State PUCs

Retail Energy Choice. At press time, Virginia issued proposed interim rules governing pilot programs for electric retail competition in electricity and natural gas, with comments due Feb. 24. The interim rules were not expected to resolve all issues, but only to provide a starting point to gain experience.

Among other points, the interim rules would require utilities to make information available through electronic bulletin boards on availability of commodity supply, ancillary services, and transmission and distribution capacity. Case No. PUE980812, Feb. 10, 2000 (Va. S.C.C.).

Discounted Rate Contracts. Even though Ohio will launch retail electric competition on Jan. 1, 2001, the PUC denied a request for rehearing filed by Enron and OK'd certain special customer contracts proposed by Ohio Edison Co. and Cleveland Electric Illuminating.

The PUC said it would wait until reviewing and approving individual utility transition plans to get "a clearer picture" of what to do about such contracts, but said it had not yet precluded any option. Case Nos. 99-389-EL-AEC et al., Feb. 3, 2000 (Ohio P.U.C.).

Performance-based Rates. Connecticut regulators set rough guidelines for performance-based rate plans, declining to set uniform standards, as that might overly constrict the future design of PBR plans. However, the new general guidelines do call for company-specific performance measures and collars on return on equity, and envision a plan term of between three and six years.

The PBR guidelines specify such performance measures as SAIDI (System Average Interruption Duration Index) and either SAIFI (System Average Interruption Duration Frequency Index) or CAIDI (Customer Average Interruption Duration Index) as appropriate to track reliability, and emphasize that penalties for reliability erosion should exceed the financial rewards of poor performance.

Peter Navarro, testifying for the state's Office of Consumer Counsel, warned the commission that setting initial baseline rates too high would generate false cost savings. Navarro added that PBR is "easy to do poorly, but difficult to do well." Docket No. 99-06-21, Feb. 2, 2000 (Conn.D.P.U.C).

Supplier of Last Resort. The Nevada PUC will conduct a hearing on March 20 to address comments on draft rules proposed on Feb. 7 governing obligations for a supplier of last resort under the state's scheme for retail choice in electricity. Docket No. 97-8001, Feb. 8, 2000 (Nev.P.U.C.).

Underground Lines. California opened a rulemaking docket to implement state Assembly Bill 1149, which requires the PUC to consider ways to help convert existing overhead electric and communications lines to underground service. The PUC was to hold its first workshop Feb. 10 and must report back to the legislature by Jan. 1, 2001. R. 00-01-005, Jan. 6, 2000 (Cal.P.U.C.).

A white paper released late last year by the PUC's energy division had reported underground conversion costs as running between $0.5 million and $3 million per mile, but cited other evidence of lower costs (less than $150,000 per mile) developed from experience gained in reconstruction after the Oakland fires of several years back.

Distributed Generation. The California PUC was to hold its third workshop on distribution system planning and operations on Feb. 17 to resolve questions posed by administrative law judge Fannie Sid in the formal rulemaking docket on distributed generation issued last October in Decision 99-10-065. See R. 98-12-015 (Cal.P.U.C.).

Standard-Offer Bidding. The Maine PUC directed Central Maine Power to enter a one-year wholesale power contract with an anonymous winning bidder to supply power for CMP's medium and large-volume nonresidential electric customers, and set standard-offer prices as well, with peak prices for industrial customers reaching 11.04 cents per kilowatt-hour in summer.

The PUC found that CMP had acted prudently in the bidding process, but noted difficulties nonetheless.

As the PUC observed, "The supplier has all the price risk, yet has absolutely no certainty on the volume to be served. The supplier must hedge against the risk of energy price changes, but receives no certainty that the cost of the hedge will be recovered because there is no certainty of load." Docket No. 99-111, Feb. 11, 2000 (Me.P.U.C.).

Earlier, the PUC had reported that it had solicited bids from generation suppliers that will allow "more than 80 percent of electricity customers in Maine to have access to standard-offer service provided directly by a retail provider," but said that in several instances it was forced to direct utilities to provide standard-offer service themselves on an interim basis. Docket No. 99-111, Feb. 1, 2000 (Me.P.U.C.).

Economy Energy Transactions. The Florida PSC opened hearings to consider eliminating the incentive that allows investor-owned utilities to keep 20 percent of gains on economy energy sales for their shareholders. Docket No. 991779-EI, Order No. PSC-00-0195-PCO- EI, Jan. 26, 2000 (Fl.P.S.C.).

Electric Retail Choice. To prepare for retail choice in electricity, the Maryland PSC ruled it will not permit utilities to transfer customer lists to competitive suppliers, by sale or otherwise, but will allow disclosure to suppliers "for bill collection and credit rating purposes," to allow competitive suppliers to refuse a service request based on a consumer's poor credit history.

Advertisements must disclose the "precise rate for service" plus other conditions and details - even if the ad contains no means of signing up with a supplier and thus fails to qualify as a solicitation. ("Solicitations" must include additional disclosures and may be answered via telephone or Internet signup.)

To dissuade frequent switching to gain seasonal discounts, the PSC has OK'd "minimum stay" conditions for standard-offer service by utilities, except for Delmarva Power & Light Co. Case No. 8738, Order No. 75949, Feb. 8, 2000 (Md.P.S.C.).

Natural Gas Slamming. Anti-slamming rules for natural gas providers approved by the Georgia PSC on Jan. 18 call for a $15,000 fine for each initial slamming offense and $10,000 per day thereafter as the violation continues, if a marketer changes a customer's natural gas provider without proper authorization. Marketers must keep documentation for at least one year detailing the verification process.

ISO Costs. New York regulators adopted a memorandum of understanding among New York State Electric & Gas Corp., Niagara Mohawk Power Corp., the New York Power Authority, and other parties providing that the utilities may defer recovery of certain costs imposed by the New York Independent System Operator for delivery of power purchased under various economic development programs in the NYSEG and Ni-Mo service territories. Case 00-E-0073, Jan. 25, 2000 (N.Y.P.S.C.).

Billing Errors. Noting that Niagara Mohawk Power Corp. had altered its bill estimation practices without commission approval when it installed a new software system, the New York PSC told the company to justify why it should not pay interest to customers who overpaid by as much as 25 percent when they received faulty bills.

The PSC gave the company 30 days to file a plan to boost the number of actual meter reads and establish new procedures "capable of producing reasonably accurate bills." The PSC asked for a final report by April 30. Case No. 99-M-0742, Jan. 5, 2000 (N.Y.P.S.C.).

Power Markets

E-Commerce Regulation. In action that covers not just energy, but all markets, the Federal Trade Commission and U.S. Department of Commerce on Feb. 9 announced a workshop to be held in the spring to explore the use of alternative dispute resolution mechanisms to all consumer transactions "in the borderless online marketplace."

Requests to participate are due March 21. See www.ftc.gov/opa/2000/02/adrrev.htm.

Online Tariffs. New York regulators authorized Central Hudson Gas & Elec. Corp. to dispense with newspaper publication of tariff revisions and convert the company's current tariff into an electronic format with public access via the Internet to all tariffs and tariff changes within 24 hours from date of filing. Case 99-E-1683, Jan. 26, 2000 (N.Y.P.S.C.).

Electricity Trading. LG&E Energy Corp. will receive $16.6 million from the city of Springfield, Ill., City Water, Light & Power Co. in a settlement resolving (just days before the case was to go to trial) a dispute that arose when the city defaulted on an electricity options contract after electricity prices spiked in the Midwest in summer 1998.

The city previously had argued that the contracts were void because the utility did not have proper authority under Illinois law to enter into them.

Mergers & Acquisitions

PUC Review. North Carolina asked for comments on whether to require applicants for merger approval to submit market power studies. With greater consolidation between electric and gas markets, the utility commission said that anticompetitive effects may warrant in-depth investigation. Docket No. M-100, SUB 129, Jan. 28, 2000 (N.C.U.C.).

WICOR + Wisconsin Energy. The Wisconsin PSC unanimously has approved the acquisition of WICOR Inc. by Wisconsin Energy Corp., a $1.27 billion deal that will combine the state's largest electric and gas utilities. But the PSC refused to impose a rate cut from resulting merger savings, instead approving a five-year rate freeze starting Jan. 1, 2001, and suggesting it may pass along merger-related savings to customers when it holds a full rate review at the end of the five years.

NEES + EUA. Proposed merger partners New England Electric System and Eastern Utilities Associates on Jan. 26 announced a settlement agreement that includes an incentive-based plan allowing customers and the company to share in savings created by the merger and also guarantees Rhode Island's 454,000 electric customers $100 million in savings through 2004.

The agreement gives customers $13 million annually in immediate rate relief, imposes a five-year rate freeze, and doubles the number of low-income customers eligible for reduced rates.

El Paso + Coastal Corp. El Paso Energy announced on Jan. 18 that it would purchase Coastal Corp. for $16 billion in stock and assumed debt, making El Paso Energy the world's largest natural gas distributor, and creating a 58,000-mile pipeline system that will reach all of the nation's major growth areas.

El Paso Energy would trade 1.23 common shares for each Coastal share, valuing Coastal shares at $45.66 each - a 27 percent premium over the Jan. 14 closing price of $36.

NewEnergy + NEChoice. NewEnergy will acquire New England's leading aggregator of energy customers, NEChoice LLC (aka National Energy Choice).

"We will continue to find the best energy supply deals available anywhere in the market for our customers," said Steven M. Rothstein, managing director of NE Choice. "But, now, we will have the added benefit of NewEnergy's wholesale supply capabilities."

UtiliCorp + TransAlta. UtiliCorp United on Feb. 8 announced an agreement to acquire TransAlta Corp.'s Alberta-based electricity distribution and retail assets for $450 million. UtiliCorp said it would keep all of TransAlta's employees engaged in distribution and retail functions, servicing some 350,000 customers through 54,000 miles of low-voltage power distribution lines.

UtiliCorp said the deal would further its strategy of international expansion, noting that it had already "established a presence" in Scandinavia, Germany and Spain.

UtiliCorp + Empire, St. Joseph. Missouri regulators denied a motion by Praxair and others to consolidate the two dockets for review of planned mergers between UtiliCorp United and (1) Empire District Electric Co. and (2) St. Joseph Light & Power, saying they "are not so identical" as to warrant only a single case. Case No. EM-2000-369, Feb. 10, 2000 (Mo.P.S.C.).

Sierra Pacific + PGE. Sierra Pacific Resources on Jan. 18 applied to the Oregon PUC for approval to purchase Portland General Electric from Enron Corp. and extend a $13.5 million credit to PGE's Oregon customers over 18 months, and assume liability to pay all remaining credits due PGE customers under agreements made by Enron when it bought PGE in 1997.

Sierra Pacific hopes to close the deal by fall, but must win approvals from the Federal Energy Regulatory Commission, the Securities Exchange Commission and the Nuclear Regulatory Commission. On Feb. 2, Sierra Pacific asked the Nevada PUC to waive review of the merger in that state. Docket No. 00-1-31, filed Feb. 2, 2000 (Nev.P.U.C.).

MDU Resources + Great Plains NG. MDU Resources Group has agreed to buy Great Plains Natural Gas Co., a closely held utility providing gas distribution service to 19 communities in Minnesota and North Dakota, through 65 miles of high-pressure transmission lines and 435 miles of distribution mains.

Transmission & ISOs

RTO Formation. The Virginia commission issued new proposed regulations governing the transfer of utility transmission assets to regional transmission entities (RTEs), as is required under state law (Va. Code sec. 56-577) on or before Jan. 1, 2001.

As proposed, the rules would require Virginia utilities to submit applications for transferring grid assets no later than May 1. The state's proposed rules require that every such transfer must "be consistent with the lawful requirements of the Federal Energy Regulatory Commission." Comments were due Feb. 17. Case No. PUE990349, Jan. 11, 2000 (Va.S.C.C.).

Asset Allocation. Wisconsin regulators were to conduct an initial prehearing conference on Feb. 14 to identify issues in developing a method to classify electric utility transmission facilities. Case 05-EI-119 (Wisc.P.S.C.).

Transmission Pricing. In a rehearing order issued Jan. 4, the Ohio PUC directed electric utilities to minimize transmission rate "pancaking," either by (1) joining a transmission organization that provides a single tariff no higher than license plate pricing (which reflects unbundled grid costs for the utility territory in which the consumer is located), or (2) entering reciprocity agreements with other Ohio utilities through pooling arrangements, or (3) taking other steps.

The PUC said it acted because neither the Midwest Independent System Operator nor the rival Alliance group would be fully operational by the Jan. 1. 2001 deadline for retail choice in Ohio. Case No. 99-1141-EL-ORD, Jan. 4, 2000 (Ohio P.U.C.).

On a second rehearing, the PUC rejected arguments by American Electric Power, FirstEnergy and Cincinnati Gas & Electric that the PUC's anti-pancaking policy conflicted with exclusive federal authority over interstate transmission pricing and was too vague about what "pooling" might require.

However, the PUC made it clear that in barring certain interactions between utilities and their affiliates, it had not intended to prohibit the sharing of information and employees to ensure safety and provide certain centralized operational support functions necessary to maintain reliability. Case No. 99-1141-EL-ORD, Jan. 27, 2000 (Ohio P.U.C.).

Power Plants

Emissions. The Environmental Protection Agency and Justice Department have pledged to move forward with a lawsuit against TECO Energy Inc., parent company of Tampa Electric, accusing the utility and six others of polluting the air with their coal-fired power plants, in spite of Tampa Electric proffering a settlement calling for it to spend $1 billion over the next 10 years to cut pollution from the plants.

TECO has set aside $3.5 million for potential expenses from the federal lawsuit, which was filed last November, but has declined to say whether the money is earmarked for damages payments. Meanwhile, the utility continues to discuss a settlement with the EPA.

Transfers to Affiliates. Michigan regulators gave a conditional OK to Detroit Edison to transfer its 43-year-old but dormant (since 1980) River Rouge Unit 1 power plant to an affiliate, DTE River Rouge No. 1 LLC (to be held as an exempt wholesale generator, for approximately $6.6 million, or twice current net book value, and subject to a different price if pending state legislation that provides for alternative plant valuation methods should be enacted this year).

The plant's output must be offered first to retail marketers participating in retail access programs in Michigan during 2000 and 2001.

Answering interveners who questioned the transfer price, the PSC conceded that "given existing time constraints, which were created by Detroit Edison, a sale of Rouge No. 1 could not be completed in time to provide service during the summer of 2000."

Still, the commission warned that "the threat of blackouts [should] not be used as a bargaining piece¼in the ongoing restructuring of the industry." Case No. U-12266, Feb. 3, 2000 (Mich.P.S.C.).

Nuke Plant Decommissioning. Arguing that shareholders should bear the cost, consumer watchdog Citizens Utility Board (CUB) on Jan. 25 asked the Illinois Commerce Commission to block a proposal by Commonwealth Edison to charge customers almost $480 million for funding the decommissioning of the Zion nuclear power plant.

CUB cited a state court ruling that decommissioning costs may only be collected while a plant is in service. Zion was taken out of service in 1997 and shut down permanently in 1998.

Fossil Plant Sales. Wyoming regulators authorized PacifiCorp to sell its 47.5 percent interests in the Centralia generating plant and associated coal mine, allocating gain to customers (after gross-up for taxes) through a billing credit paid over two years. Docket No. 20000-EA-99-146, Feb. 10, 2000 (Wyo.P.S.C.).

Capacity Sales. Conectiv has signed an agreement to sell 1,875 megawatts of fossil-fired generation and related assets to NRG Energy of Minneapolis, a subsidiary of Northern States Power Co., for $800 million, which Conectiv will use for debt repayment, repurchases of common shares and new investments, including further expanding its mid-merit generation business. Meanwhile, the board of directors has approved an additional 5 million share, open market common stock repurchase program.

Business Wire

Houston Street Exchange will launch one of the first Web exchanges for the trading of crude oil and refined projects at the wholesale level. Equiva Trading Co., the trading element of the U.S. downstream alliance of Shell Oil, Texaco Inc. and Saudi Aramco, will invest more than $6 million as an equity stake in HoustonStreet to help develop the exchange. The new HoustonStreet oil and products exchange will allow industry traders from any organization to buy and sell crude and refined products in the $1 trillion industry.

Azurix Corp. plans to launch Water2Water.com, an Internet-based marketplace for buyers and sellers of water and water-related services to be built on the business-to-business e-commerce platform of Ariba Inc.

Water2Water.com will enable customers to transact business relating to the transfer and physical delivery of water, and to the purchase or sale of water storage and water quality credits. "We believe Water2Water.com ¼ will allow participants in the water market to transact business more efficiently and improve market transparency and price discovery," said Rebecca Mark-Jusbasche, chairman and chief executive officer of Azurix.

Five technology companies are combining their products and expertise to showcase a new state-of-the-art energy trading floor. The initiative brings together Caminus Corp., Syntegra, Automated Power Exchange, TIBCO Software, and Sun Microsystems to present the model energy trading environment to leading energy companies. This demonstration facility was scheduled to open in February at Tower 42 in London, England. The new trading floor will serve as a knowledge and skills development center for companies preparing for the new United Kingdom energy trading arrangements, which are scheduled to be fully operational in October.

TradeWeather.com has partnered with WeatherMarkets.com to provide traders with one- to three-month-ahead degree-day forecasts for North America. WeatherMarkets.com, the commodity division of Strategic Weather Services, is making these proprietary forecasts available to TradeWeather.com- registered members on a subscription basis, while also providing free short-range weather forecast graphics to all visitors to TradeWeather.com.

Gas Pipelines

Certification Procedures. With commissioner Curt Hébert expressing regret, the FERC modified its statement of policy issued last September on certification for construction of natural gas pipelines and the right of first refusal for shippers with expiring contracts. Docket No. PL-3-001, Feb. 9, 2000, 90 FERC ¶61,128.

Also, the FERC issued a notice of proposed rulemaking (NOPR) aimed at eventually eliminating its procedure for issuance of optional expedited certificates for new pipelines, explaining that its ongoing liberalization of rules for traditional certification under Section 7 of the Natural Gas Act have erased distinctions between the two methods, making the OEC procedure no longer meaningful. Docket No. RM00-5-000 (NOPR), Feb. 9, 2000, 90 FERC ¶61,127.

(Under the OEC procedure, pipelines agree to accept investment risk and therefore need not prove a public need, as under Section 7. However, as the FERC has explained, the OEC procedure is hardly "expedited," as environmental reviews are most responsible for delays, and cannot be avoided under either method.)

In modifying its policy statement, the FERC explained that existing customers should pay the costs of projects designed to improve their service by replacing existing capacity, improving reliability or providing additional flexibility, and should not view higher rates as forcing them to subsidize expansions. Also, shippers will still enjoy a right of first refusal, but now must match bids higher than the maximum cost-based rate under certain circumstances if the pipeline is fully subscribed.

Commissioner Hébert noted that last September the FERC had said that its policy statement would not applied to optional certificates, but expressed hope that the commission would take a cautious approach.

Short-term Capacity Markets. In what it described as perhaps its most important natural gas ruling since Order 636, the FERC modified policies regarding short-term rights for pipeline capacity of less than one year's duration.

* Released Capacity. The rule removes the price cap on short-term capacity rights released into the secondary market, but only on an experimental basis for the 30 months ending Sept. 30, 2002, at which time the price cap would go back into effect absent further action.

* Seasonal Rates. Pipelines may charge term-differentiated rates with seasonal pricing to reflect differences in market conditions in peak and off-peak periods. Such rates still must satisfy the revenue and cost-constraint requirements of the traditional regulatory model.

* Capacity Auctions. Allowed on a voluntary basis.

* Segmentation. Rules liberalized to allow more flexibility on delivery and receipt points and segmentation of rights.

* Reporting Requirements. Enlarged to make pricing and capacity availability more transparent.

The FERC added that it was still considering future action on a variety of other issues, such as whether to allow negotiated terms and conditions or broader use of capacity auctions. Docket Nos. RM98-10-000 & RM98-12-000, Order No. 637, Feb. 9, 2000, 90 FERC ¶61,109.

Courts

Las Cruces Municipalization. The city of Las Cruces, N.M., won one battle but lost another when a federal appeals court (1) agreed that the FERC in principal could force El Paso Electric Co. to cooperate (both to sell power and grant transmission access) to help the city form its own municipal utility, but then (2) reversed the FERC for failing to consider EPE's complaints that condemnation of EPE facilities in Las Cruces would threaten service to EPE customers located elsewhere.

The court faulted the FERC for saying it was premature to consider the effects of condemnation: "Such purposeful naiveté does a disservice to EPE." El Paso Elec. Co. v. FERC, No. 99-60453, Feb. 9, 2000 (5th Cir.).

Gas Pipeline Bypass. The Wyoming Supreme Court upheld a state commission order that granted a certificate to NG Processing Co. to build an in-state natural gas pipeline to bypass a competing interstate pipeline, serve its wholly owned gas utility division and thus "control its destiny," even though NG had begun construction illegally before filing its application.

Said the court, "We see nothing unconscionable in a company trying to buy products at a better price to win over customers from a competitor." Williston Basin Interstate Pipeline Co. v. Wyoming PSC, No. 98-300, Feb. 9, 2000 (Wyo.).

Bulk Power Markets. In two separate appeals - one from the FERC, the second from an antitrust court order - a federal appeals court largely denied claims by the town of Norwood that it suffered discrimination and a "price squeeze" when New England Electric Service (Norwood's wholesale power supplier under a cost-based, all-requirements contract) sold off its nonnuclear generation to USGen and the FERC then allowed New England Power Co. (a NEES subsidiary) to offer bulk power discounts only to its affiliates (Massachusetts Electric Co. and Narragansett Electric), but at the same time froze rates to Norwood at higher cost-based levels and forced the town to pay a stiff charge for early contract termination.

The court remanded the antitrust case to consider whether the sale by NEES violated the Clayton Act, since PG&E (parent company of buyer USGen) already owned some nearby (New York) power plants and might gain too large a share of regional generation. Town of Norwood v. FERC, No. 98-2198, Feb. 2, 1000; Town of Norwood v. New England Power Co. (antitrust case), No. 99-1047, Feb. 2, 2000 (1st Cir.).

Clarification. To clarify a Jan. 1 report in News Digest (see "Electric Restructuring," p. 8), Baltimore Gas & Electric on July 1 will transfer all generation assets to unregulated subsidiaries of its parent company, Constellation Energy Group.

Correction. In the Jan. 15 issue, News Digest included an error concerning Allegheny Energy and its subsidiary, West Penn Power. It should have reported that on Nov. 16, Allegheny Energy announced the sale by West Penn Power of $600 million in transition bonds to help form an unregulated generating subsidiary. We regret the error.

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 more frequent updates, see www.pur.com.