Distributed Generation. California opened a rulemaking proceeding to consider regulatory reforms in electricity distribution service, with a possible focus on distributed generation. The commission emphasized that its intent was not to define new policies, but to gather information. Comments are due March 17, and the commission intends to consider a proposal from the assigned commissioner this summer. Rulemaking 98-12-015, Dec. 17, 1998 (Calif. P.U.C.).
Gas Transportation Rates. In response to a request for clarification from Consolidated Edison of New York Inc., the state commission stated that gas transportation rates for certain generation plants to be divested under electric restructuring plans should continue in effect for the duration of the electric rate plans.
Con Ed's concern was that gas transportation prices could affect the value of a generation facility, adding uncertainty for bidders of plants to be divested. The PSC said its "interim" policy should apply to all electric utilities until a permanent policy is implemented. Case No.98-G- 0122, Dec. 18, 1998 (N.Y.P.S.C.).
Day-Ahead Electric Pricing. Commending the applicants for expanding customer options, Ohio ok'd proposals by Columbus Southern Power Co. and Ohio Power Co. to offer day-ahead pricing for interruptible electric service. The utilities will notify customers when a capacity deficiency is projected for the next business day. Customers then may purchase, at a market-driven price, day-ahead replacement electricity for a specified kilovolt-amperes amount not to exceed the customer's Schedule IRP-CDB interruptible service capacity reservation. If a customer ends up using less, it would receive credit. To determine continued approval, the PUC intends to evaluate reports that the utilities must file regarding the service. Case Nos. 98-1474-EL-AEC, 98-1476-EL-AEC, Dec. 22, 1998 (Ohio P.U.C.).
Real-Time Electric Pricing. Ohio also approved a two-year renewal of Ohio Edison Co.'s real-time pricing program under which selected business customers receive day-ahead pricing so that they may plan their electric use accordingly. The program, first approved by the commission and offered to customers in August 1996, allows customers to access by 1 p.m. the company's price of electricity for the following day. About 53 business customers are expected to participate in the program, which is extended to Dec. 31, 2000. Case No. 98-1610-EL-ATA, Dec. 17, 1998 (Ohio P.U.C.).
Nuclear Power. The New York Public Service Commission was to hold its initial collaborative conference on the future of nuclear power under electric competition on January 20. Case 98-E-0405, Dec. 14, 1998 (N.Y. P.U.C.).
Generation Source Disclosure. The Colorado PUC was to hold a hearing on Jan. 11 on proposed rules that would require utilities to itemize electricity cost components and disclose their generation fuel sources to customers. Under the proposed rules, utilities would list the current percentage components of the total average delivered price of electricity attributable to generation, transmission and distribution. Fuel type categories would include: a) renewable, b) hydroelectric, c) coal, d) natural gas, e) nuclear and f) other. Comments were due 10 days prior to the hearing. Docket No. 98R-536E, Decision No. C98-1176, Nov. 25, 1998 (Col. P.U.C.).
Environmental Disclosure. New York directed retail electricity providers to provide periodic environmental disclosure statements to their existing and prospective retail customers. The statements are to be in the form of a "label" that will provide information on fuel resource mix and selected associated air emissions levels relative to a statewide average. A tracking system based on financial settlements data held by the ISO and the transmission and distribution utilities would be used to generate aggregated energy transactions information. Taking into account that ISO operations may begin in March 1999, the commission anticipates that customers would begin receiving disclosure labels around April 2000. Case No. 94-E-0952, Opinion No. 98-19, Dec. 15, 1998 (N.Y. P.S.C.).
Electric Competition Rules. In an eleventh-hour move, Arizona approved amendments to its statewide electric competition plan, which was to begin in January. One change modifies the timetable for implementation of competition for the various classes of customers. Another requires utilities to report to the commission on possible mechanisms - such as a 3 to 5 percent rate cut - to provide benefits to those customers not yet eligible for competitive services during the transition period. The amendments state that all customers will be eligible for competitive services by Jan. 1, 2001. Docket No. RE-00000C-94-0165, Decision No. 61272, Dec. 11, 1998 (Ariz. Corp. Comm'n).
Gas Transportation Rates. North Carolina opted not to abandon the "full margin" design for setting natural gas transportation rates. The commission, required by law to study transportation rates charged by local distribution companies, did not consider industry restructuring in its decision. Under the full margin concept, the serving LDC receives the same margin per dekatherm of gas delivered to the customer regardless of whether the LDC or the customer procures the gas supply. Docket No. G-5, sub 386, Dec. 2, 1998 (N.C.U.C.).
Metering and Billing. Pennsylvania has taken steps to hasten a competitive market in electric metering and billing.
First, the commission declined to reconsider an earlier directive requiring PECO Energy Co. to set procedures for third-party metering and billing, noting that the policy was compulsory rather than permissive, even though approved initially in a settlement agreement. But it did extend the deadline for implementation in recognition of the "complex nature of the infrastructure changes" necessary in the utility's operations. Docket No. R-00973953; P-00971265, Nov. 4, 1998 (Pa.P.U.C.).
Second, it ok'd a revised set of final regulations to govern deployment and selection of advanced metering devices, after the state legislature and an independent review committee had rejected the original rules. The revision adds language explaining that the regulations do not require the unbundling of metering services (but the PUC may approve a utility request for such unbundling). Docket No. L-00970128, Oct. 19, 1998 (Pa.P.U.C.).
Gas Infrastructure Investment. Maine has issued three separate decisions dealing with expansion of gas distribution service to new areas, including gas service offered for the first time by electric utilities.
Finding an improved financial condition for Bangor Hydro Electric Co., the PUC ok'd the utility's $1.22 million investment in a new gas company formed to serve the Bangor area. Docket No. 97-796, Order Phase II, Oct. 30, 1998 (Me.P.U.C.).
It authorized a new gas utility, Bangor Gas Co., to serve seven additional municipalities adjacent to the Bangor area and currently without gas service. Docket No. 98-46, Oct. 22, 1998 (Me.P.U.C.).
It declined to set a uniform policy regarding the amount that a gas distributor can earn when expanding into unserved territories, in a case concerning a price cap regulatory plan for gas services provided by Central Maine Power Co. The PUC said that while a "one-size-fits-all" policy was inappropriate, it remains open to the possibility that an LDC may be allowed to earn high returns that are "appropriate to the allocation of the risk for the undertaking." Docket No. 96-786, Oct. 5, 1998 (Me.P.U.C.).
Water Line Extensions. New York rejected a request by a water utility to cancel existing free footage allowances for new service hook-ups and instead institute a policy of charging each applicant for the difference between the actual cost of installing a new service and the company's existing average investment per customer. According to the commission staff, the proposal by United Water New Rochelle Inc. would boost average charges to new customers to $1,600. The staff also noted that rather than seeking to shift installation costs from the general body of ratepayers to individual applicants, the utility instead should seek to minimize such costs by allowing more competition or promoting innovative technologies in the field of service connections. Case 98-W-0569, Oct. 27, 1998 (N.Y.P.S.C.).
Gas Rate Design. North Carolina eliminated existing winter/summer rate differentials for Public Service Co. of North Carolina, while supporting a rate design with higher rates for small users and rate decreases for larger customers. It also rejected calls for changes that would minimize the revenue burden on interruptible users and transportation customers.
While finding that cost-of-service figures supported increases for residential users and reductions for the industrial class, the commission pointed out that a full move to equalized class rates of return or strictly "cost-based rates" was inappropriate. It observed that smaller users had borne the brunt of increases in several recent rate cases, while industrial users had seen their rates lowered. Docket No. G-5, Sub 386, Oct. 30, 1998 (N.C.U.C.).
Nuclear Decommissioning. Arkansas increased the decommissioning cost estimate for the Arkansas Nuclear One nuclear generating facility (units 1 and 2) operated by Entergy Arkansas Inc., to reflect increases in the expected cost of materials and labor, the cost of the final site for disposal and the volume of radioactive waste. Docket No. 87-166-TF, Order No. 27, Oct. 30, 1998 (Ark.P.S.C.).
New Plant Certification. Massachusetts certified the new 350-MW, combined-cycle Cabot cogeneration plant, contingent on a mitigation plan to offset carbon dioxide emissions. The approval also assumed such factors as the retirements of older fossil-fired plants, the continued unavailability of the Millstone 1 nuclear plant and future needs for more generating resources in New England. Cabot Power Corp., the project developer, would locate the plant in Everett, Mass. E.F.S.B. 91-101A, Oct. 9, 1998 (Mass. E.F.S.B.).
Industrial Gas Rates. The Tennessee Regulatory Authority rejected requests by Chattanooga Gas Co. (a wholly owned subsidiary of Atlanta Gas Light Co.) to "detariff" certain industrial rates, finding the utility should utilize an existing "experimental bypass rule" to retain industrial customers rather than impose price cap regulation. Docket No. 97-00982, Oct. 7, 1998 (Tenn.R.A.).
Transmission and ISOs
TLR Protocols. The FERC on Dec. 16 ruled that utilities using the North American Reliability Council's proposed transmission relief procedures for relieving constraints on transmission loading systems caused by parallel loop flows, must amend their pro forma open access tariffs to include those procedures. The ruling came after NERC's request for FERC to address the relationship of the proposed procedures with Order 888's pro forma open access tariff. Docket Nos. EL98-52-000, ER98-3709-000, Dec. 16, 1998, 85 FERC ¶61,353.
NEPOOL Restructuring. The FERC on Dec.16 approved market-based rates and market rules proposed by the New England Power Pool, thereby adding a bid-based spot market to other restructuring components approved earlier, including a transmission tariff and requirements for the independent system operator.
Measures were implemented to allow the ISO to monitor the possible exercise of market power. And while FERC noted that Northeast Utilities exceeded the 20 percent threshold in certain markets for possible exercise of market power, it found that proposed mitigation measures were sufficient to preclude that possibility. Docket Nos. OA97-237-000 et al., Dec. 17, 1998, 85 FERC ¶61,379.
PJM Locational Pricing. Old Dominion Electric Cooperative has petitioned the FERC to investigate the use of locational marginal pricing by the Pennsylvania-New Jersey-Maryland power pool, arguing in effect that it rewards native load served by utilities with their own generating resources, and penalizes smaller utilities with native load dependent upon purchased power. It charged that locational pricing had hiked average hourly energy prices by 24 percent since April 1, and caused energy prices to spike to nearly $1,000 per megawatt-hour several times during summer 1998.
The co-op claimed that once a large utility has met its load requirements, it may sell its power outside the PJM pool. Those exports can then be brought back in - at market prices - to supply other members of the pool. Old Dominion argued that pool generation was sold to non-native load customers and then after the bidding process increased rates, was bought back and sold to pool members at "exorbitant prices." Docket No. EL 99-9-000, filed Nov. 4, 1998 (F.E.R.C.).
PJM Capacity Market. The Pennsylvania PUC settled a dispute with PECO Energy Co. concerning the establishment of a capacity market in the PJM Interconnnection. Previously, the PUC had directed PJM capacity holders to release or offer installed capacity at $19.72 per kilowatt-year.
Under the newly approved agreement, PECO will offer capacity credits to competitive generation providers who serve residential users within its service territory at $19.72 per kilowatt-year prior to June 1, 1999 and at $22.412 from June 1, 1999 through the end of the year. Docket No. R-00973953, Oct. 30, 1998 (Pa.P.U.C.).
Seabrook License. The Nuclear Regulatory Commission has terminated proceedings involving a proposed license amendment for the Seabrook nuclear power plant that had raised a question of first impression.
North Atlantic Energy Services Corp. had asked to revise the license to allow plant steam generator tube inspections at 24-month intervals rather than 18-month intervals. The NRC pointed out that the "novel" proceeding could have broad implications for other cases. The question was whether the utility could bring about a major operational change, such as a lengthened fuel cycle, through several incremental license amendments rather than a single licensing action.
At the request of the parties, the NRC held the proceedings in abeyance to allow settlement negotiations to go forward. No settlement was reached and NAESCO withdrew its license amendment requests while asking that the proceeding be terminated.
Fossil Divestitures. Commonwealth Edison on Dec. 9 announced plans to sell its natural gas/oil burning Collins plant, as well as its peaking units in conjunction with the previously announced sale of its coal-fired generation business. While Illinois restructuring laws prompted the divestiture, ComEd said it opted to sell after gauging the interest in, and market value of, the assets.
"We decided to move forward with selling Collins and the peakers, as well as the coal plants, because we received a substantial amount of interest from ¼ across the energy industry," said Celia David, ComEd divestiture vice president.
Hydro Divestitures. The Association of California Water Agencies has asked the California PUC to open an investigation into the future ownership of the state's hydroelectric generating facilities, as divestiture continues in the deregulated electric market.
The move came as the PUC was considering whether to approve Pacific Gas and Electric Co.'s divestiture of its hydroelectric plants. According to ACWA, most of California's water supplies flow through PG&E's hydroelectric projects before being consumed.
"A change in management of these [hydro] projects or in the land surrounding them could degrade water quality," said Steve Hall, ACWA executive director.
Stranded Costs, Part 1. The New Hampshire Supreme Court told the state PUC that it may award less than full recovery of stranded costs in electric generation when it eventually considers a final restructuring plan for Public Service Co. of New Hampshire under a 1996 state law that mandates electric competition. The court gave controlling effect to the 1996 law over a financial bailout deal struck in 1990 between PSNH, the PUC and the state legislature, which had paved the way for PSNH to merge with Northeast Utilities after it had filed for bankruptcy in the wake of disputes concerning its investment in the Seabrook nuclear plant.
On a narrow point, the court said the PUC violated the bankruptcy deal by comparing local utility rates with regional averages, among other factors, to compute which stranded costs are recoverable. In a broader sense, however, the court stopped short of defining the bankruptcy deal as a binding contract. The PUC must consider the bailout, the court said, but only to the extent that it comports with the 1996 restructuring law. That law, the court noted, had cited the bailout deal as a "significant contributor" to the state's high electric rates. It saw those high rates as what prompted the legislature to deregulate electric services. Re N.H. PUC Statewide Elec. Util. Restruct. Plan, No. 98-114, Dec. 23, 1998 (N.H.).
Stranded Costs, Part 2. Citing likely financial harm for the utility and further litigation on constitutional claims, a federal appeals court upheld an injunction won earlier by Public Service Co. of New Hampshire to postpone the state's electric industry restructuring plan, implying less-than-full stranded cost recovery. The court found at least "fair grounds" to consider the company's arguments that the plan might violate the Contracts Clause of the U.S. Constitution and doctrines of federal preemption. It noted claims by P.S.N.H. that the plan would lead "almost immediately" to default on various lines of credit, and push the company "rapidly down the slope to near-term bankruptcy." Re P.S.N.H. et al., No. 98-1764, Dec. 3, 1998 (1st Cir.).
QF Contracts. Before an electric utility buys power from a qualifying cogeneration facility (QF), it can first require assurance that the QF will reimburse the utility properly. This would happen under a mechanism that awards credits to the utility if its avoided costs fall significantly below the agreed upon contract price for purchased power, the New York Court of Appeals ruled. Norcon Power Partners, L.P. v. Niagara Mohawk Power Corp., N.Y. Slip Op. 10518, 1998 WL 824560, Dec. 1, 1998 (N.Y.Ct. App.).
Mergers and Acquisitions
MidAmerican + CalEnergy. The FERC approved the merger of MidAmerican Energy Co. and CalEnergy Co. Inc. (the latter would take on the former as a wholly owned subsidiary). MidAmerican provides retail electric service to customers primarily in Iowa and also provides wholesale requirements to several municipal utilities. CalEnergy is an independent power producer which, through nonregulated subsidiaries, manages and owns interests in more than 5,000 MW of generation worldwide. Docket No. EC98-63-000, Dec. 16, 1998, 85 FERC ¶61,354.
ScottishPower + PacifiCorp. ScottishPower, headquartered in the U.K., announced Dec. 8 that it would pay $12.8 billion to take over U.S.-based PacifiCorp. The combination would create one of the world's 10 largest utilities. Each share of PacifiCorp will be exchanged for either 0.58 American Depositary Receipts or 2.32 Scottish Power ordinary shares. Scottish Power shareholders would own 64 percent of the merged company, and PacifiCorp shareholders would own 36 percent.
BEC + Commonwealth. BEC Energy, parent company of Boston Edison Co., on Dec. 7 announced it would acquire Commonwealth Energy System, parent company of Cambridge Electric and Canal Electric, for $950 million. The merger calls for BEC Energy shareholders to exchange each share for one share of the unnamed holding company, or $44.10 in cash, a 5 percent premium. Commonwealth shareholders would exchange each share for 1.05 shares of the new company, or $44.10, a 17 percent premium.
National Grid + NEES. National Grid Group plc will take over New England Electric System for approximately $3.2 billion, according to an announcement issued Dec. 14. National Grid reportedly will acquire all outstanding shares of NEES for $53.75 per share, representing a premium of 25 percent above the closing price for NEES shares on Dec. 11. The deal would make NEES a wholly owned subsidiary of National Grid, the world's largest, privately owned transmission company, which operates high-voltage networks in England and Wales.
Avista + Vitol. Avista Energy, the energy trading and marketing affiliate of Washington Water Power, on Dec. 17 announced that it would purchase Vitol Gas & Electric LLC, one of the top 20 energy marketing companies in the United States. Terms of the deal were not disclosed. "By combining the resources of Avista Energy and Vitol Gas & Electric, we have placed ourselves squarely among the top 10 energy marketing and trading companies in the nation," said T.M. Mathews, WWP chairman, president and CEO.
Two rural electric cooperatives are joining forces to build a $200 million power plant near Chouteau, Okla. KAMO Power and Associated Electric Cooperative plan to build a 530-megawatt (mw), gas-fired combustion turbine power plant to meet the growing electric demands of their customers. Construction of the plant will start in the first quarter of 1999, with commercial operations expected to begin in July 2000. The location has not been finalized, but the "preferred site" is Mayes County.
Stockholders of Sierra Pacific Resources approved the merger of the company and Nevada Power Co. The merger, conditioned upon approvals from the various regulatory commissions, is expected to close in the second quarter of 1999.
South Jersey Industries Inc. and Conectiv announced plans for a joint customer account services venture to provide meter reading services. Millennium Account Services, which will be established as an entity separate from the two companies, eventually could provide a variety of customer account services - including metering, billing and customer service - upon passage of the pending restructuring legislation.
GE Harris Energy Control Systems Canada Inc. signed a $3 million contract with China Light & Power Co. Ltd. to provide substation automation equipment to the Hong Kong company. GE Harris will supply equipment to control, monitor and automate substations in CLP Power's 400-kilovolt and 132-kilovolt transmission system. It will provide 120 Wesdac D200 Remote Terminal Units, an upgrade that will replace equipment originally supplied by GE Harris more than 10 years ago.
Mandatory Compliance. The Western Systems Coordinating Council (WSCC), at its December annual meeting in Phoenix, voted to move forward with implementation of Phase 1 of its reliability management system, which requires mandatory compliance, according to chairman Jan B. Packwood. WSCC claims to be the first of the 10 regional reliability councils to proceed with such a system prior to enactment of federal legislation.
Studies and Reports
Gas Capacity Release. The average value of capacity release transactions runs substantially below the regulated maximum rate, while published rates are generally consistent, according to a new report, "Analysis of Short-Term Natural Gas Markets." The report was conducted by Energy and Analysis Inc. on behalf of the American Gas Association and the Interstate Natural Gas Association of America. It marks the first full-scale look at released natural gas capacity prices.
According to Karen Hill, A.G.A.'s vice president for regulatory affairs, the report confirms that the price ceiling in the secondary market (at the long-term tariff rate) can distort the value of released capacity, producing a price differential between capacity release and bundled ("gas market") sales.
"The study shows," notes Hill, "that during peak periods, the volume of released capacity transactions drops significantly as shippers are forced to the rebundled market." The A.G.A. (among many) has urged the FERC to remove the price cap on the maximum rate for released capacity.
Renewable Portfolio Standards. In its newly released study "Energy Outlook 1999," the U.S. Energy Information Administration reports that the proposed federal Comprehensive Electric Competition Act, if passed, would require that 5.5 percent of electricity be generated from renewable sources other than hydroelectric by 2010. That would produce a cut in carbon emissions of some 20 million metric tons by 2010 and 25 million metric tons by 2020, putting electric prices in 2010 about 2 percent higher than otherwise. After 2010, the price impact would lessen as technologies become more economical. To access the report, go to http://www.eia.doe.gov/oiaf/aeo99/homepage.html.
European Electric Markets. According to new research by Andersen Consulting, the steady opening of Europe's electricity markets, due to start Feb. 19 under the European Union's Electric Directive, will boost natural gas use in Europe. Some causes are the effects of price pressures from electric supply competition, new gas-fired cogeneration technologies and an improved trans-European gas supply network.
The study predicts that smaller, cleaner forms of generation located closer to demand will replace large central-station plants, reducing the need for long-distance transmission. It forecasts that by 2015, between 30 and 40 percent of European power will likely come from natural gas, up from just 7.5 percent in 1992. For more information, go to http://www.ac.com.
Long-Term Outlook. Passage of new state laws on electric restructuring likely will remain slow in 1999, due partly to high turnovers in state legislatures that will make passing laws related to stranded cost recovery more difficult, according to the Standard & Poor's Ratings Services.
It added that referendum attempts in Massachusetts and California, though unsuccessful, discouraged some states from moving forward.
Electric Restructuring. Michigan Gov. John Engler expressed disappointment after electric restructuring legislation died in the legislature on Dec. 12 - the last day of the session.
The Michigan PSC in June 1997 had ordered a multi-year phase-in of electric competition. Major electric utilities had hoped the legislature would act and supersede the PSC order. Detroit Edison, Consumers Energy and Michigan attorney general Frank Kelley have filed a lawsuit challenging the authority of the PSC to take jurisdiction over restructuring.
The original restructuring bill offered in Michigan would have included a four-year rate freeze and limited transition fees. But the state senate, unable to agree, passed another plan that would have given the PSC authority over restructuring.
News Digest is compiled by Lori A. Burkhart and Phillip S. Cross, contributing legal editors, and by Beth Lewis, editorial assistant.
The following notes should have appeared with the table, "Return on Equity - PUC Determinations," in the December News Analysis (see "Rate of Return: Still an Issue at PUCs," Public Utilities Fortnightly, December 1998, p. 14). We regret the omission.
All dollar amounts in millions (M). Rate adjustments rounded to nearest $0.1M.
NA - Not available.
# - Set by settlement or stipulation. Figure shown if stated.
¶ - References to "PUR4th" denote the volume and page number of publication of the full text of the PUC decision, in the Public Utilities Reports, Fourth Series, a national system reporting regulatory case law, published by Public Utilities Reports Inc., corporate publisher of Public Utilities Fortnightly. For information on how to access the PUR4th system, see http://www.pur.com.
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