|
|
Enron Mail |
I don't know if I have sent one of these to you before.
This is an e-mail update service that we may want to consider as a distribution vehicle -- either because they pick up the content or because we procure their distribution list. Dan- could you have someone check these guys out? ----- Forwarded by Steven J Kean/NA/Enron on 01/03/2001 08:16 AM ----- "IssueAlert" <IssueAlert@scientech.com< 01/02/2001 06:41 AM To: cc: Subject: California Hearings Continue, CPUC Decision Expected This Week Miss last week? Catch up on the latest in the energy industry at: www.consultRCI.com Reach thousands of utility analysts and decision makers every day. Your company can schedule a sponsorship of IssueAlert by contacting Nancy Spring via e-mail or calling (505)244-7613. Advertising opportunities are also available on our website. Access a complete Website of electric and converging industry issues and analysis at www.consultRCI.com [IMAGE] IssueAlert for January 2, 2001 California Hearings Continue, CPUC Decision Expected This Week by Will McNamara Director, Electric Industry Analysis Hearings aimed at giving consumer advocates and utility officials in California the chance to air their views on a looming electricity rate increase are expected to continue through today, setting the stage for a decision by regulators that very well may not please everyone. Officials from Southern California Edison (SCE) and Pacific Gas & Electric (PG&E) have asked the California Public Utilities Commission (CPUC) to grant immediate rate hikes of as much as 30 percent to help offset rising wholesale power prices. The CPUC board is expected to announce on Jan. 4 how much of a rate hike it will allow, and under what terms. Analysis: Despite the lull of the holiday week just now completed, the spotlight continues to grow more intense over California's energy market, both throughout the energy industry and across the mainstream media. As we wait with anticipation to hear what the CPUC will decide, let's recap some of the issues that will no doubt continue to cause great dissension among the primary players in California. As has been well documented, PGOand SCE are in a massive amount of debt due to uncollected costs they have accrued related to the purchase of power on the wholesale market. Due to rate freezes still in place, both utilities have been unable to charge customers for the dramatic increase in the price of wholesale power, which has placed them both on the brink of bankruptcy. From several conversations with my contacts in California, here's my understanding of where the negotiations currently stand. The CPUC already has agreed in theory to a rate increase, but the sticking point is the specific amount of that increase. Reportedly, the CPUC and Gov. Gray Davis proposed a 15-percent rate hike to the two utilities. In sharp contrast, PGOmaintains that it needs to increase rates by as much as 40 percent, and SCE says that it wants an increase of 30 percent (or 76 percent over two years). In fact, PGOalready began notifying customers last week that it wants to boost their electric bills by that specific amount. Both utilities continue to argue that even if their proposed rate increases are accepted, they still may not be enough to cover wholesale costs, which are projected to rise through 2003 (see my IssueAlert from Dec. 29). In addition, PGOand SCE also claim that their financial solvency still will not be guaranteed even if their rate increase proposals are accepted, and bankruptcy will be very likely if the CPUC only allows them to increase rates by 15 percent. Over the last few weeks, pressure was put on the Federal Energy Regulatory Commission (FERC) to step in and solve the problem. However, FERC issued its own order in early December that mainly focused on mechanisms to keep power generators active in the state and did not adequately address the core issues of high wholesale prices and rate freezes. Due to the lukewarm response that FERC's order received, it has been generally concluded that the CPUC and Gov. Davis alone will have to solve the California energy crisis. It is important to not overlook or discount the role that consumer advocates are playing in the negotiations. Harvey Rosenfield, a long-time critic of the state's utilities who led the failed attempt to overturn deregulation in California in 1998, remains very vocal that "the people of California should not have to pay one more penny to bail out the utilities for the mistakes they made." Consumer groups led by Rosenfield and Ralph Nader continue to put enormous pressure on Gov. Davis, a Democrat, to keep any rate increase given to the utilities to a minimum. In fact, last week Nader stated that Davis' political future "hangs by a kilowatt hour" and that any decisions made in California will "reverberate all over the country." In essence, consumer groups believe that utilities share the bulk of responsibility for the current mess in the state, as they played a large role in California's 1996 restructuring legislation. If mistakes were made in that legislation, consumer groups say, the utilities and not utility customers should be made to pay the price. Speculation is growing that, on Jan. 4, the CPUC will approve an increase for extra costs that will be applied in increments over the course of 2001, resulting in an ultimate rate increase that is somewhere in the range of 15 percent to 30 percent (or more). This in effect will offer a compromise to both sides. The utilities will receive a rate increase closer to what they claim is necessary, and utility customers will not get slapped with an immediate, all-at-once increase in their electricity bills. However, the CPUC probably will not approve any back billing that the utilities have also demanded. Both PGOand SCE have claimed that their stranded costs were probably paid off months ago, meaning that the rate freeze still in place for both utilities should have been lifted as a result. That theory being accurate, both companies want to bill their customers retroactively to the date that the rate freeze should have been lifted, which on its own could amount to several billions of dollars. Under the current arrangement, the rate freeze is scheduled to stay in effect until March 2002, unless lifted by the CPUC. Meanwhile, the question about the financial solvency of both PGOand SCE continues to loom. SCE's parent, Edison International, announced that it has eliminated its fourth-quarter dividend and reduced its work force by 400 jobs because of financial problems related to SCE. In a statement last week, PGOCEO Gordon Smith acknowledged that PGOhas "virtually exhausted its financial resources" because it has borrowed on average $1 million per hour to pay for power that it is obligated to provide to California consumers. Both utilities have argued that the real cause of the problem in the state is the generators who unjustifiably continue to charge exorbitant rates for power on the wholesale market. There may be some validity to this theory as power generators who operate in California know that the state's IOUs have essentially been stripped of their own ability to generate power and thus are heavily dependent on power bought on the wholesale market. This has given an enormous amount of market power to the generators and allowed them to charge rates that are not reflective of their own costs. Some reports indicate that generators are charging as much as 30 times what it costs them to generate power. Yet, without a cap on wholesale rates, generators remain able to charge whatever price the market will bear. Due to these high costs, some power generators have begun refusing to sell power to the California IOUs, out of fear that the utilities will not be able to pay their bills. In an ironic twist, the same companies that have expressed concern about selling power to PGOand SCE actually own and control the plants that were divested by the two utilities as part of their agreements in the state's restructuring plan. Thus, companies outside of (and inside) California that own California plants are refusing to sell power back into the state, power produced at plants that were once owned by PGOand SCE. As a result, PGOwent on record last week saying that it may not have enough power to serve customers in February unless additional rulings come from the CPUC. PGOsays that it has enough power to supply customers through January, but that 15 to 20 suppliers have demanded payment up front before selling natural gas to the utility in February. Due to its current debt situation, PGOclaims that it cannot make any payments up front and thus may not be able to buy natural gas to serve its customers. These issues have formed the landscape across which negotiations still rage on in California. Much pressure is now being placed on the CPUC to formulate an end-all solution to the state's problems, one that can appease all the dissenting stakeholders. Yet, much like FERC's order which was criticized for not going far enough, the CPUC is particularly challenged to make decisions that can once and for all solve the state's structural problems. As Enron's Kenneth Lay said a few months ago, the CPUC must avoid "putting band-aids on California's hemorrhaging wounds" and instead complete a successful reconstructive surgery. An archive list of previous IssueAlerts is available at www.consultRCI.com Find out more about SCIENTECH'S most popular competitive tools, including the Telecommunications and E-Commerce InfoGrids at: www.consultRCI.com SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let us know if we can help you with in-depth analyses or any other SCIENTECH information products. If you would like to refer a colleague to receive our free, daily IssueAlerts, please reply to this email and include their full name and email address or register directly on our site. If you no longer wish to receive this daily email, send a message to IssueAlert, and include the word "delete" in the subject line. SCIENTECH's IssueAlerts(SM) are compiled based on the independent analysis of SCIENTECH consultants. The opinions expressed in SCIENTECH's IssueAlerts are not intended to predict financial performance of companies discussed, or to be the basis for investment decisions of any kind. SCIENTECH's sole purpose in publishing its IssueAlerts is to offer an independent perspective regarding the key events occurring in the energy industry, based on its long-standing reputation as an expert on energy issues. Copyright 2000. SCIENTECH, Inc. All rights reserved.
|