News Digest
Power Markets
Summer Incentives for California. Citing high prices and power shortages—which will likely grow much worse this summer—the Federal Energy Regulatory Commission (FERC) imposed several new rules for the calendar year to reward electric customers for cutting usage and selling the power at wholesale, and then asked for comment on another half-dozen measures for 2001 aimed mainly at coaxing more efficiency out of the transmission grid.
But at the same time the commission warned that its actions would not solve the crises facing California and the West, and would not prevent electricity blackouts this summer. U.S. Dept. of Energy Secretary Spencer Abraham echoed that sentiment the very next day when he testified on Capitol Hill that blackouts are "inevitable" this summer in California, and might run anywhere from 20 to 200 hours.
- Mandatory Customer Incentives. Certain mandatory measures put in place through Dec. 31 will focus on customer-owned resources and consumer demand response: (1) California ISO and transmission owners must identify grid enhancements, (2) qualifying co-generation facilities (QFs) get extended waivers of operating standards for efficiency and fuel use, (3) customer-owned generation gets market-based rates, (4) customers cutting usage can resell the saved power at wholesale at market rates, (5) customers can modify wholesale contracts without notice to facilitate more demand-side management (DSM), and (6) DSM costs will be treated as other costs in calculating wholesale rates governed by a cost-based contract formula.
- Proposed Grid Incentives. Various proposals would offer incentives through Dec. 31 for upgrading transmission and granting grid access to new resources: (1) Premiums on equity returns (up to 14.5 percent) and ten-year depreciation for projects that boost grid capacity in the short term, (2) equity premiums and 15-year write-offs for grid upgrades involving new rights of way in service by Nov. 1, 2002, (3) recovery of certain costs for boosting grid capacity over constrained interfaces, (4) rolled-in cost recovery for grid upgrades and interconnections to bring on new resources, (5) use of Federal Power Act sec. 210(d) to ensure that electric supply reaches load, and (6) greater flexibility at hydro projects to increase power output.
- Massey's Lament. Commissioner William Massey argued instead that Western markets needed a cap on prices to catch their breath, and questioned the FERC's strategy, saying that "no one seriously can believe this order will cut demand enough." He noted that the California ISO's had projected deficiencies this summer of up to 6,800 megawatt, and said he feared the situation could plunge the region into recession. .
California Producer Refunds. Earlier, on March 9, the FERC had told 13 power producers either to refund $69 million or justify the prices they received in January for wholesale power sold through markets run by the California ISO or Power Exchange, during hours in which the ISO had declared a Stage 3 emergency because of lack of reserve capacity.
The FERC figured the assumed overcharges by comparing producer receipts to a proxy market clearing price of $273 per megawatt-hour—the price the commission believed would have prevailed if the sellers had bid their variable costs into a single-price auction. .-L.A.B.
California Market Monitoring. The FERC released recommendations by its staff for a regime to monitor and mitigate market power regarding the real-time segment of wholesale electric purchases and sales in California, which now cannot exceed 5 percent of the entire wholesale market, according to FERC rules.
- Unscheduled Plant. Require power producers who sign a participating generating agreement (PGA) to offer all capacity to the ISO in real time if available and not otherwise scheduled to run;
- Plant-Specific Benchmarks. Require each PGA unit to post a standing, confidential price based on marginal costs, to be used by the ISO to set a real-time market clearing price to mitigate market power when appropriate;
- Limited Mitigation. In the case of PGA units called on to supply unscheduled power in real time (see above), mitigate market power only in hours in which a reserve deficiency exists; and
- Outages. Require ISO approval of all planned outages proposed by generators who sign a PGA.-L.A.B.
State Legislatures
Electric Retail Choice. New Mexico Governor Gary Johnson on March 8 signed a bill into law that delays electric restructuring until 2007. The state earlier had planned to phase in retail customer choice throughout the current year.-L.A.B.
Transmission and ISOs
Southeast. The FERC granted provisional certification for GridSouth Transco, proposed by Duke Energy, Carolina Power & Light, and South Carolina Elec. & Gas as the first regional transmission organization (RTO) to be located in the southeastern U.S., calling it less than ideal (the FERC wanted expansion to include Tennessee Valley Authority and other public power utilities), but all the same, a "good first step."
By contrast, the FERC rejected the proposal by Southern Company Services Inc. to create SE Trans Grid as a second RTO to the south, instead suggesting that Southern should join a neighboring RTO in the southeast.
- As a condition of future final certification, the FERC told GridSouth to give other stakeholders an equal voice with transmission owners in selecting the RTO's initial governing board. It added that GridSouth passive owners must first show the FERC why a merger or consolidation would be a justification for vetoing the deal. Commissioner Massey would have wanted GridSouth to merge in a single RTO with the Southern Co. group, to avoid interface problems that could lead to "unnecessary expenditures on software that may become unusable if and when standardization occurs." .
- The FERC found the Southern Co. proposal insufficient on two fronts. First, it said the RTO functions would be limited improperly to include only new wholesale transmission services. Second, it worried that certain rate incentives would only benefit entities other than the RTO operator. Massey dissented on that point, arguing that because Southern had not presented a "serious" RTO proposal, there was no reason for the commission to offer guidance on how to correct the rate incentives. .-L.A.B.
New York and Northeast. The New York Independent System Operator on March 14 called for state regulators to approve between 4,000 and 5,000 megawatts of new generating capacity to avoid serious electric shortages, improve air quality, avoid economic downturn and avert strong upward pressure on energy prices.
The ISO also called on the state PUC to accelerate programs giving customers options regarding conservation, real-time metering and price-sensitive load management.-L.A.B.
Texas. Texas OK'd rules proposed by the Electric Reliability Council of Texas (ERCOT) for operating the state's power grid under retail supply choice for electricity, which is set to begin on Jan. 1, 2002 (though 5 percent of customers may exercise choice in a pilot project starting June 1). The rules initiate market monitoring and govern how ERCOT will operate a market to mitigate energy imbalances that arise between schedules submitted by qualified scheduling entities and real-time system requirements. (ERCOT members serve about 85 percent of the state's electric load.) The PUC found some concerns with the rules and imposed certain safeguards, including:
- Demand Bidding. Mechanisms for customers to participate in ERCOT markets through reductions in demand for electricity; and
- Bid Cap. A temporary cap of $1,000 per megawatt-hour on supply bids by power producers in ERCOT- operated markets, to expire in 2003. But the cap would not apply to demand bids by customers offering to reduce consumption. .-L.A.B.
Must-Run Plants. The FERC issued a show cause order requiring Williams Energy Market and Trading Co. and AES Southland Inc. to explain why they should not be found in violation of the Federal Power Act for failing to operate certain must-run generating plants. .-L.A.B.
Congress
Power Price Gouging. U.S. Representative Jay Inslee (D-Wash) and Peter Defazio (D-Ore) wrote the General Accounting Office in early march, asking the GAO to investigate whether power producers manipulated wholesale electricity prices in the Western U.S. by pulling generating plants off line for no reason other than to create an artificial scarcity.
As reason for the study, the congressman cited a study by MIT professor Paul Joskow and California Oversight Board member Edward Kahn that it would have been profitable for suppliers holding a portfolio of generating units with diverse marginal supply costs to withdraw capacity from the market even under otherwise competitive situations. ( http://web.mit.edu/pjoskow/www/).-L.A.B.
State PUCs
Worker Layoffs. California barred Southern California Edison and Pacific Gas and Electric from laying off non-management employees, after Administrative Law Judge John Wong had proposed the ban to preserve reliability and service quality. Commissioner Bilas opposed the decision-especially since he felt the PUC already had "pushed the utilities in a corner." .-L.A.B.
Bulk Power Purchasing. California also voted 4-1 to allow the state's Department of Water Resources to set its own revenue requirement and to recover costs from PG&E and SoCal Edison for purchasing wholesale power on their behalf. The order also exempts the DWR from prudence review by the PUC. .-L.A.B.
Retail Choice. Virginia asked for comments on its proposed final rules governing retail supply choice for energy. Comments were due April 6. .-C.J.L.
Commodity Risk Management. Idaho OK'd deferred accounting for Avista Corp. for fluctuations in revenues and expenses both for hedging activities and for long-term fixed price contracts with customers.
- Deferred accounting was needed to track hedging because Financial Accounting Standards 133 and 138 would require Avista to record changes in the fair value of derivatives. .
- The PUC stopped short of creating a separate purchased gas adjustment clause, but said Avista should expect to be required to track risks, benefits and losses that flow from using fixed-price contracts to procure gas supplies and also to sell gas to retail customers. .-P.C.
Gas Plant Cleanup. Iowa told IES Utilities Inc. to return to ratepayers 90 percent of insurance received under its comprehensive insurance policies for environmental clean-up of sites of former gas manufacturing plants, as a quid pro quo for the utility's recovery of clean-up costs from ratepayers back in a rate order issued in 1991. .-P.C.
Power Plants
Construction in California. On March 7 the California Energy Commission issued its first certification of an electric generating plant under the streamlined review process OK'd by Gov. Gray Davis last September.
The project (United Golden Gate Power Project, owned by El Paso Merchant Energy) is a 51-megawatt, simple-cycle gas turbine designed to provide peaking power to the San Francisco peninsula for up to three years, beginning in August.-L.A.B.
Competition in Florida. The U.S. Supreme Court on March 5 declined without comment to hear a constitutional challenge by the City of New Smyrna Beach to a Florida law seen as barring merchant plant development.
The state supreme court has interpreted the law to bar certification of need for merchant plants if the plant owners cannot show that plant output is dedicated to utility customers to whom the utilities owe a legal duty to serve.
Meanwhile, a recent report from the state's Energy 2020 Study Commission report calls for changes to the law to make Florida electric markets more competitive.-L.A.B.
Business Wire
Pacific Gas & Electric Co. has chosen Viador Inc.'s E-Portal to extract and route energy demand data to its grid transmission operations center and a utility/energy scheduling group, among others. "During California's current energy crisis, when the words 'rolling blackouts' and 'conservation' are on the tip of everyone's tongue, we understand [the] need to monitor energy demand data in real-time," said Steve Dille, senior vice president of worldwide sales and marketing at Viador.
TransCanada Pipelines Ltd. has agreed to purchase 100 percent of the Curtis Palmer Hydroelectric Co. L.P. from International Paper Co. for approximately US$285 million. The transaction is expected to contribute immediately to TransCanada's earnings. It is anticipated that the deal will close by the end of the second quarter 2001. The Curtis Palmer facilities have a generating capacity of approximately 60 megawatts.
SCIENTECH Inc., developer of the online power industry parts search engine rapidpartsmart.com, has entered into a strategic alliance with Enporion, the power industry global supply chain e-marketplace. The two firms have agreed to provide Enporion customers with access to SCIENTECH's rapidpartsmart, while rapidpartsmart customers will be able to utilize Enporion's e-commerce platform.
Enbridge Commercial Services, a subsidiary of Enbridge Inc. and an affiliate of Enbridge Consumers Gas, Canada's largest natural gas distributor, has licensed Peace Software's Energy Version 6 software to enhance its operations and customer services for commercial and industrial natural gas markets. The new system will enable Enbridge Commercial Services to more fully automate contract management and complex billing services to over 6,000 large commercial and industrial gas customers by fall 2001.-C.J.L.
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