debate in the Congress and court-supervised modifications to existing service restrictions stemming from the AT&T divestiture.