PIPELINE CONSTRUCTION. Chief Judge D. Brock Hornby of the U.S. District Court in Maine, decided to allow Portland Natural Gas Transmission System access to electric transmission corridors owned by Central Maine Power Co. The access will be used to install a natural gas pipeline.
Portland received FERC approval Sept. 24 for installing and operating a 292-mile, $302-million interstate pipeline. CMP owns about 70 miles of the electric transmission corridor. The preliminary injunction, issued April 10, gives Portland access to property on CMP-owned transmission corridors.
"While we are disappointed that this matter had to be resolved through litigation, we are very pleased with the court's timely and comprehensive decision in our favor," said Michael A. Minkos, Portland president.
REFUND SUITS. Ratepayers filed a lawsuit in Orleans Parish Civil District Court to recoup $300 million they allege Entergy Corp. overcharged them. The lawsuit claims Entergy failed to comply with franchise ordinances passed in 1922, permitting operation of an electric monopoly in New Orleans and limiting profits to 7.5 percent annually. Since 1975, ratepayers claimed, Entergy has earned returns from 8.33 to 21 percent. Ratepayers want all earnings greater than 7.5 percent to be refunded.
ARIZONA ELECTRIC COMPETITION. The Arizona Supreme Court refused to hear challenges to the Arizona Corporation Commission's authority to establish electric industry competition.
In December 1996, the commission had enacted rules opening electric markets by allowing providers to compete with traditional utilities. Most of the state's electric utilities appealed the commission's decision. Maricopa County Superior Court Judge B. Michael Dann disagreed and upheld the commission's authority. The utilities bypassed the court of appeals and asked the state supreme court to overturn the superior court decision. The high court refused to hear the challenge and directed the parties to the appellate court.
"The Supreme Court's refusal to hear this case is a clear victory for the customer, who will be able to escape the stranglehold over the customer's ability to choose their electric energy provider," said Renz D. Jennings, commissioner. "The commission remains on track for bringing competition to Arizona on Jan. 1, 1999." Nos. cv-98-0146-sa and cv-98-0147-sa, April 21, 1998 (Ariz.Sup.Ct.).
Studies & Reports
POWER MARKETING ADMINISTRATIONS. The U.S. General Accounting Office released a report that finds PMAs face an uncertain future. Federal Power - Options for Selected Power Marketing Administrations' Role in a Changing Electricity Market says PMAs cost the Treasury $1.5 billion from 1992 to 1996. Also, up to $1.4 billion of $7.2 billion of federal investment in electric-related assets at the three PMAs is at risk of nonrecovery.
GAO presented three options for the three PMAs the report focused on, Southeastern, Southwestern and Western Area: (1) continue to operate as in the past; (2) maintain present ownership while improving management and operation; and (3) divestiture by the federal government.
TEXAS STRANDED COSTS. The Texas Public Utility Commis-sion issued a report finding that stranded costs for electric utilities in Texas will be much lower than projected two years ago. It gave credit for that reduction to the positive effects of competitive transition plans for the state's major electric utilities.
The report, Potentially Strandable Investment, was prepared by the PUC for the Texas Senate Interim Committee on Electric Utility Restructuring and was released April 21. It estimates statewide stranded costs at $4.5 billion if retail competition begins by 2001; $3.3 billion if it begins in 2002; $2.3 billion if in 2003. The 1997 report had set stranded cost estimates at $15.8 billion in 1998 and $10 billion in 2000 assuming retail competition began in those years.
There are many reasons for lower stranded cost estimates. "Since this analysis uses later start dates for competition, [stranded cost] is lower because utilities are recovering those costs through ongoing regulated rates," said Dan Jones, PUC chief policy analyst and author of the report.
DIVERSIFICATION RISK. U.S. electric utility holding companies face higher risks in proportion to the debt they take on to finance their nonregulated ventures, according to a Moody's Investors Service report. As a result, there will be changes in the traditional methods of rating utilities.
The April 15 report, Ratings Gap Between Electric Utilities and Their Holding Companies Widens, notes that electric utilities and affiliates rated by Moody's are components of increasingly complex corporate structures. Many utility holding companies have financed substantial portions of nonregulated investment with debt. Yet while the debt has grown, the size of the dividend stream from the utility has not grown - in fact it may be shrinking.
ELECTRIC METERING. The National Association of Regulatory Utility Commissioners has released a white paper on metering technologies and related communications requirements needed to support direct access to consumers in a competitive retail electric market. The 97-page report, Direct Access Metering & Data Communications Requirements, was prepared by Plexus Research, Inc. and features an extensive research bibliography on data communications, technology options, and other topics. See www.naruc.org/Downloadabledocuments/metering/
INTERNATIONAL ENERGY SALES. The California Power Exchange has asked the Department of Energy to allow it to export electricity to Mexico pursuant to section 202 of the Federal Power Act. The notice proposes that part of the power purchased through the PX would be bought by the Comision Federal de Electricidad, the national electric utility of Mexico. Electricity would be transmitted to Mexico using the international transmission facilities of San Diego Gas & Electric Co. Docket No. ea-179, April 14, 1998
FERC MERGER POLICY. Noting that it recently acted on seven "vertical mergers" between electric and natural gas companies (Enova/PE, Duke/PanEnergy, Enron/PGE, etc.), the FERC issued a notice of proposed rulemaking that would require merger applicants to analyze potential vertical market power in the same manner already required for horizontal market power under the FERC's current merger policy statement, issued in 1996 in Order 592. To facilitate the new vertical analysis, the FERC will convene a technical conference to explore using computer simulation models to delineate markets and gauge their dynamics and relative concentrations.
At the same time, the FERC will ask for comments on whether it should anticipate other, more unusual types of mergers, such as between an energy utility and a telecommunications firm. As the FERC observed, such a merger could offer new products; "sophisticated, interactive electric metering, real-time pricing, automatic utility control of customer machinery and appliances [or] computerized shopping for the most economical power supplier." But it also wondered: "Should our analysis extend¼ even if these products are principally concerned with end-use markets?" Docket No. rm98-4-000, 83 FERC ¶ 61,027, April 15, 1998.
Earlier, the National Rural Electric Cooperative Association and American Public Power Association had asked the FERC to impose a two-year moratorium on mergers between large electric utilities. See www.APPAnet.org/news/rel-980407.html.
INTERNATIONAL TRANSMISSION SERVICE. The FERC ordered El Paso Electric Co. to provide open access transmission service across the U.S.-Mexican border. El Paso will provide service over U.S. portions of lines connecting its Diablo and Ascarate substations in the U.S. with the Insurgentes and Riverena substations in Mexico.
The Department of Energy had delegated authority to the FERC to act in the case. The Commission had then amended both El Paso's presidential permit and its DOE export authorization. The order won't be issued, however, until the Secretary of State and the Secretary of Defense approve the permit amendment. Docket Nos. el96-74-001 et al., April 15, 1998.
ENERGY R&D. U.S. Energy Secretary Federico Peña and Ralph Goodale, minister of natural resources in Canada signed a Memorandum of Understanding on Collaboration in Energy Research and Development. The agreement sets up guidelines for joint projects in energy conservation, energy efficiency, renewable energy, alternative transportation fuels, fossil energy, environmental protection and health. The agreement is a renewal and an expansion on a previous agreement signed in 1986.
The 10-year agreement covers all fields of energy research and development, including cleaner energy technologies and the impact of energy technologies on environmental protection and health. Several joint projects in heat pumps, combustion, bioenergy and transportation are expected to be finalized now that the memorandum has been signed.
NEED FOR POWER. The Michigan Public Service Commission ordered Detroit Edison to file plans for meeting additional capacity needs of 417 megawatts in 1998; 570 MW in 1999; 604 MW in 2000; and 760 MW in 2001. Detroit Edison had claimed it would not require any new capacity until 2004. But the PSC was concerned that electric utilities will not have adequate capacity to serve customer needs, and accepted its staff's "conservative" estimates for the additional capacity requirements.
Commissioner John Shea dissented, saying the majority's threat of economic consequences to the utility if it does not comply "smacks of the intrusive, Soviet-style program of centrally planned procurement of electricity from which my colleagues have previously distanced themselves."
In two companion orders, the PSC unanimously directed Consumers Energy Co., and Indiana Michigan Power Co. to file plans by April 24 assessing their needs for additional capacity this summer. Case No. u-10840, April 14 (Mich. P.S.C.).
NEW HAMPSHIRE RESTRUCTURING. On rehearing of its 1997 order on electric restructuring, the New Hampshire Public Service Commission reaffirmed its policy (regional average rate approach) on stranded costs, but relaxed rules in three key areas:
1. Metering. Opened for large-volume users once standards are developed.
2. Affiliates. Can operate within utility's franchise area and use trade names that resemble utility's name.
3. Default (Standard-Offer) Generation. Competitive suppliers can bid to serve default load.
Previously, the commission had required incumbent utilities to make new wholesale purchases if necessary to serve default customers. But on rehearing, the PSC expressed concern that forcing all default load on utilities might be misconstrued as a new extension of the historic duty to serve at regulated, bundled rates. dr 96-150, Order No. 22,875, March 20, 1998 (N.H.P.U.C.).
A month later, on April 21, Moody's Investors Service confirmed credit ratings of Public Service Co. of New Hampshire (Sr. Secured, 'Ba3') and its affiliate North Atlantic Energy Corp. (Sr. Secured, 'B1'), taking the companies off review for possible downgrade. The action was seen as reflecting a lower probability that PSNH could be forced into a near-term default following the PUC's March 20 rehearing order. However, the state supreme court is still reviewing legal questions concerning the effect of the PUC orders on a prior rate settlement for PSNH that resolved issues related to bankruptcy.
Moody's noted that while the rehearing order theoretically would allow stranded cost recovery to be determined on a cost-based approach, restructuring will be delayed pending court review unless PSNH voluntarily settles with the state. Presently, a temporary federal restraining order prohibits the state from implementing restructuring as it pertains to PSNH.
UTILITY MARKETING AFFILIATES. The California Public Utilities Commission found that Pacific Gas & Electric Co. had allowed its affiliated electric service provider, PG&E Energy Services, to misuse the parent company's name and logo in soliciting business. The PUC will penalize the company $500 to $20,000 per offense, depending on how often the violation occurred in newspaper advertisements that carried an illegible utility/affiliate relationship disclaimer. The PUC stressed that it was putting all utilities on notice that they must clearly show the distinction between the parent utility company and affiliates using the parent company name. Docket r.97-04-011, April 9, 1998 (Calif. P.U.C.).
ELECTRIC RESTRUCTURING. The Alabama Public Service Commission has begun a broad-based investigation of electric industry restructuring, even while noting that the state already enjoys "some of the most efficient and reasonably priced electric utility services in the nation." Noting an increasing "national emphasis" on the issue, it felt a review was prudent, since restructuring could be mandated at some point at the federal level. Docket 26427, April 7, 1998 (Ala.P.S.C.).
ESP REGISTRATION. The California PUC issued an interim decision revoking the registration of Boston-Finney, a recent non-utility entrant in the California electric market. The commission began investigating the ESP after receiving evidence of improper marketing practices by the company, labeled by some as a "pyramid scheme." The company decided to abandon its registration after being ordered to stop recruiting state residents to become "account executives" and "independent distributors" and soliciting payments from the new potential marketing agents. The revocation of the registration would not affect the continuing investigation of the offending practices by the company, the commission said. Decision 98-03-035, i.98-02-004, March 12, 1998 (Cal.P.U.C.).
RENEWABLE RESOURCES. The Maine Public Utilities Commission is studying how it can require competitive electric providers to reserve at least 30 percent of their supply portfolios for renewable resources - and is considering tradable credits as one option. The PUC will also begin studying how to carry out a program that will allow retail ratepayers to make voluntary contributions for research and development on renewables. Both mandates are part of the state's electric restructuring law calling for retail competition in the electric generation market by March 21, 2000. Docket No. 97-584, Feb. 18, 1998 (Me.P.U.C.).
STANDARD-OFFER GENERATION. Over the objections of Enron Capital and Trade Resources (and other prospective energy suppliers) that the rate would hinder competition, the Massachusetts Department of Telecommunications and Energy has approved an interim 1998 price of only 2.8 cents per kilowatt-hour for standard-offer generation service for Cambridge Electric Light Co., Commonwealth Electric Co., and Canal Electric Co. (operating companies of the Commonwealth Energy System). D.P.U./D.T.E. 97-111, March 2, 1998 (Mass.D.T.E.).
Earlier, the DTE had imposed rules on electric distribution utilities governing: (1) standard-offer and default generation services; (2) discounts for farmers and low-income users; (3) information on renewable resources; and (4) ratepayer-funded energy efficiency programs. The rules also imposed other requirements on competitive energy suppliers - such as licensing, pricing, billing and consumer protection. D.P.U./D.T.E. 96-100, Feb. 20, 1998 (Mass.D.T.E.).
DIRECT ACCESS PROGRAMS. The Michigan Public Service Commission has authorized Nordic Electric LLC, a competitive supplier of electric energy, to expand its scope of service and sell energy to a pipeline and a municipal water treatment plant located within the Consumers Power's franchise but outside the territory recently certified for the utility's direct access program. The PSC said Consumers Power had failed to show that opening sales beyond the formal program would increase the potential for financial harm from stranded costs. Case No. u-11601, March 20, 1998 (Mich.P.S.C.).
REGIONAL ISO/PX. The Virginia State Corporation Commission has directed the state's electric utilities to begin work immediately with other interested parties to develop independent system operators and regional power exchanges to facilitate restructuring of the retail electric market. It also ordered that state's two largest electric companies, Virginia Power and AEP-Virginia to each implement "at least one" retail access pilot program and study. That action came just after the state Legislature had passed two related measures: One bill required development of pilot programs; the other required supporting ISOs and PXs. Case No. pue980138, March 20, 1998 (Va.S.C.C.).
ENERGY BILLING. With at least one exception, the New York Public Service Commission has adopted a "two-bill option," whereby electric distribution utilities will bill customers for transmission and distribution services but must provide information to competitive energy service providers sufficient to allow the ESPs to furnish their own separate bill to electric customers. The PSC noted that it had already adopted rules for competitive metering and the new billing rules were intended to further that effort.
The exception was drawn for Rochester Gas & Electric, whose restructuring plan, already approved by the PSC (Case 96-e-0998, Opinion No. 98-1, Jan. 14, 1998) maintains a "single retailer model" - the utility will provide complete tariffed billing services to energy customers for three years. Case Nos. 94-e-0952 et al., March 3, 1998 (N.Y.P.S.C.).
CONSUMER PROTECTION. The Pennsylvania PUC issued proposed guidelines governing information that competitive suppliers must provide to customers concerning operational or other changes which might affect service. The PUC said that during utility pilot programs, consumers had complained that competitive suppliers had slammed customers or had refused to serve additional customers of the same class and type that the supplier already served. Docket No. m-00960890-f.0013, March 12, 1998 (Pa.P.U.C.).
STRANDED COSTS. The Pennsylvania Public Utility Commission tentatively authorized $2.9 billion in stranded cost recovery over 8.5 years for Pennsylvania Power & Light Co. The utility had requested $4.04 billion. A final decision was expected June 4. Docket No. r-00973954, May 14, 1998 (Pa. P.U.C.).
ELECTRIC RELIABILITY. The Wisconsin Public Service Commission on April 7 approved a $91-million replacement of steam generators at Kewaunee nuclear power plant, citing need for increased reliability of the state's electric supply system. The PSC found that steam generator replacement would reduce risk of unplanned, lengthy outages affecting customers served by the plant's owners - Wisconsin Public Service Corp., Wisconsin Power & Light, and Madison Gas and Electric - which had disagreed over whether the steam generators needed replacement.
MILLSTONE NUCLEAR PLANTS. The Connecticut Department of Utility Control removed the Millstone Unit 2 nuclear plant from the rate base of Connecticut Light and Power Co. The DPUC also will take the Millstone Unit 3 from the rate base if not returned to commercial operation by July 1. The utility will lose its 9.17 percent return on $410 million in net rate base associated with Millstone Unit 2 for a net decrease of $37.7 million in annual revenue requirement. Docket No. 92-11-11, April 29, 1998.
CONSOLIDATED NATURAL GAS CO. announced April 21 that it will exit the business of wholesale marketing and trading of natural gas and electricity, including integrated energy management. CNG said the cost of exiting energy marketing and trading will produce a pretax charge against first-quarter 1998 earnings of between $55 million to $75 million. CNG will close offices in Pittsburgh and Norwalk, Conn., and will layoff 125 employees. According to George A. Davidson Jr., CNG chairman and CEO, the utility will concentrate on the retail side of the natural gas business.
Edison Mission Energy has obtained $400 million in support from the U.S. Overseas Private Investment Corp. for two projects in Thailand. The Kui Buri project, a 734-megawatt coal plant that will use low-sulfur coal from Indonesia, received a pledge of $200 million. Tri-Energy, a 700-megawatt gas-fired power plant, also received a $200-million pledge.
Dominion Energy sold its 50-percent ownership in Texas Cogeneration Co. to Calpine Corp. for $109.5 million. Dominion Energy, through Texas Cogeneration, owned 50 percent of two natural gas-fired, combined-cycle cogeneration units in Texas and a 3.5-percent interest in a natural-gas fired facility in New Jersey. Dominion
Energy received $52.75 million at closing.
Georgia Transmission Corp. announced a three-year, $100,000 grant to pilot a transmission line right-of-way management program that promotes wildlife habitats. Project WINGS is administered by Two Rivers Resource Conservation and Development Council Inc.
Enron Corp. on April 30 abandoned sales of electricity to the California residential market, finding it unprofitable to pursue residential customers in a deregulated environment. The withdrawal of Enron marks the loss of the only major out-of-state player in that market.
News Digest is compiled by Lori A. Burkhart and Phillip S. Cross, contributing legal editors, by Elizabeth Striano, managing editor and by Beth Lewis, editorial assistant.
EPA Expands NOx Plan: Introduces Cap-and-Trade Program
IN A MOVE met with little surprise, the Environmental Protection Agency proposed a market-based, cap-and-trade program as part of its plan to control nitrogen-oxide emissions from power plants and other sources. The EPA waited until given the go-ahead from the Clinton Administration in the electric restructuring proposal released in late March.
The EPA's new proposal, a 550-plus-page supplement released April 28, further expands on its 1997 proposal to require 22 states, primarily in the South and Midwest plus the District of Columbia, to cut NOx emissions by 35 percent (See, 63 Fed.Reg. 25,902, May 11, 1998; 62 Fed.Reg. 60,317, Nov. 7, 1997).
If passed, the proposal would allow states to voluntarily participate in the cap-and-trade program to meet NOx emissions limits. It would also allow states to sell credits derived from over-compliance. Yet while the trading program could make it easier to comply, not everyone is happy.
"There were some things in the proposal that were good; some things that aren't," said David Flannery, legal counsel for the Midwest Ozone Group. "While on paper the trading program looks good, in reality it doesn't look like it's going to save anything¼ We will continue to urge a more flexible approach.
"It predominantly regulates sources in clean-air areas and really doesn't place an emphasis on sources that are in the dirty areas," he added. "They're regulating the wrong sources."
The supplement also suggested an alternative approach for calculating each state's NOx budget. EPA was interested in getting feedback on this suggestion. "We put that in there to get people's reactions," said Kimberly Scavo of EPA's Office of Air Quality Planning and Standards.
Under the new proposal, budgets would be calculated based on total electricity generation, not just fossil-fuel generation, as proposed in the original draft rule.
"We're very happy with the structure for rate limits for utilities," said Bruce Craig, director of utility regulation and environmental affairs for the Natural Gas Supply Association. This alternative approach sets up a fuel-neutral standard, he said. "So regardless of the fuel or technology, you have to meet this particular standard, which levels the playing field for everybody."
Finally, EPA included some changes in reporting requirements and laid out guidelines to assure compliance and to approve state programs to achieve set goals.
The agency said it intends to "finalize" its proposal within "the September 1998 time frame." It has set up a 45-day comment period, ending June 25, and was to hold its first public hearing on May 29.
Once a rule is approved, utilities would have one year to submit a plan for meeting the requirements. States must achieve full compliance by September 2007. For more information, see www.epa.gov.airlinks and other web sites listed in the Federal Register.
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