Citi

Sound bites from state and federal regulators.

Natural Gas Briefs

Gas Marketing Affiliates. Indiana finds no jurisdiction to regulate Proliance Energy, LLC, a brokering and energy services affiliate of Indiana Gas Co., Inc. and Citizens Gas and Coke Utility, but says it will regulate the utilities in their transactions with Proliance. Case No. 40437, Sept. 27, 1996 (Ind.U.R.C.).

Gas Regulatory Reform. Ohio proposes alternative regulatory procedures for natural gas local distribution companies. Case No. 96-700-GA-ORD, Sept. 26, 1996 (Ohio P.U.C.).

Employee Incentives.

Nevada Power Co. (NP) has announced a tentative agreement for the largest rate reduction in its history, reflecting lower purchased power prices, lower overall fuel costs, and improvements in efficiency.

Prometheus paid dearly when he stole fire from the gods and gave it to man, but his courage paid off. Fire now belongs to the people. So should electricity, says New York state Judge Joseph Harris, of Albany, who ruled last fall that state regulators could force open New York's electric industry, but warned against hidden favoritism:

"Prometheus," wrote Harris, "in breaking the monopoly of the gods and by giving electrical energy to mankind ... [should] not be demeaned by a mere transfer of that monopoly to the lords of industry.

Each assumes a vertical breakup, but watch out for securitization.

It can prove difficult to detect any overt difference of opinion among financial credit rating agencies. That appears to be the case in today's electric utility industry, where Moody's, Duff & Phelps, and Standard & Poor's each predicts that a breakup of the vertically integrated utility is now virtually inevitable. The result, they say, will leave us with an industry made up of disaggregated high-risk power generators, and lower-risk companies engaged in transmission, distribution, and other related services.

Illinois has yet to face the issue, but when it does, it may find the road blocked by jurisdictional rules at the FERC. According to estimates by Moody's Investor Service, the state of Illinois would face stranded costs of nearly $6 billion if it should mandate retail wheeling to allow the state's electric utility customers to choose their own supply of electricity.

Residential Pilot Programs:

Doing,

Dealing?

Customer choice and electric restructuring may appear synonymous to regulators, but for utilities "choice" means "market share."

THERE WERE 19 PILOT PROGRAMS

planned or underway in the United States by the end of November, involving some 500,000 customers in all classes. The goal? To test competition in retail electric markets.

In the residential class, pilots were operating in Illinois, New Hampshire, and New York. Massachusetts expected to roll out its pilot by January 1. Pennsylvania was planning an April startup.

Annual Annual EPS

Close Close Percent 52-Wk 52-Wk Div Div Book P/E Last

Company Region 06/28/96 09/30/96 Change High Low Rate Yield Value Ratio 12 Mos.Electric Utilities

AEP Company Inc. Midwest 42.63 40.63 -4.69 44.75 35.13 2.40 5.91 22.68 13 3.10

Unicom Corp.

Utilities Shut Out of Third-quarter Stock Upswing

Utility stocks treaded water during the third quarter, while most stocks nationally took flight. This lackluster quarterly performance in the utilities sector proved most prevalent in the Public Utilities Stock Index. The box score: Our index fell 43.96 points, or 1.11 percent, to conclude the three-month period at 3908.43.

In stark contrast, the Dow Jones Industrial Average powered itself 227.54 points higher, or 4.02 percent, en route to a record high of 5882.17.

Sound bites from state and federal regulators.

Telco Interconnection Rules. Federal appeals court enjoins pricing aspect of rules published August 8 by the Federal Communications Commission to govern sale at wholesale of local exchange service elements by Bell system local carriers to new competitors (who would resell such elements to provide competitive local telephone services). Finds possibility of irreparable harm plus likelihood that Bell carriers might prevail on the merits of jurisdictional issues. No. 96-3406, Oct. 15, 1996 (8th Cir.).

Stranded-

Cost

Recovery: All FERC'ed Up

By Michael T. Maloney, Robert E.

McCormick, and Chad A. McGowan

The "lost-revenues" approach in Order 888 ignores the fact that cash flow drives

asset valuation . . .

. . . the key to measuring uneconomic investment.