State PUCs
Gas Capacity Rights. The New York PSC told retail suppliers that to serve firm retail gas load they must have rights to firm, non-recallable, primary delivery point pipeline capacity for the five winter months, November through March, or else must augment secondary capacity with a standby charge payable to local distribution companies holding primary rights.
Nevertheless, it acknowledged that part-year capacity is difficult to obtain (LDCs feel they get higher prices for releasing a 12-month block) and thus set a safe harbor rule promising that LDCs will get full credit for mitigating stranded capacity costs if they offer up at least a seven-month block of capacity to marketers, with no second-guessing by the PSC on the price. Case 97-G-1380, Aug. 18, 1999 (N.Y.P.S.C.).
GRI Funding. North Carolina denied a proposal by the Gas Research Institute to allow natural gas local distribution companies to recover voluntary contributions to GRI through their annual gas cost adjustment proceedings as a way of supplementing GRI funding to offset the Federal Energy Regulatory Commission's mandatory phase-out (by 2005) of cost recovery for interstate pipelines for GRI contributions.
State regulators cautioned against automatic recovery, saying instead they would allow LDCs to defer voluntary GRI contributions and submit such items as operation and maintenance costs in ordinary rate cases. Docket No. G-100, SUB 76, Aug. 17, 1999 (N.C.U.C.).
Electric Reliability. The Illinois commission on Aug. 17 launched an investigation into the reliability and management of Commonwealth Edison's overall distribution system in response to the Aug. 12 power outage. The utility will pay the costs of the probe.
Right-of-Way Sale Proceeds. The Maine PUC ruled that electricity ratepayers of Central Maine Power Co. are entitled to proceeds from the utility's sale of rights of way on its transmission corridors to Portland Natural Gas Transmission System and Maritimes and Northeast Pipeline LLC, two gas pipeline projects planning to bring Canadian natural gas south into New England. The PUC allocated 90 percent of the proceeds to electricity ratepayers, while giving 10 percent to shareholders as an incentive for CMP to negotiate for the highest possible price in similar future transactions.
The PUC rejected CMP's argument that ratepayers are like tenants in that they do not bear any risk of loss, saying that CMP ratepayers shouldered significant economic burdens associated with the land. The PUC also noted that the transmission corridors over which the rights of way were granted generally were created through the use of eminent domain. Docket No. 99-155, Aug. 2, 1999 (Me.P.U.C.).
Commissioner Impartiality. Commissioner Nancy Brockway of the New Hampshire PUC denied motions by a taxpayer group and the state's consumer advocate seeking her disqualification for allegedly prejudging certain issues regarding stranded costs for Public Service Co. of New Hampshire, but she also asked her PUC colleagues to seek review at the state supreme court, since a reversal could void any decisions made in the dockets.
Brockway alone ruled on the motion, believing that state law required action by the "subject decisionmaker," subject to a supreme court appeal. The motion alleged she had warned a PUC witness that any adverse testimony "could scuttle the deal" before PUC review. DR 96-50 et al., Aug. 6, 1999 (N.H.P.U.C.).
Stranded Costs. Using a production cost simulation model, predicting market prices for electricity (energy and capacity) ranging from $32.09 per megawatt-hour in year 2000 to $64.61 per megawatt-hour by 2030, Connecticut regulators allowed United Illuminating Co. to recover some $800 million in stranded costs, with $487 million attributable to nuclear assets, $153 million for generation-related regulatory assets, and $160 million for above-market purchased power contracts, after a $16.5 million offset for proceeds from sale of the New Haven Harbor and Bridgeport Harbor fossil plants. Docket No. 99-03-04, Aug. 4, 1999 (Conn.D.P.U.C.).
Natural Gas Slamming. The Georgia PSC on Aug. 3 voted to investigate allegations that a natural gas marketer, United Gas Management, had engaged in "slamming" - the unauthorized switching of customers, and set a hearing for October. Since deregulation began in November 1998, the PSC had received 200 complaints about United. If found guilty, the company could be fined up to $15,000 per violation and have its authority to conduct business in the state revoked.
Y2K Cost Recovery. Alliant Energy management expressed dismay with an Aug. 3 Wisconsin PSC order disallowing rate recovery for year 2000 compliance expenses for Alliant subsidiary Wisconsin Power & Light, an order that makes the utility the only major company in Wisconsin denied Y2K rate recovery.
"Frankly, we are shocked by this decision," said Bill Harvey, president of Alliant Energy-Wisconsin Power & Light. "We have been prudent in our preparedness efforts and believed we would have received at least partial recovery."
The utility's rates are frozen until April 2002, as a condition of the merger that formed the company in 1998. But the merger order allows rate recovery for "one-time extraordinary events" with a cost greater than $4.5 million. The company, which won PSC approval in May 1998 to defer Y2K expenses, had requested $12.2 million in rate relief. Management said it would pursue every means to reverse the decision.
Retail Gas Restructuring. Columbia Gas of Pennsylvania on Aug. 2 became the first utility company to file its restructuring proposal with the Pennsylvania PUC under the state's new gas restructuring law, which requires each natural gas utility to submit a restructuring plan to the PUC by Nov. 1 and opens the entire gas market to choice by July 1, 2000.
The CG plan would allow Internet enrollment and let marketers contract for their own pipeline capacity, rather than assign capacity contracts directly to suppliers.
Consumer Education. The Maine PUC boosted the budget from $1.22 million to $1.49 million for a state-sponsored consumer education program for retail electric choice, setting high goals for customer awareness (as high as 90 percent). The PUC, however, acknowledged that the state will spend only one-half as much per capita as California, the only other state known to have set consumer education performance targets, which sought only to achieve a 60 percent awareness factor. Docket No. 98- 565, July 30, 1999 (Me.P.U.C.).
Retail Shopping Credits. New Jersey regulators set a retail shopping credit of 4.49 cents per kilowatt-hour for residential electric customers of Rockland Electric Co., more than a full cent lower than set earlier for Atlantic City Electric. The order also would cut Rockland's rates by 5 percent from current levels in 1999, 7 percent by 2001 and 11.6 percent in 2002. BPU Docket Nos. EO97070464 et al., July 28, 1999 (N.J.B.P.U.).
QF Contract Rights. Ignoring claims that long-term planning horizons are no longer compatible with a competitive environment in electricity, North Carolina regulators denied a proposal by Carolina Power & Light that would convert all long-term levelized rate contracts for qualifying cogeneration and small power production facilities to short-term rates based on prevailing market prices, if and when the state should open electric markets to retail choice in generation supply.
The commission said electric utilities must continue to offer five-, 10- and 15-year levelized standard offer contracts for certain classes of QFs (hydro QF units of 5 megawatts or less, plus non-hydro QFs of 5 MW or less fueled by trash or by methane from landfills or hog waste). Docket No. E-100, SUB 81, July 16, 1999 (N.C.U.C.).
Generating Reserve Margin. In approving long-term resource plans filed in September 1998 by the state's major investor-owned electric utilities, the North Carolina commission noted that proposed reserve margins appeared in the range of 15 percent to 18 percent, significantly below a prior 20 percent benchmark, and asked utilities to explain what they were doing in the next set of resource plans, which were due Sept. 1, 1999.
It questioned what it saw as a "much greater reliance" upon off-system purchases and interconnections with neighboring systems: "Such a development is troubling in view of the electric industry restructuring that has taken place so far." Docket No. E-100, SUB 82, July 13, 1999 (N.C.U.C.).
Power Plants
Fossil Divestitures. Illinois approved Commonwealth Edison Co.'s sale of six coal-fired plants (one dual-fueled gas/oil unit and 10 peaking fossil-fired units) to Edison Mission Energy, a subsidiary of Edison International (parent company of Southern California Edison) for $4.81 million. Mission will grant ComEd the right to acquire all of the capacity and energy from the plants through the summer of 2004.
The utility said that after the power contracts terminate, it will have the ability to obtain capacity from a variety of sources, including 500 MW of generating capacity that Mission is required to install in Chicago. It also said the cash from the sale will allow it to fund projects designed to enhance its nuclear operations. Nos. 99-0273, 99-0282, Aug. 3, 1999 (Ill.C.C.).
Foreign Asset Sales. Dominion Resources, parent company of Virginia Power, on Aug. 2 agreed to sell its portfolio of Latin American power generation businesses to Duke Energy International for $405 million. Located in Argentina, Belize, Bolivia and Peru, the businesses total about 1,200 MW of hydroelectric, natural gas and diesel fuel sources. The purchase brings Duke Energy's total Latin American assets to about 3,800 MW.
According to Thomas Capps, chairman, CEO and president of Dominion Resources, the company is exiting the Latin American generation business in order to direct future growth in emerging competitive markets in the Midwestern and Northeastern U.S. regions. Capps said sale proceeds will be used primarily to buy back Dominion Resources' stock.
"In Latin America, we learned up close, first-hand and in person how to run profitable generation businesses in competitive power markets that have been operating for many years," Capps said.
Foreign Acquisitions. The AES Corp. on Aug. 18 announced that it has entered an agreement with Great Britain's National Power to purchase its 3,960-MW Drax power station for about $3 billion. The plant is the largest coal-fired facility in western Europe and generates about 8 percent of the electricity in England and Wales.
An AES subsidiary will acquire the shares of a newly formed company, National Power Drax Ltd. Meanwhile, the facility has entered into a coal purchase contract with National Power for the supply of a portion of its coal requirements through March 2000. According to Michael Armstrong, group manager of AES Electric, "Drax is the largest, cleanest, newest and most efficient large coal plant in England."
Mergers & Acquisitions
Boston Edison + Commonwealth Energy. Upset over a July rate order that allowed recovery of a $502 million acquisition premium to be paid by BEC Energy Co. (owner of Boston Edison Co.) to acquire Commonwealth Energy System to form a new company called "Nstar," Massachusetts lawmakers introduced a bill that would require the merged companies to lower rates.
The order allows Nstar to recover all merger costs from ratepayers, amortizing the acquisition premium over 40 years. It denied a proposal by Harvard University and MIT to allow recovery only of that portion of the acquisition premium paid in cash, noting that acquisition prices in gas and electric merger cases averaged 1.9 times book value between 1987 and 1999, and 2.1 times book value for mergers occurring since 1997. D.T.E. 99-19, July 27, 1999 (Mass.D.T.E.).
But according to Sen. Henri Rauschenbach (R-Mass.), the order will result in consumers paying the highest rates in the nation, excluding New Jersey. The bill would require Nstar to report costs and savings related to the merger. If the Massachusetts attorney general determines that ratepayers are not getting a good deal, he could call for a hearing aimed at lowering rates.
State attorney general Thomas F. Reilly also has challenged the BEC-Commonwealth rate order, as well as a July 15 order that OK'd an acquisition premium for the takeover of Colonial Gas by Eastern Enterprises. (See News Digest, Sept. 1, 1999, p. 16.).
Nuclear Power
Nuclear Management. The Constellation Energy Group, parent company of Baltimore Gas & Electric Co., on Aug. 2 filed to incorporate what it believes is the first-of-a-kind company offering - a proposal to offer nuclear power plant life-cycle management and license renewal services to the nuclear industry.
The new company, Constellation Nuclear Services Inc., through its management and engineering team, would offer license renewal consulting and engineering services. The team is the first to progress through the nuclear power plant license renewal process and the first to develop a license renewal method acceptable to the Nuclear Regulatory Commission. The new company employs 30 people, most of whom already are a part of BGE's life cycle management team (the utility owns the Calvert Cliffs nuclear plant).
Nuclear Waste Disposal. The NRC has started its review of the draft environmental impact statement issued by the U.S. Department of Energy on the impacts of the disposal of nuclear waste in a possible future repository at Yucca Mountain, Nev. A 16-member NRC review team includes experts in various scientific and technical fields, and specialists from the Center for Nuclear Waste Regulatory Analyses in San Antonio, Texas. The NRC's independent federally funded research and development center will participate and provide additional expertise in a wide range of disciplines. Comments developed by the team will be reviewed by the NRC before being forwarded to the DOE by the end of a 180-day public comment period on Feb. 9.
Y2K Readiness. The NRC was to make final determinations by Sept. 30 on whether additional regulatory action is warranted for the 35 nuclear power plant licensees that did not report that their facilities were Y2K ready by July 1.
The 35 plants in question all reported that they needed to complete work only on non-safety computer systems or devices. The NRC believes that all licensees will be able to operate their plants safely during the Y2K rollover and that NRC-directed, plant-specific action will not be needed.
Flexible Regulation. A report from the Center for Strategic & International Studies calls on the NRC to move rapidly to "risk-informed" regulation in improving its assessment and licensing procedures. The report calls on the NRC to be "flexible" in transferring licenses expeditiously between parties whose qualifications already are well-known to the NRC, and to simplify license renewal. While acknowledging that the NRC already has made many changes, the report says that reform needs to be accelerated for nuclear power plants to be competitive in a deregulating electric utility industry.
The report - prepared by a CSIS steering committee composed of representatives from industry, government, academia and the public policy community - states that enforcement action "should be taken only for clear violations of a law, a regulation, the license or the technical specifications."
Foreign Regulators
U.K. Electric Rates. Great Britain's utility regulator has issued draft determinations regarding electric distribution tariffs that would result in large reductions in utility revenues, prompting U.S. credit rating companies to initiate reviews of U.S.-based parent companies and affiliates associated with regional electric companies (RECs) in the United Kingdom. In many cases, the overseas investments account for substantial percentages of consolidated cash flows.
Utility regulator Callum McCarthy's draft determinations proposed rate cuts that were larger than expected, perhaps reducing distribution revenues starting in April 2000 as much as 25 percent to 30 percent, with further 3 percent annual cuts. The cuts would affect RECs in England and Wales, and the vertically integrated utilities in Scotland.
Studies & Reports
Electric Sales Forecasts. The Michigan PSC predicts a 2.0 percent annual growth for electric sales in the state through 2003. Sales are expected to grow from 100,338 gigawatt-hours in 1998 to 110,643 GWh in 2003, an increase of 10,305 GWh. It said the average 1998 electric price was 7.1 cents per kilowatt-hour, representing about $7 billion, or 2.8 percent of the state's total personal income.
Consumers Energy and Detroit Edison, the two major electric public utilities in the state, and the commission staff project increasing industrial production, but slow growth in the auto industry. See http://ermisweb.cis.state.mi.us/mpsc/.
Natural Gas Demand. The growth in residential gas demand that began in the mid- 1980s - making natural gas the dominant fuel in all U.S. regions except the South - will continue as consumption increases about 1 percent per year through 2015. 's according to the "1999 Residential Sector Summary," the Gas Research Institute's annual look at key market and regulatory factors expected to shape future residential gas demand. Most of the projected growth in residential gas consumption will come from gas water heating, clothes drying and hearth products. The report (GRI-99/0006) may be ordered by fax at 630-406-5995, or contact Kelly Murray at 703-526-7832.
Transmission & ISOs
FERC Regulatory Fees. The FERC granted a temporary waiver of annual regulatory charges for all power exchanges and independent system operators, in response to a request by the PJM Interconnection, which claimed that it makes no sales for its own account, nor receives any wholesale or transmission revenues, nor determines prices. Docket No. EL98-71-000, July 28, 1999, 88 FERC ΒΆ61,109.
Nevertheless, the Automated Power Exchange said it would move forward with a related appeal in a federal court as long as the waiver is only temporary. APX is challenging a March 1998 FERC ruling that ordered it to pay an annual regulatory charge of $0.03 per megawatt-hour of electricity traded. Oral arguments are scheduled for Dec. 3 in the D.C. Circuit.
Meanwhile, APX on July 1 opened the first privately operated power exchange in the Midwest. Based in the service area of FirstEnergy Corp., the APX-Ohio Hub allows buyers and sellers in that region to track by computer forward prices for wholesale electricity. Previously, price tracking and trading could be done only over the telephone or on electronic bulletin boards.
Courts
Bankruptcy Jurisdiction. A federal appeals court said a bankruptcy judge abused his discretion by trying to block a state PUC rate order, but said the case hinged on the facts and was not the last word on whether bankruptcy judges can enjoin state ratemaking actions.
The judge had accused the Louisiana PSC of invading his exclusive authority over interest charges accruing after a bankruptcy petition is filed when the PSC had restructured rates for the bankrupt Cajun Electric Power Co-op to reflect a suspension of the co-op's duty to pay interest on debt obligations.
The court disagreed, saying an escrow account set up by the PSC would preserve the issue for later disposition. Cajun Elec. Pwr. Co-op Inc. v. Maybey, No. 98-31258, 1999 WL 624018, Aug. 16, 1999 (5th Cir.).
Hydro Relicensing. Siding with the government on most issues, a federal appeals court said the FERC need not consider the decommissioning of a dam as an option in weighing the environmental effects of various alternatives for renewal of a hydroelectric license. Similarly, as a baseline for its evaluation, the FERC need not reconstruct the conditions that existed before the project was built, but instead may start with the current status of the project and treat that set of conditions as the "no action" baseline against which other options are measured.
The case involved the Leaburg (14.5 MW) and Walterville (8 MW) projects on the McKenzie River in Oregon. American Rivers v. FERC, Nos. 98-70079 et al., 1999 WL 599234, Aug. 11, 1999 (9th Cir.).
System Operating Agreements. Vacating a FERC order for not following precedent, a federal court asked the FERC to reexamine an Entergy system operating agreement that took interruptible sales into consideration in allocating electric capacity costs among operating utilities in four states, even though Entergy no longer counted interruptible load in its planning criteria for evaluating need for capacity.
The court said the FERC had failed to follow its own 1981 ruling that excluded interruptible load in allocating capacity costs. At that time, the FERC had said that a the seller can always avoid capacity costs by curtailing an interruptible customer to avoid a load during the system peak. Louisiana PSC v. FERC, No. 97-1661, 1999 WL 553723, Aug. 6, 1999 D.C.Cir.).
Water and Sewer Fees. The South Carolina supreme court upheld a regional sewer fee on all new service connections or upgrades, ranging from $500 (for residential users) to $80,000 (for large industrial customers). It rejected arguments that the fee actually was a concealed tax to help fund regional capital improvements because the fees will not be placed in a general fund (the "hallmark of a tax") but instead will primarily benefit those who pay them. J.K. Construction v. Western Carolina Reg. Sewer Auth., No. 24981, 1999 WL 565293, Aug. 2, 1999 (S.C.).
Business Wire
North American Power Brokers Inc. has announced its new name and brand: Enermetrix.com. "The new name reflects a company that delivers Internet technology and business process standards to the energy industry," said John Gaus, CEO and co-founder of Enermetrix.com. The company also announced a major upgrade of its Internet commerce system for energy. Formerly the World Wide Retail Exchange, Enermetrix.com fully automates the energy procurement process with enhancements including online purchasing confirmation and expanded financial reporting capabilities.
AES Corp has won a bid to acquire a controlling 51 percent interest in Eletronet in Brazil for approximately $155 million. The remaining 49 percent will be owned by a subsidiary of Electrobras. Eletronet was created last year to construct a national broadband telecommunications network attached to the existing national electrical transmission grid in Brazil. Eletronet's network eventually will span approximately 12,000 kilometers in Brazil and serve the country's major population centers. Eletronet intends to sell transport capacity on its network by entering into contracts with the regional and national long distance carriers.
American Electric Power and Siemens Power Transmission & Distribution have been awarded a contract to test whether new technologies are able to improve power quality at a reasonable cost for customers in an industrial park. The contract to develop and evaluate the country's first premium power park was awarded by EPRI, formerly the Electric Power Research Institute, the science and technology development organization for the power industry. Premium power park technologies are designed to compensate for typical erratic power delivery and to protect sensitive electronic and electrical devices. The concept requires integration within a utility's distribution system of several state-of-the-art power quality devices that previously have been used only as stand-alone pieces of equipment.
EPRI and Eskom, the largest utility in South Africa, have agreed to established a joint center for environmental projects and training in Johannesburg, South Africa. Eskom supplies 95 percent of South Africa's electricity requirements, which equals more than half the electricity generated on the African continent. Eskom and EPRI will jointly offer training and technology transfer, not only to those in the electric utility business, but also to other industries desiring environmental expertise. Because of increasing environmental awareness, changing legislation and the need for international expertise, the need for environmental training in South Africa is substantial.
Sierra Pacific Energy Co. has filed an application to obtain its license to sell electricity to residential and business customers in Nevada. In addition, it is asking for approval to offer billing, customer service and metering services. Nevadans are able to choose their electric provider beginning March 1, 2000.
News Digest was compiled by Carl J. Levesque, editorial assistant, Lori A. Burkhart and Phil Cross, contributing legal editors, and Bruce W. Radford, editor-in-chief. For continual news updates, see www.pur.com.
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