News Analysis

Fortnightly Magazine - March 15 2000

State regulators say they won't bargain under "threat of blackouts," but their complaint only highlights how the power is shifting.

The Michigan Public Service Commission is concerned about power supplies this summer - so much so that for the third year in a row it has ordered electric utilities in the state to file plans assessing their generation and transmission capacity for the upcoming summer.

But if that's the case, then why did the PSC complain of "eleventh-hour" coercion when Detroit Edison proposed to dig its coal-burning River Rouge plant out of mothballs (it's been off line since 1980) and convert and restart it by June 1 as a 225-megawatt gas-fired merchant plant facility, owned by an affiliate and removed from the rate base to insulate ratepayers from costs?

With legislative committee hearings underway in mid-February and many tough choices still ahead for Michigan on electric utility restructuring, perhaps the PSC's concern betrayed its diminishing influence over wholesale power planning, as much as any real danger posed by Detroit Edison's repowering proposal.

Certainly, in many of those states that have completed or nearly completed the process of industry restructuring, the regulators have been seen to shift their focus from adequacy of generation to efficiency of the distribution wires network. In those states, the question of "reliability" has more to do with the frequency and duration of service interruptions than with the larger questions of whether power production will prove adequate to meet consumer needs.

In those states, the talk is not of reserve margins and shortages, but of SAIDI, SAIFI, CAIDI, CAIFI and now MAIFI, the latest addition to the reliability lexicon.

An Eleventh-Hour Threat?

Could electric users in Michigan be left in the dark this summer? That was the gist of testimony by David W. Joos, president and CEO of Consumers Energy on Feb. 9 before a Michigan Senate Committee regarding proposed S.B. 937 that would implement electric restructuring in that state.

According to Joos, the PSC should be nervous: "The state of Michigan's electric reserve margin is projected to be only about 20 percent of what regulators have historically recommended."

But was Joos simply using scare tactics to help pass restructuring legislation?

The Michigan PSC reports that in recent years, the generating reserve margin in Michigan has fallen below 10 percent, raising concerns about the summer peak demands.

In recent assessments of generating and transmission capacity, the American Electric Power subsidiary, Indiana Michigan Power, has said it should have adequate generation resources to meet the projected demand for the summer 2000 peak. But regarding transmission adequacy, it has admitted that "certain outages coupled with extreme weather conditions and/or power transfer conditions can potentially stress the system to beyond acceptable limits." Detroit Edison predicted it would have adequate resources to meet customer demands throughout the summer. But it said it would have to purchase about 2,100 MW to supplement its own generation resources, and noted that forward wholesale energy prices in the region for the summer continue to remain high. Consumers Energy also says it is prepared for the summer demand, but notes that "energy supplies are expected to be tight throughout the ECAR region, and the combination of growing electric demand and no new major generation construction will worsen the situation."

Despite these assessments, the Michigan PSC expressed dismay when Detroit Edison recently filed an application on Jan. 11 to transfer its River Rouge Unit No. 1 generating plant to an affiliate, DTE River Rouge No. 1 LLC, for $6.6 million, saying the timing of the request left the PSC with too little time for consideration of the issues. It repeated its warnings to electric companies that "the threat of blackouts not be used as a bargaining piece in the ongoing restructuring of the industry." Case No. U-12266, Feb. 3, 2000.

Intervenors such as state attorney general Jennifer M. Granholm, Energy Michigan and the advocacy group ABATE (Association of Businesses Advocating Tariff Equity) argued that the purchase price might have been too small (it was twice book value), or that the utility might acquire too much market power in generation, or that the proceeds might find their way too quickly to stockholder hands, instead of being preserved as a setoff to any eventual approval of stranded-cost recovery.

Eventually the PSC OK'd the sale but set conditions to allow a future stranded-cost setoff and reserve the output from the plant for competitive sale to retailers under a retail choice regime if restructuring legislation should be enacted in 2000.

It complained that it lacked enough time "for measured consideration of the issues," but did not really explain the alternatives that it might have considered, or what it might have done differently if given more time: "[T]he commission is essentially presented with a Hobson's choice. The restart of Rouge No. 1 has been offered as a means to help alleviate concerns about reliability this summer and as a source of supply for retail open-access customers - both laudable objectives."

At press time, Detroit Edison spokesman Scott Simons said that Senate Bill 937 could affect the unit price and other aspects of the sale, such as stranded-cost determination. But he predicted that at the earliest, a restructuring bill could be passed late this year.

For Consumers Energy president and CEO David W. Joos, legislation cannot come soon enough. In early February he told the Michigan Senate Technology and Energy Committee that "it is vitally important that legislators take the actions necessary to put into place a structure which will allow for investments in new generating plants to serve Michigan's growing power needs." He observed that "even after shutting off several Michigan industrial customers and residential air conditioning customers that have volunteered for such curtailment, expected electric capacity is projected to be just 3 percent above expected load."

Such statistics prompted Consumers Energy to ask the PSC to approve a new tariff provision allowing it to enter contractual arrangements with customers that can self-generate power, shift load from on-peak periods, or provide other forms of voluntary load reduction during times of high system demands. The PSC approved the tariff on Feb. 9, finding it would allow the utility to negotiate contractual arrangements with customers to reduce load during periods of high demand, resulting in enhanced system integrity and reliability (Case No. U- 12278). But the PSC cautioned Consumers Energy that the tariff was only a temporary measure and should not impede progress to competitive energy markets. "Michigan's economy is booming and our demand for electricity continues to increase at a rapid rate," observed PSC chairman John Strand.

The Post-Choice World

In states such as California, Illinois, and Pennsylvania, where legislation is already in place for electric utility restructuring, state PUCs are spending their energies not in overseeing the generation market, but instead, in monitoring the reliability of wires services and designing performance-based ratemaking schemes founded on service quality indices.

In particular, these measures tend to track such data as SAIFI (System Average Interruption Frequency Index), SAIDI (System Average Interruption Duration Index), CAIDI (Customer Average Interruption Duration Index), CAIFI (Customer Average Interruption Frequency Index), and MAIFI (Momentary Average Interruption Frequency Index).

California. In California, the PUC for some time has required utilities to file annual reports on reliability with data on SAIFI, SAIDI and MAIFI indices. Mark Ziering, reliability project manager in the California PUC's energy division, reports that the commission is now working with utilities and other parties to put together a database on reliability and outage information. Ziering, therefore, anticipates that filing requirements for utilities' annual reports "may get stepped up."

Illinois. Last October, the Illinois Commerce Commission approved a survey instrument to poll consumers on their understanding of prices, billing, and service reliability. The rather extensive reliability segment of the survey includes such questions as:

* Minor Outages. In the past 12 months, how many times has there been a power interruption lasting more/less than one minute at this residence/business?

* Longer Outages. How would you rate the job that [the utility] does on minimizing the number of power outages lasting longer than one minute?

* Longest Outage. How long did the longest outage last?

* Resulting Damage. In the last 12 months, have you experienced any loss or damage due to electrical outages or other electrical problems?

Illinois, incidentally, is the state that allowed stranded-cost recovery for the utilities in exchange for higher reliability standards. In that state, a utility may be subject to sanction after a power outage, unless it can prove that it took all reasonable steps to avoid or minimize the outage.

Pennsylvania. Focusing on the transmission and distribution side, the Pennsylvania PUC in a December order opted for an oversight method that monitors electric service adequacy "on a control area basis," so that generation suppliers and providers of last resort would not need to be included in its regulations. The PUC required distribution companies to provide aggregate data on both existing and planned generating capability "on both a control area and a regional reliability council basis." Docket No. L-00980136, Dec. 2, 1999.

And In Canada

The Ontario Energy Board on Jan. 18 signed off on an order (RP-1999-0034, see www.oeb.gov.on.ca) for performance-based regulation, calling for annual reliability reporting that includes SAIFI, SAIDI, and other familiar acronym-named calculations for utilities in Ontario, where electric retail competition is set to kick off in November. In Ontario, the link between deregulation and increased reliability oversight is a direct and overt one, for the restructuring legislation strengthened the language giving the energy board mandate to protect the consumer, allowing the board to come up with what senior communications officer Lee Wilson calls "a very strict code of conduct."

To Wilson, the link between deregulation and reliability is clear. "They're starting to go hand-in-hand, quite frankly," she says, "because the consumer is saying 'what are you going to do for me now.' It's consumer driven."

Lori A. Burkhart is contributing legal editor, Carl J. Levesque is associate editor, and Bruce W. Radford is editor-in-chief at Public Utilities Fortnightly.

 

Apples and Oranges?

Why comparing utilities on reliability is a dicey business.

Different states prefer different means of measuring reliability, so an index in one state may vary slightly from the same index in another.

In Illinois, utilities such as Commonwealth Edison and Illinois Power use three indices: CAIDI (Customer Average Interruption Duration Index), CAIFI (Customer Average Interruption Frequency Index), and SAIFI (System Average Interruption Frequency Index).

California prefers SAIDI (System Average Interruption Duration Index), MAIFI (Momentary Average Interruption Frequency Index), and SAIFI, as required by that state's 1996 decision adopting annual reliability reporting requirements (Decision No. 96-09-045, Sept. 4, 1996, (Cal.P.U.C.).

As ComEd points out in its 1998 reliability report, when comparing reliability calculations for utilities, analysis should include such variables as the weather experienced by each utility and the type of load (urban, rural, or suburban) they serve. And even more care, ComEd says, should be taken when comparing statistics of utilities from different states since, for example, some state commissions require that interruptions lasting more than five minutes be included in calculations, while other states require inclusion of interruptions lasting as little as one minute. In the case of the two following states, at least in their SAIFI calculations, California uses a five-minute threshold, while Illinois uses a one-minute threshold.

Apples and Oranges?

Why comparing utilities on reliability is a dicey business.

Different states prefer different means of measuring reliability, so an index in one state may vary slightly from the same index in another.

In Illinois, utilities such as Commonwealth Edison and Illinois Power use three indices: CAIDI (Customer Average Interruption Duration Index), CAIFI (Customer Average Interruption Frequency Index), and SAIFI (System Average Interruption Frequency Index).

California prefers SAIDI (System Average Interruption Duration Index), MAIFI (Momentary Average Interruption Frequency Index), and SAIFI, as required by that state's 1996 decision adopting annual reliability reporting requirements (Decision No. 96-09-045, Sept. 4, 1996, (Cal.P.U.C.).

As ComEd points out in its 1998 reliability report, when comparing reliability calculations for utilities, analysis should include such variables as the weather experienced by each utility and the type of load (urban, rural, or suburban) they serve. And even more care, ComEd says, should be taken when comparing statistics of utilities from different states since, for example, some state commissions require that interruptions lasting more than five minutes be included in calculations, while other states require inclusion of interruptions lasting as little as one minute. In the case of the two following states, at least in their SAIFI calculations, California uses a five-minute threshold, while Illinois uses a one-minute threshold.