Coal, Gas

Divestiture? Its no big deal

Issue 5 and Volume 100.

Divestiture? It`s no big deal

Requiring investor-owned utilities (IOU) to sell half their fossil generating capacity seemed to me to be one of the most radical features of the California deregulation proposal. However, the two largest IOUs in the state, Pacific Gas & Electric (PG&E) and Southern California Edison (SCE), have volunteered to start divesting generating assets now. “It makes sense for us to reduce our ownership of power plants,” said Stanley Skinner, PG&E chairman. John Bryson, SCE chairman, said he was reluctant to sell off power plants but, after careful deliberation, “voluntary divestiture is the best way to go.”

Their announcements make it look like it`s not that big a deal. They`ll hold auctions and sell half their oil- and gas-fired capacity by Jan. 1, 1998. PG&E hired the investment firm Goldman, Sachs & Co. to help with the sale, determine what appropriate prices might be, decide which plants to sell, etc. Under the California proposal power generators will begin selling electricity into a state-wide pool or directly to retail customers in 1998. By 2003 the open market will be fully in effect. The California commission wants the big IOUs to sell half their fossil capacity to keep the big guys from rigging the market, which has allegedly been a problem in some countries that have electricity pools operating.

Other utilities and independent power producers have indicated interest in buying the California power plants. SCE said it would consider providing operating and maintenance services for a buyer, which would open up the bidding to a broader class of potential owners. If you`re interested, PG&E owns seven fossil-fired power plants with 21 steam-turbine units and 10 gas turbines. Capacity totals 6,289 MW. The PG&E fossil plants account for 4 percent of the company`s book assets of $27 billion. SCE owns 8,700 MW of fossil-fired steam capacity and 1,590 MW of gas turbines.

What was once unthinkable now seems matter-of-fact. It`s not at all clear that the California commission has the power to force the utilities to sell their property, but PG&E and SCE apparently don`t plan to challenge the commission`s authority. They`re willing to sell now voluntarily. Maybe even more than half. And there appear to be willing buyers. This is not necessarily the pattern that other states will follow, but California is leading the way into the deregulated, or less regulated, future. It looks like power generation will survive.

“It is essential,” said Skinner, “to ensure continued service reliability, fairness to employees, maintenance of environmental quality and sensitivity to the needs of the communities where the facilities are located.” I agree and I hope California can find a smooth path into the future. Good luck.

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