Fortnightly
News Digest
August 01, 1998
By Lori A. Burkhart, Phillip S. Cross and Beth Lewis
State PUCs
STRANDED COST RECOVERY. The Pennsylvania Public Utility Commission allowed Pennsylvania Power & Light Co. to recover $2.9 billion of a requested $4.5 billion in stranded costs, cutting a higher $4-billion allowance proposed earlier by an administrative law judge. The utility petitioned for reconsideration on June 26, after CEO William F. Hecht had called the decision "unacceptable," and noting that the PUC's written order, received June 15, appeared "even more injurious" to the company that the PUC's June 4 bench order. Among other points, the petition targets a PUC action that cut transition costs to reflect a decrease in depreciation expenses for nuclear assets. Docket No. R-00973954, June 4, 1998 (Pa.P.U.C.).
ELECTRIC RATE CASES. On June 8 Virginia Power reached an agreement that, if approved by the Virginia Corporation Commission, would save customers about $920 million through several rate cuts through 2002. A final decision was expected by Aug. 1. The company would write off $220 million of regulatory assets in 1998, but against that amount it would offset any earnings surplus above an equity return benchmark (30-year treasury bonds plus 450 basis points). Any further surplus would be allocated one-third to shareholders, and two-thirds to additional accelerated amortization of regulatory assets.
ELECTRIC PRICE-CAP PLAN. The Oregon Public Utility Commission OK'd a price cap plan for Pacific Power and Light Co. -- for the distribution function only -- that will cap rates using an index based on the forecasted change in the gross domestic product price index, with an offset for productivity of 0.3 percent. A balancing account will distribute any revenue surplus or shortfall by measuring actual temperature-adjusted sales against the revenue cap.
The plan includes an annual earnings review with "revenue sharing" rate adjustments if returns exceed or fall short of an initial benchmark (equity return of 10 percent) by more than 250 basis points. It also offers incentives for the utility to acquire renewable resources at lower-than-forecasted prices and contains a non-bypassable "systems benefits charge" to assess all consumers the cost of demand-side management and renewable resource programs. UE 94(Phase II), Order No. 98-191, May 5, 1998 (Ore.P.U.C.).
OFF-TARIFF DISCOUNTS. The Idaho Public Utilities Commission allowed Idaho Power Co. to restructure a special discounted rate contract to give discretionary purchasing options to FMC Corp. (a phosphorus producer that accounts for 14 percent of IP load). It also rejected claims the contract would allow one large customer to destabalize regional energy prices, or that the action represented de facto deregulation -- essentially granting direct access to FMC ahead of any decision to allow supplier choice for all customers. In a dissenting opinion, however, Commissioner Dennis S. Hansen voiced concern that the contract would permit FMC indirectly to "buy and resell power on the open market" -- a major shift in PUC policy that should require guidance from the state legislature. Case No. IPC-E-97-13, Order No. 27463, April 27, 1998 (Idaho P.U.C.).
ELECTRIC SHOPPING CREDITS. The Oregon Public Utility Commission approved a "shopping credit" of 1.98 cents per kilowatt-hour under an experimental program to introduce supplier choice for electric customers of Pacific Power & Light Co. Groups of large-volume and commercial customers (and educational institutions) may contract directly with competitive suppliers, while residential and small commercial customers within an identified target area may choose from a portfolio of pricing options. The shopping credit reflected a recent 12-month average peak power price at the California-Oregon border. UE105, Order No. 98-157, April 15, 1998 (Ore.P.U.C.).
RETAIL GAS CHOICE. While approving retail choice for up to 20 percent of natural gas customers of Michigan Consolidated Gas Co. (with a new aggregation tariff), the Michigan Public Service Commission ruled that competitive gas suppliers may independently determine the volume of interstate pipeline capacity they need to deliver gas to the MichCon system and to obtain the capacity from any source and in any manner deemed appropriate. MichCon also will suspend its gas cost recovery clause, freeze its gas commodity charge at $2.95 per thousand cubic feet, freeze its distribution service rates at current levels and share excess earnings (return on equity above 11.5 percent) with ratepayers on a sliding scale ranging from 50 to 100 percent. Case No. U-11682, April 28, 1998 (Mi.P.S.C.).
YEAR 2000 BUG. The North Carolina Utilities Commission has directed nearly all the state's public utilities to complete and file a staff-prepared survey on efforts to correct computer software to deal with the dates falling on or after 2000. The commission said it views the issue as largely outside commission jurisdiction but it remains concerned about the adequacy of solutions developed by individual utilities. Docket No. M-100, Sub 126, April 28, 1998 (N.C.U.C.).
UTILITY DIVERSIFICATION. Finding no untoward effects on capital structure or cash flow, or risk to electric ratepayers, the Maine Public Utilities Commission has allowed Central Maine Power Co. to form a holding company and natural gas distribution affiliate to carry out its plan to diversify into gas retail sales by joining with New York State Electric and Gas to serve some 60 municipalities in Maine currently without retail gas distribution service. Docket No. 98-077, May 1, 1998 (Me.P.U.C.).
RETAIL MARKETING AFFILIATES. To prepare the state's retail electric market for competition by March 2000, the Maine Public Utilities Commission has opened a docket to develop rules governing conduct and transactions between transmission and distribution utilities and their affiliated competitive retail marketers. It also has opened two other cases to consider information disclosure to retail electricity customers and the sale of rights to energy and capacity held by T&D utilities. Docket No. 980099, April 7, 1998 (codes of conduct); Docket No. 98-234, April 7, 1998 (information disclosure); Docket No. 98-227, April 7, 1998 (energy and capacity sales) (Me.P.U.C.).
CONSUMER EDUCATION. The Maine Public Utilities Commission has modified a provisional rule covering consumer education in electric restructuring to acknowledge that it must consider the recommendations of a multi-party, outside advisory board. Left undisturbed was an earlier finding that utility funding and PUC approval mechanisms for educational materials do not violate free speech rights under the First Amendment. Docket No. 97-583, April 22, 1998 (Me.P.U.C.).
RESOURCE PLANNING. The North Carolina Utilities Commission has streamlined rules for integrated resource planning for electric utilities, reducing certain filing requirements and shortening the planning horizon, but has reinstated certain time periods for review and reply comments, as suggested by the commission's public staff, to ensure that intervenors can continue to participate in the process in a meaningful way. Docket No. E-100, Sub 78A, April 29, 1998 (N.C.U.C.).
INTERVENOR COMPENSATION. The California Public Utilities Commission has begun to reform rules for funding intervenor participation in PUC proceedings, acknowledging that once competition arrives for certain utility industries it may no longer be necessary to fund consumer participation outside of representation by the state's Office of Ratepayer Advocate. It has adopted a statement of principles and has proposed a new "optional tract" of periodic budget payments for intervenor funding. R.97-01-009, I.97-01-010, d. 98-04-059, April 23, 1998 (Cal.P.U.C.).
ENERGY USE, EMISSIONS. According to a report prepared for the Energy Fitness Program of the U.S. Department of Energy and the Oak Ridge National Laboratory, energy efficiency projects carried out by energy service companies should make a dent in electric energy use, overall demand, and direct fuel use and emissions. The report, touted by the National Association of Energy Service Companies, forecasts $94.6 billion in total energy savings between 1990 and 2010, including 1.4 million gigawatt-hours in reduced electric usage and a demand reduction of 18,500 megawatts. It predicts that ESCOs will reduce direct fuel use by 7.9 billion MMBtu over the same period, thereby cutting emissions of carbon dioxide (1.9 billion tons), nitrous oxide (7.6 million tons) and particulates (179,000 tons). As a result, U.S. CO2 emissions would fall to 110 million tons annually by 2010. (For Catalog of Actions to Increase the Delivery of Energy Efficiency that are Effective Both Before and After Restructuring, by Michael Arny, Consortium for Integrated Resource Planning, University of Wisconsin call, 603-280-0255, or see, www.ornl. gov/EFP/pdf/catalog.pdf.)
GENERATING PLANT EFFICIENCY. According to a new report the WEFA Group, 10 years of waiting for deregulation has left most thermal power plants in the U.S. less efficient by an average 15 to 20 percent, boosting production costs. The study, "Subtracted Value: The Cost Crises In The U.S. Power Industry," ranks U.S. power plants by cost efficiency and describes how the high-cost plants might become cost-competitive over the next five years. It also finds that cost efficiency remains independent of size, location, age or even capacity utilization, but instead depends on management, operation and maintenance. (For information contact Kemm Farney at WEFA at 610-490-2647.)
THE KYOTO PROTOCOL. Global warming could be 10 times more costly to American consumers than estimates by the Clinton Administration, according to a new study by Charles River Associates. (The Kyoto Protocol requires the United States to reduce its greenhouse emissions by 7 percent compared to 1990 levels, but the rapidly expanding American economy could require cuts in energy use by up to 30 percent by 2010, around the time when the protocol would take effect.)
Janet Yellen, Ph.D., President Clinton's principal White House economic adviser, has told Congress that the costs to consumers of reducing greenhouse emissions -- and therefore energy use in the United States -- will be avoided by a successful emissions trading program that the Administration plans to negotiate. According to an analysis by economist W. David Montgomery, overly optimistic predictions of trading of credits for greenhouse emissions from abroad and rosy forecasts on replacing U.S. coal-fired electric utilities with natural gas-powered units over the next decade are responsible for the Administration's claims.
FERC
GAS CAPACITY TURNBACK. The FERC has ruled that when Pacific Gas & Electric Co. turned back pipeline capacity to El Paso Natural Gas Co., which in turn released the capacity to Natural Gas Clearinghouse, PG&E's former shippers could not automatically recall that capacity for their own use simply by showing that NGC was not making use of it, but instead were required to show that NGC had actually used the capacity to serve end users outside PG&E's service territory. PG&E had turned back the capacity as of Jan. 1, leaving more than 35 percent of El Paso's firm transportation capacity unsubscribed, but had paid $58 million on behalf of end users giving them a limited right to recall so-called "Block II" capacity in northern California at times when capacity to PG&E's service territory was constrained. Docket Nos. RP97-287-010, RP97- 287-014, June 10, 1998.
INTERNAL RESTRUCTURING. The FERC on June 11 unveiled the results of a four-month study known as FERC First, an internal initiative designed to streamline the agency and improve the timeliness of decision making. The FERC also plans to focus more on employee development. "The Commission must embrace the culture of customer service and advanced technology into which regulated companies are swiftly being drawn," said Chairman James Hoecker. (See, www.ferc.fed.us/news1/pressreleases/ferc1st.htm.)
Courts
FILED-RATE DOCTRINE. The U.S. Supreme Court ruled that the filed-rate doctrine applies to nonprice features in utility tariffs, such as service conditions and billing options, as well as rates. Thus, the high court overturned a 9th Circuit decision and ruled that the Communications Act of 1934 preempted a suit filed by a telephone reseller that alleged that AT&T had breached promises to offer certain services and billing options (regarding hook-ups, multi-locational billing and support services), where AT&T's tariff already had addressed availability of such services. AT&T v. Central Office Tel. Inc., No. 97-679, June 15, 1998 (U.S.).
GAS PIPELINE CAPACITY. A federal appeals court remanded a 1996 FERC ruling that required interstate natural gas pipelines to obtain prior commission approval before acquiring upstream or downstream capacity rights, saying the FERC had failed to justify its ruling. The court noted: "The FERC does not seriously contest that the delay associated with case-by-case authorization practically eliminates any opportunity for pipelines to compete for short-term transportation services." Colorado Interstate Gas Co. v. FERC, Nos. 97-1214, 97-1215, 1998 WL 326856, June 23, 1998 (D.C.Cir.).
WATER UTILITY RATEMAKING. A Florida appeals court ruled that state law allows "capband" rates for large water utility systems (service areas are grouped by cost of service, with rates set uniformly within each group). However, it reversed the rate case because the state commission had switched to a new method to determine whether water transmission and distribution plant was used and useful. The PSC had compared the number of lots to actual service connections, but the court said the lots-to-lots method was improper for areas marked by a mix of large condominiums and single-family residences. Southern States Utils. v. Fla. PSC, No. 96-4227, 1998 WL 299440, June 10, 1998 (Fla.Dist.Ct.App.).
PURCHASED GAS ADJUSTMENT. A Missouri appeals court affirmed state commission orders that allowed a gas distribution utility to recover transition costs for gas restructuring through its purchased gas adjustment clause, denying arguments by a customer coalition that the policy improperly billed commodity costs to transportation-only customers. The case involved pipeline take-or-pay costs, Account 191 costs (unrecovered gas acquisition costs), and GSR (gas supply realignment costs for contract buyouts). Missouri ex. rel. Midwest Gas Users' Asso. v. Mo. PSC, No. WD 53810, 1998 WL 278188, June 2, 1998 (Mo.App.).
RATE FREEZE CONDITIONS. A Texas appeals court ruled that when a local exchange telephone carrier "opted out" of traditional rate-of-return regulation in exchange for promising a rate freeze, as allowed under a 1995 law, it lost its right under an adjustment mechanism to boost rates to recover increases in its state franchise tax liability, though such adjustments were guaranteed under a state law passed four years before. The court said the tax adjustment was like a fuel cost reconciliation, which it said would also violate a rate freeze. GTE Southwest Inc. v. Tex. PUC, No. 03-97-00619-CV, 1998 WL 318975, June 18, 1998 (Tex.App.).
LAND MANAGEMENT. California state law preempted efforts by a city to regulate an electric utility in dredging sand from a lagoon next to its power plant and depositing the sand on ocean beaches within the city. San Diego Gas & Electric Co. v. City of Carlsbad, No. D027407, 1998 WL 297380, June 9, 1998 (Cal.App., 4th Dist.).
TELEPHONE DIRECTORY PUBLISHING. Affirming a district court judge, a federal appeals court agreed that the Johnson Act bars attempts by a former Bell operating company to enjoin the Washington Utilities and Transportation Commission in rate cases from imputing telephone directory publishing revenues from an unregulated affiliate to the regulated local carrier. U S WEST Inc. v. Nelson, No. 97-35551, 1998 WL 312806, June 16, 1998 (9th Cir.).
Congress
RENEWABLE ENERGY. The Senate Appropriations Committee has approved an Energy & Water Appropriations bill that would slash the U.S. Department of Energy's core program for renewable energy by $29 million for Fiscal Year 1999, while adding nearly $38 million in new funding for nuclear programs. The bill would gut funding for four renewable energy programs: geothermal reduced by $12 million (a 41 percent cut), photovoltaics by $9 million ( a 15 percent cut), biopower by $6 million (a 21 percent cut), and federal building/remote power by $2 million (40 percent). Other programs such as wind and solar thermal would receive roughly the same level of funding as in FY '98 -- well below the amounts requested by the Administration.
State Legislation
NEW YORK. The New York State Energy Planning Board has issued its Draft State Energy Plan to offer strategic guidance and direction to coordinate the state's energy policy over the next several years, marking a departure from prior plans on energy policy, which tended to dictate specific government actions. The draft plan aims to ensure energy choice for consumers and open access to transmission and distribution systems for suppliers, building on Governor Pataki's commitment to reduce energy costs by lowering taxes, streamlining regulations, and offering greater choice to electric and natural gas customers. It includes a draft environmental impact statement (as required under the state's Environmental Quality Review Act) and invites comments both on the EIS and the overall plan.
Electric Reliability, ISOs
NERC SUMMER ASSESSMENT. According to the North American Electric Reliability Council's 1998 Summer Assessment, parts of the Midwest, New England, Ontario, and Alberta could experience electric supply problems this summer, with transmission constraints limiting how much assistance is available. And, as if to underscore the point, spot electric prices reportedly reached $2,000 per megawatt-hour ($2 per kWh) on June 25 in ECAR (East Central Area Reliability Coordination Agreement) after a tornado took down a transmission line in Ohio and forced the Davis-Besse nuclear plant off line.
Overall, NERC predicts a 1998 summer peak demand for the U.S. some 3 percent above the peak for last summer. Over the next decade, summer peak demand in the U.S. is projected to rise at an average annual rate of 1.8 percent. (See, www.nerc.com/publications/annual.html, or the NERC's ftp site at ftp://www.nerc.com/pub/sys/all_updl/docs/pubs/ summer98.pdf.)
INDEPENDENT SYSTEM OPERATORS. At two recent regional meetings, the FERC has heard industry comments questioning some aspects of its policy favoring formation of ISOs to manage transmission assets and assure electric reliability.
In the Southeast, Florida Power & Light Co. Director of Regulatory Affairs, Sam Waters, cautioned against a "one-size-fits-all" plan, telling FERC commissioner Linda Breathitt that Florida ratepayers would pay millions of dollars in unnecessary costs if FERC were to mandate an ISO, which he said would duplicate many functions already performed by the Florida Reliability Coordinating Council. Meanwhile, in New Orleans, Entergy outlined its proposal for an ISO alternative -- a for-profit, FERC-regulated regional transmission company that would own transmission assets with management and employees independent from utility control. Voting rights in Transco stock would reside with an independent trustee, who would select a nonstakeholder board.
News Digest is completed by Lori A. Burkhart and Phillip S. Cross, contributing legal editors, and by Beth Lewis, editorial assistant
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