T+D Investment Risk. The Maine PUC appeared to take a pro-consumer stance in setting principles it will use to set a revenue requirement for transmission and distribution (T&D) services provided by Bangor Hydro-Electric Co. after the company becomes a wires-only utility on March 1. The PUC downplayed the risk of wires operations, adopting a return on equity of 11 percent and disallowing about $3.5 million of some $71 million in claimed T&D costs.
Overall, the PUC viewed the risk profile of a T&D electric utility as falling somewhere "between that of a water utility on the low end and that of the existing electric utility industry at the upper end." It added that it had yet to see any opinion from the investment community "that would suggest that pure T&D utility operations would be anything but less risky than fully integrated electric utility operations."
The utility had asked the PUC to consider improving shareholder returns to bolster investor confidence, but the PUC declined, describing the major point of industry restructuring as being to insulate ratepayers from generation investment risk.
Nevertheless, the PUC did boost the wires equity return to 30 points above the 10.7 percent midpoint indicated by approved financial models: "Psychologically, the 11 percent threshold may provide an additional measure of comfort for equity investors as we restructure."
Also, the utility had asked for $40 million for stranded costs on the T&D plant, but the PUC declined to set a specific figure, saying that any estimate would vary greatly, depending on the outcome of a mandated auction of generating assets and contracts with qualifying cogeneration facilities. Docket No. 97-596, Nov. 24, 1999 (Me.P.U.C.).
Power Outages. After seeing outage complaints double in the last three years, with two storms in July 1999 blacking out over a quarter-million customers of Detroit Edison, and receiving a preliminary report from its staff, the Michigan PSC decided on Nov. 19 to investigate the reliability of Edison's distribution system and the company's storm response capability.
The staff report, also issued Nov. 19, recommends that the PSC develop a rate mechanism to link reliability to DE's allowed rate of return. See http://ermisweb.cis.state.mi.us/mpsc/.
Efficiency Programs. Vermont OK'd a "nonbypassable volumetric charge" that will fund the new Energy Efficiency Utility, the mechanism established to deliver an array of energy efficiency programs in the state. (See News Digest, December 1999, p. 17.)
The energy efficiency charge (EEC) in 2000 will range from 0.17 percent to 2.75 percent of all customers' current bills, but with a setoff to avoid double billing where utility rates already allow for demand-side management programs. Docket No. 5980, Nov. 19, 1999 (Vt.P.S.B.).
Efficiency Program Evaluation. Massachusetts chose the "total resource cost" method of testing the cost-effectiveness of energy efficiency programs in the deregulated electric industry. The method considers savings in increased productivity and reduced late payments and other "non-resource benefits" such as reduced environmental impacts at a customer's site, as well as resources such as oil, water and wastewater.
"We have concluded that the best way to ameliorate the industry's environmental impact while lowering costs to consumers is through closer coordination among economic and environmental regulators," the department said. D.T.E. 98-100, Nov. 19, 1999 (Mass.D.T.E.).
DSM Cost Recovery. Massachusetts OK'd a "rolling period method" for natural gas local distribution companies to recover costs from implementing demand-side management programs, allowing LDCs to recover a specific year's costs over a period equal to the average time between each of the company's last four rate cases.
The method mirrors the rule approved earlier for electric utilities. Colonial Gas Co. had argued that gas conservation programs were longer lived than those of electric companies and therefore should qualify for a longer recovery period. D.T.E. 97-112, Nov. 17, 1999 (Mass.D.T.E.).
Standard Offer Service. Satisfied that the market adequately determined prices for standard offer service, the Maine commission designated WPS Energy Services Inc. and Energy Atlantic standard offer providers for the Maine Public Service Co. territory, with prices as follows:
Residential/small non-residential $0.042906 per kilowatt-hour
Medium non-residential $0.042549 per kilowatt-hour
Large non-residential $0.040038 per kilowatt-hour
Docket No. 99-111, Nov. 18, 1999 (Me.P.U.C.).
Utility Marketing Affiliates. Pennsylvania's interim standards of conduct governing the relationship between gas distribution companies and their marketing affiliates address the state's natural gas competition law, which specifically allows an affiliate to use distribution company logos, by requiring the affiliate to include a "legible disclaimer" saying it is not the same company as the distribution company.
The disclaimer also must state that the prices of the affiliated supplier are not regulated, and that a customer does not have to buy gas from the affiliate in order to receive quality service from the distribution company. The standards remain in effect until the commission sets permanent standards. Docket No. M-00991249, Nov. 18, 1999 (Pa.P.U.C.).
Deferred Taxes. The Connecticut department approved a settlement between the state's consumer counsel and Southern Connecticut Gas Co., allaying concerns that the utility earnings would exceed its authorized return after the company reduced its reserves for deferred federal and state income taxes by almost $1.7 million, for the 12 months ended June 30, 1999.
The agreement calls for the company to credit ratepayers a total of $1 million between November 1999 and February 2000, creating a credit of approximately $0.0112 per thousand cubic feet, based on expected firm sales. Docket No. 99-08-30, Nov. 17, 1999 (Conn.D.P.U.C.).
Affiliate Transactions. Calling the facilities "worth more than their appraised value," the Michigan PSC ruled that a natural gas local distribution company, Consumers Energy Co., must refund its ratepayers all of the $11.7 million gained on a sale of a mothballed synthetic natural gas production facility to an affiliate.
But the PSC said that if the utility instead sells the properties to a highest bidder, the PSC may allow it to retain 25 percent of any gain for the benefit of its shareholders.
Consumers had operated the Marysville Gas Reforming Plant to alleviate gas supply shortages in the 1970s, but closed the plant in 1979 when it was no longer cost-effective, converting the plant for gas storage and other activities. Case No. U-11636, Nov. 16, 1999 (Mich.P.S.C.).
Studies & Reports
Generation Adequacy. As decisions on building, maintaining and retiring generators increasingly are made by unregulated, for-profit corporations, regional reliability requirements will become secondary to profitability, according to a report from Oak Ridge National Laboratory.
That report, "Maintaining Generation Adequacy in a Restructuring U.S. Electricity Industry," by Eric Hirst and Stan Hadley, says that market-determined generation levels, relative to centrally mandated reserve margins, will lead to more volatile energy prices, lower electricity prices and a generation mix with more base load and less peaking capacity. The report also says that some customers will choose to face real-time (spot) prices and will respond to the occasional price spikes by reducing electricity use at those times. See www.esper.com/hirst.
Mergers & Acquisitions
ScottishPower + PacifiCorp. PacifiCorp and ScottishPower announced the completion of their merger on Nov. 30 after receiving approvals from Wyoming and Utah in the prior two weeks.
* Utah. The state commission imposed 51 conditions, one creating a $12 million credit to customers for each of four years beginning in 2000, though the credit can be offset in the third and fourth years by proven savings produced by the merger. Docket No. 98-2035-04, Nov. 23, 1999 (Utah P.U.C.).
* Wyoming. The PSC opted not to address PacifiCorp's rates, saying they will be decided in other cases. "This is not a rate case but a merger case," the commission said. Docket No. 20000-EA-98-141, Nov. 17, 1999 (Wyo.P.S.C.).
Providence + Southern Union. Providence Energy Corp. and Southern Union Corp. on Nov. 15 announced a merger in a transaction valued at about $400 million, including assumption of debt. The transaction follows on the heels of the merger of Southern Union with Fall River Gas, which is being processed.
The latest proposal calls for Providence Energy shareholders to receive $42.50 per share in cash, and for Providence Energy to operate as an autonomous division of Southern Union with headquarters remaining in New England. No layoffs are anticipated.
NEES + National Grid. The New Hampshire PUC upheld an earlier ruling that OK'd the merger of New England Electric System and National Grid Group plc, but declined to act on motions to restrict the acquisition premium or to use the gain received by NEES shareholders on the sale of their company to offset stranded costs allowed to Granite State Electric Co., a NEES subsidiary. The PUC said that further action would be required before the premium could be included in rates. It added that it would examine stranded costs further in a case reviewing the divestiture of generating assets by NEES under state restructuring laws. DE 99-035, Order No. 23, 353, Nov. 29, 1999 (N.H.P.U.C.).
Allegheny ( West Penn. Pursuant to its 1998 settlement agreement on restructuring, Allegheny Energy on Nov. 16 announced it would sell its Pennsylvania-based subsidiary, West Penn Power, for $600 million in transition bonds to help form an unregulated generating subsidiary - said to be the foundation of its long-term growth strategy.
The company will use the bonds to securitize a portion of the transition costs associated with the move by West Penn Power to a competitive generation market. "We will be able to transfer 3,772 megawatts of West Penn's generating assets to the unregulated genco," said Michael P. Morrell, AE senior vice president and chief financial officer.
The settlement requires that 75 percent of the savings achieved from the bond sale be passed through to West Penn's customers, by reducing the competitive transition charge. The transition bonds will be supported by an intangible transition charge that will replace a portion of the competitive transition charge.
PNM Spin Down. Public Service Co. of New Mexico on Nov. 17 petitioned the New Mexico PRC to allow it to split its company into two subsidiaries under a newly organized holding company, with one subsidiary to operate the company's electric and gas utility and the other its generating plants, power marketing business and competitive activities.
A state law requires utilities to separate transmission and distribution operations from their generation and power marketing activities. The PNM name and logo will stay with the regulated utility subsidiary.
Hostile Takeovers. Ohio governor Bob Taft signed into law utility anti-takeover legislation requiring the state PUC to investigate any hostile takeover bid directed at an Ohio natural gas utility at the time the bidder's tender offer is made. To view House Bill 452, go to http://www.legislature.state.oh.us/.
Gross Receipts Taxes. Pennsylvania electric utilities saw their gross receipts taxes jump by 19 percent, effective Jan. 1, under revenue-neutral reconciliation provisions in the state's 1996 electric competition law.
Each utility must decide whether to pass the increase on to customers. PECO Energy has asked the Pennsylvania PUC to allow it to exceed its present rate cap, but other utilities are undecided as to whether to pass on the increase.
Capacity Solicitations. In a preliminary resource plan filed at the state PUC on Nov. 15, Public Service Co. of Colorado forecasted a need for an additional 1,031 MW of electricity between 2002 and 2004 (214 MW in 2002, 392 MW in 2003 and 425 MW in 2004). It said it would meet those needs by asking for outside competitive bids.
"We hope to attract as many outside wholesale electricity suppliers as we can, to submit bids to provide us with the 1,031 MW needed to serve the growing needs of our market, both before and after customer choice begins," said Fred Stoffel, PSCC's managing director of regulatory administration. "By 2006, Public Service and its affiliates would own less than 50 percent of the power supply that is available to serve our markets." It presently generates about two-thirds of its electric needs and buys the other one-third.
The utility's parent company, New Century Energies, and its proposed merger partner, Northern States Power, agreed to refrain from bidding, and all related subsidiaries will not bid. The proposal also calls for the utility to invest in more wind generation and more demand-side management measures. The utility plans on entering into 10-year supply contracts.
Overseas Sales. A subsidiary of AES Corp. has completed the acquisition of the 3,960 MW, coal-fired Drax power station in Yorkshire, England, from National Power for approximately $3 billion. As the largest coal-fired plant in Western Europe, Drax generates approximately 8 percent of the electricity in England and Wales.
Eighty percent of the purchase price will be financed by a mixture of non-recourse senior bank lending, subordinated bridge lending, and equity provided by AES.
Nuclear Plant Sales. The Massachusetts department OK'd the sale of Montaup Electric Co.'s 2.9 percent interest in the 1,150-MW Seabrook nuclear generation facility to Little Bay Power Corp., a wholly owned subsidiary of BayCorp Holdings Ltd., for $3.2 million. Little Bay will assume all future decommissioning liabilities after Montaup pre-funds its share of the decommissioning costs by increasing the balance in the Seabrook Decommissioning Trust Fund from the current $2.4 million to $12.4 million, which is Montaup's share of the prospective total liability. D.T.E. 99-9, Nov. 4, 1999 (Mass.D.T.E.).
EWG Status. The New Hampshire PUC granted exempt wholesale generator status to certain non-nuclear generating assets that Connecticut Light & Power Co. and Western Massachusetts Electric Co. plan to sell as part of the restructuring of the region's electric market.
The commission said the EWG status would increase the value of the generation assets, thereby reducing the stranded costs to be recovered. Order No. 23, 354, Nov. 29, 1999 (N.H.P.U.C.).
Gas Pipeline Interconnects. A federal appeals court asked the Federal Energy Regulatory Commission to explain further why it changed its policy on when pipelines must allow interconnections to their interstate systems.
The FERC had blocked a tariff that required shippers to prove market demand and no adverse impact to justify an interconnection, but the court said the FERC gave no adequate rationale for that test. Panhandle Eastern Pipe Line Co. v. FERC, No. 98-1048, Nov. 26, 1999 (D.C.Cir.).
PUD Service Territories. An Oregon court ruled that state public utility districts do not have exclusive service rights within their territories, so that a rural electric cooperative from outside the area could sell power at retail to a customer within the district. Douglas Elec. Co-op. v. Central Lincoln People's Util. Dist., Nos. 97CV4616CC et al., Nov. 24, 1999 (Ore.App.).
Bankrupt Power Marketers. In a dispute between Virginia Electric & Power Co. and a Southern Co. marketing affiliate concerning their agreed-upon "book-out" to reconcile a series of reciprocal power buys and sales without actual delivery, a federal district ruled that a third company - a bankrupt power marketer - was not an "indispensable party" to the case, even though it had signed deals with both parties and thus provided the "link in the chain" to allow the book-outs.
The court let the case proceed even though the third-party marketer (Power Co. of America) enjoyed bankruptcy protection and could not be joined in the suit, despite the risk that a second judge in PCA's bankruptcy case might issue an inconsistent finding of fact on whether the book-out was binding. Southern Co. Energy Marketing L.P. v. VEPCO, No. Civ.A. 99-1221-A, Nov. 19, 1999 (E.D.Va.).
Gas Take-or-Pay Contracts. Reversing an appeals court ruling, the Texas Supreme Court held that the "good faith" obligations of the Uniform Commercial Code did not apply in the case of a final release of liability under a natural gas take-or-pay contract.
Thus, the court ruled that two agreements by natural gas producers to release a gas purchaser from TOP liability were enforceable, though one was deemed "unconscionable" and the other in "bad faith." El Paso Nat. Gas Co. v. Minco Oil & Gas, Inc., No. 98-0478, Nov. 18, 1999 (Tex.).
Groundwater Pumping Rights. The Arizona Supreme Court ruled that the federal doctrine of reserved water rights for Indian Reservations applies not only to surface water, but to groundwater, so that tribal rights take precedence over state law rights enjoyed by adjacent private landowners to pump groundwater on their property for "reasonable use."
It added that such federal rights of Indian Reservations are entitled to greater protection from injury from remote groundwater pumping than landowners whose groundwater rights stem from state law.
Said the court, "Under the 'reasonable use' doctrine, Arizona has consumed far more groundwater than nature can replenish. ¼ Some Indian reservations have been entirely 'dewatered' by off-reservation pumping." In re Gila River System, Nos. WC-90-0001-IR, Nov. 19, 1999 (Ariz.).
Telecom Diversification. In affirming a state PSC order, a Georgia appeals court ruled that a state-created municipal electric utility could not offer telecommunications services to the general public for compensation, despite the 1996 Federal Telecommunications Act.
The utility had sought to resell excess capacity from an internal telecommunications system that it built with funding from municipal revenue bonds. Municipal Elec. Auth. v. Georgia PSC, No. A99A1152, Nov. 16, 1999 (Ga.App.).
Transmission & ISOs
Transmission Line Construction. Wisconsin Public Service Corp. and Minnesota Power Inc. have petitioned the Wisconsin PSC for permission to build a 250-mile, 345-kilovolt electric transmission line from Wausau, Wis., to Duluth, Minn. If approved, the line would be the longest built in Wisconsin in 25 years.
A 1,400-page proposal estimates construction costs from $125 million to $175 million. About one-half of the line would be built on existing rights-of-way, with 20 percent built on public lands. The utilities noted that the line would allow them to wheel power from outside the state and connect to cheap power supplies from Manitoba hydroelectric plants.
But a local opposition group, calling itself "Save Our Unique Lands," has held rallies at the PSC and at the state capitol, and has submitted petitions against the proposed line.
Independence Project. Though it said it was granting "conditional approval," the FERC by a 3-2 vote in effect denied a certificate of need for the Independence Pipeline and the ANR SupplyLink and MarketLink expansion projects. It cited a failure to prove market need, as most commitments for pipeline capacity had come from an affiliate formed at the last minute by project sponsors. Chairman James Hoecker said the pipeline was selling capacity "essentially to itself."
Curt Hébert dissented, calling the order a "crushing blow." Dissenter Vicky Bailey faulted the majority for "looking behind" the contracts. "Affiliates are players in their own right," she said. The project still faces opposition from New Jersey governor Christine Whitman and environmental groups. Docket No. CP97-315-000 et al., 89 FERC ¶61,283, Dec. 17, 1999.
The Power Pool of Alberta has signed a contract with Andersen Consulting to develop an Internet-based energy trading system (ETS), which will provide the technology to operate in the electric energy market in 2001. The new system will be designed to equip the Power Pool to handle higher volumes of transactions in preparation for customer choice, retail competition and the auction of power purchase arrangements, and to interface with other markets that may be developed.
Texas-New Mexico Power Co., Cielo Power Market LP and Big Wind LP have finalized contracts that will let TNMP customers choose a renewable energy option as part of their power supply with energy supplied from a wind-power project in West Texas. The choice of renewable energy was factored into TNMP's voluntary transition-to-competition plan, which was approved by the Texas Public Utility Commission in July 1998.
In an effort to clear up the confusion facing Wisconsin consumers when it comes to choosing telephone calling plans, the Wisconsin Public Service Commission and Salestar have launched a free online service that offers price comparisons between long-distance carriers. The Wisconsin WebPricer, accessed from the Wisconsin PSC website (www.psc.state.wi.us), provides a centralized source for unbiased comparisons among providers of local toll and in-state long-distance calling plans. Salestar previously developed a similar Webpricer for the state of California, making Wisconsin the second state to have the online tool.
TIBCO Software Inc. has entered into a license agreement with FirstEnergy Corp., a diversified energy services holding company, under which FirstEnergy intends to install TIBCO's TIB ActiveEnterprise Energy Hub software. "The same technology that enables Wall Street to handle real-time information and powers most of the largest Internet portals is now being introduced to the energy industry," said Alan Williams, TIBCO's vice president, energy markets. TIBCO's software aggregates and delivers real-time information from a number of data sources.
Convergys has signed a five-year managed services billing contract with Northern Kentucky Water Service District under which Northern Kentucky Water will use the Convergys managed services billing and customer care solution to improve and streamline its customer support and billing services. The Convergys solution automates and supports all aspects of customer service, from billing to customer service setup and management.
Capstone Turbine Corp. has entered into marketing alliances with Active Power Corp. of Tokyo and BG Technology. The partnership with Active Power will make that company a value-added reseller and systems integrator for Capstone MicroTurbine system. Meanwhile, BG Technology will serve the microturbine market in the United Kingdom and Ireland, integrating the Capstone MicroTurbine system into a range of power generation and combined heat-and-power "cogeneration" packages.
News Digest was compiled by Carl J. Levesque, associate editor, Lori 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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