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Technology Stocks : WDC/Sandisk Corporation

WDC 174.21

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To: Starlight who wrote (12949)	7/16/2000 12:10:43 PM
From: Art Bechhoefer	Read Replies (4) of 60323

The article from the San Diego paper on the increase in kwh costs under deregulation finally places southern California almost on an even footing with parts of New York State, which traditionally have had the highest electric rates. Deregulation leads to rate increases partly because of the tax laws. A company depreciates a generating plant over several years, until its value in a deregulated market exceeds by a long shot the depreciated value on the books. The company then sells the plant at a modest profit, taking a capital gain. The acquiring company usually gets the plant for less than its assessed valuation, and promptly files a lawsuit against the local jurisdiction to get its local property taxes lowered. This lawsuit is usually successful because the local jurisdiction (typically a township) lacks legal expertise or funds to get legal help to defend itself, and settles in the process. This lowers some of the costs of operating the resold plant, but also allows the utility company to raise rates simply to obtain a reasonable rate of return on its investment. Since deregulation is in process throughout the nation, one can expect similar occurances anywhere. Despite the "deregulation" label, it is still hard for most electricity consumers to be in competitive markets because there still is only one set of utility poles bringing the electricity to the consumer. The beauty of deregulation (at least to those who think that regulation is terrible) is that it allows the buyer of the old plant to raise rates to a level never before possible under a regulated setting. Maybe it's not as beautiful as some think. Art

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