In an exclusive interview with World Cogeneration,
William Rockford, Managing Director for Chase Securities, looked into
the electric utility industry's future and forecasted that "The electric
utility industry will go through the same shakeup as every regulated industry
that has moved from that nice cozy environment with no competition to
one with competition:" By example, the commercial banking industry
experienced significant transitions over the past decade as a result of
regulatory mandates which tied the hands of the industry, giving competitors
free reign., thereby creating an uneven playing field. Similar regulatory
constraints are now handcuffing the public utilities industry.
Rockford categorizes utility assets into three
types: generating, transmission and distribution. In his view, the managers
of utilities will have to decide whether to become distribution companies,
generating companies or to remain integrated utilities. From his perspective
the distribution assets are the least susceptible to competitive forces
and therefore probably best suit the corporate culture of many currently
configured electric utilities. He believes "Some utility companies
will become simply distribution companies shedding their generating assets
and a acquiring the distribution assets of other companies. Rockford believes
that these companies will take on new corporate identities marketing themselves
as service companies - not power producers. He goes further and says "These
distribution companies will look at their customers more in the framework
of 'how do I go to this customer as a service company and get him the
best power purchase price'? This concept differs radically from the one
we have right now in which utilities basically produce and sell power
from their own power plants."
The competitive pressure to utility companies
will come from various quarters, especially other utility companies within
the same power pool. Rockford points to industrial customer, "For
instance, any potential producer can go to an industrial customer which
is the utility's best customer and take away that best business customer
by offering a better price from a dedicated plant. If it is inside the
customer's fence it is unregulated."
In Rockford's view, generating assets are most
susceptible with competition coming from two directions. First independent
competitors not having the same regulatory constraints as the utilities,
have entered the market and will continue to do so. That nearly 50% of
new generating capacity comes from this sector bears witness to this competition.
Rockord believes that this makes for a very difficult situation for the
utilities. However he feels that "Some utilities will decide that
they know generation very well and decide that they want to get out of
state commission regulations and therefore sell off their distribution
assets."
Second, those utilities that remain power generators
will need to take a hard look at power pool arrangements. Rockford says
"If you take the power pools and change the market environment to
a competitive environment, then you must be prepared for massive change.
Under the current scenario, even if the utility is the high cost producer,
it still gets a return on its rate base. Change that system and tell the
high cost generator that it will not be paid for that generating unit
unless it sells power from it and the high cost unit will have major problems.
Right now the power pools are not cooperative not competitive. The utilities
are looking over their at their sister companies."
Rockford recognizes that some utilities will
remain integrated although he is uncertain whether they will continue
to prosper. In his view, they are fighting rearguard actions since the
regulatory process will be five steps behind.
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