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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
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