Power Pools & Reliability

SUMMER IN WISCONSIN. Responding to concerns about the electric shortages of the summer of 1997 and fears that they could happen again, Wisconsin PSC Commissioner Joseph P. Mettner has indicated that the state's energy supply outlook for the summer of 1998 appears much better in eastern Wisconsin than it did one year ago.

Mettner noted that Wisconsin's electric supply system is operating with expected reserve margins of 19.2 percent. But he cautioned that electric power flows do not respect borders.

"Outages of 7,000-MW of nuclear units to the south of Wisconsin can cause severe strain on the transmission system as companies use the system to import replacement power," Mettner said. Eastern Wisconsin again could experience reliability problems due to factors beyond the control of the PSC, such as the substantial nuclear outages throughout Illinois, Michigan and Ontario. Also, extended periods of hot weather or unexpected plant shutdowns could lead to power shortages. (For updates, see http://badger.state.wi.us/agencies/psc/writings/papers/energy/risklvl.htm.)

Meanwhile, one of the 10 reliability councils that make up the North American Electric Reliability Council, Mid-America Interconnected Network Inc., is discussed in a new report, 1998 NERC Summer Assessment for MAIN, showing that while Wisconsin may have more than adequate energy supplies, that neighboring states to the south may not. On a regional basis, utility members of MAIN are operating at an average capacity margin of nine to 12 percent, depending on availability of key Illinois nuclear units. (See, www.maininc.org/files.htm or www.nerc.com/~filez/special.html.)

Business Wire

Light Rio Servicos, a subsidiary of Electricité de France, acquired Brazil's largest electric utility, Electropaulo Metropolitana. Light was awarded the bid at a price of $1.75 billion, representing 28.5 percent of capital stock and 75 percent of voting rights.

Energy Interactive Inc. was awarded a contract with KN Energy Inc. to deliver online customer energy information services through KN Energy's web site.

Energy Pacific, the joint venture of Pacific Enterprise and Enova Corp., announced it is changing its name to Sempra Energy Solutions.

Consolidated Natural Gas Co. plans to concentrate its unregulated energy marketing activities on retail customers and discontinue wholesale marketing and trading of natural gas and electricity. The cost of exiting the unregulated wholesale energy marketing operations will result in a pretax charge against first-quarter earnings from $55 million to $75 million.

Northern States Power Co. announced it has acquired the exclusive ownership rights to the Reddy Kilowatt symbol -- the red, lightning-bolt figure -- which was widely used by utilities in the 1940s, '50s and '60s.

Central Louisiana Electric Company Inc. is changing its name to Cleco Corp. The name change makes official a name the company has used for years. The company also is changing its logo.

Fourteen solar electric business ventures have been selected to receive a total of $5 million in U.S. Department of Energy funding through the Utility PhotoVoltaic Group's TEAM-UP program. The total value of these solar initiatives is more than $29 million and will add almost 3 megawatts of solar voltaic electricity to power homes and businesses in 20 U.S. states and Puerto Rico.

Mergers & Acquisitions

ELECTRIC CONSOLIDATION. Consolidated Edison Co. of New York Inc. says it will acquire Orange and Rockland Utilities Inc. for $58.50 per share, or $790 million. The figure represents a premium over the May 8 O&R common stock closing price of $42.25. O&R would become a wholly owned subsidiary of ConEd, creating a combined base of 3.3 million electric and 1.2 million natural gas customers.

ConEd anticipates merger savings of $50 million per year over 10 years from elimination of duplicate corporate and administrative programs, and increased efficiencies. The approved New York restructuring plans for both utilities will continue to be implemented. Those plans call for generating plant divestiture. The utilities plan to use resulting funds to finance the O&R purchase.

In response to the announcement, Standard & Poor's affirmed the credit ratings of ConEd, and placed the ratings of O&R on CreditWatch with positive implications. S&P believes that due to the disparate sizes of the utilities -- O&R is less than one-tenth the size of ConEd -- that O&R should benefit from the stronger credit profile of ConEd.

TELECOM SPINOFF. Moody's Investors Service placed all the debt ratings of Citizens Utilities Co. on review for possible downgrade because the company plans to separate its telecommunications operations from its utility businesses.

If approved by regulators, Citizens would create a new corporate entity for all its telecommunications businesses. This entity would consist of Citizens' basic landline and wireless operations, in addition to Electric Lightwave Inc., a competitive local exchange carrier, of which Citizens owns 83 percent. The company's electric and natural gas transmission facilities and water distribution and waste water treatment would remain the sole assets of Citizens.

PUCs

NEED FOR POWER. The Michigan Public Service Commission rejected a request by the Detroit Edison Co. to solicit bids for new capacity assuming that the utility will not need new capacity until 2004. It also approved a new experimental wheeling program to assist the company in meeting its capacity needs and directed it to produce a plan to meet a capacity need of at least 417 megawatts in 1998 as identified by PSC staff.

The PSC said the company's capacity forecasting methods were too hypothetical and that recent events had cast doubts on the reliability of its projections. It noted significant press coverage of the need by the utility to curtail interruptible customers with little or no notice to meet peak need during the prior summer. In a dissenting opinion, Commissioner John C. Shea said that the commission's ruling "smacks of the very intrusive, Soviet-style program of centrally planned procurement of electricity" previously rejected by the PSC. He said that the commission had never developed the expertise necessary to serve the needs of an ever-growing base of electric customers and noted that Detroit Edison still would be required to provide firm stand-by service for retail wheeling customers under the newly approved plan. Case No. U-10840, April 14, 1998 (Mi.P.S.C.).

GAS TRANSPORTATION RATES. The New York Public Service Commission directed Brooklyn Union Gas Co. to provide gas transportation service to a proposed 80-megawatt independent electric generation project with no steam host, under terms and conditions similar to service provided to a qualifying cogeneration facility in the same area. The generator, New York City Energy Group LP, had said it would compete against the QF and complained that Brooklyn Union had refused to negotiate an off-tariff rate.

The PSC noted that the two generators would share the same gas transmission and distribution facilities, and ruled that their overall rate levels for fuel should be comparable, though rates could deviate to reflect differences in annual gas consumption at the two plants. Case No. 97-G- 0388, Apr. 14, 1998 (N.Y.P.S.C).

DISCOUNT CONTRACTS. The Virginia State Corporation Commission adopted guidelines to ensure that special rate incentives or discounts do not result in higher rates for other customers. To enforce that goal, it will start by examining whether revenues will exceed variable costs, but may launch a broader level of review, including costs, expenses and return calculated by rate class. Case No. PUE970695, March 20, 1998 (Va.S.C.C.).

ELECTRIC WIRES SERVICES. The New York Public Service Commission issued a policy statement on the use of tariffs, standardized agreements and supplier manuals to govern access rights and terms and conditions in the relationship between competitive energy service providers and regulated electric transmission and distribution utilities. Case No. 94-E-0952, March 10, 1998 (N.Y.P.S.C.).

ECONOMIC DEVELOPMENT RATES. The New York Public Service Commission authorized Consolidated Edison Company of New York Inc. to adjust rates under its new retail access program. The PSC wants to ensure that customers currently receiving rate discounts and business incentive offerings receive the same level of discount whether they remain as full-service customers of the utility or switch to a competitive energy supplier. The PSC said that city and state economic development officials had questioned whether the utility's new tariffs promoted competitive neutrality between retail access and full-service programs. Case No. 96-E-0897, April 10, 1998 (N.Y.P.S.C.).

FIXED GAS RATES. The New York Public Service Commission has authorized the state's natural gas local distribution utilities to offer customers a fixed-price option for gas consumption, rather than the variable monthly gas cost adjustment currently employed by the utilities, thus formalizing temporary emergency authority granted during the 1997-98 heating season. Non-core customers are excluded from the program. Case No. 97-G-0600, March 6, 1998 (N.Y.P.S.C.).

TELCO ACCESS CHARGES. In approving a settlement, the Maine Public Utilities Commission allowed Bell Atlantic-Maine to boost basic local exchange telephone rates by $3.50 per line to offset revenue losses predicted by cutting access charges to long-distance carriers, even though a price cap plan in effect barred any local rate hike except under a rigid, inflation-based formula, and did not include lost access revenues as an "exogenous change" that might warrant a rate hike. The PUC described the settlement as a fair resolution. Docket No. 94-123, March 17, 1998 (Me.P.U.C.).

GAS ADJUSTMENT CLAUSES. The Michigan Public Service Commission authorized Wisconsin Public Service Corp. to use its gas cost adjustment clause to recover unplanned costs to sell gas temporarily to a prospective transportation-only customer pending completion of necessary transportation facilities. It made the ruling even though using the GCA would impose costs on the broader class of bundled sales and transportation customers. Case No. U-11062-R, April 14, 1998 (Mich.P.S.C.).

TELCO ACCESS CHARGES. The Utah Public Service Commission set the price of an unbundled local network at its estimated cost of $20. It identified the cost of the "loop" portion of the telecommunications network connecting the end-user to the central office using incremental cost studies as a starting points and embedded cost evidence as "a cross-check" to a cost-modeling exercise premised on a hypothetical network model. It deferred action on whether to adopt a specific variation of the total element long-run incremental cost model and various related values of input assumptions. Docket No. 94-999-01, Phase II, April 8, 1998 (Utah P.S.C.).

PRICE-CAP PLAN. Under a newly approved price-cap plan for alternative regulation, the Ohio Public Utilities Commission excused Cincinnati Bell Telephone Co. from any duty to report earnings monitoring data to the PUC during the 3 and one-half year life of the plan. However, the PUC will still prescribe depreciation rates for the carrier. The plan affords significant pricing flexibility for most services except residential basic exchange service, subject to price floors based on a new long-run incremental cost study, but rate packages must contain a mark-up of at least 13 percent to cover common costs. Case No. 96-899-TP-ALT, April 9, 1998 (Ohio P.U.C.).

TELCO MERGERS. Regulators in Minnesota, Vermont, and Virginia approved the merger of WorldCom Inc. and MCI Telecommunications Corp., two of the nation's largest interexchange telecommunications carriers. In all three states, proponents of the merger had argued that the combination of the two companies would accelerate competition, especially in local markets, by creating an enterprise with the capital marketing abilities and network to compete against incumbent carriers.

Each PUC rejected claims that the combination of the two companies would reduce competition in local markets. Minnesota said GTE Corp., a competitor, would have stood to gain from stopping the merger. Docket No. P-443,3012/ PA-97- 1532, Apr. 9, 1998 (Minn.P.U.C.). Vermont saw "no evidence to suggest either company will become dominant in Vermont as a result of the merger." Docket No. 6037, Apr. 2, 1998 (Vt.P.S.B.). The Virginia commission rejected claims that the merger would diminish job growth in the state or harm the intrastate Internet market "by creating an entity with more than 63 percent control of the Internet backbone." Case No. PUA970052, Apr. 17, 1998 (Va.S.C.C.).

RETAIL ELECTRIC CHOICE. Consumers Energy submitted a draft plan to the staff of the Michigan PSC staff to allow its electric customers to participate in a bidding process to choose a power supplier. The plan conforms to a January 1998 PSC order calling for a phase-in of retail open access, leading to full customer choice by Jan. 1, 2002. Under the proposed schedule, Consumers Energy will open 300 megawatts of retail electricity for bidding this year, and another 150 MW each year from 1999 to 2001.

Generating Plants

BOSTON EDISON. Boston Edison Co. and Sithe Energies announced on May 15 that they had completed the nation's first divestiture of a utility's entire portfolio of fossil-fueled generating assets as a deregulation strategy. The sale took place expeditiously, as Sithe -- reportedly the third-largest independent power producer in the U.S. -- was named the winning bidder in December 1997, agreeing to pay $657 million for 12 generating units with 2,000 megawatts of capacity.

Sithe will pay $536 million for the generation assets and another $121 million for a six-month transitional power sales contract. The book value of the plants and sites is $450 million. Meanwhile Sithe has begun engineering feasibility studies at certain sites where it plans to invest $1 billion over the next three years to construct natural gas plants with 2,800 MW of additional capacity.

Massachusetts implemented deregulation on March 1, becoming the first state to allow electric choice for all customers, rather than phasing-in competition.

UNITED ILLUMINATING. The United Illuminating Co. announced on May 20 that it will begin to divest itself of its three fossil-fueled electric generation plants and its purchased power agreements to comply with Connecticut's restructuring law, which introduces competition by 2000.

The law requires Connecticut's utilities to submit a divestiture plan by Oct. 1, but allows utilities to bid on their own plants. However, UI does not plan to bid on its assets, and instead will concentrate on electric delivery and other nonregulated opportunities. Assets for sale are: the 667-MW Bridgeport Harbor Station; the 466-MW New Haven Harbor Station; the 75-MW English Station; a 5.45-percent share (66 MW) of Hydro Quebec; and 63 MW in purchased power contracts. UI estimated total book value of its plants of $220 million by the time the sale closes. Excluded from the package are UI's 17.5 percent (203-MW) share in the Seabrook nuclear plant, and its 3.8 percent or 41-MW share in the Millstone 3 nuclear plant.

State Legislatures

NEW YORK. New York Assembly Speaker Sheldon Silver on May 20 introduced an electric restructuring package comprised of three proposed bills, which if enacted would reduce rates by an immediate 10 percent for all customers, with an ultimate goal of a 25 percent.

Silver, who has been at odds with the PSC over its restructuring of electric markets on a utility-by-utility basis, said, "The PSC has repeatedly sold out ratepayers." Silver believes that other states have been able to dramatically reduce rates through restructuring, while the gap between New York and those states has grown. He pointed out that the average rate charged by New York's IOUs was 4 percent greater than the U.S. average in 1996. Also, New York ranks 47th of the 50 states in job growth. Neither reductions in gross receipts taxes on utilities enacted last year by the legislature, nor the modest rate cuts negotiated with utilities by the PSC, has been sufficient to reverse that trend, said Silver.

Bills included in the package are:

• Competition Plus (Assembly Bill 7942-D) -- requires a 10-percent electric rate cut in September, with more cuts two years later totalling 25 percent. Also, all customers would have supplier choice by 2000;

• PSC Elections (A.8245) -- A constitutional amendment calling for elections of PSC commissioners would be placed on the ballot for voter approval;

• Workforce Transition and System Reliability (A.8578) -- Standards would be set for worker training and for job transition and retention for any utilities undergoing certain types of restructuring;

• Energy 2000 (A.7941-C) -- To restructure the Power Authority of the State of New York and operate a fund to support energy efficiency and other projects; and

• Nuclear Restrictions (A.10214) -- To forbid PASNY from acquiring nuclear power facilities or related debt.

FERC

ELECTRIC TRANSMISSION PRICING. In a novel case, the FERC has allowed Commonwealth Edison Co. to implement an experimental, one-year tariff for nonfirm electric transmission service that will feature redispatch service to alleviate curtailments or interruptions -- both for nonfirm point-to-point service and for network customers using non-designated resources.

When ComEd uses its own resources to offer redispatch, it will price the service at the higher of (a) its embedded-cost transmission rate, or (b) its estimated incremental energy cost (opportunity cost), as represented by a 10-percent adder capped at 10 mills per kilowatt-hour. Thus, the case marks the first time the FERC has approved opportunity-cost transmission pricing based on estimated costs, rather than on an actual cost true-up. When redispatching neighboring systems, ComEd would receive payments for transmission only and would pass on to third parties the additional costs for generation incurred in making such arrangements.

As the FERC explained, its pro forma open-access transmission tariff, defined in Order 888, does not obligate any transmission provider to offer redispatch service or opportunity-cost pricing. Nevertheless, the commission had indicated that it would encourage pricing flexibility. It said it approved the ComEd tariff on an experimental basis because it would offer price certainty to transmission customers. Also, after-the-fact reporting of actual redispatch costs will help the commission to determine how well prices track actual costs. Docket No. ER98-2279-000, 83 FERC ¶61,145, May 13, 1998.

ELECTRONIC FILINGS. The FERC has issued a notice of proposed rulemaking asking for comments on how it should create a more efficient electronic information system to process and distribute the hundreds of filings it presently receives on a daily basis. The Commission believes that a "paperless" environment could save money. After it reviews comments, FERC will schedule a technical conference and establish working groups to study its goal of a paper-free regime. Docket No. PL98-1-000, May 13, 1998 (F.E.R.C.), 63 Fed.Reg. 27529 (May 19,1998).

QF STANDARDS. The FERC has clarified that when a qualifying cogeneration facility fails to meet the Commission's technical operating standards for certain periods, prompting a utility to suspend its power purchases from the QF facility during the period of temporary noncompliance, any contract refunds between the QF owner and the utility should be based on the utility's alternative hourly economy energy costs. Thus, for any hour in which the QF was available but not dispatched, the utility must compensate the QF owner for value provided, if the cost of the QF energy would have cheaper than alternative economy energy. The QF would repay the utility if economy energy was cheaper.

The case involved LG&E-Westmoreland Southamptons's 62.6-megawatt, topping-cycle cogeneration plant, which sold wholesale power to Virginia Electric Power Co. but had failed to meet FERC operating standards for QFs during 1991 and 1992. Docket Nos. EL94-45- 002 et al., 83 FERC ¶61,182, May 18, 1998.

Congress

NUCLEAR REGULATION. The U.S. House of Representatives Subcommittee on Energy and Power on May 20 held a hearing to examine whether an independent federal body should regulate nuclear facilities now under the auspices of the Department of Energy. DOE has been considering a transition that involves the Nuclear Regulatory Commission as the body that oversees nearly 3,500 nuclear facilities now managed by DOE.

DOE presently is involved in a two-year pilot program at six to 10 DOE sites to determine the desirability of NRC regulatory oversight that would support a decision on whether to seek legislation authorizing NRC legislation at DOE nuclear facilities.

The hearing came two days after Energy Secretary Pena had offered to allow electric utilities with nuclear power plants to defer some payments into the Nuclear Waste Fund. Later, on June 2, Senate Majority Leader Trent Lott (R-Miss.) failed to win the necessary two-thirds vote to limit debate on H.R. 1270, a bill that calls for temporary storage of more than 28,000 tons of radioactive waste now stored at 73 nuclear plants in 34 states. (See, "Waste Bill Dies, Same Fate Seems Certain for DOE Proposal," by Joseph F. Schuler, July 1, 1998, p. 20.)

ENVIRONMENTAL EXTERNALITIES. The Minnesota Court of Appeals affirmed a 1977 order by the state public utilities commission that set avoided-cost values for various air emissions (including carbon dioxide) under a 1993 state law requiring utilities to evaluate environmental externality costs in weighing options for new power plant construction, despite concerns about the reliability of the cost data. The court discouraged the state from "environmentally conscious" planning strategies.

The PUC had set cost values for sulfur dioxide, nitrogen oxide, volatile organic compounds, particulates, carbon monoxide and carbon dioxide, differentiated by geography, with separate values for urban, rural and metropolitan fringe areas. The value for CO2, for example, ranged from $0.30 to $3.10 per ton.

The appeal, filed by the Lignite Energy Council, Western Fuels Association, the State of North Dakota, and various Minnesota electric utilities, argued that "no substantial evidence exists that CO2 causes or contributes to serious environmental damage." In the Matter of Quantification of Environmental Costs, No. CX-97-1391, 1998 WL 248211, May 19, 1998 (Minn.App.).

QF POWER COSTS. A New Jersey Appeals Court has rejected attempts by a group of electric consumers to stop the pass-through of above-market purchased power costs paid by Atlantic City Electric Co. to qualifying cogeneration facilities. It held the Public Utility Regulatory Policies Act preempts state regulators from adjusting purchased power rates retroactively or denying a pass-through of costs under a utility contract with a QF under simply because rates or costs under the contract has risen above market rates. Re Atlantic City Electric Co., 708 A.2d 775, May 1, 1998 (N.J. Super. Ct. App. Div.).

STRANDED COSTS. The Pennsylvania Commonwealth Court rejected claims that sections of the state's electric restructuring law allowing recovery of stranded costs are unconstitutional, thus denying an appeal by Indianapolis Power and Light Co., which had challenged a "qualified rate order" issued by the Pennsylvania Public Utility Commission in 1997, allowing PECO Energy to recover a portion of its stranded costs.

IPALCO, as an owner of out-of-state generation, had argued that stranded cost recovery could help subsidize PECO in interstate power markets, thus violating the Commerce Clause. The court ruled, however, that the law actually promoted interstate commerce by opening the state's electric markets and inviting out-of-state suppliers to compete for retail sales. IPALCO v. Pa. PUC, No. 1597 C.D. 1997, 1998 WL 223225, May 7, 1998 (Pa.Comm.Ct.).

Studies & Reports

NUCLEAR RISK/GAS DEMAND. The INGAA Foundation claims that the natural gas industry should prepare to meet the need for new power generation from the anticipated shutdown of nuclear plants in Canada, New England, and the Midwest.

The May 13 report, produced by the Washington International Energy Group, finds a potential demand for up to 550 billion cubic feet per year of natural gas as a replacement fuel for nuclear generation, requiring further expansion of pipeline capacity in the Midwest and Northeast. (For copies of Need for Natural Gas Increases With More Nuclear Plant Shutdowns, contact Linda Thomas at 202-216-5900.)

GAS TRANSPORTATION RATES. The Gas Research Institute released Pipeline Markets in Transition: Cost Impacts of FERC Order 636, which finds that natural gas transportation charges are likely to continue declining for most pipeline customers. Contributing factors include the end of FERC Order 636 transition costs and take-or-pay liabilities, an increase in pipeline load factors, and use of incentive rates on portions of the transmission grid. The May 14 study also examines how pricing of interstate pipeline services could affect gas commodity prices. (GRI Document No. GRI-97/0374. For copies, contact Val Megginson at 703-526-7832.)

NUCLEAR POWER. The Nuclear Energy Institute (NEI) on May 19 unveiled its policy blueprint, "Nuclear Energy: 2000 and Beyond, A Strategic Direction for Nuclear Energy in the 21st Century," which promotes nuclear power to ensure fuel diversity and reduce harmful air emissions. (To obtain a copy contact Lawanne Stewart, NEI, tel. 202-739-8148.)

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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