News Digest

Fortnightly Magazine - March 15 1998

State Legislatures

CALIFORNIA ELECTRIC RESTRUCTURING. California Assemblywoman Diane Martinez, chairwoman of the Utilities and Commerce Committee, has introduced two new bills aimed at protecting consumers in a competitive market. But the measures already have been put on hold for this year. The first bill, AB 579, would cut rates for residential and small-volume commercial customers by 20 percent, rather than by 10 percent as promised in the state's restructuring act, AB 1890. Her measure also would finance the rate in part by eliminating the securitization bond issue planned under AB 1890. The other bill, AB 1154, would prevent utility recovery of stranded nuclear assets above market costs.

Federal Agencies

COAL FUTURES CONTRACT. The New York Mercantile Exchange has submitted to the Commodity Futures Trading Commission a proposed coal futures contract, which NYMEX hopes to launch later this year. A contract unit would consist of 37,200 million British thermal units of coal, at a delivery facility on the Ohio River between Milepost 306 and 317, or on the Big Sandy River. The delivery period would begin no earlier than the first day of the month and at least seven days before the end of the month, but would be completed by the last day of the month.

Business Wire

TWO subsidiaries, Union Gas and Centra Gas Ontario Inc., of Westcoast Energy Inc., merged to form Union Gas Limited. Since 1994, Union Gas and Centra Gas Ontario have operated under a shared services agreement. Union Gas Limited will handle all business formerly handled by Union Gas and Centra Gas Ontario.

Consumers Energy and The Salvation Army operate the PeopleCare program to help needy families by providing food, shelter, clothing and other emergency aid. PeopleCare distributed more than $700,000 to 14,000 families across Michigan in 1997. Also, Consumers Energy provided energy bill credits of about $1.5 million.

Illinois Power Co. hired PECO Energy Co. to run its 950-megawatt Clinton nuclear power plant. Clinton has been shut down since September 1996 due to a variety of operational and maintenance difficulties. The initial contract with PECO is for three years, with an option for renewal.

In an effort to ensure that Internet users can easily locate PG&E Corp.'s website, PG&E changed its Internet address to

Turkey's Ministry of Energy and Natural Resources selected the consortium of CMS Energy, Ihlas Holding and Howard Energy Group to be the exclusive electricity distributor and operator of Turkey's Bursa-Yalova electric distribution systems. CMS Energy's international utility subsidiary, CMS Electric and Gas Co., will hold the concession rights to the privatized assets and 30 percent ownership interest. Ihlas Holding will hold 55-percent ownership and Howard Energy Group will hold 15 percent ownership in the consortium. CMS will serve as operator for the consortium. Operating rights to the Bursa-Yalova system will run for 30 years.

Shell Oil Co. acquired Tejas Gas Corp. for $1.45 billion, following approval of the merger agreement by Tejas shareholders. Shell's existing natural gas midstream business will be combined with Tejas. The new company will operate under the Tejas name as an affiliate of Shell Oil Co.


MOTHBALLED PLANT. The FERC on Jan. 14 amended cer-

tain power sales contracts of Maine Yankee Atomic Power Co. to reflect the mothballing of the utility's nuclear generating plant (Docket No. er98-570-000). The amendment affects electricity resale to 10 New England utilities and will boost annual wholesale rates by $21.5 million (an amount subject to refund). Twenty-eight publicly owned electric systems that have contracts with Maine Yankee protested the rate increase. The FERC ordered a hearing on Maine Yankee's decision to shut down the unit, the revised decommissioning charges and other cost items.


Energy's Southwestern Power Administration and the Western Area Power Administration filed their open access transmission tariffs at the FERC. "The Department of Energy has strongly supported wholesale open access," said Deputy Energy Secretary Elizabeth Moler. "Bonneville Power Administration has filed an open access tariff already. With these two filings, all of the PMAs that have transmission will have open access tariffs on file with FERC." The tariffs are expected to become effective at the beginning of February. Although the PMAs are not subject to FERC's Order 888, the tariffs are consistent with Order 888 to the extent possible.

Generating Plants

NUCLEAR PLANT CLOSING. Commonwealth Edison has announced that it will permanently close its Zion nuclear power plant in northern Illinois. The move marks the largest nuclear plant shut down ever in the United States. Management believed that the 2,080-MW Zion would not remain competitive in a restructured electric industry.

Moody's Investors Service has confirmed the ratings of ComEd ('Baa2' senior secured), noting that while the utility will incur relatively high replacement power costs due to a tight purchased power market in the Midwest, that the shutdown eliminates ongoing and potentially increasing expenditures associated with bringing back and operating a "marginal" plant. But Moody's said the rating outlook remains negative for ComEd.


PECO RESPONSE. PECO Energy Co. on Jan. 21 filed suit in U.S. District Court in Philadelphia challenging the PUC's December 1997 order imposing its own restructuring plan on the utility and shaving $1 billion off its $6-billion stranded cost recovery request. PECO claims the Pennsylvania Public Utility Commission has taken its property without just compensation. It said the PUC has exercised jurisdiction over matters, such as transmission service and rates, that are within exclusive jurisdiction of the federal government. On Jan. 22, PECO Energy filed a similar appeal in the state commonwealth court in Harrisburg. PECO Energy v. Pa PUC, Docket 245 cd 1998.

CLASS-ACTION REFUND SUIT. Two consumer groups representing 1.5 million Michigan residents filed suit in Ingham County against Detroit Edison. The groups are suing the company for $3.48 billion. In November 1997, Michigan Public Service Commission reduced a required $53.4 million customer refund by $15 million. The consumer groups claim the reduction amounts to a breach of contract and are suing for the entire $3.48 billion that had been paid to the utility in the form of increased rates over the life of the original settlement.

STATE WHEELING AUTHORITY. The Michigan Court of Appeals has affirmed the 1995 state commission order that set up a framework for an experimental retail wheeling program for Detroit Edison and Consumers Power Co. It found no federal preemption or taking of property and held that state statutes conferred implied state authority to mandate transmission access. Detroit Edison Co. v. Mich. PSC, Nos. 187387-88 et al., 1998 wl 20732 Jan. 20, 1998 (Mich. App.).

INTERRUPTIBLE RATES. The Colorado Supreme Court upheld

a decision by the state commission that set electric rates for Public Service Company of Colorado for large commercial and industrial customers who elect discounted interruptible service. Large customers had complained that interruptible rates still subsidized firm service, because the discount was applied against only 80 percent of avoidable costs of peaking capacity, rather than 100 percent, as billed in firm rates. But the court said that larger customers were rarely interrupted and could "earn back" the 20-percent gap as interruptions actually occurred. CF& I Steel L.P. v. Colo. PUC, No. 96sa410, 1997 wl 781229, Dec. 22, 1997 (Colo.).

State PUCs

RETAIL GAS RESTRUCTURING. The California PUC has opened a rulemaking aimed at increasing competition in the state's retail natural gas industry. The PUC hopes to expand benefits already achieved from competitive production supply markets, competitive transportation over interstate and intrastate pipelines, and new tools for managing and hedging gas supply options such as storage services. The PUC will use as a starting point a report from its Division of Strategic Planning, Strategies for Natural Gas Reform: Exploring Options for Converging Energy Markets. r. 98-01-011, Jan. 21, 1998 (Cal.P.U.C.).

MARKETING AFFILIATES. The Iowa Utilities Board closed its

investigation of regulated gas utility involvement in gas brokering activities for their transportation customers. The board found no substantive problems with cross-subsidization of services by smaller customers or with discrimination in favor of the larger users. It added that it found no potential problems significant enough to warrant requiring the utility to stop performing the marketing activities. Docket No. inu-97-1, Jan. 9, 1997 (Iowa.U.B.).

MICHIGAN ELECTRIC RESTRUCTURING. The Michigan Public Service Commission issued electric competition rehearing orders for Consumers Energy and Detroit Edison. By a 2-to-1 vote, the PSC adopted a phase-in schedule allowing 2.5 percent of the customers of both utilities to select electric suppliers by March 31 pending receipt of federal approvals. The PSC found that stranded costs initially should be calculated using a market price of 2.9 cents per kilowatt-hour for 1998. Initial stranded cost estimates are set at $1.8 billion for Consumers Energy and $2.5 billion for Detroit Edison. The PSC noted its continued support for securitization, although legislation is required for implementation. Commissioner John C. Shea filed a dissenting opinion arguing the PSC had acted in excess of its authority. Case No. u-11290, et al. Jan. 14, 1998 (Mich. P.S.C.).

ELECTRIC RATE DESIGN. The California Public Utilities Com-

mission ruled Pacific Gas and Electric Co. cannot implement rate design changes that would bring existing rates closer to marginal costs. A rate freeze under Assembly Bill 1890 requires that rates remain unchanged for large users or decrease for smaller customers until stranded costs are recovered by each utility.

The commission said that although PG&E's request to close several rate schedules to new customers was based on a desire to avoid rate increases, the changes would violate the rate-freeze mandate. It said the schedules offered by the company would result in higher costs for some customers. Application Nos. 94-12-005, Decision 97-12-044, Dec. 3, 1997 (Cal.P.U.C.).

NEW YORK RESTRUCTURING. The New York Public Service Commission approved an electric restructuring plan for Rochester Gas and Electric Corp., moving the date for full retail access to July 1, 2001, but rejected added rate cuts for larger customers. The commission said these customers "already receive substantial benefits" under the restructuring agreement. Case 96-e-0898, Nov. 26, 1997 (N.Y.P.S.C.).

The PSC also approved a restructuring plan for Consolidated Edison Co. of New York Inc., which would trim rates by about $1.2 billion. Larger customers will receive an immediate 25-percent rate cut; all others get 10-percent reductions phased-in over the next five years. A limited retail access program will begin June 1, with full access by the end of 2001. The plan also includes a $5-million fund to encourage small customers to participate in the program. The utility will divest at least 50 percent of its in-city fossil fuel generating capacity by the end of 2002. Case No. 96-e-0897, Nov. 3, 1997 (N.Y.P.S.C.).

METERING SERVICES. The California Public Utilities Commission revised its interim rules for metering services in a competitive electric market, barring direct access customers from choosing their own meter provider, and instead assigning metering either to a certified energy service company or the regulated utility distribution company. Both types of companies are free, however, to contract with third-party meter service providers for the actual metering services. The limitation is required to prevent "potentially disastrous meter installations" and to ensure compliance with meter standards and with direct access tariffs, the commission said. r.94-04-031, i.94-04-032, Decision 97-12-048, Dec. 3, 1997 (Cal.P.U.C.).

A Permanent Standards Working Group will continue to review and develop national standards to replace metering standards enforced by utilities. (See, "California Metering Rules: An Interview with ORA Engineer Anthony Mazy," Feb. 1, 1998, p. 40.)

STRANDED COSTS. The California Public Utilities Commission has defined non-nuclear costs eligible for transition cost recovery under its electric restructuring plan and also has set the net book value of various generation assets owned by the state's major electric utilities (em the first step in determining which assets are uneconomic (whether book value exceeds market valuation), and thus in providing for recovery of stranded costs under current policy. Application Nos. 96-08-001 et al., Decision 97-11-074, Nov. 19, 1997 (Cal.P.U.C.).

GAS RESERVATION FEES. The New Mexico Public Utility Commission has authorized PNM Gas Services to recover through its gas cost adjustment clause reservation fees it must pay suppliers when it does not take expected volumes under existing contracts. The commission found that ratepayers had benefitted when the utility chose to pay the reservation fee and to purchase needed supplies at lower cost. It said that recovery of such charges on a case-by-case basis was sound policy because the reservation fees permit the utility to seek cheaper supplies without an adverse effect on system reliability. Case No. 2772, Dec. 12, 1997 (N.M.P.U.C.).

LOCAL TELCO COMPETITION. The Alabama Public Service Commission reversed an earlier decision and ruled that incumbent local exchange carriers must offer new, special-contract service arrangements (CSAs) for resale at the approved discount rate. Previously, the commission had ruled that the discount would not apply when BellSouth Telecommunications Inc. provided such services. It had said the LEC need only offer the services for resale at the same rates it had arranged with its retail customers. The commission found, however, that if the LECs did not have to offer CSA to resellers at a discount, they could unfairly underprice their competition. It also ruled that a competitive carrier would have the right to review the CSAs filed by the LECs to determine the service offered as well as the price. Docket No. 25677, Dec. 22, 1997 (Ala.P.S.C.).

QUALITY OF SERVICE. The Texas Public Utilities Commission has ordered Entergy Gulf States Inc. to reduce its rates due to poor quality of service to its customers in southeast Texas. This order marks the first time since 1982 that the PUC has levied a service-quality penalty against an electric utility. The penalty could amount to as much as $4 million a year, but will not be distributed to customers until a final order is issued in the rate case filed November 1996.

The PUC also disallowed recovery of $1.453 billion in costs associated with building the River Bend nuclear station. The 2-to-1 vote was in response to a remand order by the Texas Supreme Court after years of litigation over a 1988 PUC decision not to allow recovery of an additional $1.4 billion in River Bend expenses. PUC Chairman Pat Wood dissented, and would have allowed $103 million in rate base. Entergy plans to appeal the decision.

NATURAL GAS PILOTS. The Ohio Public Utilities Commission has approved a stranded cost recovery mechanism for Columbia Gas of Ohio. The approval paves the way for expansion of the utility's natural gas choice pilot program. In the spring, the PUC will review possible expansion of Columbia's customer choice pilot from 170,000 customers to all of its 1.3 million Ohio customers. The settlement provides the opportunity for, but does not guarantee, Columbia's recovery of costs as it opens to competition. The agreement spreads the cost, risk and revenue responsibility among Columbia Gas, competing suppliers, and gas pipeline companies. Columbia will remain at risk for 11 percent of its transition costs. Case Nos. 94-987-ga-air, 96-1113-ga- ata , Jan.7, 1998 (Ohio P.U.C.).

PURCHASED POWER CONTRACTS. Central Vermont Public Service Corp. plans to fight a New Hampshire commission order finding that its subsidiary, Connecticut Valley Electric Co., acted imprudently by not terminating its FERC-authorized purchased power contract with Central Vermont. The Dec. 31, 1997 order directed Connecticut Valley to terminate its power contract with its parent company and seek power based on available market prices. (See, dr 97-241, dr 97-241, Dec. 31, 1997; rehearing granded in part, denied in part, Order 22, 838, Jan. 20, 1998.) According to Central Vermont, if the order remains in effect, Connecticut Valley no longer would qualify for cost-based accounting and would be required to reduce its 1997 earnings by $3 million. The write-off would lead to a default of $4 million of outstanding debt. Central Vermont has asked the PUC to vacate its order. Central Vermont also plans to ask FERC to approve a $45 million exit fee in order to recover stranded costs if the contract is voided.

Lori A. Burkhart and Phillip S. Cross are contributing legal editors. Beth Lewis is editorial assistant.


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