News Digest

Dynegy's David Francis, vice president for western power trading, testified on Dec. 21 on why he thought the ISO was bending the rules:
Fortnightly Magazine - February 1 2001


News Digest



Rate Discount Contracts. A Kansas court upheld a state commission rate case ruling that refused to impute revenues to UtiliCorp to offset revenues lost in offering rate discount contracts to large-volume electric customers, despite arguments by a consumer group that UtiliCorp was shifting costs to build its unregulated Aquila merchant energy business, since the commission earlier had OK'd the flexible tariffs that allowed such contracts, without challenge.

Yet the court acknowledged arguments that opponents could not have fought the tariffs without actual data showing their effects, and expressed concern that state regulators had not examined possible economic effects of rate discounts when the tariffs were approved. .-B.W.R.

Ad Valorem Taxes. A Louisiana appeals court instructed a state trial court to hear a suit by a gas pipeline that attacked the state's policy of levying ad valorem taxes on 25 percent of fair market value of utility property, compared to only 15 percent of the value of nonutility property. .-B.W.R.

Property Taxes. A Kansas court ruled that while state tax assessors had used the "income," "cost," and "market" approaches to set the value of property for an interstate gas pipeline, it was unlawful to calculate the intrastate Kansas share by reference only to original cost, since state law required tax assessments to reflect fair market value. .-B.W.R.

Territorial Disputes. Reversing a state trial judge, a South Carolina appeals court barred a rural co-op from offering electric distribution service in a residential subdivision by an adjacent town, because the population of the annexed locality exceeded 2,500, and thus could not be considered as a "rural" area eligible for service from a co-op. .-B.W.R.

Mismanagement Penalties. The Vermont Supreme Court upheld a ruling by the state public service board that cut return on equity in half for Citizens Utilities-from 10.5 percent to 5.25 percent-rejecting utility claims that the penalty was confiscatory. .-B.W.R.

Nuclear Waste Fund. A federal appeals court allowed a group of nuclear electric utilities to go forward with a suit asking not for money damages, but for an injunction, a declaratory judgment, and prospective equitable relief from obligations under the Energy Policy Act of 1992 to pay a share of costs incurred by the Department of Energy for decontaminating and decommissioning certain uranium processing facilities. .-P.C.

Review of Contracts. A federal appeals court overturned a ruling by the FERC that had reformed a contract for sale of output from the Pilgrim nuclear plant, saying that regulators cannot remake the return on equity set by contract even if the rate appears unreasonable in light of current capital costs. The court accused the FERC of becoming "hostile" to the Mobile-Sierra doctrine, which limits the right of regulators to reform contracts they see as unfair. .-P.C.

Municipal Utilities. The Ohio Supreme Court ruled that municipalities may not buy electricity solely for resale to customers outside city lines (in this case, a large industrial plant), but may sell only the surplus power left over in serving city residents. -P.C.

State Legislatures

Electric Cooperatives. The Virginia, Maryland, and Delaware Association of Electric Cooperatives unveiled proposed legislation on Dec. 13 that, if passed, would allow any of Virginia's 12 electric cooperatives to vote for self-regulation, thereby removing their operations from the jurisdiction of the Virginia Corporation Commission. The Virginia legislature gave that right to the state's telephone cooperatives in a law passed in 1998.-L.A.B.

Transmission & ISOs

Midwest Defections. Like a "spooked herd," a group of six transmission-owning electric utilities asked permission from the FERC on Dec. 19 to withdraw from the Midwest Independent System Operator, noting other utilities had said they intended to leave also, a fact that would bifurcate MISO into two noncontiguous halves and render the ISO "deficient" under FERC standards of scope and configuration. And just three days later, ComEd filed its application to quit. But Dynegy, which had asked FERC back in October for permission to leave, continued to face heavy opposition.

  • The group of six (Central Illinois Light, Cinergy, Hoosier Energy, So. Illinois Power Co-op, So. Indiana Gas & Electric, and Wabash Valley Power) said it would be "impossible" for MISO to operate without the three initial proposed defectors (Ameren also had threatened to quit), because of (1) an absence of physical interconnection among all member systems, (2) removal of crucial regional flowgates from ISO control, and (3) the impact of parallel flows between systems under the control of MISO and the proposed Alliance RTO.
  • Meanwhile, a municipal utility group led by Wisconsin Public Power Inc. continued to fight to save MISO, protesting that neither Dynegy nor ComEd had fulfilled the contractual prerequisite for withdrawal-namely, changed ownership of transmission facilities. "A single pistol shot by the commission can halt this regrettable stampede," said attorney Cynthia Bogorad, of Spiegel & McDiarmid, stating the case for saving MISO. "But the shot must be heard soon."
  • According to Bogorad, the Dynegy and ComEd proposals "spooked the herd." She claimed that in the last two months of 2000, "MISO has gone from being a vital FERC-approved ISO-one having a merger agreement with MAPP, good prospects of attracting additional membership in Michigan, Canada, and the Southwest Power Pool, substantial physical infrastructure under construction (near Indianapolis), a growing staff, one $100 million bond issuance floated and [another] pending-to an organization on the edge of a cliff." .-B.W.R.

Grid Management Charge. The FERC suspended the new proposed unbundled grid management charge proposed by the California ISO to recover its administrative and operating costs, citing a likelihood that the rates might be discriminatory. .-B.W.R.

Interregional Coordination. Four key players in electric policy-Enron, ELCON, EPSA, and Dynegy-plus a fifth, Reliant Energy, together asked the FERC to convene a technical conference to provide guidance on interregional coordination between regional transmission organizations (RTOs), to focus on such "seams" issues as congestion management, generation interconnection, and ancillary services, plus

  • Protocols, emergency procedures, curtailment, market closing times.
  • Ramp rates, definition of proxy buses, etc.
  • Rate reciprocity, wheeling-in and wheeling-out.
  • Calculation of ATC (Available Transmission Capacity), TTC (Total Transmission Capability), and CBM (Capacity Benefit Margin).

The group noted that "few" of the recent RTO compliance filings had showed any "meaningful steps" toward interregional coordination, and also observed that in its recent investigation of bulk power markets in the Northeast, the FERC staff had found "significant seams issues that are inhibiting commerce in the region." .-B.W.R.

Arizona ISA. The Arizona Independent Scheduling Coordinator asked the FERC to rehear its November order accepting the ISA's tariff, saying that, contrary to the FERC's assumption, the unique electric restructuring plan in Arizona stipulates that retail customers taking standard offer service will not see an unbundling of their retail transmission service, as will customers dealing with a competitive retailer. .-B.W.R.

Wisconsin Transco. A group of Wisconsin industrial customers has protested rates proposed by American Transmission Co., the independent transco created by Wisconsin state law, complaining that ATC's proposed 12.2 percent return on common equity is "grossly" high and will hurt Wisconsin industry in competing on a national scale. As the group explained, "ATC is the first transco of its kind in the country and its formation should be handled with care." .-B.W.R.

Transco Divestiture Profits. Michigan regulators OK'd a request by Consumers Energy to award 50 percent of the net premium above net book value to shareholders on the sale of its transmission assets to its proposed for-profit Michigan Electric Transmission Co. (MET), with the remaining 50 percent of such proceeds used to reduce transition costs pertaining to the state's plan for retail supply choice.

Meanwhile, MET's first proposed open-access transmission tariff was pending before the FERC, where MET answered protests by saying it would continue to honor its existing transmission agreements. .-B.W.R.

ICAP Deficiency Charge. In a hotly contested dispute, the FERC rejected a proposed capacity deficiency charge of $0.17 per kilowatt-month to meet the installed capability (ICAP) requirement imposed in ISO New England to help maintain generating capacity reserves, and reinstated a 10-year-old, administratively determined charge of $8.75 per kW-month. The order fell under attack immediately by state regulators and industry players in the Northeast.

  • Central Maine Power asked for an emergency stay, comparing the FERC order to the Grinch in the Dr. Seuss book, and complaining that the FERC's order would force it to shop in a bilateral contract market "where ICAP costs are running three to five times greater" than before the FERC acted. The utility said the ICAP rate "has no relevance to current New England Markets." And at National Grid USA, senior vice president Robert McLaren complained that with his company's need to go to bilateral markets to buy ICAP supplies for standard-offer customers, "each one-dollar increase in the ICAP deficiency charge would increase costs paid by [company customers] by more than $14 million per year."
  • Adding its voice, the Maine PUC complained that the new interim charge would apply retroactively and thus would offer no incentive to solicit generation-instead, the PUC said it "would only benefit those generators who were already operating by providing them a windfall." The PUC added that the ICAP order, "coming on top of already high forward prices," had forced it to dismantle the standard-offer bid process in Maine. ()
  • The Massachusetts Office of Consumer Affairs also chimed in, calling the ICAP charge an "artifact" inconsistent with markets. "Today's energy market routinely clears at prices many times the real-time marginal cost of energy," said energy division legal counsel Mathew Morais. "There is no compelling need to assure all generation owners that their fixed costs will be fully recovered through an administrative charge." .-B.W.R.

FTR Auctions. The PJM Interconnection filed attachment K to its open access transmission tariff, to limit the amount of congestion credits available through a fixed transmission right (FTR) acquired through an FTR auction, to discourage FTR holders from inducing artificial congestion. As PJM explained, its market monitoring unit feared that traders could purchase FTRs in the monthly auction, but then later submit bids in the day-ahead market designed to create congestion to artificially inflate the value of FTRs. The new amendment denies any return over the FTR auction cost if such bids create more congestion in the day-ahead market than occurs in real time. .

Must-Run Contracts. The FERC rejected attempts by power producer Southern Energy to force the California ISO to pay certain foregone revenues (lost opportunities to sell energy into other, more lucrative markets) in addition to the fixed option payment the generator would receive for selling the output of its generating plants under RMR contracts (for "regulatory must-run" plants) with the ISO. RMR plants are those that must be dispatched to serve customers because of transmission constraints that preclude reliance on other plants. .-L.A.B.

Congestion Management. Lamenting that "no 'off-the-shelf' system is available," ISO New England announced it would take another 15 to 17 months to put in place Phase I of its proposed, single-settlement congestion management system, to include locational pricing, a security-constrained economic dispatch and financial congestion rights. Phase 2-a multi-settlement system with bidding on congestion, demand-side resources and a four-hour reserve market, would follow 12 months later.

The ISO said the Phase 1 improvements were needed to address "major problems" with monthly uplift in transmission (congestion rent) and energy averaging $16 million and $9 million, respectively, during 2000. As it explained, "energy uplift" occurs when units are dispatched through a pay-as-bid auction at a price above the energy clearing price. It said the region's pay-as-bid auction had escalated in size and cost, leading generators to submit bids less flexible than actual unit characteristics, and depressing prices received in the parallel central clearing price auctions for energy and reserves.

The ISO added that it had signed a contract with ALSTOM ESCA, its primary software vendor (and the vendor for PJM's multi-settlement system), and expected to sign a contract with CAP Gemini Ernst & Young for certain program management services, such as integration testing. . -B.W.R.

New York Reforms. The New York Department of Public Service recommended on Dec. 14 that the New York ISO should adopt a wide range of operational reforms and consumer safeguards, including a price cap of $150 per megawatt-hour on wholesale power, with "circuit breakers" set at even lower price thresholds to help detect and prevent market manipulation.

The 125-page study, offers details on how the ISO operates (load zones, dispatch, system balancing, locational marginal pricing, congestion management, real-time markets, etc.).

It also calls for granting retroactive refund authority to the ISO to return ill-gotten gains to consumers. "FERC must give the NY ISO stronger enforcement power-and the ISO must use it-to reduce the potential for market power abuses," said New York PSC Chair Maureen O. Helmer. . -L.A.B.

Playing Favorites
Dynegy says California ISO grants sweetheart deals to out-of-state plants.

Claiming $2 million in loses since Nov. 1, Dynegy Power Marketing Inc. accused the California Independent System Operator of playing favorites when it goes looking for energy to cover imbalances or supply ancillary services for the next day during a "super peak," by going out of state to negotiate purchases from off-system generators at lucrative high market prices, while at the same time forcing in-state, on-system generators (like Dynegy), to honor their commitments under the Participating Generator Agreements and supply energy to the ISO on the ISO's demand through the remedial "Out-of-Market" (OOM) tariff procedure, at much lower preset prices.

In its complaint filed Dec. 22, Dynegy asked the Federal Energy Regulatory Commission to force the ISO, no later than March 1, to honor its "long-promised proposal" to create a third payment option (instead of the OOM rate or selling through an institutional auction like the California Power Exchange), that would permit a generator subject to OOM calls to elect to be paid its day-ahead pre-submitted bid or call price.

Meanwhile, the ISO insists that it is "willing to review" alternative payment approaches. But it says it will discuss the matter only if Dynegy will cooperate and respond when the ISO calls during an emergency to issue operating instructions for Dynegy's generating plants.

Dynegy's David Francis, vice president for western power trading, testified on Dec. 21 on why he thought the ISO was bending the rules:

"I AM RESPONSIBLE FOR, AMONG OTHER THINGS, monitoring the supply and demand in various markets administered by the California Power Exchange, the ISO, the Automated Power Exchange and other bilateral markets. ... I make my decisions ... based on my knowledge of the operating conditions in the markets. ...

"IN SEVERAL CASES I HAVE OBSERVED THAT THE ISO HAS ACCEPTED OFFERS from suppliers in the forward Super Peak markets administered by the PX and APX at prices that exceed the applicable bid cap in use by the ISO. In addition, I have witnessed instances in which Dynegy had offered energy at a compensatory price in these same markets, had the offer declined by the ISO, and then had the ISO order Dynegy to provide energy at a price dictated by the ISO's filed OOM cap, which price was in fact lower than the compensatory price that was required for the unit in question for the applicable time period.

"MY CONCLUSION FROM THESE OBSERVATIONS IS THAT THE ISO HAS BEEN WILLING to negotiate with the owners of generating units that are not located within the ISO control area, and thus do not have a Participating Generator Agreement, but that the ISO has not been willing to negotiate a price above the bid cap in any instance in which a unit also has a PGA contract. ...

"MOREOVER, I HAVE WITNESSED OTHER INSTANCES when the ISO has called upon an RMR [regulatory must-run] generating unit to supply energy at minimum load at the price called for under the RMR contract, and then required additional energy from the unit under the OOM procedures and at OOM-determined prices, which in most high natural gas pricing periods will be lower than an individually determined RMR price and also lower than the Imbalance Energy price for the hour(s) in question."

David Francis
Vice President
West Power Trading
Dynegy Power Marketing

But earlier, on Nov. 22, the ISO's Randy Abernathy had dismissed such concerns in a letter to Dynegy divisional vice president Lynn Lednicky:

have given the ISO concerns about the willingness of Dynegy to respond to ISO instructions. This concern was the basis of a phone call this afternoon. ...

"BASED ON THAT CALL, IT IS OUR UNDERSTANDING that Dynegy will respond and operate when called. Secondly there is a disagreement over compensation for those calls [demands for energy]. While the ISO is willing to review alternate payment approaches in the longer term, it is imperative in the short term that Dynegy responds to ISO operator instructions.

"SO THAT BOTH PARTIES UNDERSTAND THE NATURE OF THE ISSUE before us, the potential consequences of such a failure to respond, the ISO wishes to clarify the following points. ...

"IT ALSO SEEMS NECESSARY TO CLARIFY that ISO reliability instructions are not to be made a function of debates regarding payments above the current ISO price cap. The ISO is well within its authority to call upon a Participating Generator to provide energy out of market without reference to prices bid above the price cap. Consistent with FERC's orders, bids above the ISO's price caps are rejected.

"FINALLY, YOU SHOULD BE ADVISED THAT, given current system conditions, any unit outages not included in annual maintenance plans submitted to the ISO are subject to investigation and possible sanctions. ..."

Randy Abernathy
Vice President, Client Services
California ISO

Dynegy counters that it cannot operate its plants at the low OOM rate, claiming, for example, that with delivered natural gas costs reaching $40 per million Btu, and NOx emissions costs at $50 per pound, that its El Segundo Units 1 and 2 (called to run at a 70-MW load) require a payment of $660 per megawatt-hour just to meet marginal costs.

"The Participating Generators," says Dynegy, "should be paid a compensatory rate.

"By employing OOM provisions before exhausting competitive offers to remedy potentially thin markets," says Dynegy, "the ISO has repeatedly paid Participating Generators rates that are below short-run marginal costs."

Dynegy sees the ISO as playing favorites: "The ISO has repeatedly called on Dynegy to supply it energy when the only plausible motivation that can be discerned is a cost-cutting tactic designed to avoid paying a higher price demanded from other available suppliers."

Gas Pipelines

Non-Spinning Reserves. Finding fault with a fix-it plan proposed in September, and seeing no resolution of market flaws, the FERC told the New York ISO to maintain its existing price cap of $2.52 (plus opportunity costs) in the non-spinning reserve market, and ordered a technical conference to explore possible solutions.

"We find that the present state of the ... market is largely the same as that which precipitated mitigation in the first place," said the FERC, noting that several market flaws continued to persist: (1) a highly concentrated market, (2) no viable plan for allowing some participants to "self-supply" their own operating reserves, and (3) no solution to the problem of moving power reserves across transmission constraints from western New York to the eastern sector.

Dissenting commissioner Curt Hébert questioned the idea of a conference: "The exchange ... may make for an interesting salon, but will lead nowhere." . -L.A.B.

Michigan Transco Plan. Facing widespread opposition, the FERC agreed to rehear its order that allowed International Transmission Co. (to be created by Detroit Edison) to charge transmission rates pegged and frozen at the level of the transmission component of Detroit Edison's retail bundled electric rates, as set by the Michigan PSC. .

Must-Run Protocols. The California PUC, ISO, and Electricity Oversight Board each filed protests opposing a new formula rate tariff proposed by Southern Energy Delta and Southern Energy Protrero, which is designed to allow Southern Energy to recover any potential revenues that it might otherwise lose on reliability must-run (RMR) plants because of new ISO Tariff Amendment 26. That amendment, known as the "pre-dispatch protocol," now forces RMR plant owners to choose between two alternative forms of payment: (1) the standard RMR contract payment, which includes variable costs plus a fixed-option payment for capacity value; or (2) the market-clearing price in the day-ahead energy market, but forces RMR owners to make that choice blindly, before the day-ahead market clears and the price becomes known.

Southern Energy claims that the RMR contract allows plant owners to file rate changes to recover unforeseen costs imposed by future ISO tariff changes, but the PUC, ISO, and EOB claim that Southern's proposed formula rate is open-ended, putting no cap on potential recoveries, which would depend on differentials between RMR contract rates and hourly markets.

In particular, the ISO points out that the availability of the RMR contract rate actually makes RMR owners better off than other generators, since RMR plants with high startup costs or long ramp-up times can keep running and avoid off-peak losses during periods when day-ahead market rates might otherwise fall below variable running costs. The ISO opposes recovery of opportunity costs, insisting instead that RMR dispatch should allow plant owners only to recover any net incremental costs (netted against incremental revenues) incurred by making their plants available for must-run dispatch. .

Midwest ISO Defections. State utility commissions in Illinois and Michigan urged the FERC to delay its review of the request by Illinois Power (through its parent company Dynegy) to withdraw from the Midwest ISO in favor of the proposed Alliance Regional Transmission Organization, alleging that Illinois Power has not shown its request to be in the public interest.

Moreover, the Illinois and Michigan regulators say it would be wrong for the FERC to decide the matter before it issues final decisions on the MISO and Alliance RTO proposals (yet to be filed under FERC Order 2000).

The two commissions urge the FERC to allow only one RTO for the Midwest region. They say FERC inaction "has led directly to the RTO disarray" plaguing the Midwest, creating "uncertainty and speculation" in the region. .

Public Power Participation. Three separate cases before the FERC raise questions concerning the rights of municipal electric utilities to join the California ISO and file tariffs for transmission service provided over their own facilities, reflecting their own transmission revenue requirements (TRR).

  • In one case, the city of Vernon has asked the FERC to give "fast-track" status to its application to join the ISO-the first-ever such application by a municipal utility-to overcome alleged foot-dragging by the ISO and its participating transmission owners (PTOs). The city said it was "concerned that the ISO may be giving existing PTOs a veto right" over its application, and suggested that the PTOs were "attempting to coerce concessions ... by way of refusing to execute a [revised] transmission control agreement." .
  • In the second case, also involving the city of Vernon, the FERC said that with minor modifications it would accept Vernon's proposed TRR and 11.6 percent return on equity, as submitted by the Vernon city council (the governmental body that sets Vernon's rates), but only because the council's TRR and ROE used rate-setting methods for transmission service comparable to methods already OK'd for Southern California Edison. Thus, the FERC explained that it was not deferring to the Vernon city council, but would reserve the right to review nonjurisdictional municipal activities whenever they affect jurisdictional ISO activities. .
  • ISO Determinations. In the third case, the FERC OK'd a California ISO tariff that would require municipal utilities either to file their own TRR with the FERC for review, or to allow the ISO's own revenue review panel, after approving the municipal TRR, to submit it to the FERC for further review and acceptance, despite the FERC's lack of jurisdiction over municipal utilities. .

State PUCs

Emergency Surcharges. Facing pressure from the state's investor-owned electric utilities to provide financial relief to stave off bankruptcies, the California PUC proposed a 90-day surcharge of 1 cent per kilowatt-hour for California electric customers, applied according to usage, predicted to boost rates by about 9 percent for residential customers, by varying amounts for the small business (7 percent), medium-sized commercial (12 percent), and large commercial and industrial classes. (15 percent). . -B.W.R.

Customer Load-Shedding. Idaho OK'd a tariff proposed by Avista Corp. for during periods of high wholesale power prices to buy back electricity from certain large customers (those with a single meter with a demand equal or greater than 3,000 kilovolt-amperes), which would reduce load voluntarily in exchange for a billing credit based on the prevailing wholesale market price.

Avista must post buyback prices on the Internet. And a "most-favored-nation" clause ensures customers that shed load will receive the highest price paid on the same day to other shedding customers, if market prices fluctuate within a 24-hour period. .

Meanwhile, Kaiser Aluminum decided in December to shut down its operations and temporarily lay off its 400 workers, in order to take the cheap electric power it contracted from the Bonneville Power Administration at $22.50 per megawatt-hour and resell it on the open market at prices ranging from 875 to $1,000 per megawatt-hour. Kaiser said it would pay 70 percent of salaries to idled employees. -L.A.B.

Demand Response. New York instructed each of the state's electric distribution utilities to report back on plans and to establish certain minimum programs to help customers adjust demand in response to electricity market prices, including tariffs for voluntary real-time (hourly) pricing and emergency load curtailment, plus initiatives to accelerate installation of interval metering. . -B.W.R.

Electric Retail Choice. Virginia asked for comments on a report by its staff that recommends (despite disagreement from Dominion Virginia Power) a "flash-cut" instead of a phased-in transition to retail electric choice, which by state law must begin by Jan. 1, 2002 and must be available to all retail customers by Jan. 1, 2005 at the very latest. . -B.W.R.

Distributed Generation. Texas released a draft of its proposed Distributed Generation Interconnection Manual, governing applications to connect distributed generation resources to the power grid. The philosophy behind the manual is that distributed resources "will and should be an integral" part of the Texas electric supply system. . -L.A.B.

Nuclear Decommissioning. Illinois ruled that nuclear decommissioning trust funds must be segregated by plant, so that any funds left over from decommissioning a specific plant must be refunded immediately to customers, rather than pooled with funds accumulated to decommission the owner's other nuclear plants, as proposed by Commonwealth Edison Co.

The commission also turned aside a request by Edison to speed up collection of decommissioning funds for nuclear plants proposed to be transferred to Exelon Genco, an unregulated affiliate. . -B.W.R.

Gas Marketer Incentives. As an incentive to jumpstart competitive retail natural gas service for customers of Brooklyn Union and KeySpan Gas East, New York OK'd a rebate to competitive gas retailers of 8 percent of the gas delivery charge. The commission said the rebate would provide at least some temporary recognition that present gas transportation rates include some merchant function costs that are borne also by competitive retailers. . -B.W.R.

Standard Offer Rates. Citing "inadequate bids" because of price spikes in New England power markets, Maine terminated the formal bid process to select standard-offer electricity suppliers for Central Maine Power and Bangor Hydro, and instead told the two utilities to seek out regulated transmission and distribution utilities to serve as standard-offer suppliers.

In a companion order, the PUC amended the standard-offer prices for medium- and large-volume non-residential customers classes served by CMP, to reflect additional costs incurred by the utility to meet its prospective obligation to supply capacity for the installed capacity (ICAP) market run by ISO New England, and its potential liability to pay the ISO's ICAP deficiency charge of $8.75 per kilowatt-month, as approved on Dec. 15 by the FERC . . -B.W.R.

Standard Offer Rates. Massachusetts allowed several electric utilities to boost rates for standard offer service by 1.321 cents per kilowatt-hour to pass on to customers certain increases in fuel costs, but required two utilities to recalculate their proposed increases (1.462 cents) to reflect the most recent 12 months (instead of six months) of fuel cost data. . -L.A.B.

Billing Formats. Citing the high cost to utilities of re-writing software, Ohio denied a request by state's Council of Retail Merchants to require all of the state's electric distribution utilities to adopt identical bill formats, and issued various waivers from billing format rules:

  • Allowed to combine customer charge and delivery charge in one line item, deleting any reference to "customer charge," and to itemize "transmission service" separately from delivery charge.
  • Can redefine "delivery charge" as "charge for moving electricity over electric transmission and distribution lines."
  • After unbundling, can include separately itemized transmission and ancillary service charges in notice of "price to compare," to encourage customers to consider avoidable wires fees in addition to generation in deciding whether to switch.
  • Can eliminate "price to beat" language on assumption that customers may switch for reasons other than price.
  • Can combine customer charge with delivery charge and omit "price to compare" for demand-metered customers (as can CG&E). . -B.W.R.

Electric Metering. Virginia regulators issued a recommendation to the state's General Assembly to defer any legislative action to deregulate electric metering service, given what it described as "substantial questions" regarding benefits for residential and small commercial consumers, and the lack of market development in those states that had OK'd competitive metering.

Virginia Power, Allegheny Power, and Delmarva Power each agreed with the commission's advice, while American Electric Power and the state attorney general had urged the commission to make retail metering competitive "as soon as practicable." . -B.W.R.

Meter Service Providers. Illinois OK'd certification requirements and service standards governing meter service providers, spelling out many functions such as meter reading, installation and removal, maintenance, testing, and the collection, translation, and confidentiality of data. MSPs must maintain experienced staff on duty or on call 24 hours a day. .-P.C.

Supplier Licensing. The District of Columbia required competitive electric suppliers to post a $50,000 integrity bond (vs. only $10,000 for brokers and aggregators). It rejected proposals by the People's Counsel to require bonds of $150,000 and $250,000, respectively, for suppliers with annual revenues less than or greater than $2 million. . -B.W.R.

Other December Orders.

  • OK'd rules governing the "supplier of last resort" of electric service. .
  • Issued code of conduct for electric utilities and competitive power retailers. .
  • Allowed Bangor Hydro to form an unregulated subsidiary to offer fiber optic capacity to telecom carriers. .
  • Proposed rules under a new state law that allows rural electric co-op's to sell energy, water, and telecommunications services through separate business units. .
  • OK'd return on common equity of 12.1 percent in electric/gas rate case for Wisconsin Public Service Corp. . -B.W.R.

Power Plants

Capacity Auctions. The Texas PUC issued rules requiring all power generation companies that are affiliated with utilities to sell off entitlements to at least 15 percent of their generating capacity located in Texas, beginning 60 days prior to the implementation of customer choice, and to be completed by Jan. 1, 2007, or until 40 percent of the residential and small commercial customers served by the parent utility company have come to buy power supply from competitive retailers.

The required auctions will offer "slice-of-system" packages of entitlements that contain a mix of types of capacity- baseload, gas-fired cyclic, and gas-fired peaking-without tying such rights to individual plants. Affiliates of utilities owning less than 400 MW of installed capacity are exempt from the rule. .-L.A.B.

Fossil Unit Auctions. New York regulators approved the $903 million sale of the Roseton (2,600-MW gas/oil units) and Danskammer (two gas/oil units, two coal/gas units, totaling 500 MW) power plants, and approved "lightened regulation" for the buyer, Dynegy, subject to a load-pocket mitigation agreement and promises to retain the 145 unionized employees at the two plants, plus at least 75 percent of the management employees. .-B.W.R.

Merchant Plant Siting. The Wisconsin Supreme Court upheld an order by the state public service commission that certified construction of the gas-fired RockGen merchant power plant to supply wholesale peaking power to Alliant under a new fast-track procedure, even though the plant's size of 525 MW exceeded the 170 MW of capacity that the PSC had told Alliant to procure in the PSC's September 1997 "advance plan," and even though the statutory fast-track procedure was available only for those projects that substantially complied with the PSC's plan.

The court said it would not limit the size of new plant capacity constructed in eastern Wisconsin (a capacity-short area) absent any express words from the legislature setting a specific megawatt ceiling for particular resources, as the legislature had done in a different statute mandating certain utility investments in renewable energy. -B.W.R.

Interconnection Standards. The FERC OK'd standards for interconnection of generating plants proposed by Consumers Energy, finding them consistent with those in other open access transmission tariffs. .-B.W.R.

Meanwhile, another set of new interconnections standards, proposed by Arizona Public Service Co., drew protests from Dynegy and Reliant energy, and requests for clarification on the status of small, distributed generation facilities by the state's small consumer-owned electric systems. As it has done in other similar cases, Dynegy demanded a technical conference at the FERC and complained that the APS interconnection rules would inappropriately tie interconnection service to transmission: "It is often not the generation developer or owner," said Dynegy, "that arranges for the transmission of power produced at the facility interconnected. Instead, a marketer or other customer purchasing the power would typically reserve and schedule transmission." . -B.W.R.

Nuclear Decommissioning Costs. A federal appeals court ruled that the Nebraska Public Power District must refund some $78 million paid to it voluntarily by MidAmerican Energy (on NPDD's request) to cover possible future liability for decommissioning the NPPD's Cooper nuclear plant, since the plant's 1967 power sales contract had not mandated such payments, and since NPDD's right to hold MidAmerican responsible for a share of the ultimate decommissioning liability was yet contingent on a future decision by NPDD to close the plant in 2004, at the end of the contract term. .-B.W.R.

Hydroelectric Relicensing. Citing canoe trips as evidence of navigation in interstate commerce, the FERC licensed a hydroelectric plant on the Blackstone River in New England where previously it had not required a license. Commissioner Hèbert dissented, arguing that the FERC should not "manufacture its own evidence" when the parties themselves cannot prove a nexus with interstate commerce. "I believe the commission's spirit of activism is unfounded," said Hébert. Docket No. UL96-1-003, 93 FERC 61,247, Dec. 13, 2000.-L.A.B.

Investment Tax Credits. A federal appeals court disallowed an investment tax credit under Internal Revenue Code sec. 38 for some $7.8 million of repair work done in 1990-91 by Commonwealth Energy on its Canal No. 1 steam generating plant built in 1965. The work failed to qualify because the plant's original supply and service contract had failed to mandate any specific repair schedule or replacement of parts. .-B.W.R.

Mergers & Acquisitions

ConEd + Northeast. The New Hampshire PUC voted 2-1 to allow Consolidated Edison Inc. of New York to take over Northeast Utilities (owner of Connecticut Light & Power, Yankee Gas, and Public Service Co. of New Hampshire), after receiving assurances that ConEd would not recover the $1.5 billion acquisition premium through higher rates charged by PSNH, since the state legislature earlier had barred any such rate hike as a quid pro quo for approving the utility's securitization of stranded costs. .-L.A.B.

UtiliCorp ÷Empire. On Jan. 3 UtiliCorp said it would cancel plans to merge with Empire Electric Co. Several weeks earlier Arkansas regulators had rejected the deal, while the Missouri PSC OK'd the merger but rejected a key component of UtiliCorp's regulatory plan—a five-year rate freeze. Oklahoma said it OK'd the deal only because no party objected, but it reserved the right to scrutinize the regulatory plan in future rate cases. .-B.W.R.

Power Markets

California Crisis. The federal appeals court in Washington, D.C. denied a request by Southern California Edison Co. to force the FERC to show cause why it had not set a new cost-based rate for wholesale power transactions in markets run by the California Power Exchange and ISO. .

Meanwhile, on Dec. 15, the FERC had issued its widely reported final order in the California markets case, in which it said it intended to delegate significant authority back to the state PUC to solve its own local problem. In particular, the FERC (1) renamed its price cap of $150 per megawatt-hour as a "break point," (2) set a controversial benchmark for bilateral power wholesales at $74 per megawatt-hour, and (3) excused California's electric utilities from mandatory sales into to the PX, thereby freeing up some 27,000 MW of capacity for the utilities to use to "self-supply" their own default customers. . -B.W.R.

Uniform Business Practices. On Dec. 7, various energy industry groups released the second and last volume of a report on uniform business practices for retail energy markets, regarding electric metering.

The first volume of the report was released Nov. 22 and recommended guidelines on such issues as customer enrollment, billing, load profiling, and supplier licensing performance standards. According to EEI's Mike McGrath, group director of customer and energy service, regulators in New York, Virginia, and several other states had begun to consider the reports in their deliberations. . -L.A.B.

Benchmark Power Price. Cheyenne Light, Fuel & Power Co. invoked the FERC's $74 per megawatt-hour benchmark price for bilateral wholesale power contracts, announced in the Dec. 15 order on western power markets, by asking the FERC to force PacifiCorp to extend the terms of a five-year, full-requirements power sales contract, since PacifiCorp had threatened to renew the contract at prices some 650 percent higher. Cheyenne said it had relied on PacifiCorp for its power needs since 1963. . -B.W.R.

Studies & Reports

Securitization Bonds. Analysts for Salomon Smith Barney report that last year was "the slowest" of the past several in terms of volume of issuance of utility securitization bonds (PECO Energy'$1 billion issue being the only one in 2000, with deals in Texas and New Jersey postponed by legal appeals. But note that the New Jersey Supreme Court announced on Dec. 6 that it would soon release a decision allowing securitization issues to proceed in that state.)

Nevertheless, they believe that 2001 may well yield "a bumper crop," with the largest bond issues likely to come from Public Service Electric & Gas, Connecticut Light & Power, and Detroit Edison-with each company's issues exceeding $1 billion. They see as much as $10 billion in new issues in the pipeline for 2001, including the three listed utilities, plus other smaller issues from Jersey Central Power & Light, Public Service Co. of New Hampshire, Reliant Energy HL&P, Central Power & Light, and Consumers Energy. .-B.W.R.

Electric Distribution Pricing. The Regulatory Assistance Project released a study prepared for NARUC (National Association of Regulatory Utility Commissioners) suggesting that the electric distribution service may soon lose its monopoly status, and recommending that regulators consider a usage-based rate design, reflecting the volume of energy delivered, subject to a revenue cap or a performance-based scheme of regulatory oversight. . - L.A.B.

Utility Layoffs. Connecticut regulators reported that as of Dec.19, electric distribution utilities in the state had terminated 193 employees over the preceding 12 months because of regulatory restructuring. Of that total, it said, none had been hired by alternative electric suppliers. .-B.W.R.

Ancillary Services. Eric Hirst and Brendan Kirby, consulting for the Oak Ridge National Laboratory, report that when they studied generating plants operating in a typical small control area in the Eastern Interconnection, over two 12-day periods in February and August/September 1999, they found that native (control area) generation accounted for about 85 percent of the average hourly power required to provide load-following service, but that the contribution of native generation in supplying regulation service was "minor and ambiguous."

They found that compliance with control area performance standards was "good enough" that the contribution of the entire regulation component of native generation had "almost no effect." .-B.W.R.

Gas Retail Choice. Connecticut regulators reported that third-party competitive gas retailers now supply about 37 percent of firm load served by the state's three major local distribution utilities. It said that the best way to foster competitive gas retailing would be to review the cost justification for elements of utility rate design, such as allocation of pipeline capacity costs, and other service attributes such as access to upstream capacity and primary delivery points. .-B.W.R.

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