2
T H E NEWS IN F 0 C U S L Utility Board and the Tacoma City Council that it needs the system to support enhanced system con- trol for reliability and efficiency of the electric system. City Light also said it wants to provide an interac- tive communication link with cus- tomers. The utility says that the area needs a fast, high-capacity tele- communications network to pro- vide businesses and homes with Internet connections and high- speed data transport. City Light believes it can build and operate the system, including a techno- logically advanced cable televi- sion service, as a self-supporting telecom business. City Light superintendent Steve Klein said the proposal could benefit every Tacoma electric and telecom customer and offer them “a cable TV system with a higher quality signal and more choices than now available, both at a very attractive price.” Revenue from leasing system capacity and cable TV subscriptions, said Klein, “will contribute significantly toward paying for the cost of the entire system.” The utility’s telecommu- nication project manager, Jon Athow, told Elecfricify Daily that the cable TV service would be market-driven. The phone and cable monopo- lies aren’t taking Tacoma’s action lightly. A bill has been introduced in the Washington Senate that would require the Washington Utilities and Transportation Commission to review any mu- nicipality’s plans to offer telecom and cable TV services. Heritage Foundation Calls Regulate y Compact ‘Suspect’ A well-known Washington conservative think tank is slamming utility efforts to recover stranded assets, arguing that the so-called regulatory compact “is highly suspect and has been ques- tioned repeatedly by numerous experts in the field because Ameri- can electricity consumers were never asked to sign such an agree- ment.” The Heritage Foundation report, “Electricity Deregulation: Separating Fact from Fiction in the Debate Over Stranded Cost Recovery,” was released in mid- March. The Heritage report, written by economist Adam Thierer, says, “If policy makers demand that customers and competitors pay for the losses of inefficient utili- ties, it could mean the end of a competitive electric future.” The strange fruit of stranded cost re- covery, says Heritage, would in- clude barriers to entering the com- petitive marketplace and a subsi- dized cost of capital to existing firms. That would mean that “the potential gains of competition ef- fectively would be nullified.” The notion of a regulatory compact, argues the report, was largely invented by utilities to justify a regulatory system that is biased against the interests of consumers and in favor of utili- ties. “Because regulatory com- missions across the United States gradually came to the un- stated conclusion that it was more important to protect the health of the companies they regulated than the interests of customers, an entitlement men- tality was born and nurtured among the utilities.” The entitle- ment mentality led to a rate-of- return mindset, says Heritage, which in turn “leads utilities to the insupportable conclusion that they own their current cus- tomers; that these customers have always been their own cli- entele; that they have served them throughout their corporate life; and, therefore, that these customers are obliged to pay for their losses in the future.” Renewable Energy Advocates Win One Battle, Lose Another M idAmerican Energy Co. announced in March that it has reached agreement with Zond Development Corp. to supply the utility with 45.3 MW of wind-gen- erated energy for 20 years. Zond plans to supply the energy from a 150 turbine installation to be con- May 1997 5

Renewable energy advocates win one battle, lose another

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Page 1: Renewable energy advocates win one battle, lose another

T H E NEWS IN F 0 C U S L

Utility Board and the Tacoma City

Council that it needs the system

to support enhanced system con-

trol for reliability and efficiency of

the electric system. City Light also

said it wants to provide an interac-

tive communication link with cus-

tomers. The utility says that the area

needs a fast, high-capacity tele-

communications network to pro-

vide businesses and homes with

Internet connections and high-

speed data transport. City Light

believes it can build and operate

the system, including a techno- logically advanced cable televi-

sion service, as a self-supporting

telecom business. City Light superintendent Steve

Klein said the proposal could benefit every Tacoma electric and

telecom customer and offer them

“a cable TV system with a higher

quality signal and more choices than now available, both at a very

attractive price.” Revenue from leasing system capacity and cable

TV subscriptions, said Klein, “will

contribute significantly toward paying for the cost of the entire

system.” The utility’s telecommu-

nication project manager, Jon

Athow, told Elecfricify Daily that

the cable TV service would be market-driven.

The phone and cable monopo-

lies aren’t taking Tacoma’s action

lightly. A bill has been introduced

in the Washington Senate that would require the Washington

Utilities and Transportation Commission to review any mu-

nicipality’s plans to offer telecom

and cable TV services.

Heritage Foundation Calls Regulate y Compact ‘Suspect’

A well-known Washington

conservative think tank is

slamming utility efforts to recover

stranded assets, arguing that the

so-called regulatory compact “is highly suspect and has been ques-

tioned repeatedly by numerous

experts in the field because Ameri-

can electricity consumers were

never asked to sign such an agree-

ment.” The Heritage Foundation

report, “Electricity Deregulation: Separating Fact from Fiction in

the Debate Over Stranded Cost

Recovery,” was released in mid-

March.

The Heritage report, written by economist Adam Thierer, says,

“If policy makers demand that

customers and competitors pay

for the losses of inefficient utili- ties, it could mean the end of a

competitive electric future.” The

strange fruit of stranded cost re-

covery, says Heritage, would in-

clude barriers to entering the com-

petitive marketplace and a subsi-

dized cost of capital to existing

firms. That would mean that “the

potential gains of competition ef-

fectively would be nullified.”

The notion of a regulatory

compact, argues the report, was

largely invented by utilities to

justify a regulatory system that

is biased against the interests of

consumers and in favor of utili-

ties. “Because regulatory com-

missions across the United

States gradually came to the un-

stated conclusion that it was

more important to protect the

health of the companies they

regulated than the interests of

customers, an entitlement men-

tality was born and nurtured

among the utilities.” The entitle-

ment mentality led to a rate-of-

return mindset, says Heritage, which in turn “leads utilities to

the insupportable conclusion that they own their current cus-

tomers; that these customers have always been their own cli-

entele; that they have served

them throughout their corporate life; and, therefore, that these

customers are obliged to pay for

their losses in the future.”

Renewable Energy Advocates Win One Battle, Lose Another

M idAmerican Energy Co.

announced in March that it has reached agreement with Zond

Development Corp. to supply the

utility with 45.3 MW of wind-gen-

erated energy for 20 years. Zond

plans to supply the energy from a 150 turbine installation to be con-

May 1997 5

Page 2: Renewable energy advocates win one battle, lose another

T H E NEWS IN F 0 c u s

strutted in Buena Vista County in

Northwest Iowa. Des Moines-based MidAmeri-

can said that the wind purchase,

along with another 11 MW under

contract from a renewable energy

source outside Iowa, would meet the Iowa Utilities Board’s require-

ment, announced in August 1996,

that the company acquire 55 MW

of electricity generated by alterna-

tive energy sources in Iowa.

To comply with the IUB order,

MidAmerican requested propos- als from 60 potential bidders and

chose Zond, a unit of Enron

Corp., from 18 proposals.

But renewable generating tech- nologies will not be the way out

of the greenhouse gas dilemma for American Electric Power. Ac-

cording to AEP’s environmental

guru Dale Heydlauff, his utility

has evaluated all the current crop

of green generating technologies and found them lacking in a sys-

tem where the last seven units were 1,300 MW coal-fired plants.

Wind isn’t going to cut it,

Heydlauff said, noting that AEP

had evaluated two favorable wind sites in West Virginia, but

nixed them on environmental grounds. One would have in-

truded on a popular natural site,

the Dolly Sodds ecological area in

the Monongahela National Forest. The other was in a mountain pass in the Atlantic migratory bird fly-

way.

Besides wind, which is neither dependable nor dispatchable,

AEP also rejected solar because

the region lacks sufficient sun- light. Nor is there any opportu-

nity for geothermal. That leaves biomass. Heydlauff said AEP’s

calculations indicate that to re-

place the coal used in a 1,300 MW generating plant with hardwood

would require harvesting 300,000

acres of forest annually. If corn-

cobs and other corn residue were used, it would require 6 million

acres of farmland, approximately

equivalent to all the farms in Ohio.

Restructuring Watch

Pataki Unveils Lilco Bailout Designed to Cut L.I. Rates

T he final piece in the puzzle

of how to restructure the electricity system on Long Island appears to be falling into place, as N.Y. Gov. George Pataki in mid-

March announced a deal de-

signed to cut electric rates by up to 23 percent through a takeover of Long Island Lighting Co.‘s

transmission and distribution sys-

tem, as well as the regulatory and

financial albatross of the shut-

tered Shoreham nuclear plant.

The takeover will require his-

tory’s largest municipal bond is-

sue-$5-6 billion, according to

Standard & Poor’s, to be sold by the Long Island Power Authority.

The LIPA portion of the plan

dovetails with the pending

merger of Lilco and Brooklyn

Union Gas Co., which will take

over Lilco’s electric generating

system. The merged company

would operate the Lilco trans-

mission and distribution system

under a contract with LIPA.

LII’A would also have the right

to buy Lilco’s generating plants

after three years. LIPA would

take over $3.6 billion of the re-

maining $4.5 billion in debt,

with the merged company eat-

ing some $900 million. In addi-

tion to the transmission and dis-

tribution system, with a book value of some 51.4 billion, LIPA will get Lilco’s share of the Nine

Mile Point 2 nuclear plant, with

a book value of $900 million.

As part of the deal, LIPA will work with Suffolk County to

build a new transmission line un- der Long Island Sound to import

cheaper power to the island. As

the electric industry becomes com-

petitive and deregulated, LIPA would give its customers the right to choose electricity suppliers. A $1.1 billion liability that Suffolk

County and two other govern- ments in the area owe Lilco for ex-

cessive property taxes would be discounted to $625 million. It

would be financed by the bond is-

6 The Ekctricity ~our1d