Fortnightly
California Tackles the Details
December 01, 1997
By Phillip S. Cross
WITH DIRECT ACCESS SCHEDULED TO BEGIN ON Jan. 1, 1998, California regulators are moving quickly to set up their long-considered policies on electric restructuring. The restructuring actions touch nearly every aspect of electric regulation in the state from financing decisions and rate design to the sale of generating assets and monitoring new capital additions.
In addition, restructuring has affected ongoing regulatory activities such as the development of performance-based rate making plans and pricing and rate designs for large incumbent utilities.
Sale of Generation Assets
Southern California Edison wants to divest itself of its 12 gas-fired plants while Pacific Gas & Electric Co. will sell three separate plants representing 45 percent of its fossil fuel generating capacity. Two years ago, the commission had ruled that the utilities should voluntarily divest themselves of at least 50 percent of their fossil fuel generating capacity. See, Re Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation, 166 PUR4th 1 (Cal.P.U.C.1995).
Now, while authorizing each utility to "commence an auction" of plants, the commission has said it will review the final bids to determine whether the sales will harm either the reliability of the state's electric system or development of competition. Re Pacific Gas & Electric Co., Decision 97-09-046, a. 96-11-020, Sept. 3, 1997 (Cal.P.U.C.); Re Southern California Edison Co., Decision 97-09-049, a. 96-11-046, Sept. 3, 1997 (Cal.P.U.C.).
Capital Additions
The commission also has reviewed past and future expenditures for non-nuclear capital additions put into service by Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric Co. At issue are generating costs incurred by the utilities to improve plant performance or to maintain system reliability. Earlier, the commission had issued separate decisions for rate making treatment of the state's three major nuclear generating plants: San Onofre (Decision 96-01-011), Palo Verde (Decision 96-12-083) and Diablo Canyon (Decision 97-05-088).
Generally, recovery of generation-related costs are not guaranteed under AB 1890, the state's electric restructuring law enacted in 1996. When the new market structure was developed, it was thought utilities might make expensive improvements to generating facilities to enhance their market positions.
The commission has now said each utility must file applications for recovery of any 1996 or 1997 capital costs in a competition transition charge. But before a utility can recover the costs, each expenditure must be reviewed for consistency with past capital budgets, cost effectiveness and operating performance. Re Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation, Decision 97-09-048, R.94-04-031, I.94-04-032, Sept. 3, 1997 (Cal.P.U.C.).
Revenue Reduction Bonds
The commission has authorized Southern California Edison, Pacific Gas & Electric, and San Diego Gas & Electric Co. to issue to issue rate reduction bonds. The commission said Pacific Gas & Electric could issue $3.5 billion aggregate principal amount of the bonds; Southern California Edison $3 billion, and San Diego Gas & Electric $800 million.
The revenue requirement reduction produced by the bonds will give the small user a 10-percent rate reduction through a rate-freeze period as established under AB 1890. Under the approved financing plans, each utility will create a wholly owned subsidiary, which is intended to create a separate legal entity whose only business is to own transition property. The assets of the special purpose entity are not available to satisfy the debts incurred by the utility. Each utility will capitalize the new entity with equity in an amount equal to approximately 0.5 percent of the principal amount of rate reduction bonds to be issued. These "securitization" transactions are intended to allow for the substitution of lower-interest, longer-term secured obligations for higher-interest, shorter-term obligations. Re Pacific Gas & Electric Co. et al., Decision 97-09-054, a97-05-006 et al., Sept. 3, 1997 (Cal.P.U.C.); Re Pacific Gas & Electric Co., Decision 97-09-055, a97-05-006 et al., Sept. 3, 1997 (Cal.P.U.C.); Re Southern California Edison Co., Decision 97-09-056, a. 97-05-018, Sept. 3, 1997 (Cal.P.U.C.); Re San Diego Gas & Electric Co., Decision 97-09-057, a97-05-022, Sept. 3, 1997 (Cal.P.U.C.).
PBR Plans
Restructuring also has affected several rate making matters not strictly related to restructuring. In one case, the commission granted, in part, a request by the state's Office of Ratepayer Advocate to suspend incentives in San Diego Gas & Electric's experimental performance-based rate mechanism. Some electric price performance rewards and penalties contained in the plan clashed with the rate freeze mandated under the restructuring law.
The utility's PBR plan included a system of shareholder rewards and penalties intended to give managers incentives to improve the company's performance as measured by rates, employee safety, system reliability and customer satisfaction. While finding that the "non-price" incentives for safety, reliability and customer satisfaction might remain useful, the commission has now ruled that the incentive tied to the utility's rates should be suspended. Re San Diego Gas & Electric Co., Decision 97-09-052, a.92-10-017, Sept. 3, 1997 (Cal.P.U.C.).
Rate Design
In another ruling, the commission required Pacific Gas & Electric to refrain from discounting any component of its current rates except its distribution charge. As part of a scheduled rate design review, the company had proposed several new tariff options to take effect before competition to discount rates to "help avoid uneconomic bypass of PG&E's transmission and distribution system." Upon review, the commission said the new rate schedules would stymie competition, because direct access service providers would not be able to offer competitive discounts. Re Pacific Gas & Electric Co., Decision 97-09-047, a.94-12-005, Sept. 3, 1997 (Cal.P.U.C.).
LABOR FAILS TO ALTER METER UNBUNDLING
The Pennsylvania Public Utility Commission has rejected a bid by an electric industry union to block new generic PUC policy that could open up certain electric metering functions to competitive firms.
Nevertheless, the PUC said the union could raise its concerns again in upcoming dockets for approval of company-specific restructuring plans.
The union, the International Brotherhood of Electrical Workers, challenged a July PUC order that had stated that competitive firms might provide "nonphysical" metering services (although distribution utilities would continue to perform all physical metering functions). That order also required electric utilities to propose plans for optional single-source billing and complaint resolution by competitive energy firms, for those customers electing a competitive supplier. See, Docket No. m-00960890, July 11, 1997, 178 PUR4th 469.
According to the union, the PUC had failed to meet legal requirements under the state public utility code and the state's recently enacted electric industry restructuring law, which require the commission to maintain customer service standards at "existing levels" under retail competition.
The union had argued that an electric utility cannot fulfill existing service obligations if it does not continue to own, maintain and read meters and issue the resulting bill for service. Re Guidelines for Maintaining Customer Services, Docket No. m-00960890 f 0011, Aug. 2, 1997 (Pa.P.U.C.).
PENNSYLVANIA ADOPTS ELECTRIC MARKETING RULES
The Pennsylvania Public Utility Commission has adopted interim price disclosure requirements for electric utilities, competitive suppliers and aggregators or brokers who participate in the state's newly restructured electric market.
The rules will ensure that customers are provided with enough information to compare prices and services between competitive suppliers uniformly.
Under the rules, customer bills must show separate rate components including: generation, transmission, distribution and transition charges. In addition, the first page of a customer bill must also contain usage information, including twelve-month total usage figures and a monthly average. Suppliers must also give customers a comparison of existing monthly cost for basic services and any new pricing agreements it has offered.
To avoid problems with marketing "green" power alternatives, the commission adopted specific requirements to identify energy sources. It noted that suppliers who knowingly misrepresent environmental benefits would be subject to claims of fraud and breach of contract under state law. Re Electric Generation Customer Choice and Competition Act - Customer information - Interim requirements, Docket No. m-00960890f0008, July 11, 1997 (Pa.P.U.C.).
NEW JERSEY APPROVES GAS DISCOUNT RATE
The New Jersey Board of Public Utilities has allowed South Jersey Gas Co. to offer significant discounts to one of its large industrial customers that had threatened to leave the local gas system to lower its supply costs.
The utility said that the customer, Huntsman Polypropylene Corp., had considered bypassing the South Jersey system through a direct connection with Columbia Gas Transmission Corp., an interstate pipeline company. Huntsman also had considered closing its chemical manufacturing facilities in the area. Re South Jersey Gas Co., BPU Docket No. gt96090690, Aug. 27, 1997 (N.J.B.P.U.).
TELCO FAILS FCC CHECKLIST FOR COMPETITION
The Illinois Commerce Commission has found that Illinois Bell Telephone Co. failed to meet federal requirements that would allow the carrier to compete in the interLATA long-distance market.
The commission said Illinois Bell had satisfied requirements concerning interconnection offerings to competitors and that it was providing unbundled loops to requesting parties at an appropriate level of quality. The commission said, however, that while the carrier's network offerings were working, the operational support of the system (i.e., ordering, maintenance and repair and billing functions) had sufficient bugs to give customers of competing carriers the impression that they were receiving inferior service.
Under the federal Telecommunications Act of 1996, state regulators must review progress by local exchange carriers in opening the local telephone network to competitors using a "checklist" developed by the Federal Communications Commission. The list checks to see whether an LEC has opened its own system to competition enough to justify allowing it to compete against long-distance carriers.
The checklist includes the requirement that the LEC must provide access and interconnection services to "one or more unaffiliated competing providers of telephone exchange service¼ to business and residential subscribers." Re Illinois Bell Tel. Co., No. 96-0404, Aug. 4, 1997 (Ill.C.C.).
WATER UTILITY LOSES BIDFOR EXCLUSIVE TERRITORY
The Indiana Utility Regulatory Commission has ruled there is no basis under state law to grant exclusive service territories to water utilities.
The commission had authorized Indiana-America Water Co. to continue to provide water service to a residential subdivision in an area already served by another utility. Indiana-American began serving the new customers after negotiating a main extension agreement with the developer of the subdivision.
The incumbent utility in the area, Flowing Wells Inc., a subsidiary of Citizens Utilities Co., had claimed that it was located better to serve the area and that its rates were lower than Indiana-American. It also said its existing customers would benefit from the new customers. The utility had asked the commission to declare that it had an exclusive right to serve the residential area.
The commission said that it could find no statutory basis to grant exclusive territories or to draw boundary lines to resolve disputes between water utilities. Re Flowing Wells Inc., Case No. 40446, July 16, 1997 (Ind.U.R.C.).
KN TO EXPAND RETAIL CHOICE
Although customers have complained about their bills, the Wyoming Public Service Commission has allowed KN Energy Inc. to expand its choice program, explaining that most participants have experienced significant savings.
The commission said the program's "facilities charge" - which allows the LDC to recover non-gas costs of delivering supplies to participating customers - had created customer confusion and complaints. It ordered the company to increase its efforts to educate customers, and to provide bill verification services and improve the format of the bill. Re KN Energy Inc., Docket No. 30004-gt-95-37, April 24, 1997 (Wyo.P.S.C.).
The commission found that nearly 95 percent of customers in the Choice Gas Service Program had saved 7 percent to 12 percent on their energy bills. The program was first approved by the commission in early 1996 (See, Re KN Energy Inc., 169 PUR4th 1 (1996).)
OHIO COURT OKs SUB-COST CONTRACT
The Ohio Supreme Court has overturned a ruling by the Ohio Public Utilities Commission that had barred Ohio Edison from providing cooling-load power to a county jail below cost.
The court found that state law statute (R.C. 4905.33) allows a public utility to grant reduced-rate utility service to a political subdivision, such as the county jail. It said such authority was not limited by the statute, which prohibits below-cost utility service contracts. Ohio Edison Co. v. Ohio PUC, et al., No. 95-2575, 678 N.E.2d 922, 78 Ohio St.3d 466, May 21, 1997 (Ohio).
The commission earlier had ruled Ohio Edison had violated the statute by providing cooling-load power to a county jail below-cost. See, Youngstown Thermal, Ltd. Partnership v. Ohio Edison Co., 163 PUR4th 471 (Ohio P.U.C.1995); and Youngstown Thermal Ltd. Partnership v. Ohio Edison Co., 165 PUR4th 135 (Ohio P.U.C.1995).
IN BRIEF....
GAS STORAGE COSTS. Maine revises gas cost adjustment rules to allow recovery of off-system storage costs. Commission explains current rules exclude all storage costs from recovery, but since FERC Order No. 636, the industry treats storage costs as a gas supply cost. Docket No. 97-172, Aug. 6, 1997 (Me.P.U.C.).
Diversification. Michigan certifies plan by MCN Energy Group Inc. to increase investments in electric generation facilities in India to $500 million. Case No. U-11373, Sept. 12, 1997 (Mi.P.S.C.).
Pipeline Demand Costs. Pennsylvania upholds use of the "extra demand" method for allocation of interstate pipeline charges incurred by T.W. Phillips Gas and Oil Co. The method allocates costs based on each customer class' contribution to peak-day demand above its average demand. R-00963812, July 31, 1997 (Pa.P.U.C.).
Upstream Gas Competition. Oregon OKs plan by Northwest Natural Gas Co. to offer competitive upstream commodity and capacity services outside its own service territory, finding markets had developed sufficiently. Order No. 97-342, Sept. 5, 1997 (Ore.P.U.C.).
Revamped Restructuring Plan. Montana says PacifiCorp's electric restructuring plan doesn't meet requirements of new customer choice law and orders utility to resubmit it. The PSC finds insufficient data on transition costs, separation of rate base and expense items and pilot programs. Docket No. D97.7, Order No. 5987b, Sept. 22, 1997 (Mont.P.S.C.).
Tort Liability Waiver. Illinois court rules that a tariff waiver of tort liability protected Commonwealth Edison Co. against damage claims by a customer who was injured in a fall after the utility disconnected power to her home. Disconnection was part of safety measures associated with the 1992 Chicago Tunnel Flood. No. 93 L 4338, Sept. 3, 1997 (Ill.Cir.Ct.).
Gas Service Territory. North Carolina Supreme Court upholds a decision by state regulators granting certificate of convenience and necessity to a newly formed company to provide natural gas service in previously unserved areas of the state. 488 S.E.2d 591, July 24, 1997 (N.C.)
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