Moody's Investors Service has released a report that finds the most significant long-term implication of Order 888 for investors is for potential divestiture of transmission assets by investor-owned utilities.
The Moody's study, FERC Order 888 and Wholesale Competition: Catalyst for a New Market Model, also finds that divestiture by a vertically integrated utility may leave bondholders secured by a lien on relatively risky generating assets of often questionable market value, as opposed to the presently more diverse and balanced asset portfolio.
Moody's finds that Order 888 eliminates many advantages traditionally associated with vertical integration across generation, transmission and distribution. This elimination reduces the incentive for some utilities to retain their relatively lower return transmission assets. Second, it makes clear the FERC's commitment to eliminate potential abuses of vertical market power, which may lead to forced divestiture if independent system operators are unable to address such issues adequately. Reducing such risk to the bondholder are obstacles to divestiture inherent in many utility indentures (em the desire of some more conservative managements to remain diversified, possible success by the independent system operators in addressing market power concerns and possible legal hurdles to FERC-mandated divestiture.
According to Moody's, Order 888 will ease evolution of a new market structure as the electric utility industry deregulates, and so should be viewed as a point of departure rather than arrival. But while the FERC has authority to require comparable terms and tariffs on wholesale power sales, it faces more complex legal issues in mandating divestiture. Therefore, it is attempting to address transmission control issues through its authority over merger approvals, such as in the case of Public Service Company of Colorado and Southwestern Public Service Co., and through the formation of ISOs. ISOs are forming, but at a slow and uneven pace reflecting regional market differences. Regulatory prodding will be needed to overcome many conflicting positions in formation and operation of ISOs. t
Lori A. Burkhart is an associate legal editor with PUBLIC UTILITIES FORTNIGHTLY.
The American Arbitration Association, in response to a growing level of interest by the electric and natural gas industries, has established the "National Energy Panel" to resolve disputes through mediation and arbitration.
The new panel is composed of 33 of the nation's leading energy industry experts and will resolve a range of disputes involving production, contracts, finance and marketing. Also included are nuclear power; environmental issues associated with hydroelectric power generation; the production, transportation and marketing of natural gas and oil; and utility plant design, contracting, construction and decommissioning.
AAA pointed out that the Federal Energy Regulatory Commission has been a leader in seeking nontraditional methods to resolve pending cases. "The growing acceptance and application of mediation and other forms of dispute resolution to resolve energy-related disputes are driven, in large part, by the ongoing restructuring or 'deregulation' of the electric power industry and the areas of national gas transportation and sale," said James H. Bailey, a member of the law firm, Lobel, Novins, and Lamont, and chair of the Advisory Council for the National Energy Panel.
AAA points to successful arbitration of a dispute between hydro power and fisheries interests at the Kaw Dam in Oklahoma by the FERC enforcement attorneys serving as mediators. According to the Oklahoma Municipal Power Authority, the "parties had tried unsuccessfully for a period of years to find a way to resolve the dispute. [We] believe the settlement will stand the test of time, whereas litigation can leave all parties dissatisfied with the outcome."
AAA is a not-for-profit, public service organization dedicated to resolution of disputes since 1926 through use of negotiation, mediation, arbitration and other means. In 1996, more than 70,000 cases were filed with it.
An agreement between PacifiCorp and Bonneville Power Administration will lead to an 8-percent rate cut for PacifiCorp.'s Utah Power irrigation customers in Southeastern Idaho. Impetus for the agreement came from two Idaho legislators, the governor's office and the congressional delegation.
The proposed agreement was filed at the Idaho Public Utilities Commission and also will go through BPA's internal review process. The agreement will result in payments totaling $47.7 million over the next four years from BPA to PacifiCorp for Utah Power's Idaho residential irrigation customers. The utility will use some money to cut recent price increases by one-half, effective May 1, 1997. Prices for Utah Power's irrigation customers in Idaho had increased 16 percent over the past two years due to reductions in the BPA Regional Exchange Credit, which has been in place since 1980.
Congress created the credit to share the benefits of federally owned hydroelectric plants with customers of investor-owned utilities in the Columbia River drainage area. The credit is based on the difference between BPA's prices and Utah Power's costs. A schedule of subsequent reductions in the BPA Exchange Credit for Utah Power customers has not been determined, but in 1995 Congress had urged that it be phased out by June 2001. Utah Power officials expect that the agreement with BPA will result in the present credit being phased out for irrigation customers before that date.
Lori A. Burkhart is an associate legal editor with PUBLIC UTILITIES FORTNIGHTLY.
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