News Digest

Fortnightly Magazine - March 1 1999

Studies & Reports

Year 2000 Readiness. On Jan. 11 the North American Electric Reliability Council (NERC) predicted a minimal effect on electric system operations from Y2K software problems. The Department of Energy, which had asked NERC to run the electric industry assessment, added that 98 percent of U.S. and Canadian electric systems are participating in the NERC effort, and that more than 50 percent of "mission-critical" components had been tested by the end of December, the issue date for NERC's fourth-quarter report, "Preparing the Electric Power Systems of North America for Transition to the Year 2000."

Nevertheless, NERC will continue "to chase after" the 2 percent that aren't participating, according to Jerry Cauley, NERC's Y2K program coordinator. Cauley noted that NERC has compiled a list of every electric system provider (there are more than 3,000) and has listed those actively complying at the NERC website (www.nerc.com). NERC will list nonparticipating companies "at a later date."

As part of remediation efforts, bulk electric operating organizations are drafting contingency plans, to be ready by the end of June. Two coordinated testing drills were planned for April 9 and Sept. 8-9. The latter date "9/9/99", has been known to crash some computers. For this reason, the date will serve as a dress rehearsal for the Y2K calendar rollover.

Energy Consolidation. The Washington International Energy Group's eighth annual survey of electric and gas industry executives, released Jan. 6, finds that retail choice is on hold. The report, "1999 Energy Industry Outlook," finds few customers making an effort to choose an electric or gas supplier. Instead, the report predicts an accelerating industry consolidation, mostly involving big multinational corporations, which WIEG says will dwarf even the biggest, most aggressive U.S. companies.

WIEG predicts that only 25 percent of existing U.S. companies will survive the move to competition, with more than half the industry choosing to remain in the distribution sector, because of its assumed monopoly status. However, for the first time in years, industry players are confident that nuclear power plants can operate competitively. WIEG also sees high confidence in natural gas. Contact WIEG at tel. 202-833-7159.

State Electric Restructuring. The Electric Power Supply Association now advocates stranded cost recovery for utilities, but only as netted against benefits (market price above book value), according to a recent report, "Retail Electric Competition: Getting It Right."

Nevertheless, EPSA does not advocate mandatory divestiture of generation assets, but believes divestiture can offer "important benefits," such as mitigation of market power. But EPSA warns that the divestiture auctions must be fair, with all potential buyers informed and able to bid.

Lynn Church, EPSA executive director, calls for standardization of the restructuring process across regions to reduce transaction costs. James Steffes, Enron director of government affairs, agreed, describing the pro forma supplier tariff used in Pennsylvania as "excellent." Contact EPSA at tel. 202- 789-7200.

State PUCs

Self-Generation, Net Metering. In its first official act after its creation at the start of 1999, the New Mexico Public Regulation Commission suspended the net metering rule issued on Nov. 30 by the former state Public Utility Commission. (See story, "New Mexico: A Fresh Look?" p. 20.) The PUC rule, hailed as the most liberal in the country, had allowed net metering for customer-owned renewable energy, distributed generation and alternative generation technologies, with a facility size limit of 1 megawatt. Case No. 2847, Jan. 12, 1999 (N.M.P.R.C.).

Metering and Billing. The Connecticut Department of Public Utility Control adopted a working group report that would mandate network- and server-level communications protocols for data transfers among electric distribution utilities and generation suppliers by January 2000, reflecting the electronic data interchange (EDI) guidelines developed by the Utility Industry Group. Utilities would provide historic customer usage on supplier request, but not interval data.

The order also sets metering and billing protocols, with cost-sharing allocations among utilities and suppliers for metering, billing and collections services. The DPUC found no need to promote network metering, denying a bid by CellNet for incentives.

The DPUC OK'd Connecticut Light & Power Co.'s "payment received" billing method, by which CL&P would offer the same billing services to suppliers that it uses for its own receivables. United Illuminating Co. will be allowed to submit its "bills rendered" method for DPUC approval, by which UI would remit generation payments to suppliers, less a discount for uncollectibles, costs and a reasonable rate of return, a method the DPUC described as the utility "purchasing suppliers' accounts receivable."

It also allowed distribution companies to allocate all standard billing and metering costs to distribution, but they must collect half from suppliers to recover costs from all customers. The DPUC also approved CL&P's six different metering service options to competitive electric suppliers, which range from a basic service to various hourly reporting methods. Docket No. 98-06-17, Jan. 13, 1999 (Conn.D.P.U.C.).

Divestiture Auctions. Connecticut also generally approved a plan for Connecticut Light & Power Co. to divest generating assets, but the DPUC insisted that its own consultant - not CL&P - should conduct the auction. CL&P was to have filed a revised divestiture plan by Jan. 13.

Also, the DPUC barred any personnel transfers between "buy and sell teams" within Northeast Utilities, parent company of CL&P, to prevent NU from bidding on CL&P assets through an unregulated affiliate. Docket No. 98-10-08, Jan. 8, 1999 (Conn.D.P.U.C.).

Energy Business Practices. The New York Public Service Commission issued rules setting out uniform business practices among energy utilities, service companies and marketers. The PSC believes the new rules might serve as a model for the region, and perhaps the nation, as deregulation becomes more widespread.

The rules set minimum standards for ESCO/marketer creditworthiness, customer information exchanged between the utility and supplier, billing procedures, customer switching, customer slamming protections and dispute resolution. Case 99002/98M1343, Jan. 13, 1999 (N.Y.P.S.C.).

Load Aggregation. Connecticut regulators issued a "Report to the General Assembly on Aggregation" that will require utility distribution companies to make load data and estimated load profiles available to customers, or to a third party at no cost if the customer provides the release. The report recommends no legislative changes "at this time" to facilitate aggregation. Docket No. 98-06-13, Dec. 23, 1998 (Conn.D.P.U.C.).

Electric Restructuring. West Virginia opted to keep moving forward on electric restructuring when it scheduled evidentiary hearings on the matter, even after workshop participants had failed to reach a consensus on a restructuring roadmap. The schedule calls for hearings on Aug. 17 and 24, with briefs due Sept. 21. Case No. 98-0452-E-GI, Dec. 23, 1998 (W.Va.P.S.C.).

Metering and Billing. Warning against standards that might favor or lock in a particular technology, California regulators appeared to reject a proposal issued in July by the PUC's Permanent Standards Working Group to approve ANSI C12.19 as a standard data format at the meter equipment level, even though the PSWG had recommended a grandfather clause to protect nonconforming meter and software systems.

However, the PUC did accept certain portions of the PSWG report on standards for meter products, communications and meter reading, installation, maintenance, testing and calibration for direct access. It also called on its Energy Division and the Direct Access Tariff Review Committee to implement standards and protocols for electronic data interchange on a trial basis by Sept. 1, 1999, with the goal of setting up EDI as the sole standard for transfers of metered usage data by Feb. 1, 2000. Decision 98-12- 080, R. 94-04-031, I. 94-04-032, Dec. 17, 1998 (Cal.P.U.C.).

Marketing Affiliates. Refusing to rule out a forced divestiture, California adopted rules to enforce standards of conduct governing relationships between energy utilities and their affiliates, including a penalty scheme, guidelines for setting fines, a "quick response" procedure to address ongoing violations likely to produce irreversible harm and a guideline requiring corroborating evidence before the PUC will hear complaints filed by anonymous whistle blowers.

While the PUC chose not to identify forced divestiture as an enforcement tool, it warned of the possibility: "[S]uch a remedy remains available ΒΌ whether or not it appears in these rules. In the absence of a specific factual situation, we cannot say [when] we would choose to impose such a severe remedy. For this reason, we will not expressly include this option in our rules." Decision 98-12-075, R. 98-04- 009, Dec. 17, 1998 (Cal.P.U.C.).

Electric Restructuring. Michigan regulators directed Detroit Edison Co. and Consumers Energy Co. to report on the current status of pending FERC tariff approvals that it needed to implement open access services in Michigan. The state plan was to start 30 days after FERC action. Regulators complained that approvals "have not been forthcoming." Case Nos. U-11290, et al., Dec. 28, 1998 (Mich.P.S.C.).

Promotional Practices. Pennsylvania regulators eliminated a number of restrictions on promotional practices by electric and gas utilities that might "stifle competition and innovation in marketing," despite requests by others to keep the rules until competitive markets mature.

The PUC countered that retail electric competition is "a reality in Pennsylvania," noting that electric/gas convergence demanded simultaneous relief in both gas and electricity. It added that recently imposed codes of conduct should avoid subsidies flowing between utilities and marketing affiliates. Docket No. L-00950108, Dec. 12, 1998 (Pa.P.U.C.).

Electric Restructuring. With an enthusiastic call to "move rapidly" toward competition, the Working Group on Vermont's Electricity Future issued its report to that state's governor. The report notes that while the state's rates historically have been about 10 percent less than all other states in the Northeast, its "competitive edge is eroding" as the rest of the region moves to competition. The report includes speculative data showing the state's electricity prices rising above those of the surrounding region through the next decade. "Report to Gov. Howard Dean, M.D.," Dec. 18, 1998, is available www.state.vt.us/psd.

Utility Bankruptcies. Outlining a series of technical conferences, the Vermont Public Service Board opened an investigation on whether current efforts to restructure the electric industry might push one or more Vermont utilities into bankruptcy, and what effect that might have on consumers. It noted that the state's largest utilities might face financial difficulties should they become unable to recover costs they incur to buy power from Hydro-Quebec. Docket No. 6140, Dec. 11, 1998 (Vt.P.S.B.).

Pilot Programs. Reviewing a pilot program for retail choice in electricity, New Jersey regulators rejected a bid by Monroe township (joined by the Division of Ratepayer Advocates) to shift risk of loss under the plan to the current monopoly utility distributor, GPU Energy, or the plan's designated third-party energy supplier, Conectiv.

The state board accused Monroe of looking for subsidies and guaranteed savings for the plan, which it said had not worked (it featured a shopping credit of 2.767 cents per kilowatt-hour). It advised that price risk should lie with the energy marketer or customer. Docket No. EO98080759, Dec. 15-16, 1998 (N.J.B.P.U.).

Ahead in California. Hearings and arguments were set as follows before the California PUC in several rulemakings governing electric, natural gas and water utility restructuring.

Gas Restructuring. Evidentiary hearings, Jan. 28-29, Feb. 10 and March 1-5, on the future regulatory structure for the state's natural gas industry. R. 98-01-011 (Cal.P.U.C.).

Electric Reliability. Preliminary hearing conference, March 4, on a rulemaking to develop standards for electric system reliability and safety. R. 96-11-004 (Cal.P.U.C.).

Water Utility Restructuring. Oral argument, Feb. 11, on rules and guidelines for privatization of publicly owned water utilities and treatment of excess capacity held by investor-owned water companies. R. 97-10-049

Power Markets

Futures Contracts. The Commodity Futures Trading Commission on Jan. 12 approved an application by the New York Mercantile Exchange, filed last November, to trade electric futures and options based on delivery at the western hub of the Pennsylvania-New Jersey-Maryland (PJM) Interconnection. President R. Patrick Thompson said NYMEX was looking forward to introducing the contracts during the next few months and soon would announce a launch.

Bilateral Power Exchanges. Ohio-based FirstEnergy Corp. and California-based Automated Power Exchange Inc. have announced plans to develop jointly an electric power exchange, owned and operated by APX, to allow FirstEnergy to buy and sell wholesale power within its service area.

The computerized APX exchange, expected to open by June, would provide electronic access to forward prices for electricity for hourly or daily anonymous purchases and sales, up to one week in advance of delivery.

APX and FirstEnergy also have agreed to jointly develop software that would allow certain commercial and industrial customers to use the exchange to sell electric power back to FirstEnergy during periods of peak demand. The approval of the Ohio PUC is required. (Cal.P.U.C.).

Mergers and Acquisitions

AEP + C&SW. In response to FERC's Nov. 10 order requiring a hearing on their proposed merger, American Electric Power Co. and Central & SouthWest Corp. proposed to divest 550 megawatts of generation capacity: 300 MW at C&SW's Northeastern Power Station Units 3 and 4 in the Southwest Power Pool, and 250 MW at the Frontera power plant, a merchant plant under construction in the Electric Reliability Council of Texas. Docket No. EC98-40, filed Jan. 14, 1999 (F.E.R.C.).

Courts

Transmission Upgrades. A federal appeals court affirmed that when electric utilities upgrade transmission lines to accommodate mandatory energy purchases from a qualifying cogeneration facility, the FERC can force utilities to assign the upgrade costs to all their customers on the grid - not just the QF. West. Mass. Elec. Co. v. FERC, Nos. 92-1665 et al., 1999 WL 12776, Jan. 15, 1999 (D.C.Cir.).

Coal Contract Buyouts. Reversing a lower court ruling, the Illinois Supreme Court agreed with state regulators that Illinois Public Service Co. could use its fuel adjustment clause to recover some $70 million incurred to modify or buy out certain coal purchase contracts. It denied claims that IPS modified contracts not to control costs, but to retire a scrubber at a power plant. Archer-Daniels-Midland Co. v. Ill. Commerce Comm'n, Nos. 84898, 84899, 1998 WL 906706, Dec. 3, 1998 (Ill.).

Co-op Diversification. Overturning a lower court order, the Alabama Supreme Court allowed Coosa Valley Electric Co-op. to acquire a propane distribution business, despite claims by complaining propane dealers that the move went beyond enabling laws and articles of incorporation. DeKalb County LP Gas Co. Inc. v. Suburban Gas Inc., No. 1971443, 1971532, 1998 WL 826600, Nov. 25, 1998 (Ala.).

Business Wire

Duquesne Enterprises, a wholly owned subsidiary of DQE Inc., has announced a partnership with Broadpoint to provide what is believed to be the first free long-distance telephone service offered in the United States. The new service, "FreeWay," would allow subscribers to place free long-distance telephone calls in return for listening to advertisements delivered by phone - about two free minutes for each 10- to 15-second commercial. Callers would subscribe by visiting Broadpoint's website at www.broadpoint.com and completing a questionnaire.

Duke Energy Power Services (DEPS) has completed a 10-year lease with the Port of San Diego to operate and eventually replace its 706-MW South Bay Power Plant. The Port of San Diego purchased the plant from San Diego Gas & Electric Company in 1998 for $110 million. DEPS is expected to close on the lease by mid-1999. Once the lease expires, DEPS will dismantle the plant and build a new power plant.

Framatome Technologies Inc. (FTI) and Public Service Electric & Gas (PSE&G) have entered into a contract for FTI to provide integrated outage services during the 1999 refueling outages at PSE&G's Hope Creek, Salem Unit and Salem Unit 2 nuclear power plants. In addition, FTI will perform steam generator chemical cleaning during the spring Salem Unit 2 outage.

CMS Energy Corp.'s energy marketing subsidiary, CMS Marketing, Services and Trading, has signed an agreement with Western Michigan University to supply a significant portion of its electricity needs beginning Jan. 4, 1999. The two-year contract calls for CMS-MST to provide up to 15 MW of electricity for the WMU campus in Kalamazoo. Western Michigan expects to save 15 percent to 16 percent on its electric bill, about $15,000 a month, with the new contract.

Altra Energy Technologies Inc., through its operating subsidiary Altra Streamline LLC, has signed a letter of intent to purchase QuickTrade LLC and QuickTrade Canada Limited Partnership from subsidiaries of Dynegy Inc., Sempra Energy and Nicor. The combined companies will facilitate more than 500 billion cubic feet per day in natural gas trades, more than 500,000 barrels per day in liquid fuel transactions and growing volumes in power markets.

State Agencies

Tax Issues. New York State Electric and Gas Corp. on Jan. 8 filed a petition at the New York State Department of Taxation and Finance asking whether customers who shop for electric and natural gas and have the commodity delivered by a utility should be required to pay sales taxes on the delivery charges.

At issue is a controversial law effective at the beginning of the year allowing utility distribution service to be taxed. Meanwhile, the National Energy Marketers Association held an emergency session of its New York Energy Policy Committee in response to the "unexpected" imposition of that tax. It called the new tax a "setback" for New York energy policy that will have a chilling effect on low energy prices and job relocation.

Transmission & ISOs

Independent System Operators. The FERC OK'd a proposed redispatch service for the PJM Interconnection, but required that PJM modify the plan to provide the service both to members and nonmembers.

The plan, which would modify PJM's operating and reliability assurance agreements, would allow market participants to elect to pay congestion charges one day in advance, in lieu of having a specific transmission transaction curtailed the next day under the North American Electric Reliability Council's transmission loading relief (TLR) procedures. The congestion charges would be calculated in accordance with PJM's locational marginal pricing system. Docket No. ER99-647-000PJM, Jan. 13, 1999 (F.E.R.C.).

California Turf Conflicts. The California Public Utilities Commission was to act on Jan. 20 on a draft resolution prepared by its legal division proposing an interagency memorandum of understanding between the PUC and the state's Electricity Oversight Board to resolve conflicts in responsibility in cases before the FERC concerning the state's independent system operator and power exchange.

According to the draft, the EOB would act as lead agency on ISO and PX policy, rules and proceedings governing reliability transmission system reliability, adequacy and planning and markets for bulk energy and generation. The PUC would take the lead on matters relating to retail distribution service and reliability, retailer regulation, utility contracts with qualifying cogeneration facilities and utility mergers.

The EOB and PUC would share power in cases on utility transmission rates and rate contracts for "reliability-must-run" (RMR) generation. The PUC would supervise determinations on cost, rate of return and their allocation to rate components. The EOB would lead on RMR services (ratemaking, reliability and operational aspects) and their impact on energy markets.

The draft had been circulated in late December, with comments filed by the state Energy Resources Conservation and Development Commission, the Center for Energy Efficiency and Renewable Technologies and Pacific Gas & Electric Co. Resolution No. L-276, notice issued Dec. 18, 1998 (Cal.P.U.C.).

Regional Transmission Groups. Anticipating the FERC's regional "consultation sessions" on regional transmission organizations set for St. Louis (Feb. 11), Las Vegas (Feb. 12) and Washington, D.C. (Feb. 17), and the FERC's stated intent to issue a rulemaking sometime this year, the Edison Electric Institute endorsed a voluntary, flexible approach to the formation of regional transmission grid organizations in a resolution approved by its board of directors at the Institute's Jan. 7 annual winter meeting of industry CEOs.

Federal Agencies

Nuclear Waste Disposal. Yucca Mountain, Nev. remains a "promising site" for a permanent, deep nuclear waste repository, even after 15 years of intensive study, according to a new report by the U.S. Department of Energy's Office of Civilian Radioactive Waste Management. That report, "Viability Assessment of a Repository at Yucca Mountain," sets a preliminary design concept with cost estimates, and calls for work to proceed so that the DOE can decide in 2001 whether to recommend the site to the president.

A major concern is whether the Yucca Mountain facility can function as planned, without compromise, for thousands of years. According to the DOE, uncertainties remain over key natural processes, such as groundwater infiltration. It plans to prepare environmental impact statements by 2001. For more information, visit http://www.ymp.gov/va.htm.

Contract Buyouts. Niagara Mohawk Power Corp. has reported a revenue ruling from the Internal Revenue Service that cash and stock paid by the utility to various independent power producers to terminate certain long-term purchased power contracts is a deductible 1998 business expense. NiMo expects to record a large net operating loss for 1998, generating a tax refund of about $122 million and carried over to be available to offset taxable income in future years.

News Digest was compiled by Carl J. Levesque, editorial assistant for Public Utilities Fortnightly, and by Lori A. Burkhart and Philip S. Cross, contributing legal editors. Business Wire by Beth Lewis, editorial assistant.


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