News Digest

Fortnightly Magazine - June 1 1998

Courts

ENERGY SUPPORT SERVICES. An Illinois appeals court affirmed a 1997 decision by the state commission that had denied authority to Commonwealth Edison to offer "energy support services," such as design, engineering, construction, analysis and management of electrical power equipment and energy systems. The court made this decision despite the utility's argument that no evidence existed to support the commission's finding that ComEd enjoyed a monopolist's advantage over competitors. In its March 31, 1997 decision, the commission had found that bundling generation and energy support services would drive out competitors. Commonwealth Edison Co. v. Ill. Commerce Comm'n, No. 2-97-0657, 1998 wl 146203, March 31, 1998 (Ill.App.2d Dist.).

QF RETAIL SALES. Ruling in favor of the local franchised electric utility, the Connecticut Supreme Court overturned a decision by state utility regulators. The court ruled that the commission could bar a qualifying cogeneration facility from selling power at retail to customers located on the same land as the plant (and within the utility service territory) because the QF qualified under as a "foreign corporation"; state law bars such a business from selling power at retail. Connecticut Light & Power Co. v. Texas-Ohio Power Co., No. 15794, 1998 wl 61612, Feb. 17, 1998 (Conn.).

COMPETITIVE SERVICES. The New Mexico Supreme Court upheld a state commission decision that barred Public Service Co. of New Mexico from offering optional services to electric and gas utility customers except through a separate subsidiary.

Business Wire

THE FIRST MEETING of the proposed Alliance Independent System Operator was held in Arlington, Va., to disseminate and gather information for the ISO, which could stretch from Michigan to North Carolina. Virginia Power and FirstEnergy led the discussions; the U.K.'s National Grid Co. acted as consultant. American Electric Power Co. on April 8 announced that it had accepted an invitation from Alliance to join in discussions as they move forward.

Ohio PUC Chairman Craig A. Glazer, who backs the Midwest ISO, expressed dismay over the competing ISOs. "Competing ISOs will be costly to consumers, administratively burdensome and can lead to unnecessary charges for transactions across the borders of the two ISOs," Glazer said. He added that the PUC will use its authority to bring the two ISOs together.

CellNet Data Systems Inc. will provide data communications services to customers of Friendly Power Co. CellNet will provide informational metering data services priced on a monthly, per-meter basis to most of Friendly Power's large commercial and industrial customers in California.

Consumers Energy Co., the principal subsidiary of CMS Energy Corp., successfully issued $250 million of 6 percent senior notes due 2008 and $225 million of 6 percent senior notes due 2018. These senior notes will become unsecured when all of the company's outstanding first mortgage bonds are retired.

A recent National Regulatory Research Institute report, Organizational Transformation: Ensuring the Relevance of Public Utility Commissions, addresses the changes that have occurred at state public utility commissions since the 1995 National Association of Regulatory Utility Commissioners NARUC/NRRI Commissioners Summit. For more information, please call 614-292-9404.

A 1997 University of Maryland poll indicates that two-thirds of the U.S. population opposes the Congressional "Mobile Chernobyl" bill, which would allow the shipment of high-level nuclear waste through 43 states to a "temporary" storage site in Nevada. The bills have passed both houses of Congress. However, President Clinton has said repeatedly that he will veto the legislation. Americans believe that property values will drop along the transportation routes and that terrorists could effectively attack radioactive waste shipments.

Catholic Healthcare West selected New Energy Ventures as its energy partner for its California facilities currently serviced by Pacific Gas & Electric and Southern California Edison. New Energy Ventures will provide electricity procurement and electric usage data for each facility via the Internet.

TransCanada PipeLines Ltd., NOVA Corp., the Canadian Association of Petroleum Producers, and the Small Explorers and Producers Association of Canada reached an accord to promote competition and greater customer choice in the Western Canadian Sedimentary Basin. The April 7 agreement endorses competition, additional pipeline capacity in the Western Canadian Sedimentary Basin and regulatory changes. The group will develop a regulatory framework and present it to the National Energy Board and the Alberta Energy and Utilities Board.

FERC

TAGGING RULES. The FERC ruled that tagging and other reliability requirements that vary from the provisions of Order 888's pro forma tariffs cannot be used to deny transmission customers access to the system unless approved by FERC as comparable or superior to pro forma requirements. At the same time, however, the commission has expressed no opposition to tagging rules that duplicate information filing requirements already required in the 888 tariffs. The two rulings, issued in two separate dockets but combined in one order, allowed the commission effectively to express its opinion about reliability rules imposed by the North American Electric Reliability Council, even though the FERC lacks direct jurisdiction over NERC. (See "Snatching Victory from the Jaws of Dismissal," May 15, 1998, p. 20.)

In the first docket, the FERC dismissed two filings disputing NERC's tagging requirements. The Coalition Against Private Tariffs had asked whether that tagging requirement was a term and condition of transmission service that may be adopted only after a filing at FERC is made to change the open access tariff. Docket No. el97-58-000, 83 FERC ¶ 61,015, April 7, 1998.

In the second docket, Western Resources had proposed revisions to its open access tariff to reflect adoption of a new Southwest Power pool operating practice tying curtailment priority to whether the customer adheres to the tagging requirement. Docket No. er98-900-000, 83 FERC ¶ 61,015, April 7, 1998 (F.E.R.C.).

Reliability

NERC REORGANIZATION. On April 17, four committees at the North American Electric Reliability Council issued their reports to the NERC Board of Trustees, responding to the proposal issued Dec. 22, 1997 by the blue ribbon Electric Reliability Panel on the future of NERC (Reliable Power: Renewing the North American Electric Reliability Oversight System). The report suggested reorganization of the group to form NAERO, the North American Electric Reliability Organization. The NERC board was to consider the four committee reports at its meeting in early May.

The four committees (em Funding, Governance, Government Interface, and the Standing Committee (em are addressing specific issues raised in the 1997 blue ribbon report that appear problematic: Who gets funded to ensure reliability? Who is charged to cover those costs? How are funds collected and managed?; What are the responsibilities and qualifications for the NAERO board? How many board members? How elected? Who is a member of NAERO?; How to develop a framework for legislative support for NAERO, which will oversee an interconnected electric system crossing international borders?

Mergers & Acquisitions

ALLEGHENY-DUQUESNE. The Pennsylvania Public Utility Commission recommended approval of the proposed merger of Allegheny Power System Inc. and DQE Inc. but made approval contingent upon the utilities joining a functioning independent system operator. Docket No. a-110150f.0015, March 25, 1998 (Pa.P.U.C.).

The PUC rejected a proposal made in March by two PUC administrative law judges to delay the merger for 18 months due to market power concerns.

While pleased with the decision, the utilities expressed concern over the ISO requirement. "The commission requirement to join a 'fully functioning' ISO before merger consummation takes the merger out of our hands," said Michael P. Morrell, senior vice president and CFO of Allegheny.

The utilities plan to ask for reconsideration. On April 13, the companies applied to join the Midwest ISO, contingent on completing their merger. They will ask for merger approval on that basis. The Midwest ISO already has an application pending before the Federal Energy Regulatory Commission and is expected to be operational in two years.

LILCO-BROOKLYN UNION. The New York Public Service Commission has approved a settlement finalizing the merger of Brooklyn Union Gas Co. and Long Island Lighting Co., or what is left of LILCO (fossil generation and gas distribution facilities) after the transfer of its Shoreham plant and transmission and distribution facilities to the Long Island Power Authority. It found that the merger will increase vertical control and market concentration in the gas distribution market, but felt that such concerns would be "adequately mitigated" by the likelihood that competitors would enter that market. Case 97-m-0567, Opinion No. 98-9, Apr. 14, 1998 (N.Y.P.S.C.).

ENOVA-PACIFIC ENTERPRISES. The California Public Utilities Commission has approved the merger of Pacific Enterprises and Enova Corp., the respective holding companies for Southern California Gas Co. and San Diego Gas & Electric Co. It required SDG&E to divest its gas-fired electric generation (the utility had already announced that intent last November), and forced SoCal Gas to divest its options to purchase the Kern River and Mojave gas pipeline systems. However, it refused to require the gas utility to divest its transmission and storage assets: "Divestiture, if needed, should be statewide¼ there is no cost analysis [and] the remaining distribution system would be devastated." Decision 98-03-073, A. 96-10-038, March 26, 1998 (Cal.P.U.C.).

State PUCs

RECIPROCITY. Drawing a distinction between power marketers and generators, the Michigan Public Service Commission has held that while the direct access tariff for Consumers Energy Co. requires all other sellers in the utility's service area to offer reciprocal access to Consumers Energy for an equal amount of load, that rule does not apply to a power marketer's "source of generation" unless the marketer and generator are affiliated. Thus, the Michigan Public Power Agency (a generator) owed no reciprocal obligation after it supplied generation to power marketer Engage Energy US LP to serve Perrigo Co., a retail customer.

Dissenting Commissioner John C. Shea said the case should convince the PSC of the "unworkability of the reciprocity obligations" under the direct access tariff. "The potential for circumventing the requirement of reciprocity is quickly hardening into reality," he added. Case No. u-11651, March 20, 1998 (Mich.P.S.C.).

CONSUMER PROTECTION RULES. Under new rules for consumer protection adopted by the California Public Utilities Commission, energy service providers must post a $25,000 deposit or bond with the PUC to gain registration, plus enter a service agreement with the franchised utility distribution company in any territory that the ESP conducts business. ESPs must provide customers with a document setting forth price, terms, and conditions of service. The PUC suggested specific wording to ensure uniformity to help consumers make comparisons. Docket r.94-04-031/i.94-04-032, March 26, 1998 (Cal.P.U.C.).

PRICE CAP PLAN. The Maine Public Utilities Commission set up a price cap plan for Bangor Hydro Electric Co. to insulate core customers from the cost of discounts offered to large customers, but the plan will boost rates by $13 million in the short term, forcing ratepayers to support 85 percent of large-user discounts.

The price cap links electric prices to a weighted price index (gross domestic product), allowing for a 1.2-percent productivity offset. Any profits slightly greater than or less than a 12.75 percent allowed return on equity will be split equally between ratepayers and the company. The plan allows for consideration of certain "exogenous costs," including certain costs associated with the utility's ownership of the troubled Maine Yankee nuclear power station.

The PUC allocated the entire start-up rate increase to core customer class, rejecting a proposal to allocate part of the increase to larger customers because of the company's "relatively precarious financial condition." Docket No. 97-116, Feb. 9, 1998 (Me.P.U.C.).

NUCLEAR GENERATION. The New York Public Service Commission has launched further inquiries into the role of nuclear generation in a competitive electric market, after having received recommendations from its staff calling for a public auction of nuclear plants (along with other generation as well). Decommissioning costs remain the responsibility of the surviving transmission and distribution utilities and their ratepayers under the staff proposal. Nuclear plants not moving at auction would fall subject to an "administrative alternative," whereby the PSC would limit recovery of running costs to the wholesale price of power. Case 94-e-0952, 98-e-0405, Opinion No. 98-7, March 20, 1998 (N.Y.P.S.C.).

QF PRICING. The Oregon Public Utility Commission has ruled that electric utilities need not buy power from a qualifying cogeneration facility if the contract contains "adders" that bring the price above the utility's avoided costs. The case involved Portland General Electric Co. and two QFs, Oregon Energy Co. LLC and St. Helens Co-Gen LLC. Order No. 98-055, Feb. 17, 1998 (Ore. P.U.C.).

QF AVOIDED COSTS. Responding to the state's new electric restructuring law, the Maine Public Utilities Commission has amended its rules governing purchased power contracts between electric utilities and qualifying cogeneration facilities so that the concept of avoided costs will "effectively mean the market value of power." PUC policy now requires competitive bidding and recognizes that "existing utility resources may be avoided at a market price." Docket No. 97-794, March 10, 1998 (Me.P.U.C.).

INTEGRATED RESOURCE PLANNING. The North Carolina Utilities Commission has approved new streamlined rules for integrated resource planning by electric utilities that will replace the existing 15-year planning horizon, triennial IRP filings, annual updates and short-term action plans with a single annual filing. The annual reports will contain 10-year forecasts of load and generating capacity as well as existing and planned generation and transmission capacity needed to meet identified load requirements. Utilities must also report demand-side management options and power purchase and sale commitments for the forecast period. Docket No. e-100, sub 78a, March 26, 1998 (N.C.U.C.).

CAPITAL STRUCTURE. The Alabama Public Service Commission has updated its long-standing rate stabilization and equalization rate plan for Alabama Power Co. to accommodate a move to a higher ratio of equity (45 percent) in the utility's capital structure, to reflect additions to equity under RSE and a series of upgraded security ratings by Moody's, Standard & Poor's and Duff & Phelps, cited by the PSC as "among the reasons why the Company's retail rates have remained stable and well below the national average." Docket Nos. 18117; 18416, March 9, 1998 (Ala.P.S.C.).

METER READING PROBLEMS. Responding to customer complaints about high bills, the Connecticut Department of Public Utility Control told Southern Connecticut Gas Co. to provide monthly reports on its remote meter installations and readings after it found the utility was slow in notifying a meter vendor of irregularities with automated meter reading devices, and had been forced to take actual readings and rebill customers to make up for shortfalls. Docket No. 97-05-02, Feb. 11, 1998 (Conn.D.P.U.).

GAS CORE AGGREGATION. The California Public Utilities Commission has simplified its rules for natural gas core aggregation programs, responding to suggestions from Enron Corp. that procedures for switching, requiring several forms and a waiting period of many months created a substantial disadvantage for competitors. r. 90-02-008, d. 98-02-108, Feb. 19, 1998 (Cal.P.U.C.).

GAS IMBALANCES. The Minnesota Public Utilities Commission authorized Peoples Natural Gas Co. to force customers to give 90 days' notice before switching between sales and transportation service and to pay for any pipeline balancing and scheduling penalties to encourage customers to take responsibility for their own energy use. The PUC added, however, that the utility should develop a balancing service of its own to provide transportation customers with a way to avoid incurring the penalties. Docket No. g-011/m-97-1048, Jan. 16, 1998 (Minn.P.U.C.).

GAS CURTAILMENTS. Rejecting claims that natural gas users need no more protection than propane or heating oil buyers, the Michigan Public Service Commission has OK'd rules for consumers Energy Co. that assign five levels of priority to gas customer classes to govern gas service curtailments. Noting that gas customers generally have no on-site storage or multiple access channels (as do many propane or heating oil users), the PSC put aside warnings by Chevron U.S.A. Inc. against shielding gas customers from "the natural consequences of choosing unwisely." Case No. u-11108, Feb. 25, 1998 (Mi.P.S.C.).

RETAIL ACCESS PLAN. The New York Public Service Commission upheld an earlier ruling requiring Rochester Gas and Electric Corp. to allow direct access to alternative suppliers, including permitting gas marketers to own and install metering devices. RG&E had asked the commission to reconsider its metering decision, including safety and legal questions, and whether the gas metering decision was consistent with electric metering rules. Case 93-g-0932, 95-g-1035, Feb. 12, 1998 (N.Y.P.S.C.).

TERMINATION OF SERVICE. The Wyoming Public Service Commission authorized U S West Communications Inc. to cut off long-distance services to customers who fail to pay outstanding long-distance bills. Docket No. 70000-tt-97-367, Jan. 14, 1998 (Wyo.P.S.C.).

TELCO RATE DESIGN. Denying claims that the move would impede local telephone competition, the Pennsylvania Public Utility Commission has allowed Bell Atlantic Pennsylvania Inc. to cut charges by expanding local calling areas in Philadelphia and Pittsburgh and to make up the difference through higher directory charges. The PUC said the issue would be the same regardless of the number of local carriers. r-00974176, Feb. 5, 1998 (Pa.P.U.C.).

WATER SYSTEM TAKEOVERS. While authorizing United Water Pennsylvania Inc. to increase rates by more than $2 million, the Pennsylvania Public Utility Commission rejected a request by the company to recover costs it had incurred in a failed attempt to purchase a neighboring bankrupt small water system, saying that customers should not bare responsibility for the failed acquisition. Commissioner Nora Mead Brownell argued that the utility should be rewarded for its efforts to acquire the troubled water system with an upward adjustment to its return on common equity, while dissents came from two other commissioners, David W. Rolka and John Hanger, on whether the utility's capital ratios should reflect the overall holding company structure. r-00973947 et al., Jan 30, 1998 (Pa.P.U.C.).

CONSUMER CREDIT RISK. The Indiana Utility Regulatory Commission is considering whether utilities can cite past-due uncollectible accounts to justify denying service to prospective customers. The rulemaking responds to a complaint filed by 10 community-based organizations complaining of unusually large deposits, and that AEP Indiana and Northern Indiana Public Service Co. had denied service because of unpaid bills that dated beyond the four-year statute of limitations. Case No. 40790.

ELECTRIC "SLAMMING" SETTLEMENT. The Pennsylvania PUC has fined PP&L Resources Inc. $50,000 in resolving complaints that the utility "slammed" customers by signing them up for its electric retail pilot program without their consent after they had only inquired about the utility's "EnergyPlus" offering. PP&L also must repay 10 percent of the bills of the past 12 months for slammed customers. The PUC said the problem occurred because contractors of PP&L used improper coding when processing orders. Docket No. m-0098, March 26, 1998 (Pa.P.U.C.).

ELECTRIC RATE FREEZE. Nevada Power Co. asked the Nevada PUC to allow it to cap electric rates for all customers until July 2000 as part of its request for a $45 million fuel and purchased power cost increase.

"Nevada Power will cap rates until the middle of 2000¼ after retail competition is introduced in Nevada," said Michael Niggli, NP President and CEO. "Restructuring in the electric utility industry is a very complex issue. This rate cap will allow customers to avoid confusion and enjoy low, stable rates during this period of transition."

About $32 million of the increase would affect commercial customers. The remaining $13 million will increase the average residential bill 3.5 percent, or $2.52 a month.

TELEPHONE COMPETITION. At the New York Public Service Commission, outgoing Chair John F. O'Mara has written to incoming Chair Maureen O. Helmer to recommend that the PSC allow Bell Atlantic, the local telephone carrier, to compete for long distance service upon meeting certain conditions. O'Mara's letter follows on the heels of a two-year investigation involving the U.S. Department of Justice and competitive local exchange companies, which has yielded a plan that reportedly enjoys broad support. The details of the plan were outlined in a prefiling statement submitted to the PSC.

UNBUNDLING CAPITAL COSTS. The California Public Utilities Commission said it will ask Pacific Gas and Electric Co., San Diego Gas and Electric Co., and Southern California Edison to join workshops to study unbundling of cost of capital between regulated and unregulated assets. It set PG&E's bundled cost of common equity at 11.2 percent for the 1998 calendar year. Application 97-05-016, Decision 97-12-089, Dec. 16, 1997 (Cal.P.U.C.).

News Digest is compiled by Lori A. Burkhart and Phillip S. Cross, contributing legal editors, and by Beth Lewis, editorial assistant.


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