- Email: [email protected]
The knives are out again, as ideological wat heats up
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customer with power, and to provide metering, billing and other services. Customers would continue to support conservation and environmental measures in their rates, as they do today. Mass Electric recommends incentive ratemaking be applied to distribution, in line with the incentive rate plan it submitted to the DPU last month (ED, March 17). Kahn, professor emeritus of political economy at Cornell University, said, "The transition to competition should proceed based on rules that are fair and will result in efficient competition. If that happens, utilities and their shareholders will be fully accountable ..., reaping the rewards of good business decisions, and bearing the brunt of bad ones." The filing has the support of the Conservation Law Foundation, the New England Cogeneration Association, and the Coalition of Non-Utility Generators.
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systems and those in the profitmaking sector. An ebullient Edison Electric Institute, seeing in the current political climate the best chance to tilt the playing field in its direction since the days of the bold DixonYates maneuvers during the Eisenhower administration, began the hostilities with its comments to the Federal Energy Regulatory Commission on power pooling in early March. In those comments, EEI went into a collateral--some
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EEl, APPA Go at It
The Knives Are Out Again, As Ideological War Heats Up ometimes these policy debates get nasa. That's just what's happening these days with the almost always tense relationship between the nation's investorowned utilities and their municipal utility rivals. The sore spot this time is the issue of alleged subsidies and whether they account for the often substantial difference between rates in public
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May 1995
would say unrelated--matter, attacking public power, using as ammunition a study done for the trade group by the consulting group of Putnam, Hayes and Barflett. The study; "Subsidies and Unfair Competitive Advantages Available to Publicly Owned and Cooperative Utilities," argues that it is special benefits enjoyed by public power such as tax-free bonds and hydro preference that explain why the munis generally have rates lower than their profitmaking cousins. PHB concluded that the rate advantages of public
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power are "solely because of subsidies and artificial competitive advantages selectively granted by the government." EEI characterized the munis as "less efficient subsidized producers" while portraying themselves as more efficient entities being held down by discrimination. But over at the American Public Power Association, where feisty economist John Kelly labors over spreadsheets and pores over learned journals in a small cubicle filled with stacks of books, reports and printouts, those are fighting words. And Kelly seldom ducks a fight. A reply brief in the pooling docket found APPA chiding that EEI has "polluted this inquiry on power pooling concepts" with its sneak attack on public power, accusing the IOU trade group of "ranting" and "big lie rhetoric." The APPA reply brief, mostly written by Kelly; also accused the PHB team of producing, not scholarship, but "a polemic aimed at securing immediate competitive advantage and protection. Its only value is to demonstrate clearly the disingenuousness of EEI's arguments, but otherwise it should be rejected out of hand." Kelley noted loftily that none of the peer-reviewed academic literature supports the PHB conclusion. The best study; he said, is a recent econometric study by John Kwoka of George Washington University, done for APPA, that updated Kwoka's earlier work published by GW and Harvard University's Institute of Eco-
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nomic Research. In the new work, presented at the 1994 American Economics Association meeting, Kwoka found that the key element of the price differential between the IOUs and the munis is "ownership itself." In other words, public power is inherently more efficient than private power. Kwoka concludes that "the evidence regarding public ownership suggests that simple privatization policies being promoted worldwide may not produce the performance benefits assumed." mpirical evidence supports the theoretical, says APPA, noting that Electric Light & Power' s most recent listing of least-cost power plants is topped by the Laramie River station, a rural electric and public power project constructed and operated by Basin Electric Power Cooperative, and that four of the top five and five of the top seven plants in terms of economic efficiency are consumerowned. Similarly, notes APPA, the recently developed Fitch Investors Service "Competitive Indicator" has two munis---Jacksonville and San Antonio---at the top of the list, while three of the top four are munis, as are four of the top eight. Only the highly regarded Duke Power Co. was able to crack the top four for the IOUs. As for subsidies, says APPA, how about the $118 billion in deferred taxes and investment tax credits that the IOUs have piled up? Or the additional $27 billion in outstanding tax-exempt poilu-
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tion control bonds that IOUs enjoy? Then there is the $6 billion that the IOUs have stuffed away as the result of the two-county rule, designed to allow belowmarket financing for utilities whose operations are in smaller geographic areas--two counties--and that might not be able to access national capital markets. Who are these IOU little guys that benefit from this rule, asks APPA? The largest beneficiary of
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ousness of their comments in this proceeding." Kelly even called on the ghost of Samuel Insull to support his case, quoting the king of IOU holding companies as warning utilities not to "grab free puffery space in the news and editorial columns that ought to be paid-for space in the advertising columns" and accusing EEI of grabbing free space in the FERC inquiry. Meanwhile, over in the more opulent quarters of EEI, where the decor is what one scribe called "early King Farouk," there is much gnashing of teeth and sharpening of knives as the IOU knights look forward, perhaps, to finding John Kelly in a dark intellectual alley some night. --Kennedy P. Maize
Once Utility VIP, Now Marketer
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these tax exempt bonds is giant Con Edison, with $14 billion in assets and $6 billion in annual revenues. Con Ed had $1.6 billion in two-county bonds outstanding at the end of last year. Next, at $768 million, was San Diego Gas & Electric, with $5 billion in assets and $2 billion in annual revenues. The monsters of monopoly, APPA reminded FERC, are represented by EEI and "for it to raise the specter of unprotected consumers and cast itself and its members in the role of champion of the public interest is yet another example of the disingenu-
Mike Peevey Is an Unusual Spokesman for Competition And So Are His Friends ike St. Paul on the road to Damascus, Mike Peevey has had a conversion on the road to Los Angeles----or was that San Jose? When it comes to being a monopolist, Peevey has been there, done that. He was president of Southern California Edison Co. in the mid-1980s, and a contender for the top job. He left the giant utility after John Bryson grabbed the brass ring of chairman and CEO following the legendary Howard Allen's retirement. While at the utility, Peevey admit-
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customer with power, and to provide metering, billing and other services. Customers would continue to support conservation and environmental measures in their rates, as they do today. Mass Electric recommends incentive ratemaking be applied to distribution, in line with the incentive rate plan it submitted to the DPU last month (ED, March 17). Kahn, professor emeritus of political economy at Cornell University, said, "The transition to competition should proceed based on rules that are fair and will result in efficient competition. If that happens, utilities and their shareholders will be fully accountable ..., reaping the rewards of good business decisions, and bearing the brunt of bad ones." The filing has the support of the Conservation Law Foundation, the New England Cogeneration Association, and the Coalition of Non-Utility Generators.
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systems and those in the profitmaking sector. An ebullient Edison Electric Institute, seeing in the current political climate the best chance to tilt the playing field in its direction since the days of the bold DixonYates maneuvers during the Eisenhower administration, began the hostilities with its comments to the Federal Energy Regulatory Commission on power pooling in early March. In those comments, EEI went into a collateral--some
)-.
EEl, APPA Go at It
The Knives Are Out Again, As Ideological War Heats Up ometimes these policy debates get nasa. That's just what's happening these days with the almost always tense relationship between the nation's investorowned utilities and their municipal utility rivals. The sore spot this time is the issue of alleged subsidies and whether they account for the often substantial difference between rates in public
S
May 1995
would say unrelated--matter, attacking public power, using as ammunition a study done for the trade group by the consulting group of Putnam, Hayes and Barflett. The study; "Subsidies and Unfair Competitive Advantages Available to Publicly Owned and Cooperative Utilities," argues that it is special benefits enjoyed by public power such as tax-free bonds and hydro preference that explain why the munis generally have rates lower than their profitmaking cousins. PHB concluded that the rate advantages of public
0
C
U
S
power are "solely because of subsidies and artificial competitive advantages selectively granted by the government." EEI characterized the munis as "less efficient subsidized producers" while portraying themselves as more efficient entities being held down by discrimination. But over at the American Public Power Association, where feisty economist John Kelly labors over spreadsheets and pores over learned journals in a small cubicle filled with stacks of books, reports and printouts, those are fighting words. And Kelly seldom ducks a fight. A reply brief in the pooling docket found APPA chiding that EEI has "polluted this inquiry on power pooling concepts" with its sneak attack on public power, accusing the IOU trade group of "ranting" and "big lie rhetoric." The APPA reply brief, mostly written by Kelly; also accused the PHB team of producing, not scholarship, but "a polemic aimed at securing immediate competitive advantage and protection. Its only value is to demonstrate clearly the disingenuousness of EEI's arguments, but otherwise it should be rejected out of hand." Kelley noted loftily that none of the peer-reviewed academic literature supports the PHB conclusion. The best study; he said, is a recent econometric study by John Kwoka of George Washington University, done for APPA, that updated Kwoka's earlier work published by GW and Harvard University's Institute of Eco-
9
T
H
E
nomic Research. In the new work, presented at the 1994 American Economics Association meeting, Kwoka found that the key element of the price differential between the IOUs and the munis is "ownership itself." In other words, public power is inherently more efficient than private power. Kwoka concludes that "the evidence regarding public ownership suggests that simple privatization policies being promoted worldwide may not produce the performance benefits assumed." mpirical evidence supports the theoretical, says APPA, noting that Electric Light & Power' s most recent listing of least-cost power plants is topped by the Laramie River station, a rural electric and public power project constructed and operated by Basin Electric Power Cooperative, and that four of the top five and five of the top seven plants in terms of economic efficiency are consumerowned. Similarly, notes APPA, the recently developed Fitch Investors Service "Competitive Indicator" has two munis---Jacksonville and San Antonio---at the top of the list, while three of the top four are munis, as are four of the top eight. Only the highly regarded Duke Power Co. was able to crack the top four for the IOUs. As for subsidies, says APPA, how about the $118 billion in deferred taxes and investment tax credits that the IOUs have piled up? Or the additional $27 billion in outstanding tax-exempt poilu-
N
E
W
S
I
N
F
tion control bonds that IOUs enjoy? Then there is the $6 billion that the IOUs have stuffed away as the result of the two-county rule, designed to allow belowmarket financing for utilities whose operations are in smaller geographic areas--two counties--and that might not be able to access national capital markets. Who are these IOU little guys that benefit from this rule, asks APPA? The largest beneficiary of
E
10
"/ Y a g ~,, ~
~
~
O
C
U
S
ousness of their comments in this proceeding." Kelly even called on the ghost of Samuel Insull to support his case, quoting the king of IOU holding companies as warning utilities not to "grab free puffery space in the news and editorial columns that ought to be paid-for space in the advertising columns" and accusing EEI of grabbing free space in the FERC inquiry. Meanwhile, over in the more opulent quarters of EEI, where the decor is what one scribe called "early King Farouk," there is much gnashing of teeth and sharpening of knives as the IOU knights look forward, perhaps, to finding John Kelly in a dark intellectual alley some night. --Kennedy P. Maize
Once Utility VIP, Now Marketer
~
these tax exempt bonds is giant Con Edison, with $14 billion in assets and $6 billion in annual revenues. Con Ed had $1.6 billion in two-county bonds outstanding at the end of last year. Next, at $768 million, was San Diego Gas & Electric, with $5 billion in assets and $2 billion in annual revenues. The monsters of monopoly, APPA reminded FERC, are represented by EEI and "for it to raise the specter of unprotected consumers and cast itself and its members in the role of champion of the public interest is yet another example of the disingenu-
Mike Peevey Is an Unusual Spokesman for Competition And So Are His Friends ike St. Paul on the road to Damascus, Mike Peevey has had a conversion on the road to Los Angeles----or was that San Jose? When it comes to being a monopolist, Peevey has been there, done that. He was president of Southern California Edison Co. in the mid-1980s, and a contender for the top job. He left the giant utility after John Bryson grabbed the brass ring of chairman and CEO following the legendary Howard Allen's retirement. While at the utility, Peevey admit-
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The ElectricityJournal