Well, we've finally finished transcribing and publishing the interview with Barry Elson. First and foremost, it was a more candid exchange than I ever expected when I requested the opportunity to chat with Barry back in November of 1999. Logistics prevented us from hooking up until the beginning of this year, but it was worth the wait.

What strikes me as a centerpiece of the conversation was the sense that over the long haul, the expectations of deregulation actually driving down prices to consumers may be unfounded. Barry correctly points out that the price of deregulation, as each state deregulates the electric and gas industries, is forced rate reductions. But, these reductions are only in place for a certain period of time, and then expire (generally, 3 to 5 years). That's when true market forces will take over.

And this is the reason that I asked him to comment on the two statements from Kenneth Lay, CEO of Enron. Barry was most forthcoming - if an energy service provider can not make a profit in providing power in a given market, then there is no incentive to remain in that market. Also, when commenting on trading in a regulated monopoly for a deregulated one, he was quite diplomatic in his answer, but basically confirmed (in my mind) the concerns of energy marketing firms such as Enron.

Does anyone view this differently? There are some strong market forces at work (at least in near future) that are really going to shake out the industry in the next 12 months, IMHO. The current situation with oil prices and the race to bring alternative energy sources to a consumer market are just two. I don't think Barry was considering either of these factors in his responses.

-- Rick Cowles (rick@csamerica.com), February 15, 2000

Answers

Rick, two terms are a little fuzzy to me - ["mid merit" (load following) assets] and [shopping credit stage of transition].

Here's the text where "mid merit" occurs ~ Part 1, para 7:

We thirdly said, considering our current generation asset portfolio as our first strategic element, that the kind of generation assets we wanted to play in were the so called "mid merit" (load following) assets, and not the base line assets.

Could you illustrate and contrast load following with base line assets?

Here's the text where "shopping credit" occurs - Part 3, para 13:

It's going to take three to five years to get beyond the shopping credit stage of transition to where we're in a real market priced stage of transition.

Can you illustrate the nature of the shopping credit stage?

The Conversation is a helpful learning tool - a rosetta to becoming aware of the constraints to deregulation and the selling of electricity. I wonder how many regional investor owned utilities have strategic plans as comprehensive as Barry Elson's? And, of those that do, how many are as open to public scutiny with their intentions?

With respect and thanks to both of you.

Critt
www.critt.com
"Getting the right mix of fire"

-- Critt Jarvis (critt@critt.com), February 17, 2000.

Mid-merit is a nice euphemism for "peaking unit", I think. Essentially, in the summertime when peak loads are reached, base load generation is not enough to supply all of the necessary power. So, electric companies will fire up their gas turbines, which are much more expensive to operate but can come online virtually on demand. Of course, the power produced by these units is much more expensive, but more importantly, when a region is in a situation where it needs the power, price becomes a secondary consideration. Companies like Conectiv can make a bundle running their peakers under a high demand situation.

The concept of "shopping credits" is kind of a smoke and mirrors type thing, in my mind. For example, in NJ if you want to switch power providers and you're comparing prices, the Board of Public Utilities sets a "price to compare" - ie. the shopping credit. In the case of Conectiv, the shopping credit is $.057/KwHr. However, their basic generation charge is $.0565/KwHr, at least on my last bill. Now, say that a company like Power Direct wants to sell me power at $.0497/KwHr. The NJBPU tells me to subtract .0497 from .057 and multiply by my monthly KwHr usage for my "savings". Well, as you can see, this is bogus - my real savings are .0565 - .0497. The shopping credit is a static figure set by the BPU for each utility for comparison purposes, while the actual generation charge is somewhat dynamic (can be lower or higher, depending on the time of the year).

Hope this helps!

-- Rick Cowles (rick@csamerica.com), February 17, 2000.

Yes, that helps. Following the money, er...uh, load following ( "mid merit" ) is understandable in the context of keeping Conectiv alive, which I assume is foremost in Barry's strategy.

Thanks.

-- Critt Jarvis (critt@critt.com), February 17, 2000.