Regional Summer Assessments. The North American Electric Reliability Council was set to release its annual summer reliability assessment on May 22, after this issue went to press, but in the meantime, many other regional reliability councils and independent system operators had already issued summer forecasts for generation adequacy and system reliability.
- New York ISO. Forecasted a peak demand of 30,200 megawatts, representing an increase of 1.7 percent over 1999. It said it had completed a successful auction in the installed capacity market to secure enough generation to satisfy the reserve requirement (18 percent above demand) of 35,636 MW set by the New York State Reliability Council.
- ISO New England. Forecasted summer peak demand at 23,250 MW, compared to last year's peak of 22,544 MW, set July 6. Citing new plants coming online, plus favorable nuclear availability, it predicted "an overall improvement" over the last few summers.
- California ISO. Warned of "slim" power reserves, predicting (with normal weather) a summer peak load on the ISO-controlled grid of 46,250 MW (representing 37,950 MW of internal generation and 8,400 MW of imported power), compared to a 1999 peak of 45,884 MW.
- MAIN. Predicted "improved electric reliability" in the Midwest this summer, in light of some 3,000 MW in new generating capacity expected to be online before the high season arrived. MAIN anticipated a summer noncoincident peak demand of 49,615 MW, compared to last year's peak of 49,027 MW.
- ECAR. Predicted an 11.2 percent capacity margin in summer 2000, compared with 10.8 percent last summer, due in part to the addition of new generation, reactivation of mothballed generation, and a transfer of load certain obligations from ECAR utilities to entities outside the region. It predicted a net summer peak of 95,765 MW, or about 0.4 percent below last year's record peak demand of 96,149 MW. Nevertheless, it warned that in-service schedules for capacity additions "have the potential for slipping," representing a possible 2.646 MW in shortfall. It added that "under all assumed severe condition scenarios, the ECAR region will have insufficient resources available during the peak summer demand period without a higher level of transmission import."
- PJM ISO. Forecasted an increase in summer peak load of about 1,400 MW, up to 51,161 for 2000, as compared with 49,751 MW for 1999. It said that no emergency load procedures would be required if anticipated conditions occur, but warned of emergency load controls imposed if "extreme weather" prevails. It added that "May 9, 2000 temperatures reached levels that were last recorded 125 years ago."
Mergers & Acquisitions
LG&E + PowerGen. Kentucky regulators OK'd the takeover of LG&E Energy Corp. by PowerGen PLC, acknowledging no real merger savings through integration (since PowerGen has "no business presence" in the United States), but citing PowerGen's promise to set up its U.S. headquarters in Louisville- a factor the PSC said would give "top priority" to economic development in Kentucky.
NSP + New Century. The North Dakota PSC OK'd the merger of Northern States Power Co. and New Century Energies, finding that energy consumers in the region would benefit through lower gas and electric prices, as well as savings from more options in electric transmission service.
Summer Emergency. The Federal Energy Regulatory Commission on May 17 issued an interim order announcing specific actions aimed at promoting electric reliability this summer, and requesting comments on those actions as well as other steps it can take to increase reliability. The commission acted in response to what it expects will be another summer of potentially high peak demands, and the commissioners used the opportunity to ask Congress for legislation giving FERC authority over reliability. The commission OK'd five measures through September 30:
- On-Site Generation. Streamlining regulation to foster on-site generation;
- Demand-Side Management. Facilitating DSM by waiving the prior notice required for filing of new tariffs and encouraging proper calculation of incremental avoided costs;
- Transmission Capacity. Encouraging utilities to reassess capacity benefit margin, which represents transmission capacity set aside and reserved for possible use for importing out-of-area resources in the event of outages; and
- New Ideas. Making FERC staff available to hear practical ideas promoting reliability.
Commissioner Curt Hébert wrote a concurring opinion to "lament the lost opportunities of this order." He believes the FERC should have done more earlier to promote building of generation. Commissioner William Massey called for legislation from Congress establishing one set of reliability rules, noting "that the existing scheme of voluntary rules will not work in a competitive market."
Purchased Power Costs. The Michigan PSC rejected a motion by a ratepayer coalition that the PSC must disallow recovery of costs incurred by Detroit Edison to acquire operating power reserves, on the theory that the reserves represented excess capacity because the power purchases executed by the utility already inherently were backed by the reserve margins of the sellers of those principal resources.
According to the PSC, that theory would mark a departure from how utilities determine reserve margin. The PSC added, "Indeed, Detroit Edison experienced nondelivery of purchased power on eleven days in 1998 in a total amount of 28,500 [megawatt-hours], which undermines [the theory] regarding the reliability of purchased power."
Transmission & ISOs
Liability, Penalties, Software. On May 8 various utilities, marketers, and other groups filed over 35 separate briefs in the massive case at the FERC to settle hundreds of unresolved tariff issues involving the California ISO.
Several key issues stood out, including (1) ISO liability for negligence, (2) ISO authority to penalize traders under its market monitoring power, and (3) whether the ISO must disclose algorithms and other details in its proprietary software.
- Liability- Issue 676. Consumer advocates urged the FERC to enforce ISO liability only for gross negligence, as it did in New York. The California ISO urged the same: "The real fear should be that greater liability exposure would likely dissuade transmission owning entities from even joining an RTO." But Dynegy, Enron, PG&E, and various municipal utilities and irrigation districts say because of differences in state law, the FERC should treat the California ISO differently from New York and instead impose liability for ordinary negligence. The California PUC stayed neutral.
- Penalties- Issue 631. Enron, Dynegy, and the Western Power Trading Forum argue that the ISO must "cleanse" its tariff of certain "offending provisions" that give it the right to play both "judge and jury" and impose sanctions and penalties on market participants when it uncovers "anomalous market behavior." Even though the ISO is not a "market participant" in the traditional sense, the marketers claim that "the ISO operates and controls virtually the entire Ancillary Services market in California." They add, "The ISO has a vested interest in dispelling any allegation that its own negligence could have been a contributing factor in any market anomaly É the ISO will always be biased towards finding parties to blame."
- Software Disclosure- Issue 537. In October 1997, the FERC directed the ISO to make its computer algorithm publicly available to all market participants, and various marketers and municipal utilities have renewed that demand, calling for FERC to force the ISO to reveal all components, including the computer program, network database, tuning parameters, and "other heuristics" used by the ISO to operate the algorithm. But the ISO maintains that some software is proprietary and disclosure could violate confidentiality obligations under its contract with its outside software vendor.
Installed Capacity. Citing bidding behavior that looked like price manipulation, ISO New England on May 8 renewed its request to the FERC for authority to terminate its monthly auction market for installed capacity, effective June 1, and for additional guidance on market monitoring and strategies to mitigate market power. The move would leave the ISO with five remaining product markets, each priced on an hourly basis: (1) Energy, (2) 10-Minute Spinning Reserve, (3) 10-Minute Non-Spinning Reserve, (4) Automatic Generation Control, and (5) 30-Minute Operating Reserves.
The ISO also formed a small working group to formulate new models for a capacity reserve market, and said it expected Harvey Reed of Constellation Power Source to chair the group. (Reed also chaired the NEPOOL working group for congestion management and multi-settlement systems.)
The installed capacity requirement forces load-serving entities (LSEs) to maintain ownership or contract rights to capacity to satisfy monthly peak load. The auction allowed bidders to sell the excess or make up any deficiency.In actual bidding, however, the ISO observed anomalies, including an unusual "j-shaped" supply curve, coupled with monthly peaks rising from about $1,000 per megawatt in mid-1999 to as high as $99,999 in mid-winter 1999-2000.
In January, in fact, the ISO found it necessary to reprice one particular bid- which dropped the clearing price from $10,000 per megawatt all the way to zero- after the ISO found that one bid of over 2,000 MW at a price substantially higher than $10,000 had represented over 60 percent of the total non-zero bids for the month.
By contrast, the ISO found that an "active" bilateral market for capacity had emerged in New England, totaling 27,900 MW for March 2000, at contract lengths ranging from one month to a year or longer, which it said exceeded NEPOOL's entire installed capability. But the ISO acknowledged that the bilateral market could represent the "trading and retrading" of the same megawatts, "to a degree not easily possible to quantify."
Market Chaos. Alleging that software problems and communications failures were so pervasive that action was needed "to avert a potential disaster this summer," New York State Electric & Gas Co. petitioned the FERC to suspend all market pricing programs operated by the New York ISO for energy, reserve capacity, and ancillary services, for the period June 1 through Oct. 31, and to revert to cost-based pricing.
But cooler heads soon prevailed, and NYSEG agreed to withdraw its request, on consultation with other members of the ISO, including Central Hudson Gas & Electric, Consolidated Edison, Niagara Mohawk, Orange & Rockland, the Long Island Power Authority, and Rochester Gas & Electric. The scaled-back proposal asks the ISO to work out problems internally, and report back to the FERC.
Must-Run Plants. The California PUC weighed in on the side of the ISO and a "buyers' coalition" of investor-owned electric utilities in a dispute of whether so-called RMR (reliability must-run) plants should earn a profit when dispatched by the ISO. The dispute involves the private power producers, Southern Energy Delta and Southern Energy Potrero, which own three power plants in the San Francisco "load pocket."
Southern argues that when the ISO dispatches "must-run" plants, it should pay owners a "fixed option payment" (FOP) that compensates them for both incremental operating costs and fixed capital costs. Anything less, says Southern, would amount to a "zero-profit" rate.
The ISO, the utilities, and the FERC trial staff all oppose Southern's argument, pointing out that in most cases Southern does not need to interrupt sales of output from the plants under profitable bilateral contracts in order to comply with the ISO's dispatch orders, so that revenues from bilateral sales are available as a credit against fixed capital costs. Otherwise, say the buyers, Southern would profit from "market power."
Yet Southern countered, "The parties seem to suggest that 'locational rents' are the same as the exercise of market power, which they are not." Southern argued that even the buyers' witness Larry Ruff "conceded at hearing that there was a difference between the ability to capitalize on good locations and the exercise of market power."
Stranded Costs. In an interim order, the Illinois commission allowed Commonwealth Edison Co. to revise its plan for calculating market prices to set transition charges to recover stranded costs. Com Ed would replace the "neutral fact finder" (NFF) process that had required utilities and marketers to submit summaries of contracts to a committee appointed by the commission.
In his separate concurring opinion, commission chairman Richard L. Mathias said that utilities, consumers and retail suppliers all had questioned the NFF approach- that it could create a "real likelihood" of a "re-monopolization" of the Illinois electric industry.
Com Ed's new plan would calculate peak market prices and forward transaction prices along with bid/ask prices from transactions posted on Altrade and Bloomberg "PowerMatch," two real-time, online electronic power trading exchanges. For off-peak pricing, the utility will use historical day-ahead data published in . To develop hourly prices for each monthly peak- and off-peak period, Com Ed would use locational marginal prices from the 1999 PJM-West Interconnection. The price shape data is then used to translate average block price data into hour-by-hour market values.
Electric Choice. Regulators in Virginia OK'd the state's first pilot program (in Richmond, served by Virginia Power) for electric supplier choice, to be available Sept. 1. The program will double in 2001, when another 35,000 customers become eligible in a service area yet to be determined. It was described as "large enough to attract competitive suppliers yet manageable enough to avoid administrative pitfalls."
Utility Marketing Affiliates. The Wisconsin PSC ruled that utilities and their affiliates could continue to share resources with all costs fully allocated- except where such sharing is expressly barred, as in natural gas marketing. It found no present need for rules on standards of conduct, but said it would continue to monitor dealings between utilities and affiliates through the existing law, including the state's holding company statute.
Medical Equipment. The New York PSC called on utilities to improve service to customers using electricity to run life support equipment (LSE). It said that any customer information system should be capable of identifying customer accounts using LSE in case of outages, voltage instability, or brownout conditions. It recommended that utilities install devices like Central Hudson's "Advisor" or Con Ed's POND.
Shopping Credits. To discourage large-volume customers from churning accounts, the Delaware PSC allowed Delaware Electric Co-op Inc. to force customers with demands greater than 300 kilowatts to stay on with the co-op if they return to take bundled electric distribution and commodity service. The PSC set the co-op's shopping credit at 5.197 cents per kilowatt-hour, ignoring the co-op's protest that the figure exceeded Delmarva P&L's shopping credit (4.846 cents) and would offer a "false price signal."
Real-time Pricing. Responding to complaints from the Georgia Textile Manufacturers Association and Georgia Industrial Group, the Georgia PSC modified how Georgia Power calculates real-time pricing rates paid by its largest industrial customers, requiring the utility to use the average cost. The change should lower rates by $7 million annually.
Shopping Credits. The Midwest Marketers' Coalition opposed the transition plan settlement proposed on April 17 between the Ohio PUC staff and FirstEnergy, claiming it would set an artificially low shopping credit. "In both Massachusetts and Rhode Island, the shopping credits were set below the cost of supplying retail customers," claimed Scott Brown, spokesman for the coalition. "After two years of competition in both states, less than 1 percent of residential customers have switched."
Gas Pilot Programs. The Iowa board allowed MidAmerican Energy Co. to extend a gas sales pilot program that offers long-term contracts to smaller customers at a fixed commodity price, despite allegations that the program might hamper the development of gas competition in the state.
Natural Gas Rates. The Wyoming PSC allowed Questar Gas Co. to continue to earn an 11.83 percent return on common equity, saying it was reluctant to penalize the company for having filed the rate case voluntarily to reduce rates.
Purchased Power. Noting the success of competitive markets in wholesale generation, the Alabama PSC allowed Alabama Public Service Co. to revise its longstanding plan for recovering the fixed costs of electricity supply. The revised plan will set a power rate factor based on the estimated cost of purchased power, excluding any energy charge costs recoverable through the utility's automatic adjustment clause.
Affiliate Rules. New Mexico regulators set a code of conduct governing anticompetitive practices in transactions between utilities and affiliates, covering issues ranging from access to transmission and distribution lines and disclosure of customer information. .
Supplier Certification. The Texas PUC set a public hearing for June 15 on proposed rules for certifying retail electric providers (REPs) in the newly competitive market scheduled to begin in 2002. Final rules were expected by late July.
Union Lockouts. A federal appeals court upheld a ruling by the National Labor Relations Board that Central Illinois Public Service Co. did not commit an unlawful labor practice when it "locked out" union employees who, in lieu of striking, had instituted "inside game" tactics, such as working "to the rule" and refusing voluntary overtime. The court said the utility was entitled to counter such activities.
Transmission Pricing. A federal appeals court ruled that an electric utility cannot unilaterally modify the terms of an existing transmission service contract under the doctrine, even though the contract rates are much higher than they would have been if negotiated at a later date under the provider's open access transmission tariff (OATT) filed under FERC Order 888, as long as the buyer only is acquiring "entitlements" power, and not "requirements" service.
The case involved Potomac Electric Power Co., which sought pricing relief on a transmission service contract it had signed with Allegheny Energy back in 1987 for delivery of power imports from Ohio Edison. Potomac Elec.
Municipal Franchise Fees. A Texas court ruled that where the PUC had OK'd a rate adjustment clause to allow electric utilities to bill ratepayers for franchise fees concurrently as such fees were paid to municipal governments, without a formal rate case, the utilities could not then call on the PUC to block the municipalities from later assessing retroactive increases in the franchise fees, billed to the utilities on a percentage-of-revenues basis.
Clean Air Act. A federal appeals court ruled that it was proper for Congress under the Clean Air Act to delegate authority to Native American nations (with consent from the Environmental Protection Agency) to regulate air quality on all land within tribal reservations, including activities conducted by persons not members of the tribe. Dissenting judge Ginsburg said that the delegation of authority should extend only to the development of tribal implementation plans.
Certification. In a decision that drew the wrath of Sen. Frank Murkowski (Rep., Alaska), chairman of the Senate's Committee on Natural Resources, the FERC certified construction of the Independence and SupplyLink gas pipeline projects, but told project sponsors ANR and Transcontinental Gas Pipe Line Co. to first submit proof of contracts in hand with nonaffiliated companies to subscribe at least 35 percent of project capacity.
Murkowski, while pleased with the FERC's project approval, was still unhappy about the evidentiary requirement, and made his feelings known on April 27, two days after the FERC decision was issued, at the hearing where he had invited all four FERC commissioners to comment on pending federal legislation on electricity restructuring.
"I will want an explanation from each of you as to why you are not doing everything you can to get this pipeline built as fast and as cheaply as possible," he warned.
"The commission's actions in the Independence pipeline case seem to indicate that you really don't want this pipeline built."
Citygate Constraints. The New York PSC approved a proposal by Rochester Gas and Electric Corp. For easing system constraints on the amount of pipeline nominations that can be made through each of the citygates used to supply RG&E's natural gas distribution system, by requiring gas marketers operating on the company's system to file plans with RG&E stating expected deliveries on each pipeline at different load levels for each month of the upcoming season.
When RG&E must shift load between the two delivery points and additional costs are incurred, it will impose a surcharge on marketers whose deliveries were not within the system constraints, and then pass back the amount collected to its retail customers.
Auction Prices. While conceding that the $47.5 million price tag ($119 per kilowatt) was "below outcomes from other generation asset auctions," the New York PSC approved the sale of the 400-MW Albany Steam Station to PSEG Power LLC.
The PSC dismissed allegations by the town of Bethlehem that the price was insufficient, saying that it came as the result of "an extensive marketing effort" to attract "the broadest available range of potential purchasers." The PSC also noted that differences in plant fuels, vintages, regional market prices, and other variables make comparisons among auctions difficult.
"While the Town complains that the station is more valuable than the prices PSEG Power offered, no bidder shared the Town's view," the PSC observed.
Generation Divestiture. The Pennsylvania PUC approved the sale by DQE Inc., parent company of Duquesne Light Co., of its seven electric generating plants to Orion Power Holdings of Baltimore for $1.7 billion. As part of the deal, Orion Power Holdings will become the provider of last resort to Duquesne Light customers.
Transfers to Affiliates. The Pennsylvania PUC OK'd generation asset transfers to non-regulated affiliates for both Baltimore Gas & Electric Co. and Public Service Electric & Gas Co.:
- BGE would transfer to Constellation Generation Inc. its 20.99 percent stake in the Keystone Generating Station and its 10.56 percent stake in the Conemaugh Generating Station (all at book value), as well as its partial equity interest in Safe Harbor Power Corp., a hydroelectric power producer.
- PSE&G would transfer its interests in Keystone (22.84 percent), Conemaugh (22.5 percent), and the Peach Bottom Atomic Power Station (42.49 percent) to PSE&G Power LLC and its wholly owned subsidiaries, PSEG Fossil and PSEG Nuclear, representing $2.443 billion in assets, to be recorded by the transferee at a book value between $200 million and $400 million.
Plant Certification. Saying that it must not micromanage electric companies as the industry moves toward a competitive market, the Ohio Power Siting Board issued a certificate of environmental compatibility and public need for construction and operation of the 425-MW West Lorain Combustion Turbine project to Ohio Edison, a wholly owned subsidiary of FirstEnergy. The board said it is up to Ohio Edison to decide whether to curtail load or shut down the project based on operational constraints, especially transmission constraints on the FirstEnergy system.
Studies & Reports
Smart Meters. Any move to integrate communications capability into electronic single-phase meters will tilt the market in favor of utility meter manufacturers, according to the consulting firm Frost & Sullivan.
Otherwise, the report predicts a new era of growth for the metering industry, propelled by a growing economy and rising electric demand.
"Tremendous openings exist for vendors that can successfully manufacture and market the next generation of meters," says Frost & Sullivan analyst Patrick Hodges. See www.frost.com.
CMS Energy Corp. is participating as an asset investor by contributing access to some of its pipeline rights-of-way in a new nationwide broadband telecommunications network being built by Denver-based Aerie Networks. Aerie is planning to complete its 20,000-plus-mile national network in 2003. CMS Energy initially will hold about a 2.5 percent investment in Aerie in exchange for providing access to rights-of-way held by subsidiaries. Aerie also will use the rights-of-way of BP Amoco, Buckeye Partners L.P., Explorer Pipeline Co., Kinder Morgan, Marathon Ashland Pipe Line, National Fuel Gas Supply Corp., Plantation Pipe Line Co., PG&E Corp., Sempra Communications, Sun Pipe Line Co., and TEPPCO- all equity owners in Aerie.
Atlas Technologies LLC, a partially owned subsidiary of Resource America Inc. and provider of web-based billing and customer care solutions to the deregulating energy and converged network services industries, has licensed its Readi Systems suite of software applications to Equitable Resources Inc., an integrated energy exploration, production, transmission, distribution, and marketing company. Other clients of Atlas Technologies include Dominion Retail Services and FirstEnergy Corp.
Avista Corp. has engaged Merrill Lynch as its investment bank and strategic adviser for Avista Labs to assist in evaluating the best ways to maximize the shareholder value inherent in its fuel cell technology. Avista Labs is pioneering the development and commercialization of an integrated, modular proton exchange membrane fuel cell power system targeted for the residential and small commercial markets throughout the world. Merrill Lynch will consider all options, including financial structuring and an initial public offering.
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