News Digest

Fortnightly Magazine - February 15 2000

Mergers & Acquisitions

NSP + New Century. The Federal Energy Regulatory Commission OK'd the merger of Northern States Power Co. (NSP) and New Century Energies Inc. (NCE), to form Xcel Energy Inc., on condition that the new company would join the Midwest Independent System Operator. FERC Docket No. EC99-101- 000, Jan. 12, 2000, 90 FERC ¶61,020.

* Rate Pancaking. The FERC found no problem with transmission rate pancaking with the MISO condition, even though NCE subsidiary Southwestern Public Service Co. (SPS) belongs to the rival Southwest Power Pool. It explained that since SPS does not now offer grid service in SPS through a regional tariff, any SPS transmission customers "already pay two transmission rates."

* MISO Connection. The parties also acknowledged that SPS is not physically connected with any MISO company, but felt that MISO soon would gain more members, so that SPS should be able to link up by the time MISO becomes fully operational. If not, SPS would link to MISO through Ameren by purchasing 200 megawatts of line capacity through Public Service Co. of Oklahoma.

* Oklahoma Consent. On Jan. 10, the Oklahoma attorney general and the staff of the state PUC had filed a stipulation telling the FERC they would not oppose the merger, as long as SPS would agree to share certain savings and benefits with Oklahoma retail ratepayers.

* Minnesota Concessions. Still earlier, environmental groups in Minnesota had ended their opposition to the Xcel deal after NSP had agreed to commit to buying renewable energy, improve efficiency at power plants, study use of new technologies, and file a long-awaited plan at the state PUC to replace the Prairie Island nuclear plant and not bypass the PUC on future energy needs planning.

"We are convinced that Minnesota's historic progress on clean energy and energy efficiency will not be slowed by the proposed merger," said Michael Noble of Minnesotans for an Energy Efficient Economy.

Allegheny + Mountaineer. Allegheny Energy subsidiary Allegheny Power signed a deal on Dec. 20 to take over Mountaineer Gas Co., a subsidiary of Energy Corp. of America, for $323 million, including assumption of $100 million in debt. The deal would give Allegheny 11.7 billion cubic feet of gas storage and 200,000 new gas customers.

Sokol _ Warren Buffett. The FERC OK'd the sale of stock of MidAmerican Energy Holdings Co. to a group of investors that would control the utility holding company as a private concern.

The group includes Berkshire Hathaway Inc. (9.9 percent voting shares and 81 percent equity interest in holding company), David Sokol (2 percent voting; less than 1 percent equity) and Walter Scott Jr. and the Scott Family Interests (88 percent voting shares and 18 percent equity in MidAmerican Energy, the utility subsidiary). Docket No. EC00-18-000, Dec. 15, 1999 89 FERC ¶62,225.

National Grid + NEES. The Nuclear Regulatory Commission on Dec. 13 OK'd the proposed merger between Great Britain's National Grid Group plc and New England Electric System, whose subsidiary, New England Power Co. owns minority interests in six nuclear power plants.

The $3.2 billion merger, expected to close in early 2000, now requires approval only by the U.S. Securities and Exchange Commission.

SIGCORP + Indiana Energy. The FERC approved the $1.9 billion merger of SIGCORP Inc., the parent company of Indiana Gas and Electric Co., with Indiana Energy Inc. to form Vectren Corp. Docket No. EC99-106-000, Dec. 15, 1999 (F.E.R.C.).

State PUCs

Distributed Generation. Prompted by a request from the state's independent power producers, the New York PSC opened a docket to investigate costs, benefits and rates for distributed generation, and the standby rates charged by utilities to private power producers (IPPs) and self-generators. The state's electric utilities had opposed the study:

* Con Ed. Argued that standby rates were already set in utility-specific restructuring plans and remain viable as part of a bundled transmission and distribution service.

* NYSE&G. Said a PSC study could undermine ongoing contract negotiations with IPPs.

* Niagara Mohawk. Claimed that IPPs in its territory could already shop for standby power on the open market.

* Rochester Gas & Elec. Argued that rate design for standby service is not amenable to generic determination.

The PSC said it would continue to address utility-specific issues in the ongoing restructuring case but the generic case would consider state-wide impacts. Case 00-E-0005, Case 99-E-1740, Jan. 10, 2000 (N.Y.P.S.C.).

Small-Scale Generation. The New York PSC also set standardized protocols for small electric self-generators of up to 300 kilovolt-amperes (kVA) to apply for and gain interconnection with the bulk power systems of the six New York investor-owned local electric utilities.

It set relaxed requirements for smaller generators up to 10 kVA, rejecting proposals by many private power generators to boost the smaller-unit threshold to 50 kVA.

A standard interconnection contract would carry a five-year term, but would not require buy-back of electricity by the utility. Power quality rules require compliance with IEEE standard 519. Case 94-E-0952, Opinion No. 99-13, Dec. 31, 1999 (N.Y.P.S.C.).

Gas Transportation. New York regulators extended the deadline until March 31 for local distribution utilities to file a gas transportation operating procedures manual. Case 97-G-1380, Jan. 11, 2000 (N.Y.P.S.C.).

Arizona Retail Choice. In a possible blow to plans for competition, both Enron Corp. and the Phoenix-based Center for Law in the Public Interest have sued in Arizona courts to block a September settlement between Arizona Public Service Co. and the Arizona Corporation Commission concerning electric restructuring and customer choice.

The Center wants to have the settlement thrown out on grounds that rates were set without a thorough examination of the financial condition of APS. Enron Corp. (certified as a retailer in Arizona) agrees with the allegation that the settlement was approved illegally, but says it merely wants it modified to boost the shopping credit and require greater oversight of generation spun off to an APS affiliate.

The suits were filed in Maricopa County Superior Court and the Arizona Court of Appeals.

Electric Restructuring. The Maryland PSC OK'd a restructuring plan for Potomac Electric Power Co., forcing an auction of power plants and facilities not required for transmission and distribution services, to help set a value on any stranded costs.

The plan includes rate cuts of 7 percent (residential class) and 4 percent (commercial and industrial), with retail choice for all classes by July 1, 2000. Case No. 8796, Order No. 75850, Dec. 22, 1999 (Md.P.S.C.).

Meter Unbundling. The Illinois commission set policies for unbundling of electricity metering services, identifying 16 separate processes, such as meter reading, installation, testing, and equipment design and engineering. It also adopted technological demarcation points between unbundled metering facilities and facilities dedicated to delivery service. All meter service providers must offer advanced metering services. No. 99-0013, Dec. 22, 1999 (Ill.C.C.).

Gas Supply Portfolios. The North Carolina commission refused to require natural gas local distribution companies to diversify their supply purchasing portfolios to include a reasonable number of contracts with price ceilings or futures price hedges.

It OK'd the purchasing practices of Piedmont Natural Gas Co. Inc., even though PNG had relied on market-indexed arrangements without financial hedges during the most recent review period. Docket No. G-9, SUB 419, Dec. 21, 1999 (N.C.U.C.).

Gas Supply Adequacy. Aware that many long-term contracts between pipelines and gas local distribution companies (LDCs) are set to expire in 2000, leaving core customers without dedicated capacity if no marketer takes over capacity rights relinquished by an LDC, the New York PSC will institute company-specific studies to determine: (1) the level of relinquished capacity, (2) liquidity at hub or trading points, (3) competition in markets for relinquished capacity and (4) options for capacity replacement. Case 97-G-1380, Dec. 21, 1999 (N.Y.P.S.C.).

Retail Electric Competition. The Texas PUC on Dec. 20 set rules requiring utilities to unbundle their power generation, power delivery, energy sales and competitive services in preparation for full retail competition in the electric industry on Jan. 1, 2002.

Utilities must transfer competitive services to an unregulated subsidiary by Sept. 1. Such services include energy efficiency, construction or renovation of energy-related processes, private security lighting and indoor air quality products.

Standard Offers. Rhode Island OK'd standard offer generation rates for both Blackstone Valley Electric Co. and Narragansett Electric Co., increasing them from 3.5 cents per kilowatt-hour to 3.8 cents per kilowatt-hour to recover wholesale power price increases. Docket No. 3031 (Narragansett), Dec. 17, 1999; Docket No. 3022 (Blackstone), Dec. 17, 1999 (R.I.P.U.C.).

Natural Gas Rates. Questar Gas Co. asked Utah regulators for a $22.2 million increase in annual natural gas rates, citing years of cost cutting and a recent Utah PSC order denying a passthrough of gas processing costs.

"After nearly a decade of cost-cutting measures, we're straining the limits of our ability to maintain acceptable customer service levels," said Nick Rose, Questar Gas president and chief executive officer. Docket No. 99-057-20, filed Dec. 17, 1999 (Utah P.S.C.).

Nuclear Decommissioning. The Michigan PSC OK'd a settlement allowing Consumers Energy Co. to charge its customers $5.5 million annually for funding the decommissioning of the Palisades nuclear plant, reducing the charge from the interim $14.4 million approved last March. Case No. U-11662, Dec. 16, 1999 (Mich.P.S.C.).

Utility Marketing Affiliates. Connecticut regulators allowed Connecticut Light & Power Co. to buy 50 percent of its standard offer power requirements from its affiliate, Select Energy Inc., even though a bidding process identified NRG Power Marketing and Duke Energy Trading and Marketing as the lowest-cost suppliers. Docket No. 99-03-36, Dec. 15, 1999 (Conn.D.P.U.C.).

Further, the DPUC granted a competitive electric supplier license to Select, though it said it was "extremely concerned" about an employee sharing arrangement between Select and CL&P, whereby Select "might have been provided" with sensitive customer information, billing histories and load data prior to gaining customer releases. Docket No. 99-08-03, Dec. 16, 1999 (Conn.D.P.U.C.).

Power Quality. Acknowledging that "[p]ower quality has become a more significant issue in the provision of adequate electric service," the Wisconsin PSC in December sent to the state legislature proposed, revised rules on electric service adequacy and consumer protection. See http://www.psc.state.wi.us/cases/elecrest/psc113.htm.

Capacity Solicitations. Reply comments were due to the Michigan PSC by Feb. 8 on proposals by Consumers Energy and Detroit Edison to revise their procedures for soliciting electric capacity, including power from qualifying cogeneration and small power production facilities. Case Nos. U-12148 (Consumers Energy), U-12177 (Detroit Edison), proposals filed Dec. 16, 1999 (Mich.P.S.C.).

Power Plants

Hydroelectric Divestiture. The California PUC mapped out a simultaneous four-track process to review the proposal by Pacific Gas & Electric Co. to sell off hydroelectric assets totaling 3,890 MW (110 generating units, 68 powerhouses):

* Environmental Track. PUC's energy division will compare local and regional environmental impacts against a "no project" alternative - meaning no divestiture - and project alternatives, including conservation easement, a possible bundling of assets, or decommissioning of dams.

* Divestiture Track. PUC will review public interest impacts on safety, reliability and economics.

* Stranded Costs Track. PUC will set a rate-making approach to set a value for PG&E hydro assets.

* Other Issues. PUC will review whether disposition should include purchased power contracts and some 44,000 acres in watershed land associated with the hydro units but not included in PG&E's proposal.

The PUC set a deadline of Sept. 1, 2000 for its proposed decision in the divestiture track and issuance of a draft Environmental Impact Report available for public comment. Application 99-09-053, Jan. 13, 2000 (Cal.P.U.C.).

Divestiture Rules. The Oregon PUC approved a bidding process for the sale of generation and purchased power assets by Portland General Electric Co., but barred the utility's affiliates from participating in the bidding. Order No. 99-765, Dec. 16, 1999 (Ore.P.U.C.).

Fossil Plant Sales. On Jan. 18 Conectiv announced an agreement to sell 1875 MW of fossil-fired generation and related assets to NRG Energy, a subsidiary of Northern States Power, for $800 million. The sale would cover six plants and small interests in two others:

* B.L. England. (447 MW; coal & oil; Cape May County, N.J.)

* Deepwater. (239 MW; coal, oil, gas; Salem County, N.J.)

* Indian River. (784 MW; coal, oil; Sussex County, Del.)

* Vienna. (170 MW; oil; Vienna, Md.)

* Keystone. (6.17 percent interest in 106-MW plant; coal; Shelocta, Pa.)

* Conemaugh. (7.55 percent interest in 129-MW plant; coal/New Florence, Pa.)

The sale was expected to close during third-quarter 2000, subject to certain regulatory approvals, including expiration of the applicable waiting period under the Hart-Scott-Rodino Act.

Nuclear Plant Sales. By virtue of its 14 percent ownership share, Rochester Gas & Electric Corp. on Dec. 22 exercised its right-of-first-refusal to acquire a controlling interest in the 1,140-MW, Nine Mile Point 2 nuclear plant, plus 100 percent of the 614-MW Nine Mile 1.

RG&E's action undermined plans announced last June by Niagara Mohawk to sell the Nine Mile 1 plant and its 41 percent interest in Nine Mile 2 to AmerGen Energy Co., a subsidiary of PECO Energy and British Energy.

RG&E also has told New York State Electric & Gas that it plans to buy NYSE&G's 18 percent share in Nine Mile 2, which NYSE&G had offered to AmerGen.

Hydro & Coal Plant Sales. PP&L Global, a subsidiary of PP&L Resources, on Dec. 17 signed an agreement to sell 1,315 MW (four coal plants, 11 hydro plants, one storage reservoir) to its indirect affiliate PP&L Montana for $757 million, ending 87 years in the generation business for Montana Power Co., which has switched its focus to power delivery and telecommunications (through its subsidiary Touch America).

Nuke Design Certification. The NRC has amended its regulations to certify the AP600 standard plant design developed by Westinghouse Electric Co. The AP600 design is for a 600-MW nuclear power plant, which can be assembled from modular components and boasts safety mechanisms that rely on gravity and pressure differentials to safely shut down the reactor or mitigate the effects of an accident.

Courts

Hydropower Relicensing. On rehearing from its August order, a federal court vacated a FERC ruling that renewed a hydropower license for the Leaburg and Walterville projects in Oregon. The court told the FERC to review its policy on how it responds to plans advanced by other federal agencies on environmental mitigation and alternative uses of waterway resources.

At the same time, the court reaffirmed that the FERC need not consider decommissioning of a dam as a competing option to license renewal. American Rivers v. FERC, No. 98-70079, Jan. 14, 2000 (9th Cir.).

Canadian Power Imports. A federal appeals court ruled that the Cree Indians of Quebec lacked standing in U.S. courts to challenge the right of Hydro-Quebec to sell power in the United States at market-based rates.

The Crees had appealed a 1998 FERC order that found that Hydro-Quebec had no undue market power in generation and transmission in the United States. Grand Council of the Crees v. FERC, No. 98-1280, Jan. 11, 2000 (D.C.Cir.).

PUC Liability. A federal appeals court denied an appeal by Michigan PSC commissioners John Strand, John Shea and David Svanda, in which they asked the court to dismiss a suit filed by Ameritech that named them as individuals, in a case involving an arbitration decision under Telecom Act Sec. 252.

The court said the commissioners were logical defendants since they would be enforcing arbitration agreements under the Telecom Act. Michigan Bell Tel. Co. v. Climax Tel. Co., No. 98-1315, Jan. 18, 2000 (6th Cir.).

Rural Telecom Development. Affirming an order from the FCC, a federal appeals court struck down a 1995 Wyoming law that sought to improve local phone service in rural areas by protecting small rural carriers from competition for 10 years to allow them to build new infrastructure. RT Communications Inc. v. FCC, Nos. 98-9541 et al., Jan. 13, 2000 (10th Cir.).

Directory Publishing. A Utah court upheld a commission order that imputed revenues from a directory publishing affiliate to the local telephone carrier in setting local rates. It said that ratepayers had a stake in publishing operations. US West Communications Inc. v. Utah PSC, No. 980082, Jan. 7, 2000 (Utah).

Gas Valve Safety. A California appeals court reversed a trial order and refused to dismiss a complaint by a natural gas customer who alleged that Pacific Gas & Electric Co. committed fraud by first charging ratepayers $18 million a year under a seven-year program to replace 2 million faulty gas valves, and then cutting back on the program by secretly deciding to replace valves only when a repairman was sent to the customer premises on another call.

The court agreed with PG&E that the PUC had primary jurisdiction, but said that a fine or other sanction was not barred by the filed-rate doctrine or the rule against retroactive rate making.

It stayed the fraud suit to wait for the PUC to handle a separate complaint filed by different plaintiffs seeking a fine against PG&E for an apartment explosion and fire allegedly caused by faulty gas valves. Wise v. PG&E, A083784, Dec. 29, 1999 (Calif. App., 1st Dist., Div. 5).

Propane Gas Service. A Wisconsin court upheld a contract between the owner of a mobile home park and a propane gas distributor that had required all park tenants that used propane or natural gas to purchase their gas only from the distributor. It found no conflict with utility franchises or public policy. Northern States Power Co. v. National Gas Co. Inc. No. 99-1486, Dec. 30, 1999 (Wisc.App.).

Gas Pipelines

New Distribution Systems. Sempra Energy, parent company of Southern California Gas Co. and San Diego Gas & Electric, has won a contract from the government of Nova Scotia to build and operate the largest new North American natural gas distribution system built in the past 30 years (and the first natural gas system on the island). A 20-year rate plan (with a 25-year franchise right) OK'd for the subsidiary, Sempra Atlantic Gas, assumes a return on equity significantly higher than normally allowed by U.S. regulators.

Sempra Atlantic Gas says it will spend $700 million over the next seven years to build the system, making natural gas available to 78 percent of the 350,000 households in the province.

Independence Projects. The FERC, by a 3-2 vote on an interim order, found no adequate showing of market need for the controversial Independence and ANR SupplyLink gas pipeline projects, putting construction on hold.

But while the unusual order does not grant certificates, it states that if the companies demonstrate they have contracts for 35 percent of total capacity with non-affiliates, the FERC may approve the projects, along with the related Market Link project. Dissenting Commissioner Curt Hébert called the order "possibly a crushing blow to pipeline construction." Docket Nos. CP97-315-000 et al., CP97-319-000 et al., and CP98-540-000, 89 FERC 89,¶61,283, Dec. 15, 1999.

Business Wire

The New York Mercantile Exchange board of directors has unanimously approved a demutualization plan which will convert the exchange from a not-for-profit membership structure to a for-profit organization. The plan, which calls for the equity in the exchange to remain with the seat-owners of its NYMEX Division, will be submitted to the members of the NYMEX Division of the Exchange for approval at a special meeting, most likely during the second or third quarter of 2000.

The Ugandan government and AEP Corp. have concluded an implementation agreement and a power purchase agreement for the construction of a 250-MW hydroelectric power plant at Bujagali on the Nile River and the associated transmission lines at an estimated cost of $500 million, making it the largest private-sector infrastructure investment in Eastern Africa to date. The plant, which is expected to start commercial operation at the beginning of 2004, is anticipated to be a big boost to the economy of Uganda, which is experiencing acute power shortages.

Ford Motor Co., in partnership with Baker Electromotive of Rome, N.Y., has received an initial order from the U.S. Postal Service for 500 electric mail delivery vehicles, the single largest electric vehicle order in U.S. history. The USPS has the option of purchasing a total of 6,000 vehicles, whose design is based on the Ford Ranger EV.

The Maine PUC has granted CMP Natural Gas authorization to provide service to the entire municipality of Gorham and a new 540-MW natural gas-fired power plant being constructed by Calpine Corp. in nearby Westbrook. Last July Calpine signed a long-term contract with CMP to provide natural gas delivery service to the plant. Construction of the $200 million electric generating facility is well underway and will require gas service by June 1.

CMS Energy Corp.'s energy marketing business, CMS Marketing, Services and Trading, has completed an approximately $139 million natural gas sale to the Ohio Schools Council, representing a gas supply program for 111 school districts in northern Ohio for a period of 12 years. Under the agreement, OSC has pre-paid CMS-MST for 44 billion cubic feet of natural gas, delivered from Nov. 1, 1999 through Oct. 31, 2011. The OSC used municipal bonds to fund the deal.

UniSource Energy Corp. has announced it will invest an additional $14 million in its rapidly expanding solar technology subsidiary, increasing its ownership in Global Solar Energy LLC to 67 percent. ITN Energy Systems Inc. owns the remaining 33 percent. The new investment will be used primarily to expand the production and marketing of Global Solar's photovoltaic material. Global Solar uses a proprietary process to manufacture cost-effective thin-film copper indium diselenide photovoltaic modules that generate electricity when exposed to sunlight.

Transmission & ISOs

Inter-ISO Cooperation. The Ontario Independent Electricity Market Operator on Dec. 16 signed a memorandum of understanding with the New York Independent System Operator, ISO New England, and the PJM Interconnection to foster user groups to enhance reliability and efficiency in bulk electric supply in Ontario and the northeastern United States.

"This initiative sets the foundation for international cooperation," said Dave Goulding, president and CEO of the Ontario IEMO.

The three U.S. ISOs already operate under a memorandum of understanding (Aug. 10, 1999) on interregional coordination of electric supply in the northeastern United States.

News Digest was compiled by Carl J. Levesque, associate editor, Lori Burkhart and Phillip Cross, contributing legal editors, and Bruce W. Radford, editor-in-chief. For more frequent updates, see www.pur.com.


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