AWEA - WIND ENERGY NEWS LETTER - MARCH 1996
KENETECH BOARD STRUGGLES TO RESOLVE FINANCIAL TROUBLES :
Stock values of Kenetech Corp., parent of Kenetech
Windpower, plummeted and its bond ratings were downgraded to
triple C this week as executives struggled to rescue the company
from its financial troubles.
On December 4, Standard & Poor's Corp. lowered its rating on
Kenetech senior secured debt from "single B-minus" to "triple C"
and its preferred stock to "single C" from "triple C". On
December 6, the value of Kenetech's common stock dropped 30% to
close at $1.75/share. The company reported net income of only
$773,000 through September 30 of this year and reported $220
million of rated outstanding debt and preferred stock.
As the WEEKLY went to press, an eight-member team of
Kenetech executives was meeting with the company's board of
directors to hammer out a plan--to be announced this week--for
the company's future. A new corporate president, Richard
Saunders, has been appointed and is reporting directly to the
company's board, effectively removing chief executive officer
Gerry Alderson from direct management of operations. With a new
decision-making team in place, Kenetech hopes to pull out of its
current downward spiral.
News organizations and wind industry insiders around the
country are speculating about Kenetech's financial future, noting
the company's credit and cash flow problems. However, over the
last several months, Kenetech spokespeople have remained
optimistic that the firm would weather its current troubles and
resume successful operations. Investment analysts have expressed
similar views, noting that the company has a number of options at
this point and its outlook is not entirely gloomy.
IZAAK WALTON LEAGUE URGES NSP TO DEVELOP ADDITIONAL WIND :
In comments filed with the Minnesota Public Utilities
Commission (PUC) December 1, the Izaak Walton League of America
urged the PUC to require Northern States Power Co. (NSP) to take
advantage of the low cost wind resources available in the region
by developing an additional 400 MW of wind power. The League
submitted the comments in response to NSP's 15-year resource
The League also asked the PUC to refuse NSP's request to
slash its energy efficiency goals. NSP's resource plan, filed
with the PUC in July, proposes to cut energy efficiency programs
by over 50%.
The Leauge's analysis of NSP's plan argues that wind power
is NSP's cheapest future resource. Compromise legislation
regarding storage of nuclear waste at NSP's Prairie Island
nuclear plant requires NSP to invest in an additional 400 MW of
wind--on top of the 425 MW required to allow the waste storage--
if wind power is found to be the utility's cheapest option (see
WIND ENERGY WEEKLY #597, May 23, 1994).
"NSP's own analysis shows no difference in costs between a
plan that includes more wind and one that relies exclusively on
fossil fuels," said William Grant, director of the League's
Midwest Office. "NSP ignores the value of wind in terms of its
guaranteed zero fuels cost and zero risk of costs from future air
pollution, regulation, or taxation, which make wind power the
most risk-averse investment in NSP's portfolio and the best bet
for NSP's customers."
Grant called NSP's proposed slash in efficiency programs
"clearly unacceptable for a company that is anticipating the need
to build over 3,000 MW of new power plant capacity in the next
decade, especially in light of Minnesotas strong statutory
preference to get everything we can from cost-effective energy
efficiency first." NSP's analysis concludes that customers are
not as eager to invest in energy efficiency as once thought.
S&P SEES UTILITY REVENUES CUT BY RETAIL WHEELING :
The investment advisory firm Standard & Poor's (S&P) said
November 27 that electric utility revenues will drop by six
percent to 16 percent if retail wheeling, under which retail
customers can pick and choose among electricity suppliers,
becomes a reality.
S&P examined two scenarios, according to Knight-Ridder
Financial News, and found that in the more pessimistic case,
utility industry revenues would be reduced by $26 billion. In a
less severe case, with regulators permitting greater recovery of
stranded investments, the loss in revenues would be $10 billion.
Utilities that would be hit hardest, S&P said, are those
with expensive generating plants and large numbers of industrial
customers. They include Cleveland Electric Illuminating Co.,
PECO Energy Co. (Penn.), Toledo Edison, Public Service Electric &
Gas (N.J.), Southern California Edison, United Illuminating,
Detroit Edison, Ohio Edison, Tucson Electric Power, and Long
Island Lighting Co.
Those viewed as least vulnerable include Idaho Power,
Kentucky Utilities, Empire District Electric, Puget Sound Power &
Light, PacifiCorp, Portland General Electric, Public Service of
Oklahoma, Washington Water Power, PSI Energy, and Duke Power.
S&P sees a national spot market for electric power
developing, with greater use of short-term contracts and with
power prices tending to become more uniform across the country
after an initial break-in period.
Meanwhile, another study, released December 1, appeared to
challenge the conventional wisdom that radical cost-cutting is
the means to profitability for utilities. A survey of U.S. and
Canadian utilities by Mercer Management Consulting of Boston
found that those that focused on growth enjoyed the most
favorable stock price valuations.
Gerry Yurkevicz of Mercer, discussing the study's findings,
said, "I can't say that reducing costs to become competitive is a
bad thing, but the rewards are almost double for the utilities
that are profitable growth companies, rather than just cost-
cutters." Utilities, he added, need to focus on developing new
products and services for customers, and on better execution of
long-term business strategies.
In other related news :
- The City of San Francisco announced November 27 that it will
hire Strategic Energy, Ltd., an energy consulting firm, to
conduct a $150,000 study of whether the city should break
with Pacific Gas & Electric Co. and expand its municipal
utility. Under current federal law, municipal utilities can
shop nationwide for power, and the city said it wants to
determine whether ratepayers would benefit from such a move.
- Duquesne Light, a Pittsburgh-based utility, said November 29
that it plans to sell its share of a surplus coal-fired
power plant and to use the proceeds to write down stranded
investment costs from nuclear plants. Duquesne said it will
also carry out a further voluntary write-down of $500
million in nuclear investments. The moves came as part of a
larger plan to freeze rates for five years and "guarantee to
our customers that the entire decade of the 1990s will be a
period of deflation in the price of electricity," a company
official said, adding that the write-downs will help ensure
that "the historic fixed costs of these regulated
investments will not be an impediment to an efficient power
- Utility members of the Pennsylvania-New Jersey-Maryland
(PJM) Power Pool on November 30 filed with the Federal
Energy Regulatory Commission (FERC) a plan for increasing
competition in the region. The plan's primary elements
include pool-wide transmission pricing, a regional energy
market with price-based dispatch, and creation of an
independent system operator (ISO) to administer transmission
NEW GLOBAL WARMING REPORT TAKES TOUGHEST STANCE YET :
A new report from the international panel of experts
researching climate change contains "the strongest statements
that have ever been made" by scientists, according to Robert
Watson, lead U.S. climate negotiator and associate director of
the White House Office of Science and Technology Policy (OSTP).
The report was released in Madrid November 30 by the
Intergovernmental Panel on Climate Change (IPCC) after arduous
drafting sessions in which panel delegates from oil-producing
nations sought word-by-word changes in an effort to temper
conclusions that might damage the fossil fuel industries,
according to press reports.
Recent advances in climate science, panel members said,
makes it evident that "human activities, mostly fossil fuel use,
land use change, and agriculture" are changing the composition of
the earth's atmosphere, and that the climate can be stabilized
only if greenhouse gas emissions are reduced "substantially" from
1990 levels. During the next century, the group said, average
global temperatures will increase by two to eight degrees
Fahrenheit as carbon dioxide concentrations in the atmosphere
Voluntary initiatives proposed by the Clinton Administration
as a first step toward cutting U.S. emissions, Watson said, have
stalled because of Congressional unwillingness to provide
funding. While the U.S. has joined with more than 80 nations in
a treaty pledging to freeze emissions at 1990 levels by the year
2000, several major industrial nations including the U.S. now
appear unlikely to meet that goal.
In other climate news, the IPCC's Working Group II has
released a new summary report for policymakers on "Impacts,
Adaptations, and Mitigation Options" that argues that
"significant reductions [in emissions] . . . are technically
possible and can be economically feasible." According to Global
Change magazine, the report says reductions can be achieved in
part by shifting toward a less carbon-intensive mix of fuels.
"Major options," the article said, "include introducing more
efficient generation of electricity, switching from high- to low-
carbon fuels (from coal to gas, for example), limiting CO2 and
methane emissions from fossil fuel cycles (such as cutting
emissions of natural gas from pipelines), and shifting from
fossil fuels to nuclear or renewable energy."