News Digest

Fortnightly Magazine - October 15 1998

State PUCs

ISO GUIDELINES. Marking a contrast with California, but lining up with states in the Northeast, the Iowa Utilities Board has urged that independent system operators should have authority to order redispatch to help fulfill service requirements for electric transmission. That rule came as part of a set of principles issued by the board to guide the formation of ISOs in managing electric transmission systems and preventing the exercise of market power.

By urging redispatch authority, the Iowa board sided with ISO designs for PJM and New York, whereas in California, the ISO must rely on a secondary auction by scheduling coordinators to accomplish redispatch.

The Iowa guidelines also provide for recovery of approved transmission revenue requirements by owners of the transmission facilities. The board cautioned, however, that "future changes" in the electric industry may cause it to "rethink one or more of the principles." Docket No. NOI-95-1, July 27, 1998 (Iowa U.B.).

GAS RATE DESIGN. To counteract price volatility, the New Mexico Public Utility Commission directed PNM Gas Services to offer two pricing plans to residential gas customers that feature fixed-rate options: (1) a low, fixed customer fee with a higher, more-volatile volumetric rate, and (2) a higher, fixed charge and a lower, more-stable variable component. It rejected a call for a move back to a lower-priced, single-tiered rate design. Case No. 2762, Aug. 7, 1998 (N.M.P.U.C.).

NEW JERSEY RESTRUCTURING. Administrative Law Judge Louis G. McAfoos at the New Jersey Board of Public Utilities issued an initial decision recommending that Public Service Electric & Gas Co. should be allowed to recover $2.5 billion in stranded costs, less than one-half of the $5.5 billion that PSE&G had requested. The ALJ also recommended a rate cut of between 10-12 percent. Electric restructuring legislation was expected to be introduced in the New Jersey legislature in September and be signed into law by the end of the year. (Docket PUC 7347- 97 and 7348-97, Aug. 17, 1998, N.J.B.P.U.).

EMPLOYEE TRANSITION BENEFITS. The Maine Public Utilities Commission adopted rules forcing utilities to cushion the effects of job loss associated with the onset of retail competition in the electric industry, set for March 1, 2000 in Maine.

Under the rules, electric utilities must help employees in maintaining fringe benefits and obtaining new employment. They must provide: (1) retraining and outplacement services for two years; (2) full tuition for two years at the University of Maine or a state vocational or technical school; (3) equivalent health insurance for 2 years; and (4) severance pay equal to two weeks of base pay for each year of full-time employment. The PUC will review the programs only to determine if they meet minimum requirements. Docket No. 98-238, July 1, 1998 (Me.P.U.C.).

MARKETING AFFILIATES. State regulators in Michigan and Virginia have set down conditions by which utility marketing affiliates may participate in pilot programs for customer choice sponsored by the parent company.

n On the electric side, the Michigan Public Service Commission has ruled that the affiliate CMS Marketing, Services and Trading Co. may participate in a direct access pilot sponsored by the utility Consumers Power Co., but that any sales the affiliate makes will not count as part of the limited capacity reserved to competitors, or otherwise displace participation in the pilot by unaffiliated competitors, even though the affiliate will not sell power purchased from the utility. Case No. U-11485, July 24, 1998 (Mich.P.S.C.).

n On the gas side, the Virginia State Corporation Commission has authorized Washington Gas Light Co. to permit its affiliate, Washington Gas Energy Services Inc., to participate in its pilot program for retail choice, provided that WGL administers the program equally between the affiliate and unaffiliated competitors. Like other suppliers in the pilot, WGES may elect to use the WGL's capacity on upstream interstate pipelines to arrange deliveries of gas supplies to end users. Case No. PUA980005, July 15, 1998 (Va.S.C.C.).

CORPORATE GOODWILL. In adopting rules governing utility affiliates and non-core activities, the Maine Public Utilities Commission will require utility marketing affiliates to reimburse utilities over a three-year period for the value of corporate goodwill. At that time, the PUC will reassess goodwill value and if needed, it will require a second three-year period for affiliates to pay down all goodwill, by which time the asset value must reach zero. Docket No. 97-886, July 7, 1998 (Me.P.U.C.).

METERING AND BILLING. The Maine Public Utilities Commission has proposed two options concerning metering, billing and collections for interactions between electric utilities and competitive suppliers of generation services. The two options are: (1) "complete billing," whereby the utility provides one monthly bill for transmission, distribution, and generation and (2) "pass-through billing," where the utility provides one monthly bill for delivery and the generator provides another bill for its services. Docket No. 98-482, July 6, 1998 (Me.P.U.C.).

The PUC also has adopted a final rule that requires electric utilities to issue bills that break out the cost of capacity, electricity, transmission and distribution charges and other charges for electric service. The rule requires unbundling of only an "illustrative electric supply rate." Customers would see the cost of the portion of electric service that will be available competitively in the future. The rule does not require unbundled bills to contain substantial amounts of new information. Docket No. 98-306, June 30, 1998 (Me.P.U.C.).

ELECTRIC RATE CUTS. The Virginia Corporation Commission on Aug. 7 approved a rate case settlement directing Virginia Power Co. to grant more than $700 million to customers in refunds and rate cuts, marking the largest such order in Virginia history.

An immediate, one-time refund of $150 million within 90 days of the order will provide an average credit of $53 to residential customers. Then, in a two-phased rate cut, the utility will reduce rates by $100 million retroactive to March, which translates into a rate cut of about $2.30 per month, with an additional $50 million cut starting March 1, 1999. Also, rates cannot be raised again until March 1, 2002. Virginia Power will write-off $220 million in regulatory assets over a four-year period.

UNIVERSAL SERVICE FUNDS. The California Public Utilities Commission adopted $305.2 million in rate reductions for basic residential and business tariffs for Pacific Bell as a permanent offset for the carrier's receipt of universal service funds. The PUC said the new rates would not sink below levels now existing in the competitive market. A.97-03-004, D.98-07-033, July 2, 1998 (Cal.P.U.C.).

Electric Reliability

FERC ENABLING LEGISLATION. U.S. congressmen Edward J. Markey (D-Mass.) and Tom Delay (R-Texas) on Aug. 7 introduced a bill to improve reliability of the nation's electric system.

The Electric System Reliability Act of 1998 (H.R. 4432) does not seek to restructure the electric industry, but does aim to ensure that as restructuring takes place reliability does not degrade. Specifically, the bill would expand the authority of the Federal Energy Regulatory Commission to allow it to: (1) create a self-regulating reliability organization; (2) establish independent system operators to control the nation's electric transmission wires; (3) require utilities to divest themselves of generation or transmission assets; and (4) order interconnection of transmission systems.

The bill also would allow "exempt transmitting utilities" - utilities that could own transmission systems outside their service territories without becoming subject to the Public Utility Holding Company Act. It would encourage states to establish single siting boards, but would allow ISOs to assume responsibility for transmission siting if states fail to set up siting boards.

NERC REFORM LEGISLATION. The North American Electric Reliability Council has released a draft of proposed legislation, termed the Electric Reliability Act of 1998, describing procedures by which the FERC would certify and regulate a new North American Electric Reliability Organization as the nation's one and only self-regulating reliability organization. The proposed legislation, based upon an outline announced in April in a report issued by NERC's Government Interface Issues Task Group, was to be taken up by NERC board of trustees meeting in mid-September, but no final action was expected.

The draft legislation parallels some of the provisions of the Delay/Markey bill (see above), but differs in other material respects.

Under the bill, NAERO would develop and enforce reliability standards, maintain security for short-term reliability and "assess and encourage" the long-term adequacy of electric power supply. NAERO would execute agreements with so-called "affiliated regional reliability organizations," but the draft does little to explain how the ARROs would function, or how the FERC would resolve disputes between the national and regional organizations. Costs incurred by NAERO and the ARROs would be assessed and "equitably allocated" to control area operators, to be recovered in rates paid by users of the bulk power system.

By late August, many groups had filed comments on the draft legislation, including the Electric Consumers Resource Council, the National Association of Regulatory Utility Commissioners, regulatory staff at the New York, California and Oregon utility commissions, and some utility companies, such as Arizona Public Service Co., Pacific Gas & Electric Co., Southern California Edison Co., and Public Service Electric & Gas Co. For full text of the draft legislation and comments, see

Public Power

HYDROELECTRIC SALE. The first sale of a federal power administration was completed when the Alaska Power Administration and the Alaska Industrial Development and Export Authority transferred APA's Snettisham hydroelectric project to non-federal owners for $82 million on Aug. 18.

The Alaska Power Administration Asset Sale and Termination Act of 1995 authorized the termination of APA and sale of all its assets under previously negotiated purchase agreements. They have pursued divestiture of APA's two hydroelectric projects since 1986.

POWER MARKETING ADMINISTRATIONS. The U.S. General Accounting Office has found that monitoring activities of the Department of Energy's four power marketing administrations do not ensure that the federal government recovers the full cost of its power-related activities from the beneficiaries of public power. The PMAs examined are Bonneville Power Administration, Southeastern Power Administration, Southwestern Power Administration, and Western Area Power Administration.

GAO further reports that where unrecovered power-related costs have resulted in financial losses to the federal government, and the problems have been reported to the PMA management, that progress toward resolving issues has been slow or nonexistent.

The report explains that the PMAs' costs and power-related costs of the agencies that produce the power marketed by the PMAs are required by law to be repaid. Repayment is to be made through revenues from federal power sales. Two congressmen, Rep. John R. Kasich (R-Ohio), chairman of the Committee on the Budget, and John T. Doolittle (R-Calif.), chairman of the Subcommittee on Water Power, had asked that GAO investigate the under-recovery of certain costs and the large amount of debt outstanding - over $14 billion as of Sept. 30, 1997.


OVERSEAS INVESTMENTS. A federal appeals court ruled that when a ratepayer advocacy group failed to raise legal issues at the administrative level, it lost any right to appeal a ruling by the Securities and Exchange Commission that had allowed Southern Company to invest up to 100 percent of retained earnings in certain exempt wholesale generators and foreign utility companies. The group had argued that the SEC erred by failing to require the utility to identify the individual investments and demonstrate that each one would not pose a substantial adverse impact on Southern's operating subsidiaries or their customers. Campaign for a Prosperous Georgia v. SEC, Nos. 96-8655, 97-8123, 1998 WL 466568, Aug. 11, 1998 (11th Cir.).

INDEMNITY FOR NEGLIGENCE. The Mississippi Supreme Court has declared void a liability indemnity clause in a state-approved contract between Entergy Mississippi Inc. and one of its industrial customers, explaining that the clause violated state law regarding a utility's duty to protect the public safety.

Entergy argued that the clause barred a suit by the customer's employees to recover damages for injuries sustained when a painting scaffold came into contact with power lines, claiming that the injury stemmed from the customer's illegal or unsafe work practices. Instead, the court said that regulators had exceeded their authority in approving the indemnity clause. It added that the clause would allow Entergy to escape liability for its own negligence in maintaining its power lines. Entergy Mississippi, Inc. v. Burdette Gin Co., No. 97-CA-00481- SCT, Aug. 6, 1998 (Miss.).

MOBIL/SIERRA DOCTRINE. The U.S. Court of Appeals for the District of Columbia Circuit has upheld a ruling by the Federal Energy Regulatory Commission directing Mohave Pipeline Co. to redesign rates for interstate natural gas transportation to employ the straight fixed-variable method, even though shippers had previously negotiated contracts with the pipeline for rates using the modified fixed-variable method.

The shippers claimed the new rate interfered with the contracts by reallocating risk for fixed-cost investment from the pipeline to customers, but the court ruled that the legal doctrine protecting parties to negotiated rate contracts from changes imposed by regulators did not apply because the FERC had shown that retention of the MFV rates would adversely affect the public interest. Texaco Inc. v. FERC, No. 93-1515 et al., 1998 WL 396242, July 17, 1998 (D.C.Cir).

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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