Revisiting performance-based rates with endogenous market designs.

More than 20 years ago in the pages of this publication, economist William Baumol outlined a method by which the regulation of public utility monopolies could be streamlined while simultaneously providing incentives for efficiency and productivity growth.¹ Baumol proposed a productivity incentive clause that adjusts rates automatically according to the formula,

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.

A Risky Business Utilities wrestle with how much to charge for their product.

The trading model has many good points, including the imposition of market discipline upon both transfer prices and prices to external third parties. Trading also encourages the use of resources and capital at their market value and the cultivation of specialized skills within different business units. But applying the model, particularly to the risks of power pricing, continues to be a challenge.

A pseudonymous executive tells why the CCRO's recommendations don't pass muster.

The latest splash from the Committee of Chief Risk Officers¹ (CCRO)-a new white paper regarding capital adequacy for energy companies²-makes barely a ripple. While an improvement over the CCRO's previous efforts,³ the capital adequacy recommendations do not provide adequate standards that can be implemented consistently by energy companies.

BYLINE

As a former independent power producer, George Lagassa is sympathetic to the woes of the merchant power industry. Until just a few years ago, he held the license to a micro-hydro qualifying facility (QF) in New Hampshire, so he understands what it takes to compete in a regulated-franchise industry. Yet, as the principal of Mainstream Appraisals in North Hampton, N.H., Lagassa is also a dedicated pragmatist. He sees the industry's consolidation trend as a sort of correction in the U.S. power market.

Technology Corridor

Utilities are finding strategic benefits in demand-based metering technologies.

It's been years since utilities regarded customers as mere check-writing extensions of their meters. In fact, utilities' information technology focus during the past decade has centered on gaining greater control over customer information. The objective: Focus on-and fill-customer needs. The results are everywhere:

Business & Money

Experts debate whether KKR's leveraged buyout of UniSource Energy is right for the industry.

"From a public policy standpoint, should a utility that provides a vital public good be owned by a private group that gains ownership by taking on a high degree of debt (risk)?"

Perspective

Two Cato analysts suggest a return to the past-vertical integration, but now with no state regulators.

The defeat of the energy bill in the Senate last year has thrown electricity restructuring back on its heels. There clearly is no consensus among politicians or academics regarding how this industry ought to be organized or how it might best be regulated. Finding our way out of this morass requires a reconsideration of how we got to this dismal point in our regulatory journey.

Benchmarks

Where will the next development opportunities occur?

With the current surplus of generating capacity across most power markets in the United States, what are the more attractive regions for power generation development around the world? Potential near-term opportunities exist in Latin America and the countries of the former Soviet Union based on critical infrastructure needs, but Asia, driven by China's explosive growth, is expected to be the largest source of turbine orders over the next decade.