News Digest

Fortnightly Magazine - October 15 2000

News Digest


 

State PUCs

Restructuring Plans. The Ohio PUC denied rehearing of its restructuring order for FirstEnergy issued two months earlier, rejecting arguments by all petitioners-utility, marketers, and consumer watchdog groups.

  • Net Metering. FirstEnergy had opposed requirements for net metering, saying that billing credits for customers who self-generate would allow them to bypass utility costs incurred to maintain wires capacity and acquire ancillary services, but the PUC was unmoved, noting that wires charges also include hidden subsidies because some wires capacity functions essentially as a generation backup.
  • Account Switching. Consumer watchdog Citizens Power (CP) complained that FirstEnergy would get credit against the state-mandated 20 percent switching target for customer accounts switched to its own marketing affiliate, but the PUC said that would not violate state law, and CP said it would appeal.
  • Shopping Credits. Enron, Exelon NewEnergy, and other retailers argued that the plan did not spell out how long consumers could keep shopping credits designed to encourage them to switch suppliers, but the PUC said the retailers were to blame for any ambiguity since they had signed off on it: "It is unusual for parties that have signed a stipulation to attack the PUC's adoption of that settlement as an unreasonable act." .

Electric Supply Choice. The Oregon PUC OK'd rules for electric retail choice, set to begin for industrial and large nonresidential customers on Oct. 1, 2001. The rules are broad, covering transition costs, unbundling, billing and metering, supplier certification, and consumer rights.

The PUC postponed action to set the value of generation resources, to inquire first if it has authority to use an arbiter. It also postponed action on public purpose programs, to allow its staff to study state law. .

Gas Price Fallout. Citing rising costs for natural gas and transportation, Avista Corp. on Aug. 15 asked the Idaho PUC for an overall natural gas rate increase of 29 percent, with residential customers getting a 27.75 percent hike. Gas Pipeline Capacity. The New York PSC kept in place last year's requirement that marketers serving natural gas customers in the state must have firm primary pipeline capacity from November through March to ensure gas delivery during the winter heating season, but it allowed KeySpan to "test" the idea of giving marketers a lesser option of using firm secondary capacity.

The PSC noted that KeySpan's exception would involve only a small volume of capacity- equivalent to about 1.7 percent of KeySpan's entire peak-day demand. The PSC added that KeySpan would retain enough reserve capacity to meet 15 percent of marketer needs, allowing it to supply its own capacity to "backstop" more than two-thirds of non-firm primary capacity used by marketers.

Access to Books and Records. Citing "increasing difficulty" in obtaining books and records from New York State Electric & Gas Corp., the New York PSC gave the utility just one day to respond to requests for basic accounting and financial data, such as journal entries, and told NYSEG to provide electronic access to data regarding the uniform system of accounts, but on a read-only basis, to protect confidentiality.

The PSC noted that other electric utilities provided such materials monthly-not quarterly, as had NYSEG. .

Interruptible Gas Customers. To avoid a repeat of last winter, when some interruptible gas customers were ill-prepared for service cutoffs, the New York PSC told gas utilities to ensure that interruptible gas customers will stockpile at a minimum a seven-to-10-day supply of alternate fuel, through storage or otherwise, by Oct. 1.

Utilities must conduct random on-site checks of customers taking interruptible service and must charge a higher rate to customers who fail those spot checks.

"A repetition of last winter's situation is unacceptable," said PSC chairman Maureen O. Helmer. .

CO2 Removal. Utah OK'd a $13.5 million (1.4 percent) increase in natural gas rates for Questar Gas (return on equity set at 11 percent), and allowed the utility to recover two-thirds of costs claimed for removing carbon dioxide from coal seam gas transported by its affiliate, Questar Pipeline Co. .

Consumer Notifications. The Texas PUC proposed customer protection rules that include a billing label ("Electricity Facts") that the PUC likened to the "Nutrition Facts" label on food products, as well as a "Do Not Call" list, allowing customers to decline calls from telemarketers.

The label would include (1) cost of electricity, for 500, 1,000, and 1,500 kWh per month; (2) time-differentiated, seasonal, or contract pricing information affecting rates; (3) contract changes and early-termination penalties; (4) fuel mix; and (5) percentages of air emission compounds created from electric generation.

A hearing on the rules was set for Oct. 16. .

Electric Retail Choice. West Virginia proposed rules on (1) licensing of competitive electric service providers (ESPs); (2) codes of conduct for transactions among utilities, affiliates, and ESPs; (3) consumer protection; (4) a system benefits charge; and (5) rights for utility employees, including creation of a labor-management council.

Hearings were set for Oct. 26. A future rulemaking will address interconnection, distributed generation, reliability, and net metering. .

Offsystem Sales. Florida regulators replaced an older program-that had encouraged the state's four largest investor-owned electric utilities to sell power at wholesale offsystem-with a new plan for the utilities to share profits of offsystem sales with ratepayers through a credit against fuel costs. Ratepayers would get 100 percent of profits up to a certain company-specific benchmark (set to reflect historic levels of short-term offsystem sales), plus 80 percent of profits above the benchmark. .

Electric Restructuring Plans. The Ohio PUC OK'd a restructuring transition plan for Cincinnati Gas & Electric, setting a rate freeze, shopping credits, and other incentives aimed at helping CG&E meet the requirement imposed by state law for 20 percent of each customer class to switch to a competitive energy supplier.

The residential class sees a 5 percent cut in rates for generation service. Customers who switch to an ESP keep their shopping credit through Dec. 31, 2005. The switching fee is waived for first 20 percent of residential customers that choose an ESP during a five-year "market development period" (MDP). CG&E may terminate the MDP for any class, except residential, when 20 percent of class load switches to an ESP. When MDP ends for any class, then rate freeze ends for nonswitching customers in that class, and the freeze also ends on charges for wires ancillary services for switching customers in the class. .

Electric Customer Enrollments. Massachusetts OK'd an aggressive electric customer aggregation plan proposed by a group of municipalities on Cape Cod and Martha's Vineyard that will allow the retailer, Select Energy, to deviate from established customer enrollment protocols to ensure an adequate customer base by requiring automatic initial enrollment of all new residents, subject to opt-out rights after the fact. .

Transmission & ISOs

Automated Dispatch. The North American Electric Reliability Council (NERC) asked the Federal Energy Regulatory Commission for a 12-month extension of time to present the design of its much-touted Market Redispatch Pilot Program, which the FERC approved in principle in June. NERC said it would still file an interim progress report on MRD by Dec. 1.

Also, NERC said it expected on Oct. 17 to implement new definitions and other changes to its Transmission Loading Relief (TLR) rules, also approved in principal by the FERC on May 8.

NERC suggested the two moves were connected.

"Key to both," said NERC, "is the addition of a complex software change to allow for automated adjustment and reallocation of transactions in the Interchange Distribution Calculator. That change É [the automated MRD program] will make it possible to reduce the three-hour scheduling limit for MRD transactions to 45 minutes." .

Alliance RTO. The Alliance group tendered its compliance filing to the Federal Energy Regulatory Commission, with thousands of pages of testimony and analysis, answering issues raised in prior FERC orders and announcing a proposed startup date of Dec. 15, 2001.

Alliance proposes a single access charge with license plate pricing for all transactions that deliver power inside the RTO, plus a single region-wide "postage-stamp" rate for all transactions that deliver power outside or through the RTO. Dr. David Patton (Capital Economics) acknowledged that while the Alliance RTO would be larger than any operating RTO in the nation, the presence of two RTOs in the Midwest would "not inhibit" power markets there. .

 

California Power Wars

Rate Stabilization. Gov. Gray Davis on Sept. 6 signed Assembly Bill 265, which stabilizes the commodity price of electricity year-round at 6.5 cents per kilowatt-hour for residential and small commercial customers of San Diego Gas & Electric Co., starting retroactively on June 1, 2000, and extending to Dec. 31, 2003.

The California PUC implemented the new law on the very next day. .

FERC Investigation. With William Massey dissenting, the Federal Energy Regulatory Commission opened hearings to consider the complaint filed Aug. 2 by San Diego Gas & Electric Co. to review markets at the California ISO and Power Exchange, but rejected SDG&E's request for the FERC immediately to impose a cap of $250 per megawatt-hour on all sellers in California. Massey would have granted relief.

The FERC also agreed with various intervenors and stakeholders that any move to overhaul the ISO's market structures or congestion-management procedures was premature.

  • Real-Time Pressures. Yet the FERC did identify one problem area-the increasing reliance on real-time markets at the ISO in place of longer-term markets at the PX. "In some hours," said the FERC, "as much as 25 percent of system needs were met in the ISO real-time market ... this increasing level raises significant reliability and economic concerns. ... [T]he ISO must procure additional supplies out-of-market at the last minute ... such spot-market purchases are not subject to the ISO's buyer cap."
  • Placing Blame. The FERC noted a failure of risk management but declined to place blame. On the one hand, as it observed, "SDG&E appears to be the only major investor-owned utility in California that had not sought state commission authority to hedge its price risks through forward contracts designed to 'lock-in' a specific price." But the FERC hedged its own comments: "It is unclear whether SDG&E's failure to purchase hedging instruments for its retail operations is due to state regulatory policies or its business decisions." .

ISO Price Caps. The California Oversight Board asked the Federal Energy Regulatory Commission to direct the California Independent System Operator to maintain bid caps at no greater than $250 per megawatt-hour for energy, $250 per megawatt-hour for ancillary services, and $100 for replacement reserves, until the FERC determines that markets are workably competitive. .

 

Gas Pipelines

Liquidity in National Markets. Speaking on behalf of the American Gas Association at the Sept. 19 conference held by the FERC to discuss liquidity on U.S. natural gas markets, Leo Cody (manager of federal regulatory affairs for Boston Gas) urged the FERC to change policy in two ways.

First, Cody asked the FERC to repeal its "shipper must have title" policy, and instead allow local distribution companies (LDCs) to control and use pipeline capacity for the benefit of their customers and to better deal with state-imposed requirements under retail unbundling programs.

Second, he urged the FERC to require pipelines to further segment capacity and allow customers to buy capacity from the wellhead to upstream hubs, separate and apart from capacity from hubs to consuming areas.

"LDCs are not free riders," said Cody. "Unbundling reduces the amount of gas purchased by the LDC for resale, and it becomes increasingly difficult to ensure that the necessary volumes will be received at the required points.

"Repealing the title policy," he added, "would allow the LDC to use market area transportation to move third-party gas from a citygate with an excess of supply to citygates with a lack of supply." .

Reverse Flow Storage. Despite many objections from gas shippers, markets, and winter-peaking local distribution companies (LDCs) in the Midwest, plus the commission's own concerns over physical damage to aquifer fields that require cycling of injections and withdrawals, the FERC authorized Natural Gas Pipeline Co. of America (NGA) to boost the seasonal volume limit for its proposed and discounted "firm reverse storage service"-a new idea designed to accommodate the summer-peaking electric generation market by allowing gas shippers to withdraw gas from storage from May 15 to Sept. 30, and then make up the difference by injecting gas back into storage in the winter, the normal season for withdrawals.

  • Seasonal Flexibility. Many shippers complained unsuccessfully that if the FERC should allow the unconventional reverse service, then it should at least reconsider terms and rates for conventional storage, including restrictions that limit flexibility for timing of conventional injections and withdrawals, but the FERC refused to entertain changes in terms and conditions of collateral tariffs.
  • Subsidies. The FERC also denied arguments that shippers taking conventional storage would subsidize the reverse flow service, since the tariff proposed to recover only 80 percent of costs.
  • Free Riders. The FERC also denied Dynegy's counterintuitive argument that if the FERC did restructure conventional storage to make it more flexible, then LDCs serving electric generators located off of NGA's system would get a free ride, as they could then use the more flexible services to supply their gen plant customers, while shippers serving gen plants on the NGA system would be forced to subscribe to the reverse-flow storage tariff, and would pay higher net charges. .

Market Power. The FERC authorized Petal Gas Storage LLC to construct and operate certain storage facilities near Hattiesburg, Miss., finding no untoward market concentration and no reason to withdraw authority for market-based pricing despite the firm's acquisition by El Paso Energy. .

 

Electric Reliability

PBR Plans. Massachusetts proposed service quality standards for performance-based rate (PBR) plans for the state's electric distribution utilities, with separate company-specific benchmarks, based on 10-year average SAIDI (System Average Interruption Duration Index) data for each company.

Regulators said performance varied too much among utilities to warrant use of nationally recognized standards for SAIDI or SAIFI (System Average Interruption Frequency Index).

It decided not to assess penalties for power quality performance (short-term or momentary outages and voltage surges), citing a lack of reliable data, but did tell utilities to collect data to measure MAIDI (Momentary Average Interruption Frequency Index). .

System Improvement Strategies. Wisconsin Energy Corp. has announced a decade-long, $6 billion plan to construct new power plants, refurbish or retire older plants, improve reliability by upgrading its distribution system, and reduce common stock dividends to fund growth. WEC estimates that by 2010, power demand in the state will outstrip capacity by approximately 4,000 megawatts.

 

Mergers & Acquisitions

Sierra + Portland. The Oregon PUC staff, Sierra Pacific Resources, and industrial customers and consumer advocate groups reached a settlement paving the way for Sierra Pacific to acquire Portland General Electric-a takeover already OK'd by the U.S. Dept. of Justice, Federal Trade Commission, and Securities and Exchange Commission. The deal calls for a six-year freeze on certain electricity prices and a $95 million price credit for PGE customers over seven years. .

Citizens<–> Kauai. The Hawaii PUC blocked efforts by Citizens Communications Co. (formerly Citizens Utilities Co.) to exit the electric industry and focus solely on its telecommunications business. It denied approval to Citizens to sell its Kauai Electric Division (KED) to Kauai Island Utility Co-op, as it ruled that the co-op would barely meet coverage standards for debt service and "is not financially fit to own and operate KED." .

CP&L + Fla. Progress. North Carolina OK'd the merger of CP&L Energy Inc. and Florida Progress Corp., on condition that if a regional transmission organization (RTO) is not formed in time to accommodate RTO filing deadlines at the FERC, so that CP&L opts to join a different RTO other than one "with a southeastern focus," then state regulators may require CP&L to withdraw and join a southeastern RTO, once such a group is formed. .

 

Power Plants

Out-of-State Exports. Dismissing concerns that new merchant power plants might export power out of state, a New York siting board denied rehearing on its prior order that had authorized the construction and operation by Athens Generating Co. L.P. (AGC) of a 1,080-MW power plant.

The board, rejecting intervenor arguments that the facility will not be required to serve the state only, reiterated its position from its original order approving the plant that "regionalization of the power market benefits all states" and that even out-of-state sales would enhance in-state reliability, given that plant owners must comply with ISO rules for dispatch and security.

The board said that because grid capacity to New England was limited, the new plant might find it more profitable to sell in New York during constraints. It rejected intervenor claims that the plant owners might act "irrationally" and sell at a loss in New England. "It is not reasonable to conclude that the applicant will act in a manner diametrically opposed to its financial interests." .

Out-of-State Imports. North Carolina regulators allowed Carolina Power & Light Co. to relocate two combustion turbine generators already approved for installation, noting that relocation would enhance reliability by making CP&L less dependent on other utility transmission systems for importing power to meet load. Company witness Verne Ingersoll had testified that growing offsystem power imports were pushing the limits of transmission capacity. .

 

Courts

Utility Marketing Affiliates. A group of four investor-owned electric utilities failed to get an Illinois court to strike down the state's 1997 electric customer choice law as unconstitutional or to overturn rules adopted under the act that imposed restrictions on utilities in their dealings with marketing affiliates.

  • The court said that a ban against joint advertising and marketing efforts by utilities and affiliates did not violate corporate rights to commercial free speech.
  • It held that the state commission did not violate the 1997 law when it barred electric utilities from offering to their affiliates different terms and conditions on regulated services than those offered to unaffiliated alternative retail energy service (ARES) companies. Nor did it err when it barred utilities from requiring customers to buy energy from a utility affiliate to qualify for special billing offers from the utility, or when it required utilities to compile and post information on the Internet regarding availability of competitive ARES firms.
  • Third, the court upheld commission rules forcing utilities to offer the same rebates, discounts, or fee waivers to ARES customers that they offer to the customers of their own marketing affiliates, regardless of whether the service is regulated or competitive. It said the legislation was unclear on the distinction between "essential" and "nonessential" services..

Road Construction. In a case of first impression, a New York court ruled that electric utilities must pay their own costs when public road construction projects interfere with utility facilities located within the right-of-way under a private easement granted by a private landowner before the road was constructed. It upheld a statute that overturned the common law rule that the city pays costs. .

Hinshaw Gas Pipelines. A federal appeals court struck down an order by the Federal Energy Regulatory Commission, explaining that the FERC could not expand its limited authority over intrastate "Hinshaw" pipelines for forcing them to file periodic cost reports under Section 4 of the Natural Gas Act to justify rates for incidental interstate services.

The court conceded that the FERC could require cost reports under NGA Section 5, but suggested the FERC was trying to "slide through" Section 4 to expand its jurisdiction. It added, "[T]his is one of those peculiar cases in which it is not easy to understand what the litigants are disputing." .

Hydropower Entitlements. A federal appeals court reversed a 1999 decision by the U.S. Court of Federal claims that struck down the method adopted by the federally owned Western Area Power Authority to refund excess revenues collected for sales of power from Hoover Dam after unexpected high rainfall increased runoff and plant output in the mid-1980s. .

Purchased Power Costs. In reversing a trial court, and thus affirming a state PUC order that disallowed recovery of purchased power costs incurred by TXU Electric following an accident at a power plant, a Texas appeals court said it was bound to defer to the PUC, since the agency ruling was a matter of policy and administrative discretion, not a matter of tort law or determining the proximate cause of the accident. .

Merger Savings. Reversing a trial court order, the Louisiana Supreme Court ruled that Entergy could not take expenses disallowed by state regulators in a current rate case and then treat them as ratepayer "savings" under a savings tracking ratemaking clause approved years earlier that allowed utility shareholders to keep 60 percent of savings generated by Entergy's takeover of Gulf States Utilities.

The court also agreed with regulators that weather data gathered statewide was too unreliable to justify a weather normalization clause to adjust test-year revenues for Entergy's specific service territory. But it said regulators erred by adopting a range of authorized returns on common equity (between 10.31 and 11.34 percent) without specifying a single approved point within the range. .

Nuclear Waste Claims. In two companion cases, a federal appeals court ruled that electric utilities may proceed in a damage suit based on breach of contract to recover costs incurred to dispose of nuclear waste temporarily at power plant sites because of the delays by the federal government in arranging for permanent disposal. .

 

Business Wire

GE Global eXchange Services's application integration product, GE InterLinx, now supports the latest industry standards for RosettaNet and the Gas Industry Standards Board, allowing companies in the high-tech, gas, and utility industries to extend their e-commerce reach by using XML (eXtensible markup language) and the Internet to align business processes among their supply chain partners. "Integration solutions based on key industry standards are crucial if buyers and sellers expect to draw upon both internal and external information resources for maximum benefit," said Steve Scala, GXS's vice president of integration solutions.

Enron North America and Swiss Re New Markets have applied risk capital management techniques to arrange a $102 million oil and gas production loan on behalf of a client in the exploration and production sector. Developed jointly with Enron's Global Risk Markets group, the financing employed a combination of derivatives, insurance, and bank credit to finance future production of 160 billion cubic feet over a five-year period from a portfolio of working interests in fields located primarily in Texas, Louisiana, and New Mexico.

Reliant Energy has formed Reliant Energy Renewables Inc., an unregulated affiliate of Reliant Energy Wholesale Group, and started two major Texas renewable energy projects that will produce electricity for the state's consumers using wind power and methane gas extracted from landfills. The wind power project is the largest single installation of its kind in the world, and the methane gas-to-electricity generation project will involve 12 existing landfill sites in Texas. Plans call for Reliant Energy to begin purchasing electricity from both projects by fourth-quarter 2001.

Convergent Group Corp. has completed a Digital Utility road map and signed a new contract with Boston-based NSTAR that forms the foundation for Convergent to integrate energy delivery and business operations across the four utilities that make up the NSTAR enterprise. NSTAR is the parent company of Boston Edison, Commonwealth Gas, Commonwealth Electric, and Cambridge Electric, with a combined customer base of 1.3 million people.

The Geothermal Heat Pump Consortium has been selected by the Canadian government to help increase the market in Canada for geoexchange (also called geothermal heating and cooling) technology. The consortium will work with Natural Resources of Canada, a Canadian government department that specializes in the areas of energy, minerals and metals, forest, and earth sciences.

DTE Energy Technologies, an unregulated subsidiary of DTE Energy Co., has signed agreements with Pratt & Whitney Canada Corp. and Turbo Genset Co. Ltd., of the United Kingdom, for the development of a 400-kW turbine generator. The new high-efficiency product, the "energy/now turbine-generator," model ENT 4000, is targeted for distributed generation applications for small- to medium-sized commercial customers and micro-grids serving both residential and commercial development projects.

 



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