Mr. Lindsay's March 1 letter (PUBLIC UTILITIES FORTNIGHTLY, p. 6) requires some further discussion. We do agree that reducing cooling seasonal peak electric demand is desirable. Lessening the electric infrastructure's environmental effects and electric system failures, as we witnessed in the summer of 1996, is to the public good. However, thermal storage systems have siting issues and the potential to run out of capacity at the worst possible time on peak days.
When viewed as serving market segments, utilities differ little from manufacturing companies, where most costs are shared among products and processes.
Activity-based cost management has had a tremendous impact on manufacturing enterprises; and its use has spread to some service industries such as banking, insurance and health care. ABCM encompasses two well-known management concepts: activity-based costing and activity-based management. Now that electric utilities are gearing up for competition, it is time to ask if ABCM has any relevance in the public utility industry.
By unbundling usage from access, utilities can maximize contribution to margin and yet still retain load.
With deregulation and industry restructuring, energy utilities face price competition from marketers, brokers, independent producers and even other utilities. To succeed in this environment, utilities will need to develop innovative pricing strategies that better meet customer needs and respond more effectively to competition. The common response by utilities to competition calls for price discounting to retain "at risk"
customers by meeting the competition head-on.
Dominion Resources touts its "impacted" method, but opponents call it a "stalking horse" (em a scheme to avoid full review at FERC.
Is the Federal Energy Regulatory Commission prepared to accept true marginal-cost pricing for electric transmission?
With all the criticism leveled at the traditional "contract path," one would think that the FERC would consider a new approach to transmission pricing.
In fact, last year in its final Order No.
Too many rules can make any plant uncompetitive.
Now, more than ever, the commission must weigh
the costs when it looks at health and safety, decommissioning and antitrust impacts. Nuclear assets seem to pop to the surface wherever one looks for causes behind the current upheaval in the U.S. electric utility industry. The nuclear experience (em with its costly prudence reviews so prevalent during the 1980s (em has helped fuel a major shift in attitude.
Senior utility managers have now come to accept fundamental changes in the electric industry.
Duff & Phelps Credit Rating Co. has released a report advising that a properly structured plan for securitization of stranded utility investment should address third-party credit risk.
Allegheny Power System Inc. will merge with DQE Inc., parent company of Duquesne Light Co., to form Allegheny Energy, which will save both companies about $1 billion over the next 10 years.
The new company will have a total market capitalization of $10.6 billion: $6.2 billion in equity and $4.4 billion in net debt and preferred stock.
"Allegheny Power is a winter-peaking operation: Its low-cost, efficient operations and suburban and rural customer mix fit well with our summer-peaking operation and urban customer base," said David Marshall, President and CEO of DQE.
More than a decade ago, working at the energy laboratory at the Massachusetts Institute of Technology, the late Fred Schweppe devised a novel scheme for pricing electric transmission. His solution? Do nothing. Simply ignore transmission.
Touted as a panacea for stranded costs, securitization would forever shield rates from market scrutiny.
We consumers display an amazing talent to squander the fruits of our labor on the whim of the moment. Examples might include bungee jumping, vanity license plates or pet rocks. Or just about anything you might find in a magazine stuffed in the back of an airline seat.
Now make way for electric utility restructuring, where the latest fashion calls for securitization of uneconomic costs.
Ask this question: Are Investors today earning what they thought they would, back when they last had faith in regulation?
As their customers discover more competitive prices, many utilities remain saddled with the costs of uneconomic plant and power purchase contracts approved under regulation. They seek compensation for these costs, but the amount deserves a close examination.
Some utilities seek remuneration that exceeds the market value of their common stock. Such a settlement seems overly generous for investors, who will continue to own their shares after the payoff.