6.6. ERMUSR 01-11-2005 - Laserfiche WebLink

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Public power systems ha~'e long planning horizons and a low tolerance for risk and price volatility. In order to scree their customers reliably and economically, they are required to make long-teen investments and contractual commitments. Public power s}-stems look for policies that respect long-term contractual arrangements and keep the cost of capital low by reducing the risk incurred as a result of such commitments. This "stick to the basics" business model has served public power and its customers well during the past few years, as was ver}~ apparent during the California energry crisis. Public power entities in California and throughout the country avoided making business decisions like those that triggered the credit deterioration and ratings downgrades affecting the independent power sector and many IOUs.2 Ironically, those public power PubIIC pOWer entltl6S utilities that have suffered the most financially in recent }'Fars COntlOUe t0 belleVe tha# got caught up in regional market blow-ups not of their making, their Way Of Serving the or entered into transactions with counterparties that later proved to be bad credit risks, unscrupulous, or both, public works well. Federal necessitating in some cases painful rate increases.3 policies should. support their ability tOCOntlnue t0 ~ Pt.rblic power entities continue to believe that their way of _prOYlde SUCK SerVICe. serving the public works well. Federal poticies should support their ability to continue to provide such service. By reorienting FERC's policies to support long-term planning and investmf°nt in u~ansmission and generation facilities, public power systems can continue to pro~'ide the high-qualit}' electric ser-~~~ce that our consumer-owners have come to expect. ~ See, e. g., "Public finance Report Card: Public Power," Standard & Poor's, published September 13, 2004, at 1 ("Since our last report card, published Jan. 2], 2004, the sector has continued to experience overall credit stability, and even slight improvement, with 10 upgrades and t~~o do~ti~ngrades. This is in contrast with the experience of the investor-owned and merchant sectors, which, despite seeing a moderation in the pace and severity of downgrades, have 40% ~~f ratings carrying negati~t~ outlooks.").According to Standard Poor's, only Live out of 246 public power s}'stems rated were below im-esrrnent grade (and of these, four were California irrigation districts holding contracts with Pacific Gas and Electric Company). Id. ~~ See, e.g. "Assessing Wholesale 1\larket Risk in Pacific Northwest Public Power Ratings," Standard & Poor's, pi.iblished august 26, 2004, at 1 ("... (The Pacific Northwest contributed a significant fi~action of the public power rating downgrades in these }'ears. The vast majority oC these actions can he traced directly to the increased risks oC wholesale po~~~er markets that defined the western U.S. power crisis."). Restructuring at the Crossroads: FERC Electric Policy Reconsidered 5