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News Digest

Fortnightly Magazine - March 1 2000

had argued that a lack of competing suppliers was no cause to abandon market approaches to congestion management, and that producers who demand high prices during a constrained period should not be viewed as wielding market power.

The FERC agreed that "there is nothing wrong with prices increasing during times of real scarcity," but it said the ISO's original congestion management scheme needed fixing so that generators would not profit by offering distorted bids creating artificial congestion. Docket No. ER00-555, Jan. 7, 2000, 90 FERC ¶61,006.

ELECTRIC RELIABILITY

Grid Infrastructure. An interim report by the U.S. Department of Energy on power outages that occurred during summer 1999 warned that operating practices, regulatory policies and technological tools needed for fundamental changes in the electric industry were not yet in place to assure an acceptable level of reliability.

The report, "Findings From the Summer of 1999" by the department's power outage study team, also says that the operation of the electric system is much more difficult to coordinate in a competitive environment.

The report lays some blame on utilities for cutting costs in anticipation of competition and thus spending less on reliability, and also finds that because responsibility for reliability has been spread among utilities, independent system operators, power producers and customers, the overall infrastructure for reliability assurance "has been considerably eroded." See http://tis.eh.doe.gov.

Redispatch Pilot Program. The FERC granted a request by the North American Electric Reliability Council to extend its market redispatch pilot program for congestion management in the Eastern Interconnection until April 1. Docket No. ER99-2012-002, Jan. 27, 2000, 90 FERC ¶61,058.

Power Outages. The Michigan PSC on Jan. 3 opened an investigation into methods for improving service reliability, directing staff to consult with utilities and others to formulate recommendations in a status report by March 31, and a final report by May 1. Case Nos. U- 12269 and U-12270.

POWER MARKETS

Purchased Power Contracts. The Los Angeles Department of Water and Power and Montana Power Co. have completed a transaction to terminate the remaining 11 years of an existing power sales contract, and assign the purchase obligation under the new agreement (114 MW from Montana Power's leased share of Colstrip Unit 4) to an undisclosed third party.

Purchase Power Contracts - Refunds. New York State Electric & Gas Corp. has asked two non-utility generators to provide assurances that they will have the ability to refund an estimated $2.7 billion in overpayments when their power purchase agreements with NYSEG end.

In a letter to the owner of Allegheny Hydro Nos. 8 and 9, NYSEG threatened to terminate the contracts if it did not receive the assurances within 30 days. NYSEG and Allegheny Hydro had entered into the power contracts in 1988 under New York PSC mandate. The contracts included advance payment accounts reflecting the difference between the price NYSEG pays for power under the contracts and the company's actual avoided costs.

At the end of 1999, the combined balance in Allegheny Hydro's payment accounts was thought to exceed $111 million. Assuming electric prices and NYSEG's avoided costs escalate at the