News Digest

Fortnightly Magazine - March 1 2001

News Digest


Transmission and ISOs

January RTO Filings. On Jan. 16, the handful of existing regional independent system operators (but not ERCOT), filed plans on how they would conform to rules set out for regional transmission organizations (RTOs) in FERC Order 2000.

  • New England. Joined with six transmission owners (Bangor Hydro-Electric, Central Maine Power, National Grid USA, Northeast Utilities, United Illuminating, and Vermont Electric Power) to propose a "binary" RTO, with an independent transmission company (Northeast ITC) operating within the RTO umbrella. .
  • New York. The current ISO members (Con Ed, Central Hudson Gas & Electric, Niagara Mohawk, Orange & Rockland, NYSEG, and Rochester Gas & Electric) joined to propose an RTO, and touted their new protocols for coordinating transmission planning and expansion. .
  • Midwest. Claimed its RTO plan already conformed with the FERC's minimum set of RTO characteristics and functions. Alliant Energy led a group of nine utilities (plus American Transmission Co.) that filed separately to support MISO and ask the FERC to OK a revised rate structure for MISO, including a "revenues lost approach" similar to that already approved for the Alliance group. .
  • Alliance. Claiming nine members (Ameren, American Electric Power, Consumers Energy, Exelon, FirstEnergy, Illinois Power, Dayton Power & Light, Detroit Edison, and Virginia Electric & Power), Alliance said it would be the largest proposed RTO, covering 174,500 square miles and serving 39.8 million people in 11 states, with a peak load of 108 gigawatts (115 gigawatts generating capacity). With new members in Illinois, it claimed it would no longer disrupt markets as a "tollgate," blocking access by Midwest power producers seeking to sell into PJM. FERC Docket No. RT01-88, filed Jan. 16, 2001. A week later, the FERC approved the proposed scope and configuration of the Alliance group on assurances of better "seams" management, but with commissioner Massey dissenting. .
  • California. In a six-page letter that read like an apology, the ISO said it was still studying market redesign and afterwards would identify the steps needed to comply with RTO rules, but also was working to form a broader "Western RTO." California's three major investor-owned utilities filed separate RTO notices, each criticizing the ISO and questioning whether it could qualify as an RTO, given current market dysfunction. . -B.W.R.

Regional Coordination. On Jan. 16, the boards of directors of ISO New England and the New York ISO announced approval of a joint resolution establishing a joint task force on inter-control area market coordination to reduce barrier between the two markets.

California Postage-Stamp Pricing. Various municipal utilities and irrigation districts filed protests against the California ISO's proposed Tariff Amendment 34, filed late last year as the next step for the ISO in revamping its transmission rates to accommodate municipal electric utilities and members not owning transmission facilities, and to comply with a deadline imposed by state law.

The plan will phase-out license-plate pricing (based on utility-specific embedded costs) for high-voltage transmission service over 10 years, and then institute a flat, grid-wide, postage-stamp rate. Among other objections, the publicly owned utilities question how the new tariff will mesh with ISO proposals for allocation of firm transmission rights (FTRs). . -B.W.R.

Michigan Divestiture. The FERC allowed CMS Energy Co. and its operating subsidiary, Consumers Energy, to transfer transmission assets to a newly formed company, Michigan Transmission Co., to carry out possible plans to turn over the assets to the proposed Alliance RTO, or to exit the transmission business entirely. . -L.A.B.

GridFlorida Governance. The FERC issued preliminary findings on whether GridFlorida's governance structure will satisfy requirements for regional transmission organizations (RTOs), with respect to (1) selection of the board of directors, (2) criteria for qualification of directors and officers, and (3) restrictions on financial holdings and independence of directors and employees. - L.A.B.

Return on Equity. The Texas PUC set return on equity at 11.25 percent for electric transmission and distribution utilities, once retail choice begins Jan. 1, 2002. It also issued revised draft rules governing rates, terms and conditions of wholesale and retail transmission service, to mesh with a new market design for the ERCOT ISO. . -L.A.B.

State PUCs

Price Caps for Rate Contracts. Citing extreme power price volatility in the Pacific Northwest, the Washington state commission ruled that retail electric rates billed by Puget Sound Energy (PSE) under Tariff Schedule 48, and in private contracts with various large customers, including Boeing, Georgia-Pacific, and Air Products and Chemicals Inc., were unjust and unreasonable, to the extent they were pegged to wholesale price indices reflecting prices at the Mid-Columbia hub, and to the extent that such customers did not have effective rights to achieve price stability under optional pricing guarantees and rate collars offered in the contracts, but which the commission cited as "inadequate."

The commission ordered further proceedings to set a "temporary soft cap," but declined to set a specific price target. Instead, it asked its staff to study and propose at least one optional solution that would include a soft cap at $150/MWh, and suggested a billing floor as well to protect PSE from risk. .-B.W.R.

Shopping Credits. New York OK'd a market-based shopping credit (back out credit for generation supply) for New York State Elec. & Gas, with an added credit of $0.004 per kilowatt-hour (kWh) tacked on the top to reflect retail marketing costs avoided by the utility for residential customers who switch to competitive suppliers. It decided against imposing any ceiling or floor as inconsistent with the market-based concept. NYSEG's current credit had been 3.56 cents per kWh, net of gross receipts taxes. . -B.W.R.

Capacity Contract Buyouts. Calling the deal a "serious gamble" that could backfire against consumers, Connecticut regulators rejected a proposed buyout of 345 MWs of capacity rights owned by Connecticut Light & Power under long-term purchased power contracts with a private power producer at prices supposedly above market, even though the buyer, Constellation Power Source, was selected as the highest bidder among some 15 bidders in a private auction conducted by J.P. Morgan.

The sale was held to mitigate CL&P's liability for stranded costs-CL&P would tender a "support payment" to Constellation for taking the contracts off its hands. But the commission ruled the deal a bad bargain for ratepayers, who would fail to break even if power prices averaged above $30/MWh over the life of the contracts, and because CL&P would assume the risk to pay for the buyout even if the generator defaulted.

"Fixing stranded costs ... is not necessarily a benefit to customers," said the commission. "Stranded costs become less volatile, but ... if the average market price is above three cents per kWh over the thirty-year period, ratepayers will suffer. ... On the other hand, if the contracts are not transferred ... ratepayers will receive the actual market value of power." .- B.W.R.

Green Power Labeling. Texas proposed green power labeling standards for identifying generation supply by fuel mix (coal and lignite, natural gas, nuclear, renewables, or "other") and quantity and type of emissions (NOx, SO2, CO2, particulates, and spent nuclear fuel).

The proposed rules also create a "certificate of generation" as a tradeable instrument issued by power producers that specifies fuel and environmental attributes of power production from a specific generating facility during a particular time period. The PUC would appoint a program administrator to set up a registry of such certificates and procedures for trading certificates.

In a briefing paper explaining how the rule would work, the PUC listed some of the assumptions standing behind its certificates program:

  • "Green" electricity products will sell at a premium.
  • Electricity generated from Texas natural gas is "green."
  • "Bragging rights" to natural gas generation will have market value.
  • The "green premium" associated with natural gas generation can create a stream of economic benefits.
  • Retail electric providers that proactively prove they are "greener" than average simultaneously prove that their non-proactive competitors are "browner" than average. Project No. 22816, Jan. 23, 2001. -B.W.R.

Rate Freeze Avoidance. With two commissioners issuing lengthy dissenting opinions, North Carolina allowed Carolina Power & Light to defer costs incurred to purchase SO2 emissions allowances until 2005-that being the end of a rate freeze accepted earlier by CP&L as a condition of its merger with North Carolina Natural Gas.

Dissenters Jo Anne Sanford and Sam J.Ervin IV decried the attempt to circumvent the freeze as without cause. .-B.W.R.

Price-Cap Regulation. In a victory for the utility on remand from the state supreme court, Massachusetts agreed to trim back the maximum penalty for poor service quality under a performance-based rate (PBR) plan OK'd earlier for Boston Gas, and to reduce the productivity offset against inflation from 1.5 percent to 1.0 percent.

The commission affirmed a half-percent "consumer dividend" it had included in its productivity offset to capture expected future productivity gains of the PBR plan. But it trimmed back its original "accumulated inefficiencies factor" from 1.0 percent to 0.5 percent, on orders from the court.

It had designed the AEF to track historic inefficiencies in regulated versus competitive firms, mirrored on a similar adjustment it imposed several years earlier in a telephone price cap plan for NYNEX, but on remand the commission acknowledged that using the telecommunications industry as a proxy for gas industry firms had likely overstated any gas industry inefficiencies. . -B.W.R.

Competitive Metering. After taking comments on draft practices and procedures for competitive electric metering services, New York told the state's electric utilities to cancel and reshape their proposed tariffs for competitive metering.

Meter providers and meter data management agents can offer services independent of commodity sales, but electricity customers cannot act as their own providers (though large-volume customers with time-of-use pricing can continue to own their interval meters). A more detailed order was to follow. . -B.W.R.

Other January Orders.

  • Arizona. Administrative Law Judge Jane Rodda files recommended amendments to rules governing the state's renewable portfolio standard, and proposing a "Solar Electric Fund" to collect and allocate deficiency penalties and fund solar energy projects. .
  • Arkansas. Opens inquiry on whether to require natural gas utilities to practice price hedging or offer fixed price schedules to customers. .
  • Florida. Approves rule to ensure funding for nuclear plant decommissioning, and require utilities to file studies every five years. .
  • Florida. Extends time period and eligibility for experimental plan for real-time pricing by Florida Power & Light Co. .
  • Maine. Finalizes rule to require electric customers to pay opt-out fee (even in winter) if they switch from competitive suppliers to standard offer utility service. .
  • Massachusetts. Forces natural gas utilities to cut back on their proposed increases in gas cost adjustment factors, to avoid rate shock, but acknowledges resulting deferral of costs as an undesirable byproduct of the policy. .
  • Michigan. Tells state's three largest electric utilities to file updated plans for generation and transmission capacity for summer season, fearing fallout from "California situation" and "changes in the wholesale market for electricity in the Midwest." .
  • New York. Extends system benefits charge for public purpose programs through June 2006, and sets assessments based on utility-specific share of statewide 1999 electric operating revenues, producing utility charges ranging from 1.11 to 2.07 mills/kWh, so as to raise $150 million per year statewide. .
  • Texas. Adopts pre-certification standards for distributed generation, allowing PUC-approved testing laboratories to designate specific models of small-scale generating facilities as safe to interconnect to the state's power grid. Jan. 29, 2001.
  • Wisconsin. Sets amounts utilities must contribute to public benefits fund to support programs aiding conservation, low-income assistance, renewable energy, and energy efficiency. . -B.W.R.

Power Plants

Florida Merchant Plants. Using a clever technique to overcome Florida's supposed hostile stance against merchant power plants, Calpine succeeded in winning certification for its 529-MW, gas-fired combined-cycle Osprey plant by proposing its out-of-rate-base project as a joint venture with Seminole Electric Co-op., which would receive plant capacity through a wholesale contract.

Calpine also avoided the state rule that requires investor-owned utilities who build power plants to solicit bids for supply-side alternatives. "We do not reach the question of whether Calpine, as a wholesale contract plant, is exempt from the bidding rule. [Instead] we base our decision ... on the allegation that Seminole is a cooperative utility that has contracted to purchase the output. ... Since the bidding rule was adopted we have never required cooperative or municipal utilities to comply with its requirements." . -B.W.R.

Meanwhile, the City of New Smyrna Beach, Florida, petitioned the U.S. Supreme Court to review an April 2000 ruling by the Florida Supreme Court that effectively banned construction of merchant power plants in that state, by finding that state law required plants to serve retail, not wholesale load, in order to win a certificate of need. -L.A.B.

Millstone Nuclear Sale. Connecticut OK'd the sale of Millstone nuclear units 1 (closed), 2 and 3 to the Dominion subsidiary Dominion Nuclear Connecticut, Inc. for $1 million, $443.4 million ($507/kW), and $853.3 million ($791/kW), respectively.

It accepted Dominion's proposal to delay decommissioning of unit 1 until 2050 (to coincide with units 2 and 3), and rejected arguments by consumer advocates that decommissioning trust funds were overfunded, thus avoiding any ruling on the proposed legal arguments that ratepayers were entitled to the excess funds. -B.W.R.

Fossil Plant Auctions. The California PUC denied authority to Southern California Edison Co. to auction off to AES Corp its 56 percent share in the 1580-MW, coal-fired Mohave Generating Station located in Nevada, even though AES would have paid about five times the estimated net book value.

According to the PUC, the sale would have placed "dependable capacity" generating at 3.5 cents per kWh outside commission control. "Changed circumstances require a rethinking past policies," added the PUC. .

Studies and Reports

Texas Stranded Costs. On Jan. 11, the Texas PUC released its report to the state legislature on competition in electric markets, offering the first updated estimate of stranded costs for Texas electric utilities since 1998, and in fact suggesting that such costs have now fallen below zero, indicating that plant market value for all state's utilities now exceeds book value.

The stranded cost update is based not on a PUC finding, but only on so-called ECOM estimates ("Excess Costs Over Market") compiled from UCOS cases ("Unbundled Cost of Service"), filed by the utilities according to assumptions mandated by the PUC, and updated to incorporate revised natural gas price forecasts.

As initially filed, the UCOS petitions identified some $3 billion in stranded costs for Texas utilities, including $1.354 billion for TXU, and $815 million for Reliant. As updated, however, the state total is a negative $742 million, including a negative $1.454 billion for TXU.

Otherwise, the report cites new state-mandated air emission standards as problematic. "The new NOx rules will present challenges in some non-attainment areas," the report states, "particularly the Dallas-Fort Worth area." And it adds that "continued reliability of service in the DFW area is a concern, because of the import constraints into the area."

The report also recommends an amendment to the state's Gas Utilities Regulatory Act so that gas utility subsidiaries of combined electric and gas conglomerates don't have an advantage (through combined electric and gas "branding") versus unaffiliated gas suppliers. .-B.W.R.

California Plant Outages. The Office of General Counsel and the Office of Markets, Tariffs, and Rates at the FERC reported that generating outages in California at plants owned by Dynegy, NRG, and Reliant appeared to stem from increased demand and age of the units (boiler tube and seal leaks, turbine blade wear, and valve and pump motor failures, etc.), and did not contribute to power price movements in California.

"Rather," said the FERC staffers, "it appears that these companies accelerated maintenance and incurred additional expense to accommodate the ISO's operating needs. They also reduced outages and deferred maintenance in December and preserved revenue opportunities by doing so."

The report emphasized that it was not designed to determine whether the companies were withholding capacity from the market by refusing to bid or schedule plant capacity, or by submitting overambitious bids. . -B.W.R.


Local Facility Access. The U.S. Supreme Court agreed to review the so-called "TELRIC" method (Total Element Long-Run Incremental Cost) adopted by the Federal Communications Commission to estimate reproduction cost and thus set prices for competitive carriers that lease essential local exchange facilities from incumbent local telephone monopolies.

Under this method, the FCC has argued that lease prices should not reflect all historic embedded costs, but only those forward-looking costs (a smaller figure) that an incumbent carrier would likely incur to construct an efficient local exchange network using current technology. . -B.W.R.

Utility Pole Attachments. The U.S. Supreme Court has also agreed to review whether federal statutes and rules-set by the FCC-governing compensation for attachments to utility poles should apply to attachments for wireless communications or for cable TV systems used simultaneously to provide high-speed Internet access. . -B.W.R.

Stranded Costs. The New Hampshire Supreme Court denied an appeal by two consumer advocacy groups challenging recovery of stranded costs by Public Service Co. of New Hampshire as an unconstitutional taking of property.

It acknowledged that past investments in generation plants may no longer be "used and useful," but said the "used and useful doctrine" was not a constitutional requirement in rate-making policy. .-L.A.B.

Water Utility Financing. In a case involving a water utility lease transaction reported to be the first of its kind in the U.S., the Massachusetts Supreme Court upheld a state PUC order that had set water utility return on equity at 14 percent for new plant construction and that OK'd a financing arrangement whereby the utility would lease a water treatment plant from a sister corporation over a 40-year term, but with lease payments treated by the water utility as annual operating expenses and calculated to allow the affiliate (lessor) to recover plant costs over a period shorter than the plant's projected useful life. . -P.C.

Mergers & Acquisitions

Bangor + Emera. The FERC OK'd the $206 million merger of Bangor Hydro-Electric Co. and Emera Inc., parent company of Nova Scotia Power Inc., and the owner of a 12.5 percent interest in the Maritimes & Northeast Pipeline. .

The Maine PUC had OK'd the deal a month earlier, on the condition that consumers would not pay higher rates to recover the acquisition premium. . -L.A.B.

Northeast + ConEd. The New Hampshire PUC denied a request to conduct a full antitrust analysis on rehearing of its Dec. 6 order on merger of Northeast Utilities and Con Ed, but in the process explained that it did not OK the deal in that prior order, but only imposed conditions (rate relief for ratepayers) in case the merger should go forward. -B.W.R.

Power Markets

California PX. On Jan. 19, a week after it claimed that its block forwards market saved traders $1.2 billion in power costs, the California Power Exchange said it would shut down by April and shift existing power contracts to other exchanges, such the New York Mercantile Exchange and Automated Power Exchange.

Then, several days later, as if to rub salt in the wound, the FERC ruled that the PX had violated its final order on California market reform by failing to make sure that generators bidding into the PX at a price higher than the FERC's $150/MWh "break point" would receive only the amount of their bid, and that such bids would not set the market-clearing price. .

On Jan. 25, PX CEO George Sladoje had written a personal letter to FERC Chairman Curt Hébert, describing how the PX could not easily modify its software to impose the required change. The PX Board of Governors then voted to suspend its day-of- and day-ahead markets. January 31 marked the last day of trading.-B.W.R.

California Power Procurement. On Feb. 1, California Gov. Gray Davis signed into law Assembly Bill 1-X, authorizing the state's Department of Water Resources to assess the state's need for power, on consulting with the state PUC and public and private electric utilities, and then to sign contracts (including options or forwards) to purchase electricity for resale to utilities-or even directly to retail customers.-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.

Electric Reliability

DOE Initiative. The U.S. Federal Trade Commission filed comments criticizing tentative plans at the Department of Energy to give mandatory status to electric reliability rules promulgated by the North American Electric Reliability Council (NERC), suggesting that NERC was becoming irrelevant.

The FTC advised the DOE to broaden its reliability proposal to include competitive institutions, and suggested that regional transmission organizations may subsume NERC functions or make the DOE inquiry redundant.

"To the extent that RTOs are implemented in all areas of the country ... the need for a separate reliability organization with mandatory rules may be greatly reduced or eliminated."-B.W.R.

Gas Pipelines

Capacity Into California. With a dissenting opinion from chairman Curt Hébert, the FERC affirmed a prior order requiring El Paso Natural Gas and its marketing subsidiary El Paso Merchant to provide confidential information under a protective order to interveners in the complaint by the California PUC that El Paso monopolized pipeline capacity by selling rights to its own affiliate. Hébert questioned why the FERC should require the pipeline company to pass along market data to interveners not directly involved in the dispute: "The mere pendency of a filed complaint ... should not in itself provide the basis for widespread distribution of information purported to be commercially sensitive." -B.W.R.

Benchmark Gas Price. The National Association of Gas Consumers (municipal gas systems) asked the FERC to set nationwide benchmark price for natural gas and to open an investigation of allegedly excessive gas prices. . -B.W.R.

Business Wire

Two of the world's largest power grids, PJM and RTE, the French transmission system operator, signed an agreement to share technical knowledge and information to help address mutual goals of power systems and energy market operations. "RTE has 50 years of experience in operating the largest control area in the world and PJM is one of the most successful ISOs, operating different kinds of markets in a deregulated environment," said RTE director Andre Merlin. "We will learn from each other; it is a win-win agreement."

WPS Resources Corp. has selected LineSoft Corp.'s LD-Pro line design solution and LD-Track work order tracking and analysis solution. The multi-million dollar contract includes software, training, integration, and implementation services. LD-Pro automates the design of overhead and underground transmission and distribution lines, from the development and application of design criteria, through detailed analysis, generation documentation, drawings, maps, specifications, cost estimates, and material lists.

On Jan. 18, the U.S. Dept. of Energy issued new energy efficiency appliance standards for commercial heating and cooling equipment, residential clothes washers, water heaters, and central air conditioners and heat pumps. "The rule takes a very balanced approach to energy savings, consumer preference, and manufacturer impact," said Joseph M. McGuire, President of the Association of Home Appliance Manufacturers. .

PECO Energy has signed an agreement with Planalytics Inc. to access Weathernomics Gas Buyer, a financial risk management tool for buyers and sellers of natural gas. The Web-delivered tool suggests specific buying actions designed to reduce risks and take advantage of opportunities presented by weather-driven changes in gas prices for up to one year into the future.

ESRI's software has been selected by Rochester Gas & Electric Corp. as the GIS component in RG&E's implementation of Convergent Group's Digital Utility Business Solution. The three-year project began in September, with completion of the first implementation phase scheduled for the first quarter of this year. Pantellos, an independent online marketplace for the utility and energy services industries, and WorldCrest, a provider of procurement solutions for indirect goods and services, have entered into a partnership that will expand and strengthen the offerings of both companies. The partnership gives each company access to complementary new areas, enhancing the Pantellos marketplace while expanding WorldCrest's customer base.-C.J.L.

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