News Digest
Power Markets
California Market Rules. Calling current power prices "just unreasonable," the California Independent System Operator filed its long-awaited counterproposal for market stabilization (the FERC staff had filed its proposal in March). If approved by the FERC, the new market rules would take the place of price caps ("soft" and "hard"), breakpoints, benchmarks, and all the other artificial price ceilings and guidelines tried recently.
The ISO proposal offers three key features:
- An "availability payment" to all participating generators in lieu of imposing on them a strict obligation to meet all California power demand.
- A program of "resource-specific, cost-based bid caps" (RCBCs), plus a must-bid requirement, and
- Day-ahead and hour-ahead forward markets run the ISO to cover the portion of forecasted load traded through bilateral markets, for both energy and ancillary services, so that at least 90 percent of forecasted system load is scheduled through the day-ahead market, and at least 95 percent by close of hour-ahead trading (to reduce the real-time market share to 5 percent or less).
In the first round of comments, the Electric Power Supply Association suggested the need for a capacity reserve requirement and criticized the idea of bid caps and also the ISO's plan to curtail export schedules when faced with shortfalls, saying that California was "picking and choosing" isolated features of markets in PJM, New York and New England, in a "poorly thought-out and disconnected way."
Enron added that the ISO's proposed cost-based bid standard for importers would rely on an "arbitrary" heat rate that would not reflect current resource scarcity in the Pacific Northwest. And Dynegy saw the plan as unfairly focusing on generators located within California: "Any ... new generation in California automatically joins a target group that bears the brunt of market mitigation ... Out-of-state suppliers can simply decline to sell into California." .-B.W.R.
Load Pocket Prices. ConEd asked for authority to close "loopholes" in the New York ISO's plan to mitigate generation market power in the New York City load pocket, by extending the program to cover all plants, including must-run units (and not just the plants divested by ConEd), plus all transactions, including the real-time market, and then either to (a) replace the ISO's single-price auction with a pay-as-bid protocol, or (b) require cost-based bidding if the single-price auction is retained.
New York City called ConEd's plan "a step in the right direction," but said the changes still would not be enough to protect local electric consumers, and the state utility commission agreed. Transmission owners generally supported the move, but power producers objected. Some faulted ConEd for filing at the FERC instead of working through the ISO's established procedures, while others said the ISO's Market Monitoring Unit already had the problem covered. The state power authority (PASNY) said its plants should remain immune from the rule change, but added that it thought the tighter controls would discourage new plant construction in the New York City area. .-B.W.R.
State PUCs
Generation Adequacy. North Carolina asked its public staff to investigate and report on the availability and adequacy of infrastructure (fuel supply and delivery capacity, transmission availability, etc.) needed to support development of new electric generating capacity in the state.
Earlier, North Carolina OK'd resource plans filed by the state's major electric utilities, finding existing generation resources to be adequate for the year, with reserve margins running from about 12 percent to 17 percent. -L.A.B.
Purchased Power Costs. Citing the magnitude of the utility's request for a purchased power adjustment, Wyoming launched an investigation of power procurement by Cheyenne Light, Fuel & Power, threatened with higher purchased power costs with the expiration of its requirements contract with its long-term supplier, PacifiCorp. Wyoming regulators said that Cheyenne's current level of wholesale power costs might well call for retail rate hikes running between 57 percent to 88 percent, depending on customer class..-P.C.
Transmission and ISOs
Capacity Reserve Obligation. At press time, PJM had drawn a flood of protests with its fast-track request to amend its Reliability Assurance Agreement to impose a season-long obligation on power producers (instead of day by day) to commit generation to the ISO's capacity reserves in its installed capacity (ICAP) market, and similarly to create a ratchet-like seasonal deficiency charge. Any generator found "short" on any day during the entire summer peak season would be denied any share of reallocated deficiency charge revenues, despite its capacity status on any other day. .-B.W.R.
Locational Marginal Pricing. Despite a raft of protests, the FERC OK'd a proposal by the New York ISO to pay locational marginal prices (three zones statewide) to power producers for generation reserves (spinning, nonspinning, and 30-minute operating), to reflect changing market values because of transmission congestion, but yet at the same time to bill the cost of such reserve generation to all customers across the state on a uniform socialized basis, without regard to location. .-B.W.R.
Credit Standards. Bowing to demands by power producers, the FERC reaffirmed that So. Calif. Edison and Pacific Gas & Elec. must meet credit requirements to buy wholesale power, and again told the ISO that it must deny scheduled transactions unless the two utilities meet credit tests or self-provide-i.e., supply their own generation and transmission.
Commissioner Massey found the issue troubling, citing an "irreconcilable conflict" in forcing the ISO to deny service and yet keep the system running. .-B.W.R.
Courts
California PX Markets. A federal appeals court ruled that when the FERC found that the day- of- and day-ahead markets operated by the California Power Exchange were unjust and unreasonable, it was justified to cancel them (which put the PX out of business), rather than to attempt to restructure the PX tariffs to cure the defects, as the PX had wanted.
The court acknowledged that the termination of tariffs was "perhaps unprecedented," but said the FERC action satisfied sec. 206(a) of the Federal Power Act. .-B.W.R.
California Oversight Board. Finding no evidence of concrete injury, a federal appeals court dismissed claims by out-of-state power producers that the California Electricity Oversight Board violated federal law by showing bias in favor of California residents and shifting costs to out-of-state companies. .-B.W.R.
Divested Power Plants. An Arizona appeals court ruled that when the state PUC unbundled rates for Arizona Public Service Co., and set standard offer rates for regulated distribution service over a future locked-in 4-year period, to effectuate retail choice, it did not have to conduct a new rate case to recalculate fair value, despite the utility's plans to divest certain generating plants.
The court ruled that future market value of power purchased on the open market after plant divestiture was likely equivalent to the fair value of divested generating plants (plus stranded costs).
"Because the cost of the generation assets will be replaced by the corresponding expense of purchasing power, rates of return will not be affected significantly," said the court. Ariz. .-B.W.R.
District Heating & Cooling. Reversing a $20 million trial verdict for antitrust damages, a federal appeals court ruled that state rate regulation afforded immunity for Oklahoma Gas & Elec. Co. against allegations by a local subsidiary of Trigen Energy that the utility made improper payments to public officials and offered discounted loans and construction cost guarantees to entice certain energy customers to install on-site chillers instead of relying on Trigen's district heating and cooling services, which offered delivery of steam and chilled water through a local pipeline distribution network. -B.W.R.
Gas Markets
Pipeline Certification. The FERC spent only three weeks between date of application and decision to grant fast-track approval to the Kern River Transmission Co. to build new facilities to deliver 135,000 Mcf per day of natural gas to California from Wyoming this summer. .-L.A.B.
Gas-Fired QFs. In accusing the California PUC of violating the Public Utility Regulatory Policies Act (PURPA), the California Cogeneration Council asked the FERC to "provide guidance" to the PUC to convince the PUC to reverse its late March ruling (), whereby it switched to using the lower Malin index price for natural gas (at the California-Oregon border), instead of the much higher-priced Topock index (Arizona border) to calculate short-run avoided costs (SRAC) in setting rates for electricity sold to utilities by qualifying cogeneration and small power production facilities (QFs).
According to the Council, the PUC order violates PURPA by denying recovery of actual avoided costs, since the Topock/Malin price differential exceeded $4 per dekatherm in March, and was "likely" to exceed $5 in April, while only a small portion of gas serving southern California QFs comes from Malin.
The PUC ruling does allow an SRAC adder for in-state gas transport costs from north to south, but the council dismisses any notion that southern California QFs can acquire Malin gas.
"If gas could flow freely from either point [Topock or Malin] into the California market, the two prices would be very similar," says the council. But it adds that because supplies at Malin are less expensive than Topock, "PG&E's pipelines that move gas south from Malin are often full. Firm capacity on PG&E's ÔRedwood Path' south of Malin has been sold out since 1998." .-B.W.R.
State Legislatures
Phantom Stranded Costs. The Texas House State Affairs Committee introduced a bill (H.B. 2107) which, if enacted, could force three Texas utilities to reimburse ratepayers through a billing credit when retail competition begins, to recapture millions of dollars in costs previously assumed to be stranded, but now likely not, because the recent general increase in natural gas prices has made nuclear power more competitive.
The bill would affect TXU Electric and Gas, AEP's Central Power and Light, and Reliant HL&P, which oppose the bill and together have claimed about $7 billion in stranded costs.-L.A.B.
Electricity Conservation. On April 11 California Governor Gray Davis signed into law two bills that earmark about $850 million toward energy conservation, including home weatherization for low-income residents, rebates on energy-efficient appliances, and public information campaigns, plus $35 million for purchase and installation of advanced meters. Overall, the program aims to cut at least 2,000-MW daily in electric use.-L.A.B.
Power Plants
Station Power. In a small victory for independent power producers against distribution utilities, the FERC OK'd Attachment K to PJM's Open Access Tariff, and ruled that a generator may take its station power (SP) requirements (for site-specific operations) as a net credit against the power output sold at wholesale, rather than be forced to buy station power at retail from the local electric utility.
As OK'd by the FERC, the rule applies if the plant's gross power output exceeds its SP needs, so that it qualifies in effect as a self-supplier for on-site power requirements. The case had involved several power plants owned by NRG, including the Dunkirk unit. .-B.W.R.
News Digest was compiled on April 24 by Bruce W. Radford, editor-in-chief, from contributions as noted from Carl J. Levesque, associate editor, and Phillip S. Cross and Lori A. Burkhart contributing legal editors.
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