State PUCs

Gas Retail Rate Design. In a move toward equalizing rates of return between customer classes, the Oregon PUC authorized Northwest Natural Gas Co. to increase base rates by nearly $246,000, at the same time boosting residential rates by 1.3 percent but lowering rates for large commercial and industrial users. It set return on equity at 10.25 percent, finding the rate "consistent with the downward trend of ROEs authorized by other regulatory commissions." Order No. 99-697, Nov. 12, 1999 (Ore.P.U.C.).

Electric Restructuring. The Maryland PSC approved restructuring plans for Baltimore Gas & Electric Co. and Delmarva Power & Light Co., requiring the utilities to implement customer choice for all customers by July 1, 2000 - as much as two years earlier than called for under the state's restructuring law. That law set deadlines of Jan. 1, 2001, for industrial and business customers and July 2, 2002, for all residential users. Other features of the plans include:

* Metering. Competitive metering will become available in BG&E's service area for large customers (peak loads in excess of 300 kilowatts) on July 1, 2000, with all other customers eligible on April 1, 2002.

* Generation Assets. Delmarva would sell 2,200 MW of nuclear and coal-fired generating capacity to third parties, transferring unsold assets to an unregulated affiliate. BG&E would sell or drop all its generation, including the Calvert Cliffs nuclear plant - a reversal of its previously stated intention.

* Residential Rates. BG&E would cut rates an average of 6.5 percent beginning on the July 1 start date, and freeze them for six years. Delmarva residential customers would get a 7 percent reduction and a four-year freeze.

* Stranded Costs. Delmarva would recover $8 million, all from non-residential customers, of the $16 million it requested. BG&E may recover $528 million ($193.8 million from residential customers) and, as a component of its unbundled distribution rate, $333 million in generation-related regulatory assets (e.g., deferred taxes) as well as up to $520 million in Calvert Cliffs decommissioning costs.

* Shopping Credits (Residential). Delmarva's credit will not fall below 4.92 cents per kilowatt-hour. BG&E's will escalate from 4.22 cents to 5.22 cents per kilowatt-hour over the rate plan period as stranded-cost recovery charges decline.

Order No. 75680 (Delmarva), Oct. 8, 1999 (Md.P.S.C.); Order No. 75757 (BG&E), Nov. 10, 1999 (Md.P.S.C.).

Utility Affiliates. Rules adopted in Illinois address relationships between electric utilities and unregulated affiliates, including advertising, marketing, customer information and maintenance of books and records. No. 98-0013, Nov. 5, 1999 (Ill.C.C.).

Electric Restructuring. Potomac Electric Power Co. on Nov. 9 reached a settlement with almost all parties to a rate case that would cut rates - if approved by the Washington, D.C. PSC - and allow PEPCO to divest its generating assets and purchased power contracts via an auction held in 2000.

The proposal calls for residential ratepayers to receive a 7 percent rate cut, phased in at 2 percent on Jan. 1, 2000, 1.5 percent on July 1, 2000, and an additional 3.5 percent one month after closing the power plant sale. Rate cuts for commercial customers would total 6.5 percent, starting with 3.5 percent on Jan. 1, 2000, and an additional 1.5 percent on both July 1, 2000 and one month after sale closing. Both residential and commercial rates would be capped for four years.

PEPCO is hopeful that all residential customers would be allowed to participate in a pilot program for customer choice of electric suppliers no later than Jan. 1, 2000, provided the city council enacts the proposed tax and legislation by March 31, 2000.

EDI Standards. Maine's standards for electronic business transactions call for value-added networks (VANs) to be used in implementing electronic data interchange, but also call for the state to "move to using the Internet when open solutions and national standards are ready." The standards address the relationships between electric customers, competitive electric suppliers and the transmission and distribution utilities, define a set of electronic business transactions corresponding to those business relationships and define the electronic business transactions for standard offer service. Docket No. 99- 468, Nov. 2, 1998 (Me.P.U.C.).

Electric Standard Offers. Saying it cannot compete with a standard offer rate of 3.5 cents per kilowatt-hour, the retailer Sunshine Energy (a subsidiary of FP&L Energy Services) notified the Rhode Island PUC in early November that it will stop selling electricity to retail residential customers by the end of the year. It had sold power to 550 former Narragansett Electric customers.

Billing Requirements. The Maryland PSC will not force competitive generation retailers to post a "price to compare," or standard offer rate, on monthly bills to be sent to customers in the soon-to-be restructured electric market, saying it could cause confusion.

It explained that the supplier's price shown on a bill would not be an average price, but rather the actual price for the period of time covered by the billing statement. The PSC also will not mandate a uniform format for electric bills. Order No. 75722, Oct. 29, 1999 (Md.P.S.C.).

Gas Competition. The Kansas commission found it premature to implement natural gas competition at the residential retail level, but invited Midwest Energy to file its proposed pilot program to help it make a determination on the matter. Docket No. EC99-81-000, Oct. 29, 1999 (Kan.Corp.Comm'n.).

Earnings Sharing. In what it described as a fundamental change in the way it regulates electric utilities, the Florida PSC approved a three-year rate plan for Gulf Power Co. with an earnings-sharing mechanism that will force the company to refund to customers all earnings that exceed the utility's authorized rate of return on equity. Docket No. 990250-EI, Order No. PSC-99-2131-S-EI, Oct. 28, 1999 (Fla.P.S.C.).

Regulatory Assets. The Virginia commission will defer a ruling on whether to allow Virginia Electric & Power Co. to use excess 1997 earnings to write off a portion of stranded regulatory assets, to better consider what effect the impending transition to customer choice might have on the utility's future earnings. Case No. PUE980808, Oct. 20, 1999 (Va.S.C.C.).

Fuel Cost Adjustments. In light of the state's electric restructuring law passed last year, the Arkansas PSC closed a pending generic investigation of electric utility issues including flexible pricing through performance-based regulation and the phase-out of fuel clause and other automatic adjustment clause rate mechanisms.

The PSC said that such issues would be decided by markets. It added that it would open new rulemaking proceedings to address promotional practices, flexible pricing and distribution service quality. Docket No. 97-454-U, Order No. 17, Oct. 1, 1999 (Ark.P.S.C.).

Gas Pipelines

Capacity Allocation. The FERC rejected pro forma tariff sheets for El Paso Natural Gas Co. to revise its pooling requirements and rolled the issue over into another docket on El Paso's allocation of firm delivery point capacity.

FERC found that El Paso's allocation of receipt point capacity on a pro rata basis created uncertainty and unreliability with respect to pooling and scheduling on its system. Docket Nos. RP98-407-000 (tariff sheets), RP99-507-000 (capacity allocation), Nov. 10, 1999 (F.E.R.C.).

Courts

Nuclear Plant Licensing. In a surprising turnabout favoring the nuclear industry, a federal appeals court said it would rehear arguments on whether to give opponents more time to fight the relicensing application for the Calvert Cliffs (Md.) nuclear plant, owned by Baltimore Gas & Electric. The new order suggests that the Nuclear Regulatory Commission was justified in denying any extension under a 1998 policy requiring intervenors to prove "unavoidable or extreme circumstances." Nat'l Whistleblower Center v. NRC, Nos. 99-1002 et al., Nov. 22, 1999 (D.C.Cir.)

Consumer Credit Laws. A Pennsylvania court ruled that natural gas utility bills were still exempt from the federal Truth-in-Lending law since the state still regulated charges "for public utility service."

It added that the bills in question satisfied a state law mandate to disclose the exact billing "due date," even though they used the more oblique language: "Please pay by [date]." Aronson v. Pa. PUC, No. 989 C.D. 1999, Nov. 16, 1999 (Pa.Cmwlth.).

Bankruptcy Setoffs. Reversing a bankruptcy court, the 5th Circuit interpreted rights between a natural gas local distribution company that owed payments for purchased gas and a gas marketer that petitioned for bankruptcy and then failed to make deliveries to the LDC.

It said the LDC could not offset its pre-petition debt with liquidated damages for the delivery failures, since the marketer had not enjoyed any concrete benefit from the LDC's continued gas nominations after it had filed its bankruptcy petition. Gasmark Ltd., v. Southwest Gas Corp., Nos. 98-20941, Nov. 1, 1999, revised Nov. 15, 1999 (5th Cir.).

Wireless PCS Towers. A state supreme court ruled that a telecom firm must apply to local zoning authorities before constructing wireless PCS transmission towers, even if the towers are built on rights-of-way owned by the state highway department (DOT).

Seeking to avoid zoning laws, the telecom firm had leased the easement from the state and in exchange had offered joint rights to the DOT to use the towers for official business, such as installing closed-circuit television cameras to monitor traffic flow. Fairfax Bd. of Supervisors v. Washington, D.C. SMSA L.P., No. 982627, Nov. 5, 1999 (Va.).

Superfund Cost Recoupment. Rejecting the rule of sovereign immunity, a state court held the state government partially liable for Superfund Law reimbursement where a state flood control project had rerouted a creek and thereby uprooted a gravel seam containing coal tar deposited by a former utility-owned coal gasification plant. PFG Gas Inc. v. Pennsylvania, No. 261 M.D. 1999, Nov. 4, 1999 (Pa.Cmwlth.).

Utility Trade Secrets. A state court ruled that Yankee Gas Services Co. could use the Freedom of Information Act to compel the city of Norwich to disclose a cost of service study the city had prepared to build a pipeline and deliver and sell natural gas to a local Indian tribe.

The court said that Norwich had forfeited any right to protect secrets when it made the study available to city employees and "various members" of the tribe and the Bureau of Indian Affairs. Norwich Dept. of Pub. Utils. v. Freedom of Info. Comm'n, No. 18549, 1999 WL 985431, Nov. 2, 1999 (Conn.App.).

QF Certification. A federal appeals court struck down a pair of FERC orders that let the owner of a landfill methane plant choose to burn natural gas as up to 25 percent of its energy input to "levelize" power output to match a purchaser's load and still qualify as a small power production facility (QF).

The FERC had OK'd the gas firing to make better use of the QF's "essential fixed assets," but the court said that QF certification rules made no such allowance. So. Calif. Ed. Co. v. FERC, No. 98-1439, Nov. 2, 1999 (D.C.Cir.).

Transmission & ISOs

California ISO Pricing. The FERC by a 3-2 vote allowed the California ISO to retain authority to impose purchased price caps for ancillary services, which were due to expire Nov. 15, 1999, until Nov. 15, 2000.

Commissioner Vicky Bailey dissented, stating that the order represented a sharp departure from three earlier orders dating back to the summer of 1998. "We granted price caps with considerable hesitation and wanted them gone by Nov. 15 unless the ISO could show serious market design flaws," she observed. Commissioner Curt Hébert also dissented. Docket No. ER99-4462, Nov. 10, 1999 (F.E.R.C.).

Transmission Siting. A hearing examiner at the Virginia commission has delayed an evidentiary hearing until May 1, 2000, on a 765-kilovolt transmission line proposed for construction by American Electric Power in the Southwest part of the state. The commission will now consider two possible alternative routes.

Northern Maine ISA. The FERC granted regional transmission group status to the Northern Maine Independent System Administrator, which includes all transmission systems of investor-owned utilities and co-ops in Northern Maine. Docket No. ER99-4225-000, Nov. 10, 1999 (F.E.R.C.).

Firm Transmission Rights. Responding to questions by the California ISO, the FERC ruled that electric firm transmission rights are jurisdictional and subject to FERC policy, and that the ISO must post on its website the identities of FTR holders. Docket No. ER98-3594-000, Nov.10, 1999 (F.E.R.C.).

Desert STAR. Desert STAR announced Nov. 4 that it has incorporated as a nonprofit member corporation, marking the start of its attempt at becoming the independent system operator of the Desert Southwest region. "The challenge now facing everyone involved in the Desert STAR development is to move from the study effort into the creation of an actual ISO," said Michael Raezer, project manager for Desert STAR and manager of fuels and resource planning for Tucson Electric Power Co.

Grid Reliability. Five utilities - Basin Electric Power Co-op, British Columbia Hydro and Power Authority, Platte River Power Authority, Sierra Pacific Power Co. and TransAlta Utilities Corp. - signed the Western Systems Coordinating Council (WSCC) reliability management system (RMS) agreements on Nov. 3. They join 21 other WSCC members in the first regional electric reliability council in North America to implement a voluntary reliability program with sanctions.

Business Wire

Ballard Power Systems has received an order from Honda for $2.6 million to supply fuel cells and related equipment and support services. Honda will use the fuel cells in its research and development program for evaluation and development of fuel cell vehicles. Meanwhile, Ballard's affiliate company, dbb fuel cell engines inc., unveiled a fuel cell-powered bus at the International Transportation Exposition in Orlando, Fla. Commercial production for the Phase 4 engine, which is almost 2,000 kilograms lighter than the Phase 3, is planned for 2002.

Along with projects submitted by Amergen, Tractebel, Centrica, Williams and K&M Engineering and Consulting Corp., KMR Power Corp.'s TermoCandelaria project was considered for the award of "Boldest Successful Investment Decision of 1999" by the Financial Times Energy Awards committee. Financial Times also honored KMR Power for its 320-MW Cartagena, Colombia-based TermoCandelaria power project, the company's largest wholly owned project to date.

Sears Canada and TransCanada PipeLines Ltd., through its wholly owned subsidiary TransCanada Energy Ltd., will join forces to offer residential consumers in Ottawa reliable, competitively priced natural gas. The new service, which was to begin in December, makes Sears the first national general retailer to offer natural gas. The new agreement first will be piloted in the Ottawa market and then the service will expand nationally.

Peace Software has been awarded the Frost and Sullivan 1998 Market Engineering Entrepreneurial Co. Award. Peace was one of five companies selected for recognition out of 125 software companies. Patrick Hodges of Frost and Sullivan said that the award has been given to Peace Software "for its understanding of deregulating markets and ability to mold a unique CIS solution for competitive utilities."

Utility.com has gained full participant status from NEPOOL, the New England wholesale electric power pool organization. The Internet utility company plans to roll out its services in New England over the next six to eight months. The company, which provides services throughout California and Pennsylvania, will participate in New England's bulk power market as a load aggregator, purchasing electric energy and capacity at wholesale and reselling it to retail customers, and as a broker, arranging the wholesale purchase or sale of electric energy or capacity on behalf of buyer or seller organizations in New England.

Mergers & Acquisitions

ScottishPower + PacifiCorp. With its president dissenting, the Idaho PUC OK'd the merger of ScottishPower PLC and PacifiCorp, saying it would usher in a new "customer-oriented era" of electric utility service. The order calls for the merged utility not to seek a rate increase in Idaho effective prior to 2002, and to pay a $6.4 million merger credit to customers.

"Denial of the merger in this case simply by virtue of the fact that ScottishPower is incorporated in another country would put this commission on very tenuous legal footing," the PUC said. But dissenting commission president Dennis Hansen argued that the companies failed to provide adequate evidence that the merger met the public interest. Order No. 28213, Nov. 15, 1999 (Idaho P.U.C.).

Dominion Resources + CNG. The Federal Energy Regulatory Commission conditionally approved the merger of Dominion Resources Inc. and Consolidated Natural Gas Co., giving the companies 45 days to revise their analysis of market power under the commission's competitive screen and thus allow the FERC to build a record and approve the deal without further conditions.

In the alternative, the applicants could accept a code of conduct for dealings among affiliates of the new post-merger corporate family.

Though he did not dissent, Commissioner Curt Hébert said he disagreed with the majority's findings on vertical market power. He said the agency essentially was "sending a glorified deficiency letter," thereby demonstrating that it "should leave the merger arena." Docket No. EC99-81-000, Nov. 10, 1999 (F.E.R.C.).

Illinova + Dynegy. The FERC approved the merger of Illinova Corp., parent company of Illinois Power, and energy marketer Dynegy Inc. The newly formed holding company will operate from Dynegy's headquarters in Houston. Docket No. EC99-99-000, Nov. 10, 1999 (F.E.R.C.).

Enron + Portland General. Having shifted its focus away from retail to wholesale, Enron Corp. on Nov. 8 announced it will sell its Portland General Electric subsidiary to Sierra Pacific Resources for cash and debt worth $3.1 billion - the same figure it paid two years ago to acquire PGE. With timely receipt of regulatory approvals, Enron would expect to close the selloff in the second half of this year.

"Portland General is one of the premier electric utilities in the West," said Michael Niggli, chairman and CEO of Sierra Pacific Resources. "This transaction is an important step in fulfilling our previously stated goal of expanding our regulated utility businesses."

AEP + C&SW. On Nov. 5 the Texas PUC unanimously approved the merger of American Electric Power and Central & South West Corp., along with combined rate cuts totaling $221 million over six years for Texas retail customers of the three C&SW Texas operating companies. The settlement provides for divestiture of 1,064 megawatts of generating capacity in Texas.

A FERC law judge was to rule on the merger by Nov. 24, with a final commission order expected by March. The deal had already won approval in Arkansas, Louisiana and Oklahoma.

KeySpan + Eastern Enterprises. New York-based KeySpan Corp. on Nov. 4 announced that it will acquire New England-based Eastern Enterprises for $64 per share, or $2.5 billion ($1.7 billion in equity and $0.8 billion in assumed debt and preferred stock).

The combined companies will serve 2.4 million electric and natural gas customers. KeySpan expects pre-tax annual merger savings of about $30 million. KeySpan's headquarters will remain in New York, and Boston will serve as the New England headquarters for the combined company.

Northern States + New Century. A coalition of environmental groups on Nov. 1 filed a petition to intervene at the Minnesota PUC in opposition to the proposed merger between Minneapolis-based Northern States Power and Denver-based New Century Energies to form Xcel Energy. Concerned that the majority of both companies' power is generated by coal, the coalition believes that approval would weaken Minnesota's "progressive" regulatory treatment of NSP.

NEES + EUA. Regulators in Connecticut approved the merger of Eastern Utilities Associates into New England Electric System, thereby combining EUA's operating subsidiary, Montaup Electric Co., into New England Power Co., the operating subsidiary of NEES.

Each operating company is a minority owner in the Millstone Unit No. 3 nuclear plant, and each intends to eventually divest its ownership interest. Docket Nos. 99-08-11, Oct. 27, 1999 (Conn.D.P.U.C.).

Power Plants

New Generation Interconnections. The FERC denied rehearing on application procedures used by the PJM Interconnection LLC to decide on requests of third parties to interconnect additional generating capacity to the PJM grid and to establish cost responsibility rules for interconnection of new generation projects. Also included is PJM's method of establishing an initial queue for interconnection requests.

PJM had allowed prospective power producers to gain priority in the informal queue by demonstrating that they could have submitted an interconnection request earlier. In the future, however, PJM must base queue rights on a first-come, first-served protocol. Docket No. ER99-2340-001, Nov. 10, 1999 (F.E.R.C.).

Fossil Sales. The New Jersey board OK'd the sale of the non-nuclear assets of Jersey Central Power & Light Co. (doing business as GPU Energy) to Sithe Energies Inc. for $442 million, including GPU's 16.7 percent interest in the 1,170 MW, coal-fired, Keystone generating facility for $255 million, and GPU's New Jersey-based assets for $187 million.

The board also approved the transition power purchase agreement between GPU and Sithe, giving GPU the option to purchase contract capacity (call option) from Sithe at prices ranging from $69.60 per megawatt-day in 1999 to $120 per megawatt-day in 2002, and giving Sithe the option to require the company to purchase such contract capacity (put option) at prices ranging from $54.80 per megawatt-day in 1999 to $93 per megawatt-day in 2002. Docket No. EM99020067, Nov. 4, 1999 (N.J.B.P.U.).

Nuclear Divestitures. Connecticut Light & Power Co.'s divestiture plan for the Millstone nuclear station, filed Nov. 9 with the state commission, calls for auctioning all three nuclear units in the same package. As part of the divestiture process, NU hopes to transfer decommissioning responsibility for all three units to the new owner. Following regulatory approvals, NU would hold the auction early in 2000, with a successful bidder chosen by summer of 2000.

Emissions Lawsuit. The federal government on Nov. 3 filed lawsuits against seven investor-owned utilities that own coal-fired plants, alleging that they have illegally polluted the air by upgrading their coal-fired generating plants without adding required emission controls as required by the Clean Air Act of 1970. The Environmental Protection Agency and the Justice Department sued American Electric Power Co., Cinergy Corp., FirstEnergy Corp., Illinova Corp., Southern Co., TECO Energy Inc., and Southern Indiana Gas & Electric Co.

The EPA also filed a similar, "administrative order" against Tennessee Valley Authority, which requires a different process since it is government-owned. The lawsuits involve 32 plants located in West Virginia, Georgia, Illinois, Indiana, Kentucky, Mississippi, Ohio, Tennessee and Alabama.

News Digest was compiled by Carl J. Levesque, associate editor, Lori A. Burkhart and Phillip Cross, contributing legal editors, and Bruce W. Radford, editor-in-chief. For continual news updates, see www.pur.com.

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