Electric Retail Choice. The Arkansas Public Service Commission has issued its final report on electric restructuring, citing a "broad" consensus favoring competition. It predicts immediate benefits for industrial customers, but warns that residential users likely will not see any quick rate cut. The PSC saw competition as consistent with action in neighboring states:
• Oklahoma. State law mandates retail choice by July 1, 2002.
• Mississippi. PSC plan would phase-in competition from 2001 to 2004.
• Missouri. Pilot program ok'd by PSC for 5000 large-volume customers. Legislation introduced to allow competition by Jan. 2000.
The PSC asks state legislators for authority to (1) mandate divestiture of utility assets, (2) impose intrastate reciprocity, and (3) approve line construction to assure transmission capacity. The PSC favors competition in metering and billing, but to begin no sooner than the startup for retail energy choice, or perhaps even later. Docket No. 97-451-U, Oct. 1, 1998 (Ark.P.S.C.).
Legislative Immunity. Citing an infringement on its authority, the New Mexico Public Utility Commission rejected a settlement signed by El Paso Electric Co., large power users, the state attorney general, the U.S. Dept. of Defense, and the PUC's advocacy staff, to the extent the deal would have made rates immune to any cuts forced by state legislators.
Otherwise, the deal binds EPE to divest transmission and distribution from other activities, but EPE need not acquire renewable resources prior to a subscription demand by customers. The PUC rejected a special low-income rate as illegal. Case No. 2722, Sept. 24, 1998 (N.M.P.U.C.).
Electric Retailers. Bucking opposition from both Enron and many investor-owned electric utilities, the Ohio Public Utilities Commission denied rehearing on most challenges to rules it adopted in July that set service and safety standards for "electric service companies" selling electricity at retail. The PUC said it was doing "no less and no more" than it had in rules already in place for conjunctive electric services.
Enron had opposed the regulation of retailers, aggregators or those selling submetering services. Dayton Power & Light, FirstEnergy, American Electric Power, and Cincinnati Gas & Electric all argued the PUC had no authority over retailers, as state law sets no special status for sellers who don't own power lines. AEP and CG&E also fought rules extending winter disconnection restrictions to nonresidential customers, claiming to no avail that business cutoffs posed no health or safety issues. Case No. 97-1578-EL-ORD, Sept. 24, 1998 (Ohio P.U.C.).
Customer Aggregation. The Ohio PUC has also held that an electric utility operating company may act as an aggregator in its own right under PUC rules for "conjunctive electric service," whereby groups of customers can negotiate prices and other terms of service. However, any employee of the utility (or its affiliate) engaged in aggregator services cannot access the utility's customer database without the customer's written consent. Case Nos. 96-405-EL-COI et al., Sept. 24, 1998 (Ohio P.U.C.).
Merchant Gas Transportation. The Michigan Public Service Commission has ok'd a tariff for SEMCO Energy Gas Co. for off-system transportation of natural gas, allowing unaffiliated local utilities and producers to move their own gas across SEMCO's distribution grid. A three-part rate includes: (1) a monthly $300 administration fee, (2) a $75 per-meter charge, and (3) a maximum usage rate of $0.15 per thousand cubic feet. Case No. U-11766, Sept. 23, 1998 (Mich.P.S.C.).
Electric Retail "Choice". On rehearing of a 1997 order, which had set a date of July 1, 2000 to begin phasing in electric retail choice, the Maryland Public Service Commission has rejected appeals by Enron and would-be marketers to suspend its docket pending action by the state legislature. It also rejected claims that it lacked authority to issue its 1997 order, which called for an independent system operator to offset market power, plus a retail price cap to protect ratepayers from paying "unreasonable" prices during the anticipated multi-year transition to competition.
The PSC said that marketers had no due-process rights in the matter, since they held no state permit for electricity retailing (em "still a state-regulated monopoly," noted the PSC. Again the PSC declined to order competitive billing and metering for the July 1 startup date, noting it had already adopted a code of conduct for utility affiliates. Case No. 8738, Order No. 74561, Sept. 10, 1998 (Md.P.S.C.).
Electric Marginal Costs. The Oregon Public Utility Commission has revamped how it reconciles electric utility marginal costs with embedded-cost revenue requirements, now requiring each customer class to pay an equal percentage of marginal costs by function (generation, transmission, distribution).
It declined to mandate any single marginal cost allocation for distribution facilities, such as the "zero-intercept" method, but appeared to endorse the "minimum system" method and a "facilities design" approach, which anticipates maximum expected loads. It ok'd an avoided-cost method for generation, and said bulk power transmission lines should be classified to energy and demand in the same way as 20-year marginal costs for generation. It rejected any idea to treat metering and billing costs as "sunk" and exclude them from cost allocations. UM 827, Order No. 98-374, Sept. 11, 1998 (Or.P.U.C.).
Stranded Costs. The Oregon PUC also has set guidelines on electric utility stranded costs, defined as the difference between market and book values, as indicated by an arm's length sale, but the PUC acknowledged "significant political, legal, and economic uncertainties" over the sale of hydroelectric projects, given the five-year process needed for hydro plant relicensing.
It added that utilities must net transition costs against stranded benefits, such as lost entitlements to low-cost energy resources. The PUC noted: "An option to buy federal power at cost can have significant value, as evidenced by the recent exchange settlement negotiations between Portland General Electric and the Bonneville Power Administration." UM 834, Order No. 98-353, Aug. 24, 1998 (Or.P.U.C.).
Electric Retail Choice. The Iowa Utilities Board has ok'd a seven-year pilot program for MidAmerican Energy Co. to offer choice of generation supply to larger industrial and commercial electric customers, with a "market participation charge" to recover stranded costs on a revenues-lost basis. The company would still own and control metering and meter reading. Docket No. TF-97-229, Aug. 21, 1998 (Iowa U.B.).
Gas Retail Choice. The Montana Public Service Commission has accepted a stipulation agreement that removes any volume restrictions limiting either program size or the size of individual aggregation pools under a pilot program to be offered by Montana Power Co. for natural gas retail choice. MPC will provide balancing services for each aggregated pool and will allocate a specific portion of on-system transmission and storage capacity and deliverability to suppliers, with such allocations tied to each individual customer. Docket No. D98.2.28, Order No. 6061a, Aug. 13, 1998 (Mont.P.S.C.).
Midwest Price Spikes. On rehearing, the Ohio PUC has softened remedies it imposed on July 7 when it directed electric utilities to assist interruptible electric customers curtailed in June during the Midwest power price spikes. Utilities had fought the July order, saying it violated confidentiality by making them provide Internet-accessible information on current and future availability of generation supply and transmission capacity. The PUC now has acknowledged such concerns and will keep its docket open to let utilities, customers, and mediators work out problems. Case No. 98-978-EL-UNC, Sept. 3, 1998 (Ohio P.U.C.).
Gas Price Volatility. The Kansas State Corporation Commission has approved a tariff proposed by Kansas Gas Service Co. to insulate customers against gas price volatility through a weather-hedged bill-averaging rate design worked out with WeatherWise USA, LLC. The tariff assumes customers will not use more gas even while knowing that their bill will remain fixed, so it allows a 20-percent tolerance on increased usage before the company will take action. Docket No. 98- KGSG-61 1-TAR, Aug. 21, 1998 (Kan.S.C.C.).
Year 2000 Compliance. On Oct. 8, Pennsylvania Public Utility Commission chairman John Quain invited the chairmen and critical staff of each state PUC to come to Hershey, Pa. on Dec. 9 for a summit on the Y2K problem.
Otherwise, state PUCs are launching their own programs, even as the FERC and the North American Electric Reliability Council lead the overall gas and electric industry efforts, with their own timetables. (See, "One Deadline, Two Systems: Utilities Tackle Y2K," Nov. 1, 1998, p. 62.)
• Kentucky. Accepts federal definition of "Y2K compliant" (see 48 C.F.R. sec. 39.002), sends questionnaire asking whether utilities will achieve compliance by Dec. 31, 1999. Admin. Case No. 376, Aug. 12, 1998 (Ky.P.S.C.).
• Pennsylvania. Also accepts federal definition, but says utilities must finish replacing, installing, and testing computer hardware and software by March 31, 1999. I-00980076, July 9, 1998 (Pa.P.U.C.).
• Colorado. Issues questionnaire but no deadline. Offers to protect confidentiality of proprietary information revealed by utilities. Docket No. 98M-322, July 22, 1998 (Colo.P.U.C.).
Gas Cost Recovery. In a sunset review required once every five years, the Ohio PUC has opted to retain its gas cost recovery rules without change, despite comments that they do not "readily fit" situations when gas is sold through a competitive supplier. The PUC said no one had proposed any specific solution. Case No. 98-1052-GA-ORD, Aug. 27, 1998 (Ohio P.U.C.).
Electric T&D Lines. The Connecticut Department of Public Utility Control has reviewed maintenance plans and assessments of long-range adequacy of electric transmission and distribution lines filed by Connecticut Light & Power Co. and The United Illuminating Co.
The DPUC found that CL&P's reliability had improved generally since 1992 (not for major storms, however), but that company's buried primary cable was prone to premature failure. It said that UI's reliability had been improving since 1988 (recently it had been "exceptionally good"), but warned that UI's system reliability must be "monitored closely" as the company extends its scheduled interval for tree trimming on single-phase lines. Docket Nos. 97-11-10, 8-12-03, Aug. 21, 1998 (Conn.D.P.U.C.).
Labor Rights. The Utah Public Service Commission ruled it lacked authority to grant back wages to an employee who complained that Utah Power & Light's 1988 merger with Pacific Power & Light Co. (to form PacifiCorp) led to her transfer to a new position at lower pay. The PSC's 1988 merger approval order had required PacifiCorp to try to retain employees in current or equivalent positions at equal pay. Docket No. 97-035-09, Aug. 18, 1998 (Utah P.S.C.).
Water Utility Financials. Noting that 17 water utilities in the state failed to earn any net income in 1997, and yet had not shown any specific intent to file a full rate case, the Kentucky PSC has suggested that water utilities should file long-term business plans. It added that some companies had not seen full rate reviews in 15 years. Admin. Case No. 366, Aug. 19, 1998 (Ky.P.S.C.).
Studies and Reports
Federal Energy Subsidies. A new private study of federal subsidies for the energy industry over the past 50 years finds that coal and nuclear technologies produced the greatest return on R&D investment and have been underfunded, while solar and wind energy systems have offered the poorest returns.
The report, Federal Incentives for the Energy Industries, from Management Information Services, Inc., a consulting firm in Washington, D.C., sees a negligible contribution by renewables to energy and electricity production through 2010, suggesting that subsidies for renewables will not mitigate global warming. See http://www.misi-net.com.
TVA Privatization. Reps. Rodney Frelinghuysen (R-NJ) and Bob Franks (R-NJ) joined with Sen. Jack Reed (D-RI) on September 15 to release a report advocating privatization of the Tennessee Valley Authority. The report, Restructure TVA (em Why the Tennessee Valley Must Be Reformed, was written by Richard Munson, of the Northeast-Midwest Institute, a nonprofit policy center.
The TVA Customer Protection Act, introduced in Congress in April, would make TVA a "public utility" required to file tariffs and subject to antitrust laws. Frelinghuysen said TVA was in "financial disarray," with $29 billion of debt. He added: "TVA's own inspector general earlier this year uncovered a $5 million secret retirement account, six-figure bonuses, and noncompetitive consulting contracts."
Natural Gas Demand. The Michigan Public Service Commission on October 5 released its energy appraisal for the coming winter season, predicting a 4.8-percent drop in natural gas sales statewide for calendar 1998 as against 1997, falling from 937 to 892 billion cubic feet. Download the report at http://ermisweb.cis.state.mi.us/energy.
Hydroelectric Decommissioning. After a contentious one and one-half hour debate that left Commissioners Curt Hébert and William Massey as antagonists, the Federal Energy Regulatory Commission voted to uphold its precedent-setting 1997 order forcing decommissioning and removal of the 160-year-old Edwards dam on the Kennebec River in Augusta, Maine (em the first such order directed against the wishes of the dam owner (em and approved a settlement agreement to carry out the move.
Hébert, not yet on the bench when the 1997 order was issued, questioned the FERC's legal authority. Massey, who had voted for decommissioning, questioned Hebert's use of terms such as "disingenuous" and "intellectually dishonest" to describe the majority's ruling.
Vicki Bailey (who had dissented in 1997) voted to grant the settlement because the parties wanted it, but added, "I remain unwilling to assume we have authority to order removal." She added that the Secretary of the Interior had congratulated the FERC after the 1997 order, concerned that other agencies might expect a series of dam removal orders from the FERC. That led Chairman James Hoecker to observe, "Bruce Babbitt does not vote at this commission." Docket Nos. P-2389-030 (approving settlement on dam removal), Docket Nos. P-2389-034, P- 2389-027 (denying motion to vacate 1997 order), Sept. 16, 1998 (F.E.R.C.).
Unbundled Transmission. Reversing a 10-year-old initial decision, and denying jurisdiction claimed by Oklahoma regulators, the FERC has asserted authority over unidirectional electric sales wheeled from a rural cooperative to a Native American tribal authority in the same state, claiming authority over unbundled retail transmission. Docket Nos. ER90-54-001 et al., Opinion No. 426, Sept. 16, 1998 (F.E.R.C.).
Gas Pipeline Certification. In denying rehearing of its 1997 preliminary determination, the FERC has issued final authorization (subject to environmental compliance) for the 886-mile U.S. segment of the planned Alliance natural gas pipeline project, to carry gas from the Canadian border with North Dakota to the Chicago area.
It denied claims by Natural Gas Pipeline Co. that the Alliance project represented "wasteful construction," duplicating capacity Canadian pipeline routes. Alliance got a boost on August 19 when sponsors for the Viking Voyageur pipeline withdrew their application for certification, mooting concerns of regulators in Minnesota and Wisconsin. Docket Nos. CP97-168-000, 84 FERC ¶61,239, Sept. 17, 1998.
Mergers and Acquisitions
Allegheny + DQE. The Federal Energy Regulatory Commission has identified concerns about potential market power for the proposed merger between Allegheny Energy, Inc. and DQE, Inc., parent company of Duquesne Power Light & Co., and so has given a choice to the applicants either to proceed to a hearing on such issues or divest certain generating capacity. (DQE announced in July that it would abandon the merger, but Allegheny has said it will still pursue the deal.) Docket Nos. EC97-46-000, et al., 84 FERC ¶61,223, Sept.16, 1998.
Eastern + Essex Gas. Massachusetts regulators have ok'd the merger between Eastern Enterprises and Essex County Gas Co., estimating the acquisition premium at $47.1 million, to be paid by Eastern shareholders out of merger savings. It defined the premium as the difference in book values between shares of the two companies, rejecting an alternative valuation ($8.2 million) offered by the state attorney general based on the expected reduction in book value per share for Eastern stock. At 2.3 times book value (and 18.6 times current earnings), the purchase price for Essex stock was seen to fall squarely within the range of 1.9 to 2.8 times book value for recent mergers for gas distribution utilities. D.T.E. 98-27, Sept. 17, 1998 (Mass.D.T.E.).
AEP + C&SW. Arkansas regulators approved the merger of American Electric Power Co. and Central & South West Corp. on condition that in future cases before the FERC, the post-merger company will waive any rights it might have under the 1992 Ohio Power case (954 F.2d 779), which limits state authority to review transactions with affiliates, to ensure that Arkansas ratepayers enjoy benefits available to those in other states. Docket No. 98-172-U, Order No. 5, Aug. 13, 1998 (Ark.P.S.C.).
Purchased Power Contracts. The Norwood (Mass.) municipal utility has lost antitrust and breach-of-contract claims filed after New England Electric Service sold all its nonnuclear generation to USGen, and after the FERC then had approved tariffs that allowed New England Power Co. (a NEES subsidiary) to reconfigure its bulk power sales by granting discounts to its power-buying affiliates (Mass. Elec. Co. and Narragansett Elec.), but freezing prices charged to Norwood at levels 20-percent higher. Norwood had enjoyed a right to buy all-requirements power from NEPCO until 2008 under a 1983 antitrust settlement.
The federal district court ruled that the 1983 decree granted rights to Norwood only to buy power at FERC-approved tariffs, whatever they might be, and that the rates were immune from collateral attack under the filed-rate doctrine. It added that the FERC had allowed Norwood to terminate its NEPCO contract, but only after paying a stranded- cost charge. Town of Norwood v. New Eng. Pwr. Co., No. CIV. a. 97-10818-PBS, 1998 WL 685158, Sept. 28, 1998 (D.Mass.).
Retroactive Ratemaking. The Maine Supreme Court says that the rule against retroactive ratemaking does not bar ex post facto recovery of costs deferred by the PUC since such recovery does not express any opinion on whether prior rates were adequate. The case involved costs incurred by New England Tel. & Tel. Co. to expand local calling areas. Public Advocate v. Maine PUC, No. PUC-97-455, 1998 WL 664075, Sept. 28, 1998 (Me.).
Return on Equity. In two recent cases, state courts have upheld PUC rulings granting returns on common equity to reflect higher risk and general but unspecified "threats to the industry" perceived by investors because of utility restructuring and deregulation.
• South Carolina. Court affirms PSC order setting 12 percent ROE for South Carolina Electric & Gas Co. S.C. Energy Users Comm. v. S.C.P.S.C., No. 24839, 1998 WL 641916, Sept. 14, 1998 (S.C.).
• North Carolina. Ok's order that denied petition by group of industrial customers to bring in Carolina Power & Light Co. for first rate review since company's last rate case in 1988, when a 12.75-percent ROE was granted. Says commission could take judicial notice of trends when accuracy "cannot reasonably be questioned." State ex rel. Utils. Comm'n v. Carolina Indus. Group for Fair Utility Rates, 503 S.E.2d 697, Sept. 1, 1998. (N.C.).
Municipal Annexations. The Tennessee Supreme Court ruled that state law permits a city to condemn assets of an electric cooperative within city limits even if it then grants a franchise to a third party to operate the facilities, as long it serves consumers interests. City of South Fulton v. Hickman-Fulton Counties Rural Elec. Co-op. Corp., 1998 WL 546504, Aug. 31, 1998 (Tenn.).
Electric Retail Choice. The Colorado Electricity Advisory Panel, created by Colorado Senate Bill 98-152 (signed into law in May) to study the merits of retail electric competition, was to select winning bids on Nov. 16 under two requests for proposals issued on Sept. 25 to study some 16 issues identified in the law, related to costs, rates, impacts of retail choice:
• RFP on Legal Issues. Solicits analysis of socio-economic and legal issues, such as universal service, affordability of distribution service, and reliability of generation and transmission.
• RFP on Economic Issues. Asks for modeling on energy and economic issues to quantify price impacts of market power, stranded costs, and reliability, as well as impacts on rural areas, local tax revenues, employment, and income.
Gas Retail Choice. Signed by the Governor on August 25, California Senate Bill 1602 has effectively tabled the state PUC's "Green Book" initiative and rulemaking (R. 98-01-011, filed Jan. 21, 1998) on natural gas market reform. The law permits the PUC to investigate the issue but prohibits the commission from enacting any gas industry restructuring decision, or enforcing any such decision that could affect core customers, prior to year 2000.
Speaking on Oct. 6, at the DOE/NARUC Natural Gas Forum in Pittsburgh, Elena Schmid, director of the PUC's Office of Ratepayer Advocates, echoed a certain reluctance to act: "Having looked at our electric experience, we feel that we should go slow [in gas] and should not ask regulators to force distributors out of the merchant function. Instead, we should wait for merchants to do the forcing."
Transmission and ISOs
Regional Coordination. On September 29, the U.S. Department of Energy assigned authority to the Federal Energy Regulatory Commission under Sec. 202(a) of the Federal Power Act to divide the nation into regional districts to promote interconnection and coordination of electric transmission, and formation of independent system operators. The DOE had never before exercised such authority.
Electric Capacity Prices. On hearing complaints on prices and availability for electric capacity (firm energy) in the PJM Interconnection and ECAR (East Central Area Reliability Coordination Agreement), the Pennsylvania Public Utility Commission on September 21 issued an interim order directing PJM capacity holders to release or offer installed capacity at $19.72 per kilowatt-year. The PUC acted only when PJM failed to address the issue to the PUC's satisfaction at a meeting held on September 10.
According to the PUC, if suppliers in the state's retail market are required to pay capacity charges beyond that contemplated by the PUC's restructuring orders, the generation shopping credits may not be sufficient to develop a competitive market (em a result the PUC called "unacceptable." Pennsylvania Power & Light Co. claimed the PUC overstepped its retail jurisdiction and said it would challenge the order in the courts. Docket No. R-00974009, Sept. 21, 1998 (Pa.P.U.C.).
New York Load Pockets. The FERC has accepted market power mitigation measures proposed by Consolidated Edison Co. to ensure enough competition after Con Ed divests 6,630 megawatts of its 6,750 MW of electric generating capacity located within the New York City load pocket, where transmission constraints limit power imports.
In-city generators would bid supply into a new power exchange set up by the restructured New York Power Pool and ISO, but the PX would adjust bid prices down to eliminate market power due to constraints whenever bids from in-city suppliers run five-percent higher than the price at the bus bar at Indian Point 2, deemed more representative of power prices in the broader southeast New York market. Docket No. ER98-3169-000, 84 FERC ¶61,287, Sept. 22, 1998.
Short-term Transmission. In two separate cases, the FERC has ok'd different tariffs for short-term (less than one year) point-to-point power transmission (em one priced by distance and the other by locational marginal costs, or differences in energy prices between grid nodes.
• Distance Pricing. On rehearing, FERC ok's proposal by Southwest Power Pool to offer pool-wide, short-term firm and nonfirm point-to-point service using distance-based pricing. Denies protest by Enron that distance pricing ignores congestion or scarcity. Docket No. ER98-1163-001, 85 FERC ¶61,031, Oct. 5, 1998.
• Locational Pricing. FERC accepts tariff for short-term firm point-to-point service filed by PJM Interconnection, LLC. PJM had seen little demand for short-term firm transmission service until the North American Electric Reliability Council imposed new line relief rules. Ordinarily, said PJM, its locational prices allow customers to "buy through" any curtailments. Docket No. ER98- 3963-000, 84 FERC ¶61,212, Sept. 3, 1998.
DOE Task Force. On Oct. 2, chairman and former congressman Philip Sharp delivered to the Department of Energy the final report of the Task Force on Electric System Reliability, set up in 1997 by the Secretary of Energy Advisory Board to recommend policy to the DOE on electric reliability to help it draft legislation on electric restructuring.
The 127-page report, Maintaining Reliability in a Competitive U.S. Electricity Industry (issued Sept. 29, 1998), says the Federal Energy Regulatory Commission should review existing policies of the current regional reliability councils, including their structures and governance, but admits that the FERC would need additional manpower to do it. See http://www.hr.doe.gov/seab.
Generating Capacity. Responding to last summer's hottest-ever weather, the Texas PUC has initiated Project 19827, investigating adequacy and reserve margins for electric generating capacity over the next two years. It has asked utilities to verify demand and capacity data and to provide information on interruptible loads. Utilities must file action plans by December 4.
Another PUC effort, known as Project 18248, will examine three studies conducted by the Electric Reliability Council of Texas, concerning (1) 1997 summer loads in the Dallas area, (2) 1997 summer peaks in the Houston area, and (3) 1997 winter peaks in the Rio Grande Valley.
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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