cash flow

Recovery of stranded investment is clearly the central point of contention in the debate over utility competition. Customers oppose competition and utilities favor it (em for what appear to be clear-cut reasons. Recovery would delay the benefits of competition for customers, but would give utilities additional cash and temporary protection against competitive price pressures. The battle has unfortunately turned into a morality play that centers on the right to recover stranded investment.

In a little over a year, the electric utility industry has seen six significant mergers.1 This trend toward consolidation most likely will increase as the industry becomes more competitive.

At Addison Mizner's pink fantasy on a Spanish theme, the Boca Raton Resort, the Edison Electric Institute (EEI) waited for Godot. Yes, that was the theme of EEI's 30th financial conference, and its first plunge into literature. You may remember the play, in which two hobos talk endlessly while waiting for the mysterious Godot, who has not yet arrived by the final curtain. In the same way, electric utilities and those who invest in them have been awaiting the advent of restructuring, the California remake of the industry, retail wheeling somewhere, and the wipeout of stranded assets.

Analysts may tout the coming "convergence" of communications technologies, but the real trend is "divergence."

No subject in recent memory has received as much media attention as the "Information Superhighway". But exactly what it is remains curiously unclear. The Internet? Wireless personal communications services (PCS)? Interactive fiber-optic cable to the home? The Infobahn is all of these and more.

DOUDIET:Stranded investment has overshadowed other financial issues in the transition to a competitive electric utility industry. For example, what will post-transitional companies look like? Will they attract growth-oriented investors?

Utilities as monopolies enjoyed unparalleled access to the capital markets because price was based on cost. That structure assured the ability to raise funds under any and all circumstances, but it created an atypical industry.

mergers? For

instance, why

combine two vertically integrated utilities when the market may call for disaggregation?

All deregulating industries share the same lesson: profits eventually decline, leading to consolidation. Electric utilities are no different.

For the first time, the Federal Energy Regulatory Commission (FERC) has issued opinions disallowing income tax allowances in the cost of service with respect to income from limited partnership interests held by individuals. In Lakehead Pipe Line Co., Ltd. Partnership, the FERC found that allowing a tax allowance for limited partnerships made up of individuals would give the investors an after-tax return on equity higher than they are entitled to (Docket Nos. IS92-27-000, et al.).

The nonstop dialogue about retail wheeling, power brokers, PoolCos, and restructuring overlooks customers and their increasing thirst for value-added services. Aside from a few emphatic words by some industrial users, little has been said about customer expectations. This article offers a snapshot of the brave new world of energy service marketing (ESM). ESM will take the place of demand-side management (DSM) and electricity marketing, blending the best of both.

ESM is simple.

Regulation of the United Kingdom's 12 regional electricity distribution companies (RECs) has sought to promote efficiency through the use of price caps that are supposed to remain in place for five years without regulatory intervention. The benefits of cost reductions between reviews accrue to shareholders no matter how much earnings might rise. The idea was to provide more incentive than if earnings were subject to review whenever they exceed some specified level.

Productivity has increased enormously under this system.

Widespread concern over nuclear plant decommissioning has triggered similar interest in the decommissioning of fossil-fired steam generating stations. This rising interest stems in part from the emergence of a competitive market in electric generation, which, among other things, threatens impairment of assets.

Fossil decommissioning issues are not nearly as contentious as those that attend nuclear plants.