News Digest

Fortnightly Magazine - August 2000

News Digest


Transmission & ISOs

Florida RTO. Commenting on plans to create a regional transmission organization (RTO) for the state of Florida, a coalition of stakeholders issued a white paper on June 13, questioning whether the RTO would comply with the Federal Energy Regulatory Commission's Order 2000, and in particular asking for more detail on possible conflicts of interest within any future RTO board of directors.

"In general, there is insufficient detail to ascertain whether the Board of Directors' provisions meet the requirements of Order 2000," said the coalition, which includes such diverse companies as Calpine Eastern, Duke Energy North America, Tampa Electric Co., Enron, and Seminole Electric Co-op.

The object of concern was yet another white paper proposal by Florida Power & Light Co., "Proposal for Governance of Florida Transco/RTO," issued May 16.

The coalition also said that a member of the board of directors should be required to sell within six months any stock he or she owned in a market participant under all circumstances. The FPL proposal contains a similar provision, but would allow the director to hold the stock if it is "depressed." The coalition also wants to put a cap of 5 percent on a market participant's ownership interest in investment banks or funds having a financial stake in the RTO.

Meanwhile, Florida Progress Corp. earlier this year had proposed a separate Florida RTO as a feature of its pending merger with Carolina Power & Light Co. (CP&L has said that if the Florida RTO doesn't fly, it will consider joining the Midwest ISO instead.)

Bill Basford, a consultant to Enron and participant in the process, said that it is generally understood that Florida Progress is involved with the proposal at least indirectly, in the sense that FPL is trying to accommodate Florida Progress. "You can tell by the presentation" of the proposal that Florida Progress is part of the process, Basford said.

First Refusal Rights. The FERC clarified provisions of its open access transmission tariff under Order No. 888, explaining that when transmission customers see their long-term contract rights expire, and then seek to invoke a right of first refusal to renew their rights, they must give 60 day's notice, as required for initial applications under the tariff.

Mountain West ISA. In calling on applicants Nevada Power and Sierra Pacific Power Co. to "'fess up," the Southwest Transmission Dependent Utility Group-comprising small utilities in Arizona and Southern California-has questioned whether the Mountain West Independent Scheduling Administrator is only an interim step on the way to a merger with the neighboring Desert STAR Independent ISO, as first planned, or whether it will take on a life of its own.

Thus, after seeing the ISA's latest tariff documents filed June 6, the Arizona utilities asked the FERC to reconsider the "lighter touch" it had been applying to the ISA's approval process in favor of FERC's more comprehensive standards for RTOs required in Order 2000.

The Arizona group questioned the sincerity of the Mountain West applicants in intending their ISA to be an "interim arrangement" before merging with Arizona's Desert STAR ISO within three years. It noted that the June 6 Mountain West filing "makes no mention" of Desert STAR, and speculated on the reason:

"There is a reason for that silence. Sierra Pacific Co. has never been and Nevada Power Co. is no longer a participant in Desert STAR. Thus, the rationale for exerting a lighter touch in reviewing this application is misplaced."

The Arizona group called on the FERC to reject the June 6 filing as incomplete and order Mountain West to file a "complete" application responsive to the FERC's Jan. 27 order that gave conditional approval to a transfer of facilities to Mountain West.

"It is entirely possible that the Applicants, if they gain approval here of the lesser standard of conduct, will be back acknowledging that they wish to have the current construct continued and are not in a position to transition to an ISO or RTO," said the group.

"At the very least, the Commission should demand that Mountain West 'fess up up' as to what is going on and what the current basis is for representations that this is an organization with only a three-year life."

Merchant Transmission. The FERC agreed to waive notice requirements for the proposed 26-mile, 345-kilovolt merchant transmission line linking Connecticut with Long Island, so that project sponsor TransEnergy U.S. Ltd. could begin on July 3 to take "open season" bids for capacity. At the same time, FERC dismissed concerns noted by Dynegy (the FERC called them "non-substantive") that the bid evaluation criteria were too open-ended, since TransEnergie would enjoy leeway to consider "non-price" factors.

The FERC OK'd the project back on June 1, in what Commissioner William Massey termed an "evolutionary" order , and told TransEnergie to file details describing its open season for bids. But then Dynegy (though it "applauded" the proposal) questioned the bid evaluation criteria.

"TransEnergie goes on to state that bids will be evaluated based on the parties' negotiation of certain 'financial risk terms and conditions' [and] notes there will be 'other non-price considerations' ... [that might] reduce the project's risk and/or increase the project's value."

Dynegy added, "It is unclear whether the bid evaluation criteria ... would meet the FERC's standard for natural gas pipelines."

The FERC said it "agreed with Dynegy" that detail was lacking, but was satisfied that TransEnergie would disclose its evaluation process in the post-open-season report.


Environmental Disclosures. The Ohio PUC's newly approved retail electric service rules, modified on rehearing, drew criticism from two commissioners who objected to a requirement for power producers to disclose the fuel source for electric generation.

Commissioner Judith A. Jones voted against the rules, calling the requirement misleading and noting it went beyond a statutory requirement to compare air emissions to a regional average.

"It is nearly impossible," she said, "to provide accurate information because the generation mix changes over time and therefore the emissions data becomes outdated."

Noting that 90 percent of electric generation in the state comes from coal, she said that the rule "would do more harm than good to the economy of and the economic development in the state of Ohio."

Seasonal Rate Design. The Vermont board authorized electric utility Central Vermont Public Service Corp. to redesign its rates to eliminate seasonal variations, which were put in place in the early 1970s to track the higher wintertime power costs then prevalent in New England.

It said the cost differential was due to the New England Power Pool's recently terminated "70/30" rule, which weighted the annual noncoincident peak more heavily by allocating cost responsibilities within the pool.

Retail Power Prices. The Texas PUC's "strategic plan" for fiscal years 2001-2005, issued June 1, promises by 2005 to keep the state's average price of electricity below the national average for any customer class. See

Door-to-Door Marketing. The Ohio PUC directed several natural gas local distribution companies to update their retail choice tariffs to include rules governing residential door-to-door solicitations by gas marketers.

But it turned down a proposal to require marketers to wear a company-specific uniform when making sales calls.

Pilot Programs. Virginia gave its final OK to interim rules for retail choice electric and natural gas pilot programs, but stressed that the rules may require alteration to accommodate full-scale retail choice and competition.

Renewable Energy. Arizona claims to be the first state to require electric utilities to obtain a portion of their electricity via renewable resources. It adopted a mandatory 0.2 percent renewables portfolio standard (RPS) starting January 2001, to increase each year up to 1 percent by 2005 and then max out at 1.1 percent in 2007.

Residential customers would help fund the RPS through a surcharge of up to 35 cents per month per account. Nonresidential customers would pay a monthly maximum of $13, but those posting a metered demand of 3000 kilowatts or more for three consecutive months would pay $39 per month per meter.


Power Markets

Regional Price Caps. In mid-July, the power industry was deeply divided over the idea of mandatory price caps for electricity in various regional spot markets around the country.

  • California. Late in the evening on July 6, the board of governors of the California ISO failed to pass a resolution to lower the price cap from $500 per megawatt-hour to $250 per megawatt-hour in the ISO's markets for real-time ancillary services and for intra-zonal congestion management. It voted 12-9 in favor of the move (with one abstention), but fell one vote short of the required majority. (Earlier, on June 28, the board of governors had voted 16-4 to strengthen the price cap from $750 to $500, effective July 1 through Oct. 15. A bid that same day to cut the cap to $250 had failed by a 12-12 vote.)
  • New York. On June 30, at the direction of its board of directors, the New York ISO asked the FERC for authority unilaterally to implement temporary bid caps of $1,300 per megawatt-hour in certain markets administered by the ISO. The board stressed its "philosophical aversion to any form of price control." But it urged the bid caps as an interim solution to what it called "a significant market problem, namely the near total absence of price-responsive demand, which the ISO cannot address, in the short term, by less intrusive means."
  • New England. As of the end of June, the proposal by NSTAR (parent company of Boston Edison) to ask the FERC to impose a $1,000 per megawatt-hour price cap for energy in ISO New England had drawn stiff protests from across the nation. Companies such as Aquila Energy Marketing, AES Energy Marketing, Tractebel Energy Marketing, Hydro Quebec Energy Services, and Duke Energy North America attacked the move. Other opponents included the Electric Power Supply Association and the Maine PUC. In particular, ISO New England decried allegations that it is forced to accept bids in peak periods. "This is not the case," it said. The ISO acknowledged that it must accept all reserve bids, but said that rule did not apply to energy. "Indeed," the ISO added, "there has never been an instance, since the markets began on May 1, 1999, where all energy bids were accepted-some energy bids are always rejected."

Ten-Minute Power Reserves. The FERC approved a request by the New York ISO to impose bidding restrictions on 10-minute, non-spinning operating reserves on an interim basis, after agreeing with the ISO that markets showed a lack of "workable competition," but many expressed dismay about aspects of the order and sought rehearing, including the ISO itself.

  • Overbilling. Several parties, including the ISO itself, the state consumer protection board, and the state's association of municipal electric utilities, attacked the FERC's decision to bar the ISO from correcting the charges and rebilling customers who may have overpaid for reserve requirements.
  • Self-Insurance. Other parties, including Niagara Mohawk Power Corp. and Rochester Gas & Electric, wondered why the ISO allegedly had forced them to acquire power reserves from east of the state's primary transmission constraint, rather than from the west, even when the largest single outage contingency in the east was small relative to the size of the purchase of reserve power. Said RG&E, "despite numerous attempts in bidding into the ISO to provide operating reserves, [we] have been essentially unable to sell supply reserves from west of the constraint."
  • Market Power Analysis. The Long Island Power Authority challenged the price cap of $2.52 imposed for 10-minute, nonsynchronous (non-spinning) reserves, saying the cap had no basis, either as a competitive price or a cost-based rate. (The ISO had chosen the $2.52 cap, citing it as the highest price prevailing before the moment when the market became uncompetitive.) But LIPA argued against using antitrust market analysis to gauge competition, claiming that spinning and nonspinning reserves were essentially the same product, as spinning reserves could always substitute for nonspinning reserves. It urged using a performance-based measure of market power, which would test the percentage of hours that a given market participant wields influence.

In its final order, the FERC had noted that if the ISO could not fix its problems, the commission might find it necessary to intervene further.


Electric Reliability

Utility T&D Systems. The Michigan PSC directed its staff to file a status report by Sept. 29 on methods to improve transmission reliability, and to complete its final report by Nov. 1.

Earlier, on May 1, the staff had filed a final report on proposed performance standards for electric distribution systems. Reply and counter-reply comments were due in that case in August.

Resource Management. The New Hampshire PUC OK'd a plan by Public Service Co. of New Hampshire to introduce several programs aimed at boosting electric reliability over the summer, including swaps of large blocks of power with other utilities to lower risk in the event of a forced outage.

Earlier, the FERC had OK'd a proposal by the New England Power Pool to pay customers to interrupt demand during summer capacity deficiencies. That program, in place from June 30 to Sept. 30, would allow distribution companies and load-serving entities to solicit retail customers and execute agreements for voluntary load curtailment to fill 200-MW blocks of interruptible load priced at $500, $750, and $1,000 per megawatt-hour interrupted.

Commissioner Curt Hébert, describing the NEPOOL plan, called it "one day late and one dollar short."

Internet Appliance Control. Working with the Carrier Corp., Connecticut Light & Power Co. was set at the end of June to launch a program allowing 50 selected residential households to control thermostats remotely over the Internet to manage air conditioning usage during peak demand periods.

Data Collection. The Iowa board opened a docket to obtain data on transmission and distribution system reliability from Iowa's three investor-owned utilities, requiring the utilities to file historical monthly indices for the last five years, including data for the reliability measurements SAIFI, SAIDI, CAIDI, CAIFI, and MAIFI. For a one-year period starting July 10, the utilities must file reports on the achieved level of each of the five reliability indices, and identify service interruptions and their reasons.



Open-Access Transmission. A federal appeals court affirmed essentially all aspects of FERC Order 888, which mandated open access to electric transmission. It said that the FERC could impose an open-access rule as a remedy for discrimination, as it had done earlier with natural gas (affirmed by the court in 1987 in the case), despite the Supreme Court's 1973 opinion that denied federal authority to mandate wheeling in an antitrust setting.

Second, in denying arguments by state regulators, the court affirmed FERC jurisdiction over the transmission component of unbundled retail electric sales. In fact, it suggested that if the FERC had wanted, it just as easily could have asserted jurisdiction over transmission even if still bundled with retail sales.

Reactive Power. Reversing the FERC, a federal appeals court ruled that the Southern Companies could recover costs associated with the "turbine assembly" (the motor that turned the "exciter" in an electric generating plant) in a separate charge for reactive power included in a wholesale power sales contract with the city of Tallahassee, even though the FERC had argued that the turbine only generated "real power," and not reactive power, since the exciter itself could operate independently from the turbine as a "synchronous condensor" and produce its own reactive power. It explained the FERC's argument was inconsistent with a 1997 ruling involving American Electric Power .

The court also allowed recovery of "heat loss costs" in the reactive power charge, though the FERC had objected that such costs would be double-counted, as they were already recovered in a fuel cost adjustment clause.

Electric Stranded Costs. Affirming a FERC order, a federal appeals court denied authority to a Vermont electric utility to recover wholesale stranded costs after it lost revenues for selling power to its subsidiary in a wholesale requirements contract, because the New Hampshire PUC had forced the subsidiary to give up the contract so that the subsidiary's retail customers in New Hampshire could shop for power from competitors.

Return on Equity. In affirming a FERC order setting return on equity for interstate gas pipeline Williams Natural Gas Co. (a subsidiary of The Williams Companies), an appeals court rejected claims by state regulators and customers in Missouri and Kansas and said that the FERC was not required to reduce the equity ratio in the pipeline's capital structure (in a "double leverage" adjustment) to reflect parent company debt.

As the court explained, "It is not for us to say whether these arguments have put the kibosh on the double leverage theory. We can, however, say that the PSC's quick response-[that] individual investors would never directly own a FERC-regulated pipeline, and if they did, they would not stand for such high equity ratios-is not a serious intellectual answer." Missouri PSC v. FERC, No. 99-1169, June 27, 2000 (D.C.Cir.).

Hydro Relicensing. In affirming a FERC order that renewed a license for the Penobscot Mills hydroelectric project in Maine, a federal appeals court agreed that the commission could treat existing conditions at the project site (with the project in place) as the baseline "no action option" in evaluating various alternative outcomes.

Power Outages. In allowing a class action suit to proceed in court on whether GPU was liable for damages for power outages, a state appeals court denied arguments by the utility to send the case instead to the state utility commission. The court noted that the commission was conducting its own case on reliability questions and that, contrary to assertions by GPU, the case turned more on questions of negligence than interpretation of commission regulations.

QF Certification. Saying the case should have been filed at the FERC, a federal district judge dismissed an electric utility lawsuit seeking damages against a power producer for breach of contract, plus a declaratory judgment that the power producer should lose its status as a qualifying cogeneration facility.

Water Hookup Fees. The South Carolina Supreme Court ruled that a county water and sewer district could impose residential connection fees to pay for system upgrades in an older subdivision, rejecting arguments that such fees could be assessed only through a tax because of the general nature of the public benefits.

Business Wire

Gas Technology Institute (GTI) is the new corporate name of the merged GRI and Institute of Gas Technology.

"Our focus is still on technology related to finding, delivering, and using natural gas," said John F. Riordan, president and chief executive officer of GTI. "But we are now a broader and deeper 'one-stop' technology organization, able to help a wider range of customers meet their technology needs."

He noted that GTI will continue to manage a cooperative research and development program of broad value to gas customers and the gas industry through 2004, using funds authorized by the Federal Energy Regulatory Commission. On June 1, the company filed its application for a $70 million program in 2001 with the FERC.

Under an alliance between National Home Connections LLC, a single-source connection for home buyers, renters, and sellers with utility connection and home services needs, and Utility.Com, NHC will provide information about Utility.Com to the millions of customers who are in the process of moving each year. NHC is part of Cendant Corp., which markets NHC services through its Move.Com relocation portal.

Arthur Andersen has launched a major nationwide initiative to help utility companies develop and implement effective eBusiness strategies. "For many utilities, the promise of eBusiness has been obscured by a cloud of confusion," said Michael Rutkowski, senior manager in Arthur Andersen's Chicago office. "Deregulation and restructuring have made it difficult for them to determine where eBusiness fits in their overall strategy. Implementing an eBusiness initiative without a clear strategy is risky. We help utilities clear the confusion and develop a practical plan for action."

Sempra Energy Trading, a subsidiary of energy services company Sempra Energy and a wholesale energy trading and marketing company, will use Excelergy Corp.'s new Internet energy portal, Energy Marketplace, to launch a custom energy portal service for its customers. "The portal provides an innovative combination of third-party Web applications with our own internal data applications for our customers," said David Messer, president of Sempra Energy Trading.

Mergers & Acquisitions

NiSource + Columbia Energy. On June 23 attorney David Pomper (Spiegel & McDiarmid) notified the FERC that his clients from organized labor had settled their differences with NiSource and Columbia Energy Group, regarding the planned merger of the two companies, and thus wished to withdraw the unions' protest filed against the merger at the FERC, but reserving their rights to challenge the deal before those state PUCs still conducting reviews.

Earlier, however, in testimony filed June 9, the union witnesses had launched a scathing attack against the deal, railing against allegedly excessive layoffs at Columbia Energy, and charging that the proposed merger was "largely about moving, storing, and selling gas to peaking and distributed electric generation, in order to profit from price instability, volatility, and differentials in electricity markets."

Instead of layoffs, the unions had claimed that staff increases were needed.

"Due to past hiring practices and early retirement programs, Columbia's workforce in its distribution and transmission ("pipe") functions have already been cut to the bone, and now the bone is being scraped," said union witnesses Larry Williamson, of Mountaineer Gas, and George Russell, of Columbia Gas of Kentucky, in testimony on the merger given in front of the Kentucky Public Service Commission. Williamson and Russell said further that as a result, maintenance levels and service quality "are already showing signs of strain."

But the merger applicants had answered those charges in documents filed at the FERC on June 16, noting that the FERC does not normally consider such issues in merger approval cases.

NiSource also had questioned the unions' concern over its failure to date to join a proposed ISO or RTO, noting that it was not a "major transmission owner," in terms of facilities used to wheel electricity from the Midwest to the East.

Meanwhile, concerned over sharing in merger benefits, golden parachutes for Columbia Energy executives, and potential tax revenue losses, a group of Ohio schools on June 1 petitioned the Ohio PUC to rehear its May 2 letter order to the federal Securities and Exchange Commission approving the proposed merger. The schools said they are ready to appeal to the Ohio Supreme Court.

Northeast Utilities + Con Ed. The FERC OK'd the proposed merger of Northeast Utilities with Consolidated Edison.

State Legislatures

Electric Restructuring. Michigan governor John Engler on June 3 signed into law an electric restructuring bill (Senate Bill 937, Public Act 141 of 2000), providing for retail supply choice by Jan. 1, 2002, allowing full recovery of stranded costs, but not forcing utilities to sell off power plants.

The law also mandates a 5 percent rate cut for residential electric customers of Consumers Energy and Detroit Edison below prices prevailing on May 1, and then capping residential rates through 2005. (Small businesses would see rates capped through 2004, and large commercial and industrial customers only through 2003.) See www.michiganlegislature. org/find.asp.

Emissions Trading. New York governor George Pataki has signed legislation that effectively bans the sale of sulfur dioxide allowances earned by power plants in the state to plants in 14 other states by imposing a monetary penalty on the seller equal to the value of any sale, thus negating the benefit of the transaction. For bill text, see http://LEGINFO.STATE. NY.US:82/nysleg/menugetf.cgi.

International Markets

Ontario Retail Choice. Citing a host of reasons, from reliability to billing system readiness, Jim Wilson, the Ontario minister of energy, science, and technology, announced a delay in the deregulation of the Ontario electricity market,saying that the November start date always had been merely a target to be continuously reevaluated. He did not want to commit to a firm date, but talked about a six-month window, and called for the creation of a time line of sorts. "To this end, I've asked the Market Oversight Committee to set key milestones along with deliver dates, and to develop and implement a reporting process so we make sure the yardsticks continue to move forward." For more of Wilson's explanation, see english/ar/sp_000622.html.

Power Plants

Hydro Dam Removal. In a case already rendered moot because the parties had settled-yet still of note because of its precedence-setting ramifications-the FERC denied rehearing of its 1997 order that for the first time directed the removal of a hydroelectric dam against the wishes of the owner. FERC had ordered removal of the 3.5-MW Edwards Dam on the Kennebec River in Augusta, Maine, but under a settlement, the license was transferred to the state of Maine, which already has removed the dam. Commissioner Curt Hébert dissented, arguing again that the order should be vacated because FERC has no authority to order dam removal.

Generation Divestitures. Potomac Electric Power Co. on June 7 announced an agreement to sell its electric generating assets to Southern Energy Inc. for $2.65 billion, subject to regulatory approvals. Included in the sale are four power plants and a combustion turbine located in Maryland and Virginia totaling 5,154 MW, purchased power contracts, and other facilities. PEPCO agreed to buy back power from its former plants for up to four years for its supplier-of-last-resort commitments.

Merchant Plant Interconnection. After it consults with electric utilities in the state, merchant plant owners and operators, and other interested parties, the staff of the Michigan PSC is to file a status report by Aug. 31 on standards for the interconnection of merchant plants with the transmission and distribution systems of electric utilities, before filing a final report by Oct. 2.

Studies & Reports

Power Outages. A report by Liberty Consulting Group to the Illinois Commerce Commission found that Commonwealth Edison Co.'s electrical system failed in summer 1999 because the company had not spent nearly enough money on maintenance and necessary system improvements in prior years.

The consultants found a culture of cost cutting that was so strong that between 1992 and 1998, Edison spent $225 million less than its cumulative budgeted capital spending for the period-even though customer load continued to grow. In 1995, two-thirds of Com Ed's management compensation incentive plan stressed cost reduction, the report said.

And while the utility's own backlog of substation maintenance projects and repair work mushroomed in 1998 and 1999, it sold electrical construction and maintenance services to third parties, using its own maintenance staff, Liberty noted. See docs.asp#ComEdLibPR.

Order 2000. ZE PowerGroup was to conduct initial client meetings in July and early August for a study on formation of RTOs and the impacts that FERC Order 2000 will have on the relationships among Canadian and between U.S. and Canadian electricity participants. Participants are to include both U.S. and Canadian representatives, including utilities and transmission owners, transmission operators, power marketers, government agencies, and trade and consumer organizations. See study/rto.html.

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