News Digest

Fortnightly Magazine - September 15 1998

Business Wire

William Catacosinos has resigned as chairman of MarketSpan Corp., the utility formed to replace the troubled Long Island Lighting Co. Catacosinos is under investigation by the New York attorney general due to a $42-million severance payment as part of the buyout of LILCO by the New York government-run Long Island Power Authority (see Public Utilities Fortnightly, August 1998, p.28).

SCT Utility Systems Inc., signed a software and services agreement worth about $13 million with the city of Seattle for the BANNER Customer Management System. The agreement will aid the city's efforts to consolidate services for the 450,000 customers of Seattle City Light, which provides electrical services, and Seattle Public Utilities which provides water, wastewater, drainage, sewage, flood control and recycling services.

Duke Energy recently installed an automatic teller machine that accepts bill payments at one of its customer service offices. It plans to add three more in other locations. Customers insert their utility bill and punch in a personal code. After the ATM recognizes their account, the customer will deposit their payment amount. The terminals cost $28,000 to $35,000 each. The Salt River Project already operates seven payment terminals, four of them accessible 24 hours a day. The company wants to add 11 more.

TransCanada Pipelines Ltd. filed a modified pipeline expansion program to its 1999 facilities application with the National Energy Board that proposes a $404.5-million expansion for completion by November 1999. Under the modified program, the company would provide net incremental firm transportation service of 208 million cubic feet per day of natural gas by November 1999 to customers in eastern Canada and the midwestern and northeastern U.S. TransCanada proposes to construct new capacity for 108 MMcf per day through construction of 156 kilometers of pipeline loop and four additional compressor units.

Consolidated Natural Gas Co. has a definitive agreement to sell the capital stock of CNG Energy Services Corp., its wholesale energy marketing subsidiary, to Sempra Energy Trading, a subsidiary of San Diego-based Sempra Energy. The sale is expected to close in early August, following regulatory approval. Proceeds from the sale of $48 million are subject to final adjustments.

Clearwater Gas System has become the first American Public Gas Association member to offer the new Hometown Energy Loan Program to its customers. Under the program, created by the APGA in conjunction with Yankee Energy System Inc., association members can offer financing to customers for home energy improvements.

Federal Agencies

MARKET INFORMATION. The DOE's Energy Information Administration has proposed revisions to the procedures it uses to protect the confidential electric power data it collects from the power industry and to give equal treatment to utilities and private power generators. (See Federal Register, Vol. 63, July 17, p. 38,620).

Data exempt from disclosure includes: future generating capacity (additions, retirement, etc.); heat rates; contract information for wholesale and retail sales; fuel stocks; and financial data about environmental equipment. Data that would become or remain available includes: information about existing units (except full-load heat rate); net or gross generation; fuel consumption; environmental data; sales and revenues; and financial reports from IOUs.

DOE SECRETARY CONFIRMATION. The Senate Energy Committee on July 29 approved United Nations Ambassador Bill Richardson to become the next energy secretary, replacing Federico Pen~a, who resigned in June. Two of the 20 committee members voted "present", which is equivalent to abstaining.

Recently, Senate Energy Committee Chairman Frank Murkowski (R-Alaska) challenged Richardson to deal with nuclear waste issues: "Despite the fact the federal government already is in default on its contractual obligation to take waste from our nuclear utilities, this Administration has no plan to solve the problem," he said. "Ambassador, are you going to carry this same empty portfolio?"

FERC

CALIFORNIA POWER PRICING. Until it can gather more information, the FERC has granted an emergency request by the California Independent System Operator to limit (at its own discretion) the price it pays to acquire certain reserve power (spinning, non-spinning and replacement reserves) from supply bidders that have been granted market-based pricing authority. Docket Nos. ER98-2843-001, July 17, 1998 (F.E.R.C.).

The ISO alleged that it had seen dramatic price spikes for replacement reserve capacity, claiming the problem stemmed from two FERC orders issued June 30 and July 10 allowing four companies to charge market-based rates for ancillary services while the utility generating plants remained subject to cost caps. Meanwhile, the ISO had instituted a price cap of $500/MW for replacement reserves until the FERC answered.

BILATERAL SPOT MARKETS. By a vote of 4-1, with Commissioner Curt Hébert dissenting, the FERC has declined to reconsider its March 25 order asserting jurisdiction over Automated Power Exchange, a bilateral electricity spot market that competes directly with the California Power Exchange by using computer software to match buyers with sellers. Docket Nos. ER98-1033-001 et al., July 15, 1998.

APX President Edward Cazalet said that the FERC was attempting to make an "impossible distinction" between APX and brokers. "Brokers are exempt from regulation, the FERC claims, because they do not take title to power, do not control electric utility facilities and do not set prices," Cazalet said. "Yet, the FERC claims that because the APX and PX employ a computer algorithm, they set the market price for electricity and therefore, unlike brokers, they should be regulated and taxed."

GAS PIPELINE RATES. In reviewing a pipeline rate settlement, the FERC has asked an administrative law judge to examine whether Texas Gas Transmission Corp. should set up a separate rate zone for its upstream production area, as urged by competitor NorAm, to segregate production costs from rates paid by customers in downstream rate zones in market areas. Docket No. RP97-344-008, July 15, 1998.

Commissioner Linda Breathitt dissented, asking why NorAm (not a shipper on the Texas Gas system) should have a hand in rate design. (Note: On July 31 the D.C. Circuit remanded another FERC pipeline rate order on the same issue - see "Courts," p. 22.)

OFFSHORE GAS PIPELINES. The Interstate Natural Gas Association of America has asked the FERC to restrict its jurisdiction for offshore natural gas pipelines, in comments filed under the commission's recent notice of inquiry, which asked for possible alternatives to the "primary function test" now used by the FERC to decide whether assets qualify as gathering facilities exempt from regulation. Docket No. RM98-8-000, notice issued June 1, 1998, 83 FERC ¶61,235.

The FERC applies a "primary function test" under its current policy, last refined in 1996 (74 FERC ¶61,222), but that test was thrown in doubt last year in the Sea Robin case (127 F.3d 365), when a federal court rejected the FERC's interpretation under the Outer Continental Shelf Lands Act.

The FERC has received many other comments - from pipelines (Williams, ANR, Enron, Duke, El Paso), utilities (Brooklyn Union, Con Ed), producers (Independent Petroleum Association of America, Natural Gas Supply Association) and even a gas marketer (Dynegy), many of which favor less FERC regulation. But attorney Katherine Edwards, representing OCS producers (Shell, Texaco, Exxon, Mobil, etc.), counters that Congress intended in its 1978 OCSLA amendments to regulate OCS pipelines under the Natural Gas Act "in the same manner" as onshore pipes. Attorney Edward Grenier, representing the Process Gas Consumers and industrial gas users, adds that light-handed regulation of OCS pipes "is no more appropriate today than it was two years ago."

STUDIES & REPORTS

GAS PRICE RELATIONSHIPS. Gas Research Institute released a study that looks at the dynamics driving short-term natural gas prices and how the industry is responding. The study, Short-Term Gas Prices: How the Market Adjusts to Changing Fundamentals, discusses how five key factors affect short-term prices: weather, fuel competition, infrastructure, market dynamics and financial issues. It also identifies a number of possible future developments that may further affect short-term prices.

A two-page graphic relates those five factors to the most significant market events in the 1990s - from the launching of the Henry Hub (Louisiana) futures market in 1990 to the collapse of previously observed basis relationships between regions (differences in the value of gas) during the extreme cold snap in 1996. (For a copy, contact GRI Document fulfillment center via fax 630-406-5995.)

POWER CONTRACT DEFAULTS. Moody's Investors Service reports that failures to deliver electricity by Federal Energy Sales and the Power Company of America likely are not anomalies - rather, it expects to see more defaults by power marketers.

The assets of Federal Energy Sales were seized on June 24, after the power marketer failed to deliver power to its counterparties, including the Power Company of America, which in turn failed to make its contractual deliveries. The defaults occurred during the record price spikes in the Midwest of up to $7,000 per megawatt hour and Moody's believes the defaults may have contributed to the problem.

POWER PLANT EMISSIONS. Public Service Electric and Gas Co. and the Natural Resources Defense Council on July 16 released a report benchmarking the 1996 environmental performance of the nation's 100 largest electric utilities. They believe that the report, Benchmarking Air Emissions of Electric Utility Generators in the United States, shows the need for more stringent, uniform environmental standards and tough disclosure rules as the electric industry becomes more competitive. The report compares emissions rates for nitrogen oxide, sulfur dioxide and carbon dioxide for the 50-largest electric utilities in the eastern half of the United States. (For a copy, see www.nrdc.org/nrdcpor.)

State PUCs

GAS MARKETING AFFILIATES. The Georgia Public Service Commission ruled that Atlanta Gas Light Co. is barred from operating an unregulated affiliate to market gas under a similar name when natural gas competition begins Nov. 1.

The PSC believes that while competition is in its infancy, that the affiliate, Atlanta Gas Light Services, would gain an unfair advantage, perhaps confusing customers with a name similar to the 140-year old utility.

Once competition begins, AGL no longer will sell natural gas, merely deliver it to homes. Unregulated marketers will be responsible for the commodity sale. But throughout the legislative debate on the structure of the new competition law, AGL had claimed that its affiliated gas marketer would sell under the name "The Energy Spring." In April, AGL had notified the PSC that it had changed the affiliate's name to "Atlanta Gas Light Services."

T&D COMPETITION. The California Public Utilities Commission rejected a proposal by Pacific Gas and Electric Co. to sell a part of its distribution and transmission system to the Modesto Irrigation District because the agreement called for both parties to restrict wires competition with each other for 25 years, to avoid duplicating facilities. The PUC explained that some new wires investment might be economic, even if duplicating existing plant: "We do not know whether competition in distribution markets is imminent¼ we nevertheless decline to approve any agreement which would prohibit it absent a demonstration that such a provision is the only way to prevent specified harm." A.97-07-030, D. 98-06-020, June 4, 1998 (Cal.P.U.C.).

GAS SYSTEM DEVELOPMENT. To "smooth out" development costs and help Bangor Gas Co. construct a new natural gas local distribution system to serve the city of Bangor and nearby areas, the Maine Public Utilities Commission has OK'd a unique 10-year rate plan, featuring an earnings sharing provision and downward pricing flexibility, with a price cap keyed to forecasted prices for heating oil, with inflation adjustments.

Earlier, the PUC had rejected proposals to conduct a special "comparative proceeding" to select the best-suited candidate to serve the city with gas, explaining that such an investigation could "jeopardize the existing proposal and overwhelm administrative resources." Docket No. 97-795, June 2, 1998, June 26,1998, June 30, 1998 (Me.P.U.C.)

ELECTRIC METERING. The California Public Utilities Commission has required the state's electric utility distribution companies to participate in the training and certification of new entrants in the meter services market. It added that UDCs need not serve as a guarantor of the performance of any new entrant engaged in meter installation. R.94-04-031, I.94-04-032, Decision 98-06-081, June 18, 1998 (Cal.P.U.C.).

GOODWILL VALUATION. The Maine Public Utilities Commission approved plans by Bangor Hydro-Electric Co. to auction all but one of its generating assets, plus wholesale and retail marketing functions, its corporate name and some transmission assets. Prospective buyers must bid separately on use of the company name to allow the PUC to value goodwill and balance risks and benefits for ratepayers. Docket No. 98-114, June 17, 1998 (Me.P.U.C.).

STRANDED COSTS. The Arizona Corporation Commission ruled that electric utilities should enjoy a "reasonable opportunity" to recover all stranded costs, so long as they agree to divest generation assets and make "all reasonable efforts" to mitigate losses.

Under the rules, utilities would choose between two methods to calculate costs eligible for recovery: (1) divest all generation assets; or (2) determine revenues necessary to maintain financial integrity. Regulatory assets receive special treatment (100-percent recovery without a mitigation review), as do previously approved costs for social programs such as low-income assistance and conservation. Docket No. RE-00000C-94-0165, Decision No. 60977, June 22, 1998 (Ariz.C.C.).

RETAIL ELECTRIC CHOICE. The Alabama Public Service Commission asked for comments on whether retail electric competition will serve the state's interest. It also seeks comment on issues such as stranded costs, regulatory reform measures, market power and reliability. Docket 26427, June 15, 1998 (Ala.P.S.C.).

FIXED-PRICE GAS. Regulators in New York and Minnesota have each refined policies on fixed-price options for customers of natural gas local distribution companies.

In New York, after telling all LDCs in 1997 to offer fixed-price options to core customers to offset price volatility, the commission rejected a proposal by Orange and Rockland Utilities Inc. to offer similar commodity pricing options to large-volume, non-core customers. Such "broad authority," it said, would afford "excessive latitude" to O&R in competing with new entrants. Case 97-G-1645, June 4, 1998 (N.Y.P.S.C.).

In Minnesota the PUC allowed Minnegasco to open a pilot program offering an option to lock-in a fixed per-unit gas price for one year for small-volume firm customers, including residential users. It declined to force the company to allow participants also to choose alternate gas vendors, preferring simply to boost awareness of how gas service is priced and to gauge acceptance of new price options. Docket No. G-008/M-98-118, June 29, 1998 (Minn.P.U.C.).

SERVICE TERRITORY DISPUTES. The Virginia State Corporation Commission settled a boundary dispute between Virginia Electric and Power Co. and Prince George Electric Cooperative, where each wanted to serve a large industrial customer located entirely within the co-op's territory. Ruling for the co-op., the commission favored a "point-of-use" test, rejecting a "point-of-delivery" test applied by the hearing examiner. It added that state law continues to offer a "high degree of protection" for utilities for rights to an exclusive service territory. Case No. PUE960295, June 25, 1998 (Va.S.C.C.).

DSM INCENTIVES. The California Public Utilities Commission denied a bid by Southern California Edison Co. to introduce an electric revenue adjustment mechanism to mitigate the lack of incentive to reduce unit sales through conservation and demand-side management. It explained that the new ERAM was unlikely to work very well because of the rate freeze and other aspects of the state's electric restructuring law. R.94-04-031, I.94-04-032, Decision 98-06-023, June 4, 1998 (Cal.P.U.C.).

CAPITAL RECOVERY. The Florida Public Service Commission denied a request by Gulf Power Co. to amortize its investment in a new 15-megawatt cogeneration facility (a gas-fired combustion turbine), and instead has directed the company to capitalize and depreciate the plant, since depreciation might better account for unexpected changes in term of service or salvage value. Docket No. 980366-EQ, Order No. PSC-98-0790-FOF-EQ, June 8, 1998 (Fla.P.S.C.).

Generating Plants

NUCLEAR/HYDRO AUCTION. Niagara Mohawk Power Corp. has received 37 preliminary bids in the auction of its fossil-fuel and hydroelectric generating plants. Ni-Mo was to cull the list and ask surviving bidders for binding offers later this month. The available plants include four fossil-fueled facilities with a combined capacity of 3,256 megawatt-hour. The portfolio includes 72 hydroelectric plants in six packages, with a combined capacity of 661 MW, plus an unused plant site. Transfer of ownership is expected in the first half of 1999 upon receipt of regulatory approvals.

Niagara Mohawk has withdrawn from the auction its 300-MW interest in the Roseton fossil fuel station, pursuant to an agreement with the other owners, Central Hudson Gas & Electric Corp. and Consolidated Edison Co. The owners are pursuing a sale of Roseton in a separate auction.

TMI SALE. GPU Inc. has reached an agreement to sell the Three Mile Island Unit 1 nuclear plant to AmerGen Energy Co. for $100 million, including $23 million for the reactor and $77 million for the plant nuclear fuel. The sale price will change based on actual energy market-clearing prices through 2010. This deal marks the first sale of a nuclear plant in the U.S.

AmerGen was formed last year as a joint venture by PECO Energy and British Energy to purchase and operate nuclear plants in the U.S. GPU Energy will buy back the energy and capacity from TMI Unit 1 from Jan. 1, 2000 through Dec. 31, 2001, assuming the deal closes on Dec. 31, 1999.

HYDRO SALE BENEFITS. The Vermont Public Service Board approved the transfer of the Fifteen Mile Falls and Deerfield River hydroelectric projects owned by New England Power Co. to U S Gen New England Inc., an indirect subsidiary of PG&E Corp., which will sell the power at wholesale only, at FERC-approved, market-based rates. The board said the transfer should produce "substantial conservation and environmental benefits" to the public, through new easements and restrictions covering undeveloped land as well as land restoration and water management funding. Docket No. 6039, June 11, 1998 (Vt.P.S.B.); Docket No. 6039, June 29, 1998 (Vt.P.S.B.).

Courts

ELECTRIC CHOICE. Though a state law passed in 1996 now guarantees retail choice in electricity by Jan. 1, 2001, a Pennsylvania court nevertheless wants the Pennsylvania Public Utility Commission to reconsider a complaint filed in 1993 by residents of Findlay Township, but dismissed two years ago, that had sought authority to switch suppliers right away. The court said the complaint was not moot - that the new law should not bar customers from seeking relief ahead of the statutory deadline. Duquesne Light Co. v. Pa. PUC, Nos. 2663 C.D.1996, et al., 1998 WL 416491, July 22, 1998 (Pa.Cmwlth.).

PIPELINE RATE ZONES. Remanding a gas pipeline rate case, a federal appeals court has asked the FERC to better explain why the scheme of rate zones used by the Tennessee Gas system does not inhibit formation of market centers, as argued by NorAm, by bundling certain gas production costs improperly with market-area rates. NorAm Gas Trans. Co. v. FERC, No. 97-1101, 1998 WL 428974, July 31, 1998 (D.C.Cir.).

PIPELINE LEGAL COSTS. A federal appeals court remanded a gas pipeline rate case to the FERC, asking why it removed from rate base some $15 million in legal costs incurred by Iroquois pipeline to defend allegations of environmental violations. Citing a 1991 case involving AT&T's antitrust suit, the court ruled that illegality of conduct should not always compel a rate base disallowance for legal defense costs, since ratepayers sometimes benefit when utilities cut corners and then willingly bear the risk of litigation. Iroquois Gas Trans. Sys., L.P. v. FERC, Nos 97-1276 et al., 1998 WL 403645, July 21, 1998 (D.C.Cir.).

NUCLEAR RADIATION. A federal appeals court has affirmed that the 1998 amendments to the Price-Anderson Act, which create a federal remedy for injury from nuclear radiation, also preempt state tort law and thus preclude damage recovery for exposures that do not arise from a declared nuclear incident or exceed federal limits. Roberts v. Fla. P&L Co., No. 97-5195, 1998 WL 408819, July 22, 1998 (11th Cir.).

RATE SETTLEMENTS. The North Carolina Supreme Court has remanded a gas rate case, explaining that the state commission erred by setting return on equity based on a settlement not agreed to by all parties. It said the return figure came "directly, without any deduction," from the stipulation between the commission's public staff and the applicant, Pennsylvania & Southern Gas Co., dba North Carolina Gas Service. Absent full agreement by all parties, the court said, the commission must make an independent finding based on all evidence. N.C. Utils. Comm'n v. Carolina Util. Customers Assoc. Inc., 500 S.E.2d 693, July 9, 1998 (N.C.).

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

Details of Deregulation

PA PUC ON SLAMMING, METERING, BILLING. The Pennsylvania Public Utility Commission has issued final rules on electric restructuring, including: (1) service quality for distribution utilities (Docket No. L-00970131 April 24, 1998); (2) universal service and energy conservation (Docket No. L-00970130, May 1, 1998); (3) electronic data transfer of customer information (Docket No. M-00960890.0015, June 19, 1998); and (4) enrollment procedures for direct access (Docket No. M-00960890.0014 May 21, 1998). Other issues include:

SLAMMING. A "no-tolerance" policy, with penalties of up to $1,000 per day per violation. PUC loosens some restrictions that could make it too difficult for customers to switch. Docket No. L-00970121, July 7, 1998 (Pa.P.U.C.).

METERING. Finds no need to unbundle metering from distribution services. Advanced meters available to customers on request through utility tariffs. Docket No. L-00970128, May 14, 1998 (Pa.P.U.C.).

SUPPLIER LICENSING. Competitors can use securities other than bonds to meet financial obligations for licensing. Docket No. L-00970129, April 24, 1998 (Pa.P.U.C.).

RELIABILITY. PUC will address system reliability through record-keeping and reporting rather than specific standards. Docket No. L-00970120, April 24, 1998 (Pa.P.U.C.).

BILLING. Suppliers who provide billing must offer budget billing or equivalent arrangements to residential customers. Docket No. M-00960890, June 18, 1998 (Pa.P.U.C.).

ENERGY SOURCES. Suppliers must answer reasonable requests by consumers about their power source. PUC endorses Federal Trade Commission guidelines on marketing "green" or "environmentally friendly" power. Docket No. L-00970126, May 1, 1998 (Pa. P.U.C.).

Correction: In July 15, a "Courts" (p. 22) item should have read: The Minnesota Court of Appeals said, "We are disinclined to prohibit the state from directing its instrumentalities to engage in environmentally conscious planning strategies."

Co-op Returns to NRECA

Says it now accepts group's stronger policy against mandatory wheeling.

But who really blinked?

AFTER a year's absence from the NRECA, Intermountain Rural Electric Association has paid its $50,700 dues and rejoined the association, according to Stan R. Lewandowski Jr., the co-op's general manager.

"It's an awkward situation being on the outside, and especially being the only person on the outside," he said.

"We're delighted that Intermountain has decided to rejoin the NRECA," said Glenn English, CEO of the National Rural Electric Cooperative Association. "We've been working together through the last year, talking, and I think everyone came to the conclusion that there's really no significant differences of policy."

The 68,000-member, Colorado co-op left the national organization last year when it complained that the NRECA wasn't taking a strong enough stand against the idea of a federal mandate for retail electric competition. (See "Power Ploy?", Nov. 1, 1997, p. 50 and "Just Say 'Maybe,'" Feb. 1, 1998, p.22., Public Utilities Fortnightly,) Over the past year, the two groups have met occasionally, and NRECA kept the co-op on its publications mailing list, to the point where Lewandowski now believes "NRECA has taken a pretty strong stand against the federal mandate. And quite frankly, what I read was a lot stronger [this year] than what they had done before."

"I firmly believe that at some point there's going to be some type of federal legislation," he said. "I do not believe there's going to be a federal mandate... when that occurs you want to be part of a group that's going to be seated at the table.

"We're happy to be back in." Dues, he said, were not an issue and they were not adjusted in any way.

"I think we've always had serious reservations about any kind of federal mandate," English said. "We think the states should be allowed to proceed at their own pace, make their own determinations as to what works best for them."

English said the co-op might have misunderstood the language the NRECA was using in its policy statements. "There's really been no change."


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