TELCO UNIVERSAL SERVICE FUND. Reversing an appeals court, the Kansas Supreme Court upheld a decision by the Kansas Corporation Commission that had required wireless telecommunications carriers to contribute to the state's universal service fund. It also affirmed a KCC ruling setting the initial amount of the fund in a roundabout way based on equalizing inter- and intrastate long-distance rates.
The KCC order (issued Dec. 27, 1996) had slashed intrastate toll rates by $111 million over three years. It then cut access charges by an equal amount to offset the loss to toll carriers. Finally, it added an equal amount to the USF to compensate local carriers for the loss of access charges. The appeals court said the ruling violated the federal Telecommunications Act (it found no rational link between toll rate cuts and the USF), but the high court disagreed, saying that federal law did not bar the state's revenue-
neutral concept. Citizens' Util. Ratepayer Bd. v. Kansas CC, Nos. 78545 et al., March 13, 1998, 1998 wl 110548 (Kan.).
PUC PROCEDURE. A Texas appeals court, upholding a state PUC order, ruled that state law allows the commission to vacate findings of fact by an administrative law judge without finding an error of law or instituting new policy. Reversing an ALJ ruling, the PUC had found that an electric utility burned too much coal and not enough natural gas for power generation. SW Pub. Serv. Co. v. Texas PUC, No. 03-97-00024-cv, Jan. 29, 1998 (Tex.App.).
ELECTRIC RATE DISCOUNTS. A Michigan Appeals Court has upheld a decision by state regulators approving a discounted electric rate contract between Consumers Power Co. and a large industrial customer without prior notice, accepting the PSC's reasoning that the utility had not sought higher rates for other customers in the same case to cover the discount. The state attorney general had argued that a hearing was required since a rate increase was still possible in the future. Attorney General v. Mich. PSC, No. 193893 Dec. 23, 1997 (Mich.App.).
THE GAS RESEARCH INSTITUTE published a guidebook (gri-98/0025) that can help municipal utilities analyze the technical and economic merits of distributed generation applications. The GRI guide discusses distribution system limitations and offers cost estimates of natural gas reciprocating engines, gas turbines and fuel cells. Cost estimates also are provided for large capital expenditures such as new transmission lines and substations. The guidebook can be ordered via e-mail (email@example.com) or fax (630-406-5995).
Hibbing Taconite Co., a major iron ore mining complex, entered a long-term electric power supply agreement with Minnesota Power, which will continue to meet all of HIBTAC's large electric power needs through December 2008. In exchange, Minnesota Power will commit additional capital to help HIBTAC further improve the efficiency of its energy intensive operations.
Water Management Consultants is developing a two-dimensional, variably saturated flow model on behalf of the Metropolitan Domestic Water Improvement District and the Town of Oro Valley in Arizona for a large proposed in-channel artificial recharge project. The project, worth about $35 million, covers the possible recharge of about 28,000 acre-feet per year of water made available through the Central Arizona Project.
EnergyOne LLC joins forces with GE Service Management in a co-branding effort to provide appliance warranties through utilities. Customers will pay for warranties, along with other EnergyOne products and services, through a single monthly bill.
KeySpan Energy Corp.'s gas distribution subsidiary, Brooklyn Union, will be the first utility in New York to transfer its non-safety-related maintenance and repair service to an unregulated subsidiary. The New York Public Service Commission had said that all utilities in the state must transfer their non-safety-related maintenance and repair services to subsidiaries or exit the business.
Electric Lite will begin offering Electric Lite Green, Oregon's first power option designed to have less of a negative environmental impact.
Power Pools & Reliability
REGIONAL TRANSMISSION TARIFFS. The Southwest Power Pool
Inc. won approval from the FERC for a regional transmission tariff allowing for pool-wide, short-term firm and nonfirm point-to-point transmission services using distance-based pricing. SPP utility members would continue to provide long-term service through their open-access transmission tariffs. The SPP, unlike other pools, historically had not provided power sales or transmission services to its members. Noting the change, Commissioner William Massey said SPP transmission customers now would be able to "one-stop shop" without having to pay multiple providers, which he saw as "progress." FERC Docket No. er98-1163-000, March 11, 1998.
NEW "ALLIANCE" ISO. Eleven investor-owned electric com-
panies have completed a preliminary report on a new independent system operator, Alliance ISO, aiming perhaps to file an application for certification by this summer. The report calls for elimination of pancaked rates; electricity carried from other ISOs would be subject to pricing reciprocity. The 11 companies are Monongahela Power Co., The Potomac Edison Co., and West Penn Power Co. (all three subsidiaries of Allegheny Power); Consumers Energy; Detroit Edison; Duquesne Light Co.; The Illuminating Co.; Ohio Edison Co.; Pennsylvania Power Co.; Toledo Edison Co.; and Virginia Power. Detroit Edison has said it will not participate in the next phase of development of the Alliance ISO.
INDEGO ISO. Idaho Power Co. said it will not join in an
application at the FERC that would have formalized the company's participation in IndeGo, a proposed regional independent system operator. Idaho Power was one of the original seven utilities that proposed the creation of IndeGo, which then grew to about 20 utilities in the region. Bill Pascoe, Idaho Power vice president for delivery, wrote to IndeGo Steering Committee Chairman Kip Runyan, citing three reasons for declining to move forward with Indego, including the slow pace of deregulation in Idaho and concern about whether the Bonneville Power Administration would join the ISO.
WISCONSIN POWER SHORTAGES. Wisconsin Gov. Tommy Thompson (R) and five state legislators introduced a compromise proposal to upgrade the state's overwhelmed electricity system, which was plagued last summer by power shortages and threats of rolling blackouts. The March 12 proposal unites recommendations made by three task forces, consisting of customers, utilities and the Wisconsin Public Service Commission. The plan seeks to streamline the state's utility regulatory process and encourage construction. Key items in the measure include increasing the capacity of power plants and transmission lines that can be built without PSC approval, allowing for the construction of merchant plants, accelerating the time table for PSC approval of generation and transmission projects and making the entire process easier for developers. Also, it would grant authority to the PSC to (1) impose a state independent system operator, (2) require utilities to join an existing ISO, or (3) order utilities to sell their transmission assets if a regional ISO is not in place by June 30, 2000. The measure also would require a regional transmission constraint study.
MUST-RUN PLANTS. The FERC accepted the designations of "must-run" generating plants by the California Independent System Operator, identifying plants needed to maintain reliability of the state's power grid. Among other factors, it considered whether a plant could mitigate locational market power and whether charges passed on by the ISO would be just and reasonable. Docket Nos. ec96-19-012, er96-1663-013, March 11, 1998.
STRANDED COSTS. Citing the difficulty of distinguishing "wholesale" from "retail" stranded costs, the FERC scheduled a hearing to consider a proposal by Central Vermont Public Service Corp. to impose an exit fee to recover lost wholesales after New Hampshire opened its retail choice program.
With the start of retail access, the New Hampshire PUC had directed Connecticut Valley Electric Co. to terminate its wholesale purchased power contract with Central Vermont to allow its retail customers to choose their own power suppliers. The FERC had denied a request by Central Vermont for a stranded cost surcharge (the costs weren't "wholesale"), but asked the company whether it wished to amend its wholesale contract to add an exit fee.
The FERC called the situation "highly unusual," but indicated it won't interfere with the New Hampshire PUC's intent to deny retail stranded costs. Commissioner Massey said the case "illustrates the jurisdictional quagmire" of exit fees. He noted that "it appears the utility is getting a second bite at the stranded cost apple." Docket No. er98-1440-000, March 11, 1998.
PRIVATE POWER EXCHANGES. The Commission asserted jurisdiction over Automated Power Exchange Inc., declaring APX to be a public utility operating facilities for power wholesales, although APX will operate only a private power exchange, which will match buyers with sellers using a computer program to analyze bids. Commissioner Curt Hébert Jr. dissented, accusing the FERC of trying to regulate computer software. Docket No. er98-1033-000, March 25, 1998.
LNG STORAGE FACILITY. After a contentious discussion, the FERC voted 3-2 to set an expedited hearing for an application by Granite State Gas Transmission to build a liquefied natural gas storage facility in Wells, Maine. The facility would store 2 Bcf and deliver (on behalf of Northern Utilities Inc.) up to 134,000 MMBtu per day of vaporized LNG into Granite State's pipeline system and the proposed Portland Natural Gas Transmission System. Commissioner Curt Hébert Jr., who objected along with Commissioner Linda Breathitt, disputed the need for the project. Docket No. cp96-610-000, March 11, 1998.
Studies & Reports
RATE REDUCTION BONDS. U.S. utilities will issue $50 billion
to $150 billion in rate reduction bonds over the next few years, according to a new report from Prudential Securities Inc., entitled The State of Utility Securitization: Stranded Costs and Other Financing. Prudential expects issues of RRBs to reach $10 billion to $15 billion this year, although it cautions that this figure is extremely volatile given political, legal and regulatory hurdles.
WATER UTILITY CREDIT QUALITY. In a new report, Moody's Investors Service finds the credit quality of some U.S. water utilities may suffer as they face the high costs of safe drinking water requirements and pursue diversification efforts. The report, The Water Utility Industry: Risks Rise for Last US Regulated Monopoly, states that the cost of complying with environmental mandates will prove troublesome for smaller investor-owned, municipal and private water utilities. The report adds that diversification could prove risky for larger investor-owned utilities that seek to supplement earnings through acquisitions. Stronger competition in that area from other larger investor-owned and municipal utilities as well as from newly deregulated electric utilities, could drive up bids for acquisition targets. Overall, the report states, "financial risks associated with the regulated, investor-owned water sector are not as significant as in the electric utility sector, which itself has undergone a wave of diversification, mergers, and acquisitions, and now faces deregulation."
SULFUR-DIOXIDE EMISSIONS. The U.S. General Accounting Office released its report, Air Pollution (em Estimated Benefits and Costs of the Navajo Generating Station's Emissions Limit, which questions the benefits of reducing SO2 emissions at the 2,250-MW Navajo Generating Station.
In 1991 the Environmental Protection Agency had required the Navajo plant to reduce emissions by 90 percent, costing plant operators $100 million, claiming that plant emissions impaired visibility in Grand Canyon National Park, in violation of the Clean Air Act. The EPA initially had estimated a 14 percent winter season visibility improvement in the Grand Canyon vicinity due to reducing SO2 emissions by 90 percent, but lowered that estimate to 7-percent improvement to reflect new study results.
LILCO TAKEOVER. The Internal Revenue Service has issued a favorable ruling for Long Island Power Authority to move forward with its partial takeover of Long Island Lighting Co. According to New York Gov. George Pataki (R), the deal will cut electric rates on Long Island by almost 20 percent. But consumer groups say the ruling, which gives LILCO investors a $2-billion capital gains tax exemption if the takeover occurs, is a "bailout" of the utility's failed nuclear investment at ratepayer expense.
LILCO would sell LIPA its $4.8 billion of Shoreham plant assets, its 18 percent interest in the Nine Mile Point 2 nuclear plant and part of its purchased power contracts. LILCO would transfer its transmission and distribution assets to LIPA, retaining its gas-fired and non-nuclear electric generating assets. LIPA would pay LILCO $2.5 billion in cash; LILCO would sign a 15-year electric supply contract with LIPA to operate LIPA's transmission and distribution system. LIPA would assume $3.6 billion of LILCO's $5 billion outstanding debt and preferred stock. LILCO would finance the transaction by issuing $7.3 billion of municipal bonds. The IRS ruled that revenues produced by LIPA's utility business would not be subject to federal income taxes.
OPEN-ACCESS TRANSMISSION. The Salt River Project filed a voluntary open-access transmission tariff at the FERC, supplementing its compliance with comparability standards and ensuring its ability to obtain transmission service from other utilities. The tariff also contains standards of conduct outlining the functional separation of wholesale merchant and affiliate activities from transmission and reliability. (New West Energy Corp., a Salt River subsidiary, was formed to sell excess capacity outside the parent's service territory.) FERC Order 888 allows public power companies voluntarily to submit open-access transmission tariffs to the FERC.
CONSUMER DISCLOSURES. Effective Jan. 1, 1999, the Illinois
Commerce Commission will require electric utilities and alternative power suppliers to provide consumers with data broken down by percentages according to the fuel source for power generation, whether biomass, coal, hydro, natural gas, nuclear, oil, solar or wind. They also must supply a chart listing emissions of carbon dioxide, nitrous oxides and sulfur dioxide, plus nuclear waste attributable to fuel sources. No. 98-0094, March 11, 1998 (Ill.C.C.).
UTILITY MARKETING AFFILIATES. Regulators in Maryland,
Maine and California set rules governing marketing affiliates of energy utilities, in each case distinguishing between "core" activities, such as energy sales (common both to utilities and affiliates) and "non-core" endeavors, such as kitchen remodeling or appliance repair.
In Maryland, rules for core affiliates bar joint sales calls or promotions and require utilities and affiliates to operate from separate locations. Noncore standards simply bar any preferences linked to unregulated services. Cooperatives and small utilities get no exemption. The PSC adopted a fully distributed cost method to allocate expenses and assets between utilities and affiliates. Case No. 8747, Order No. 74038, Feb. 23, 1998 (Md.P.S.C.).
In Maine, a provisional rule covering noncore activities mandates structural separation between utilities and affiliates. The PUC will require a fully distributed cost allocation between core and noncore services, but market pricing to evaluate asset transfers. Ratepayers are guaranteed the value of intangible assets and corporate goodwill. The rule also covers cost allowances for water utility payments to affiliates. Docket No. 97-886, Feb. 18, 1998 (Me.P.S.C.).
In California, new standards of conduct will apply only to transactions with affiliates who offer a product or service for a form of energy that the utility itself provides, but will allow the shared use of the utility's corporate name and logo, with a public disclaimer. r.97-04-011, i.97-04-012, d.97-12-088, Dec. 16, 1997 (Cal.P.U.C.).
CUSTOMER-OWNED GENERATION. The New York Public Ser-
vice Commission set terms for utility tariffs required under a new state law permitting residential electric users to install photovoltaic generation units sized at not more than 10 kilowatts. The law allows customers to interconnect with the utility grid and get backup power when needed at tariffed residential rates, plus a credit at the same tariffed rate when PV output exceeds need (net metering). The plan caps total PV production at 0.1 percent of each utility's electric demand. The PSC rejected calls by utilities for guaranteed recovery of revenue lost under net metering, noting that other similar reductions in usage (lifestyle changes, conservation, efficient appliances, etc.) don't warrant compensation. Case No. 97-e-1951 et al., Feb. 11, 1998 (N.Y.P.S.C.).
ELECTRIC COMPETITION. The Delaware Public Service Commission issued a report to the state legislature finding electric competition both "inevitable and desirable." Utilities would file unbundled rates, restructuring plans and stranded cost estimates and would serve as default providers of generation under regulated, but "market-based" tariffs during a transition period. The PSC recommends only functional separation of generation from regulated services but asks lawmakers for authority to mandate structural separation if cross-subsidies are found. Docket No. 97-229, Jan. 27, 1998 (Del.P.S.C.).
PURCHASED POWER COSTS. Green Mountain Power Corp. has filed with the Vermont Public Service Board a motion to reconsider its 270-page rate decision issued March 2, granting $5.48 million of a requested $22 million revenue increase. The award represents 3.6 percent on base rates. The board disallowed $5.48 million under a purchased power contract with Hydro-Quebec. According to Christopher L. Dutton, GMP President and CEO, the ruling "may be devastating." He said the utility was analyzing the accounting and credit rating implications of the decision, "but we know already that they could be severe." If necessary, GMP will appeal any future decision to the Vermont Supreme Court. Moody's Investors Service said it has "increased concerns" over the utility's ability to sustain its present debt rating level (Sr.Sec. Baa2) due to the "negative" rate order. Standard & Poor's placed its rating of GMP on CreditWatch with negative implications. Docket No. 5983, March 2, 1998 (Vt.P.S.B.).
SYSTEMS BENEFITS CHARGE. The New York Public Service
Commission set rules for using a systems benefit charge to fund public policy programs in a restructured electric industry. The charge would fund only (1) approved research and development related to energy service, storage, generation, the environment and renewables; (2) pilot programs for energy management for low-income customers; and (3) environmental protection that exceeds compliance with current law and regulations. The plan sets funding levels and benefits charges for a three-year transition period. To ensure fairness the PSC designated the New York Energy Research and Development Authority as an independent administrator for the statewide program. Case No. 94-e-0952, Opinion No. 98-3, Jan. 30, 1998 (N.Y.P.S.C.).
ELECTRIC DISTRIBUTION LINES. Citing success under a two-year pilot program, the California Public Utilities Commission will allow builders and contractors to design lateral distribution facilities and line extensions on private property for residential gas and electric customers.
A second ruling permits free allowances for the cost of transformers, meters, regulators and services but only to the extent that the net revenues (distribution function only) from expected load matches utility investment. Commissioner Jessie Knight praised the rulings as "the first tentative steps toward allowing distribution competition." r.92-03-050, Decisions 97-12-098, 97-12-099, Dec. 16, 1997 (Cal.P.U.C.).
YELLOW PAGES REVENUES. Initiating a three-year rate freeze,
the Utah Public Service Commission has continued its policy of imputing yellow pages revenues to U S West Communications Inc., to account for assets transferred in 1984 to a directory publishing affiliate. It denied claims that the practice would impede local telephone competition or prejudice the carrier's price cap rate plan. Docket No. 97-049-08, Dec. 4, 1997 (Utah P.S.C.).
WESTERN WATER SHORTAGES. Closing a water service complaint case dating to 1991, the California Public Utilities Commission rejected a settlement offer and directed Citizens Utilities Co. of California to follow a much-debated master plan to add supply for a growing service area by maximizing production from existing wells and adding treatment and storage facilities. The PUC found little reason to expect to find new supply sources and found desalinization too costly. Citing what it called the "paralysis of compromise decision-making," the PUC noted that six years of negotiations and hearings had produced little progress in rehabilitating the troubled water system. Application 91-11-010, Decision 97-12-097, Dec. 16, 1997 (Cal.P.U.C.).
WATER UTILITY POLICIES. The Connecticut Department of Public Utility Control has identified administrative and legislative action needed to improve the quality of water service. It suggested an information program to facilitate mergers of small water companies, plus simplified forms for rate applications. It will investigate a surcharge to cover fixed costs and depreciation expense to replace aging distribution mains. Report to General Assembly in Accordance With Public Act 96-153, Jan. 28, 1998 (Conn.D.P.U.C.).
GAS MARKETING AFFILIATES. The Massachusetts Department
of Telecommunications and Energy has directed Boston Gas Co. to flow through to ratepayers all profits from city-gate sales contracts it had transferred to a new gas marketing affiliate under a plan to "exit the merchant function." The department found the transfer of contracts anticompetitive and antithetical to state policy. D.P.U./D.T.E. 96-66, Dec. 12, 1997 (Mass.D.T.E.).
GAS RATE CLASS SUBSIDIES. The New York Public Service Commission has directed St. Lawrence Gas Co. Inc., to shift costs away from larger industrial users and toward the residential and small customer classes through a redesign of load balancing charges and changes in cost allocation in its adjustment clause. Case No. 97-g-0409, Opinion No. 98-2, Jan. 22, 1998 (N.Y.P.S.C.).
RETAIL GAS SUPPLIERS. The Georgia Public Service Commission set rules for certification of new unregulated natural gas marketers under the state's new gas deregulation law, requiring applicants to prove the financial and technical capability to serve customers reliably. It reserved authority to revoke certification for unfair practices. Docket No. 8044-u, Dec. 30, 1997 (Ga.P.S.C.).
GAS RETAIL CHOICE. The Kentucky Public Service Commission released a draft proposal for legislation on customer choice and rate and service unbundling in the natural gas market, but has not yet decided whether to seek introduction of a bill during the 1998 legislative session. Admin. Case No. 367, Jan 9, 1998 (Ky.P.S.C.).
News Digest is compiled by Lori A. Burkhart and Phillip S. Cross, contributing legal editors, and by Beth Lewis, editorial assistant.
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