Transmission & ISOs
Arizona System Administrator. The Federal Energy Regulatory Commission told representatives of the Arizona Independent System Administrator that its proposed package of tariff and protocols was deficient, as it failed to show how Arizona Public Service and Tucson Electric (the ISA's two leading members) would amend their own open-access transmission tariffs (OATTs) to coordinate operations with the ISA.
Meanwhile, a group of irrigation districts in Arizona attacked the ISA plan, challenging the ISA's claim that it is exempt from filing its own OATT, and claiming that the ISA itself lacks legal standing, since local state court in Maricopa County last summer struck down the state PUC's entire regulatory scheme for electric deregulation (which included plans for the ISA), saying that the rules were never certified by the state attorney general.
Unlike other ISO proposals, the Arizona ISA is designed expressly (and only) to facilitate the state's plan for retail electric choice, and says it will operate only as an interim agency, pending formation of the Desert Star Regional Transmission Organization. The ISA plans to reserve 300 megawatts of firm transmission capacity provided by its members for competitive service offerings for consumers, called allocated retail network transmission (ARNT), which comes out of capacity already dedicated to retail service by the various utility transmission providers. Thus the ISA claims it need not file an OATT with the FERC, since it will not own, maintain or control transmission facilities, and since it believes that its ARNT concept "will not impede any wholesale uses of the system."
Salt River Project, the largest Arizona utility remaining outside the ISA (and working with others to form Desert Star), has not opposed the plan, but has its doubts.
"SRP is concerned that in acting upon the ISA's filing, the FERC may inadvertently _ circumvent the ongoing stakeholder process with Desert Star." .
Locational Marginal Pricing. The FERC reaffirmed its November 1997 order that approved the PJM ISO, denying virtually every material request for rehearing or modification, including attacks on PJM's model for locational marginal pricing, its designation of zones for zonal license plate pricing, and its allocation of fixed transmission rights (FTRs) to hedge against congestion costs (but see story below). .
PJM Congestion Rights. The FERC accepted an offer from the PJM Interconnection to remove "grandfather" preferences and reallocate fixed transmission rights (FTRs) on a load-ratio basis effective June 2001, marking a partial victory for Old Dominion Electric Co-op, which had claimed injury from locational marginal pricing (LMP) and an alleged preferential allocation of FTRs for hedging grid congestion to vertically integrated investor-owned electric utilities. .
Michigan Transco. The FERC OK'd a proposal by DTE Energy Co., to form a stand-alone, for-profit transmission company known as International Transmission Co. with an unusual rate structure, despite the drawback that ITC had not yet turned over control of grid facilities to an approved regional transmission organization.
Concurring commissioner Linda Breathitt admitted that approval was "difficult" without an RTO structure, but rationalized that DTE was taking "true and sure steps" toward participating in an RTO.
The innovative rate structure will set transmission rates equivalent to the transmission component embedded in the bundled retail rates of the former vertically integrated utility, thus essentially freezing transmission rates until 2006, when a state-mandated freeze on retail electric rates would be lifted.
The FERC decided that if ITC should fail to become independent of Detroit Edison within 24 months and does not join an approved RTO by Dec. 15, 2001, then it must pay refunds with interest on all transmission service provided under the new rates. ITC, a member of the proposed Alliance RTO, agreed not to challenge a FERC order assigning it to an RTO of the FERC's choosing should it fail to satisfy the RTO commitment. .
Midwest Membership Shuffles. Illinois Power announced on Sept. 20 that it would withdraw from the Midwest Independent System Operator to join the for-profit Alliance Regional Transmission Operator, saying it wanted to align the company with other utilities with more experience with deregulation.
"[The fact that many members operate in retail choice states] alone makes the Alliance RTO a better tool to help promote competition in Illinois," said Kathy L. Patton, Illinois Power vice president and general counsel. "Our decision was also influenced by other benefits provided by the Alliance RTO, including price certainty and the elimination of stacked or 'pancaked' rates. Furthermore, as a for-profit entity, the Alliance RTO has the incentive to move power economically, efficiently, and effectively."
The MISO charter allows for member withdrawal if ownership of the transmission assets changes_a requisite met by the February merger of Illinova Corp., Illinois Power's former parent company, and Dynegy Inc.
The next day, Sept. 21, the MISO board OK'd three new applicants for ISO membership as non-transmission owner members: Indeck-Rockford LLC, an exempt wholesale generator, and power marketers Conectiv Energy Supply Inc. and Tenaska Power Services Co., bringing to 28 the number of non-transmission owners participating in MISO.
NY Cash Infusion. The New York PSC--giving the matter emergency treatment--OK'd an additional $38 million in working capital for the New York ISO in the form of revolving credit, boosting the ISO's total line of credit from $12 million to $50 million. The PSC also OK'd a bridge loan that will provide working capital until the revolver has been implemented.
"[U]nless the credit facilities are approved quickly, the NY ISO may not have enough cash on hand to pay its bills," the PSC said. .
Cost-Based Re-regulation. The California Municipal Utilities Association asked the FERC to re-impose traditional cost-based rates on everyone selling into California's wholesale power markets.
CMUA would have the FERC suspend market-pricing mechanisms by the California Power Exchange and Independent System Operator, on the grounds that wholesale power markets in California are not sufficiently competitive to rely on competition as a substitute for a "just and reasonable" rate, as required by the Federal Power Act.
"Some may argue that 'the toothpaste cannot be put back into the tube,'" said the group. "CMUA does not discount the difficulties ... but asks, 'Difficult compared to what?'" .
Virtual Trading. The FERC ordered the New York ISO to report back by Jan. 1 on a plan to allow bidding by nonphysical market participants (those not serving actual load) in the ISO's day-ahead and real-time energy markets. The FERC predicted that virtual bidding was not a matter of "if," but "when." Nevertheless, it warned of difficulties in software conversion. "It is imprudent," said the FERC, "to introduce sudden overrides and quick fixes." Morgan Stanley had complained that the NY ISO policy barring power marketers and other so-called "virtual" players from bidding had harmed power marketers by limiting them from hedging risks from price swings between the day-ahead and real-time markets, thus reducing liquidity, impeding efficiency, and distorting prices. .
California Price Spikes. In a statement released at the FERC's field hearing held in San Diego to address last summer's high power prices in California, San Diego Gas & Electric Co. said that reform proposals now under discussion at the California ISO mark "a step backward" that will "perpetuate an inherently inefficient" market design.
"The ISO's stakeholder process is producing flawed reform proposals," said SDG&E. "We will protest the ISO staff's reform proposals if they are filed at FERC as currently contemplated."
SDG&E submitted detailed evidence of pricing anomalies at the Power Exchange and the ISO, and blamed the problem on what it called California's "unique de-centralized approach" to market coordination, which relies on private scheduling coordinators to take the lead role in managing congestion, instead of handing that job to the ISO itself, as is done generally in the U.S. Northeast.
Earlier, on Aug. 31, Sempra Energy (SDG&E's parent company) had joined with two consumer advocacy groups in California (TURN and UCAN) to submit a formal white paper to the California ISO CEO Terry winter and the ISO board of governors. The white paper offers a comprehensive proposal for reforming the ISO market, and describes in great detail the various internal reform proposals under discussion at the ISO itself.
That study, "Comments on the Congestion Management Proposals of the California ISO," was prepared by Scott M. Harvey, managing director, LECG/Navigant Consulting Inc., and professor William W. Hogan, of Harvard University.
"We conclude," say Hogan and Harvey, "that the basic reform approaches recommended by the California ISO are not likely to support an efficient market. ... [T]he CAISO proposals suffer from a systematic failure to address the most fundamental requirements of effective congestion management."
Instead of addressing the FERC concerns, Hogan and Harvey predicted that current ISO proposals would create new problems:
- Commitment decisions pushed further forward in time.
- Market complexity and higher operating costs.
- Higher transaction costs for hedging congestion with fixed transmission rights.
At the hearing itself, TURN lawyer Mike Florio was no more optimistic. He saw virtually no chance of significant reform from within at the California ISO:
"I'm on the ISO board, and it pains me to have to say this, but I don't think you're going to get the kinds of changes that you need with the current structure of that board. In fact, I would say the ISO is incapable of fixing itself.
"We have a board that's mired in self-interest and ideological rigidity that insists that it has to do something different from what the professor from Harvard tells them, even if his market structure works and theirs doesn't.
"You are not going to get any fundamental change in the congestion management reform proposal. We've already had the initial votes at the ISO. And it's clear that the majority there favors maintaining the course of cosmetic changes."
According to UCAN executive director Michael Shames, the FERC faces a moment of crisis.
"I suggest to you, bluntly, that you are on trial [and] in addition ... you need to get new counsel. Because I think frankly your agency is in trouble of losing this case." .
New York Price Spikes. In a one-page letter mailed Sept. 5, FERC chairman James Hoecker told New York City Public Advocate Mark Green that the FERC would not open a separate investigation of electric price spikes in the downstate area. "I, like you, am concerned," wrote Hoecker. But the chairman cited FERC orders allowing the New York ISO to set caps and restrictions on bidding in various energy markets, and reasoned that no separate study was needed.
MAAC Region. The Mid-Atlantic Area Council, the regional reliability council that covers essentially the same region as the PJM Independent System Operator, has OK'd and filed a new governance agreement, reportedly approved by 95 percent of MAAC members, and creating among other things a new energy market committee to examine the interplay of electric reliability and commercial power markets.
MAAC noted that its old governance agreement was behind the times, as it had allowed only 13 full voting members out of a total member role that had swelled to 180, with the addition of many private power producers and marketers. Under the new governance, MAAC will employ an 11-member administrative board and will contract with PJM for administrative support. .
Resource Planning. The Iowa board, citing a need to take a "proactive role" in improving the state's energy outlook over the next decade, said it would expand its investigation into transmission and distribution reliability to include generation resource planning. The board noted that the "Mid-Continent Area Power Pool 2000 Load and Capability Report" projects that MidAmerican Energy Co.'s capacity reserve margin will be 16.5 percentonly 1.5 percent above MAPP's 15 percent reserve requirementand that reserve margins are projected to fall below 15 percent by summer 2003. The state's three investor-owned utilitiesIES Utilities Inc., Interstate Power Co., and MidAmericanare to file on or before March 1, 2001 information for 2001 through 2010 on resource planning, reserve capacity projections, and "weather assumptions" used in forecasting load. .
Nuclear Shutdown Costs. The FERC affirmed that on the shutdown of the Connecticut Yankee nuclear plant, the plant owners could recover costs relating to amortization of investment and other matters separate from the decommissioning itself. .
Divested Plants. The FERC agreed to hear a complaint filed on June 30 by Allegheny Electric Co-op, accusing Pennsylvania Electric (Pennelec) of charging discriminatory rates for wholesale power supply because the contract rate was based on costs of power plants subsequently sold off under restructuring orders. The FERC set a date of Oct. 1, 2001 for an initial decision in the case. .
Electric Retail Choice. The District of Columbia PSC took the first major step to implement the city's new law on electric restructuring by mandating that all DC residential electric customers should enjoy retail supply choice by Jan. 1.
The order allows customers to switch back and forth from suppliers to standard offer service as often they wish, but also allows the local utility (Potomac Electric Power Co.) to ask for reconsideration if it can show that such liberal switching allows customers to "game" the system.
The PSC OK'd the use of electronic data interchange (EDI) for data transfers, and a working group will report back on ideas for monitoring market power. .
Metering & Billing. Virginia regulators set a public hearing for Nov. 1 to consider a draft plan under its electric restructuring law for the design of retail electric metering and billing services. .
Municipalization. In its first decision on the issue, the New York PSC directed a municipality to pay an exit fee (nearly three times the settlement offered by the village) to the regulated investor-owned electric utility to cover the utility's stranded costs resulting from a decision by the village to form its own municipal utility distribution system.
The PSC rejected claims by the village (Lakewood) that stranded costs need only include avoided marginal operating costs, describing that idea as "unfair and contrary to our long-standing policies to discourage uneconomic bypass of the company's delivery system."
The PSC noted that the utility designed and operated its existing system under legal obligations to serve all customers in its territory regardless of cost. "Lakewood unfairly proposes an exit fee as if such requirements never existed," the PSC said. .
Natural Gas Commodity Prices. The Kentucky PSC opened an investigation of natural gas prices, which it said had doubled in July from the year before. It will ask whether natural gas local distribution companies are extending best efforts to procure gas for resale at a reasonable cost, and whether they are conducting purchases with affiliates at arm's length. .
Gas System Maintenance. The Pennsylvania PUC told the Philadelphia municipal gas utility to develop a plan for more aggressive pipeline inspections, after the PUC took jurisdiction over the municipal utility for the first time under the new state law on natural gas deregulation. "Considering the age of PGW's system, as well as the high density of service connections per mile of main, we are taking extraordinary measures to ensure that safety inspections occur much more frequently than required by federal standards during this initial winter season," the PUC said. .
Standard Offer Tariffs. The Arkansas PSC issued guidelines for electric utilities to file standard offer tariffs to carry out the state's plan for electric retail choice, but stressed that it would not OK any final tariff design that would leave standard service customers completely exposed to short-term market volatility.
"A blend of market sources for the standard service package should provide a fixed-price offer over some fixed period," the PSC said, specifying that a yearly rate, a seasonal rate, or an annual schedule of monthly rates may be acceptable.
The PSC also refrained from approving any specific measures to prevent gaming by customers who switch back and forth between services. It said it was more concerned that customers might hesitate "to go shopping if they know they may [have to] pay a higher price when they return," it said. .
PX Price Passthroughs. Citing a lack of evidence that the delay resulted in "economic or competitive harm," the California PUC declined to penalize Pacific Gas & Electric Co. for not implementing a previously approved weekly averaging method in calculating the California Power Exchange price for direct access customers.
PG&E had attributed problems with its customer information system to computer upgradea matter also under recent investigation by the PUC. .
Studies & Reports
Gas Price Shocks. A "continent-wide response" by industry and government will be needed to address the current natural gas price "shock" and meet the nation's long-term energy supply needs, according to Daniel Yergin, chairman of Cambridge Energy Research Associates, speaking at the Governors' Natural Gas Summit in Columbus, Ohio.
By most utility estimates, the gas shock will force bills higher this winter by 20 percent to 40 percent for residential heating, and from 50 percent to 100 percent for industrial gas use. Yet Yergin distinguished the current "shock" from a bona fide "crisis."
"The resource base in North America remains vast," he noted. "Supply development over the last few years has slowed in response to oil and gas price declines in 1998-99 and the sharp contraction in capital expenditures needed for exploration and production,"
Yergin said, adding that production eventually will increase, but it will take time for "the iron law of lead times" to take effect. Yergin added, however, that at the same time that gas production capability in the United States is down some 7 percent since 1997, demand for natural gas is at record highsdue largely to the proliferation of natural gas-fueled electric generation turbines.
Load Management. Investor-owned utilities in 1998 spent more than $376 million on load management, according to a study, "Load Management Benchmarking," released by the Edison Electric Institute. The study identifies 27 gigawatts of load reduction potential as of 1998, equivalent to 54 power plants rated at 500 MW each.
"This study confirms that shareholder-owned electric utilities recognize that it makes good business sense to invest in programs that help our customers manageand potentially reducetheir peak load usage on the system," said Michael McGrath, EEI group director, energy services. Contact Dan Riedinger, 202-508-5483.
Retail Generation Markets. Competitive retail generation markets in the United States are worth $4 billion annually in eight states with electric choice, with the largest markets in California and Pennsylvania (over $1 billion each), according to estimates from Retail Energy Foresight, a new publication from XENERGY. (Other states included in the group: N.J., N.Y., Mass., Conn., Maine, and Illinois.)
By 2002, competitive retail energy sales will reach at least $12 billion annually, as additional markets open up in Texas and Ohio, according to managing editor Tom Michelman.
Wheeling Requests. Reversing a federal district judge, a federal appeals court ruled that PacifiCorp had no right to state action immunity against possible antitrust liability where it refused to provide wheeling transmission service to a rural electric cooperative to allow the co-op to supply retail power to a PacifiCorp customers.
The court explained that PacifiCorp failed to justify immunity since Idaho state law exerted no active supervision over state law provisions that sanctioned private agreements to allocate service territories and divide up customers. .
Wholesale Gas Procurement. Reversing a state appeals court, the Indiana Supreme Court upheld an order by state utility regulators that allowed natural gas local distribution companies to create a joint venture and limited liability companyknown as ProLiance to take over the existing gas supply contracts and pipeline capacity held by the LDCs and assume responsibility for negotiating new gas supply contracts on behalf of the LDCs, passing gas purchase costs along to them at indexed prices, rather than cost of service.
Certain gas customers had attacked the scheme as an attempt by the LDCs to circumvent state regulation, and because the LDCs had failed to submit the plan under a special state law for governing alternate forms of regulation. .
Pilot Programs. The Ohio Supreme Court upheld a ruling by state regulators that allowed an electric utility to devise a pilot program with discount contracts that were not available throughout the utility's service territory. The program had allowed certain Cleveland-area industrial and commercial electric customers to obtain competitive power supply from a nearby municipal supplier. .
Caminus Corp. and HoustonStreet Exchange have spearheaded the formation of the Energy Trading Standards Group, an open consortium with the goal of developing standards to automate the sale of wholesale energy and improve information sharing between energy trading companies. The ETSG consortium will develop open standards to communicate energy trade data based on extensible markup language (XML) technology for business-to-business Internet commerce. Along with Caminus and HoustonStreet, consortium members include ABB Energy Information Systems, Automated Power Exchange, Open Link Energy, RedMeteor.com Inc., Triple Point Technology Inc., GFInet, and Sapient. The companies will initially create standards for exchanging data between online trading platforms and transaction/risk management systems used by wholesale electricity and natural gas trading companies.
Altrade Power, an independent online trading exchange operated by Altra Energy Technologies Inc., set an all-time monthly volume record in August of 18.9 million megawatt-hours, surpassing its previous record of 14.8 million MWh set in February. August also saw a record number of trades. The number of users on Altrade Power has increased by 25 percent since the beginning of the year, despite slower adoption rates for online trading among power traders as compared to traders of other commodities.
American Superconductor and GE Industrial Systems, which have formed an alliance to market and sell Distributed Superconducting Magnetic Energy Storage systems as a co-branded product to utilities to improve power grid reliability, have received their first order for a D-SMES system. The first buyer of the system was Entergy Corp., which will deploy the system in one of its power grids in Texas in early 2001.
Sempra Energy Trading has opened an office in Madrid under the name Sempra Energy Europe España. Sempra Energy Trading established operations in Spain to take advantage of the wholesale market opportunities in the newly deregulated Spanish electricity market.
PG&E Corp.'s National Energy Group hosted a ribbon-cutting ceremony marking the beginning of commercial operation of the largest wind power plant in the eastern United States, an 11.5-MW facility in Madison County, N.Y. The project is located on farmland and consists of seven Vestas 1.65-MW wind turbines. The plant is New York's first commercial wind farm.
USEC Inc. has signed an agreement with the U.S. Department of Energy to begin designing a new gas centrifuge based on the uranium enrichment technology developed by DOE in the 1980s. This work will enable the company to determine the feasibility of deploying a centrifuge plant in the United States, while continuing to review other technology options.
The Shaw Group Inc. and Entergy Corp.'s non-utility wholesale operating group have signed a definitive agreement creating EntergyShaw LLC, a new company that will provide management, engineering, procurement, construction, and commissioning services to build electric power plants worldwide. Jim Early, a senior vice president of Shaw, has been appointed president.
Mergers & Acquisitions
National Grid + Niagara Mohawk. Great Britain's National Grid on Sept. 5 announced that it will acquire New York-based Niagara Mohawk for $3 billion. National Grid recently acquired New England Electric System, which holds four electric distribution companies in Rhode Island, Massachusetts, and New Hampshire.
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