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News Digest

Fortnightly Magazine - January 1 2001

two promises by the merged company to cap prices and to limit any firm reservations to one hour on any transmission facility that uses the constrained Alturas intertie. .

Federal Review. Two-and-one-half years after issuing its original rulemaking notice, the FERC finally approved a final rule governing approval of electric and gas utility mergers, largely ratifying its existing "Appendix A screen" already used to evaluate horizontal competition, but with some new wrinkles added, such as adding ancillary services and real-time reserve markets to the list of relevant products.

The FERC also called for a technical conference to evaluate the use of computer models to simulate markets.

Nevertheless, the FERC largely ignored concerns raised by the Federal Trade Commission and others about relying on the merging utilities to supply and evaluate their own data, without independent validation. They noted that the Hart-Scott-Rodino law allows regulators to collect evidence from third parties, and allows for confidential, off-the-record give-and-take exchanges that may serve better to uncover threats to competition.

Commissioner Curt Hébert voted for the order but suggested that the FERC lacks antitrust experience and instead should rely more on the FTC and the Department of Justice for merger review. . —L.A.B.

PUC Merger Review. North Carolina regulators issued rules forcing electric or gas utilities seeking merger approval to submit a cost-benefit study and a market power analysis, despite opposition from Duke Energy and Carolina Power & Light, which preferred to leave antitrust issues to federal agencies. .

Power Plants

Expedited Licensing. Faced with tight reserve margins and resulting political pressure, the California Energy Commission by a 4-0 vote on Nov. 15 adopted emergency regulations to implement the state's new six-month "fast-track" process for licensing thermal power plants, required by Assembly Bill 970, signed into law on Sept. 6. . -C.J.L.

AFUDC Financing. Citing figures that it found "excessive," the Florida PSC denied a request by the investor-owned Florida Public Utilities Co. (FPUC) to accrue allowance for funds used during construction (AFUDC) at a rate of 11.17 percent to finance construction of a gas pipeline gate station and lateral to serve a new 200-megawatt, gas-fired power plant to be constructed by a third party.

Nevertheless, the PSC did OK a project-specific 14.4 percent return on equity (ROE), yielding an 11.17 percent return on net project investment, even though FPUC's current overall ROE (as set by state regulators) was only 11.4 percent.

The PSC explained that the higher ROE was the product of negotiations between a "willing buyer" and a "willing seller." .

Downwind Pollution. The U.S. Justice Department, Environmental Protection Agency, and the State of New York have reached an agreement in principle with Virginia Power requiring the company to cut emissions (SO 2 and NO x) from its eight coal-fired power plants, pay a $5.3 million civil fine, surrender certain SO 2 emissions allowances, and contribute $13.9 million in environmental projects.

The agreement comes a year after the EPA and New York-and later New Jersey, Vermont, and Massachusetts-announced intentions to sue the owners of several Midwestern and Mid-Atlantic coal-fired power plants, two of