News Digest
April 1, 2000
State PUCs
Electric Shopping Credits.
The New York Public Service Commission OK'd a proposal by Consolidated
Edison Co. to adopt a floating-rate shopping credit for generation supply
that would reflect prices published by the New York Independent System
Operator. Any difference between actual costs and market-based costs would
be shared in a 90-10 ratio between ratepayers and utility stockholders.
The PSC also approved a one-time
flat payment of $65 to encourage residential and small commercial customers
to switch to a competitive supplier (industrial customers would receive
an extra 0.2 cents per kilowatt-hour), despite objections from ConEd that
any credit in excess of market price would violate the terms of the utility's
1997 restructuring orders.
The PSC said it would revisit
the issue within a year, as it expected market structures to change soon,
with the addition this summer of a capacity market at the NY ISO, and
other advances regarding competitive metering and a move toward a single-bill
format. Case 96-E-0897, Feb. 28, 2000 (N.Y.P.S.C.).
Electric Transition Costs.
The Arkansas PSC set guidelines to govern the recovery of transition (stranded)
costs by electric utilities that would deny recovery of any costs already
reflected in current rate levels, such as for employees now focusing on
devising plans to implement retail choice.
However, in a rehearing order,
the PSC retreated from an earlier proposed rule that would have forced
utilities to seek prior approval of any investment in any long-lived asset
subject to stranding but carrying a useful life beyond the end of the
stranded-cost recovery period. Docket No. 99-229-R, Order No. 7 (rehearing
order), Order No. 8 (setting guidelines), Feb. 29, 2000 (Ark.P.S.C.).
Net Metering. At press
time, Virginia had set a hearing for March 29 to consider arguments regarding
proposed final regulations governing net energy metering. The rules would
apply to customers owning and operating electric generation on the premises
using solar, wind, or hydro energy as the sole fuel source, but only for
unit sizes of not more than 10 kilowatts (residential customers) or 25
kW (non-residential) that are interconnected and operated in parallel
with the distribution grid and intended primarily to offset the customer's
own power requirements.
Also, all qualifying on-site
generation located within the service territory of the native distribution
utility could not be allowed to exceed 0.1 percent of peak-load forecast
for the area for the previous year. Case No. PUE990788, Feb. 22, 2000
(Va.S.C.C.).
Metering and Billing.
The Arkansas PSC opened a generic proceeding to determine whether metering,
billing, payment, collection, aggregation, and related services should
be offered in a competitive framework. It asked for comments to address
market expectations for product differentiation, plus lists of potential
product vendors describing their readiness to serve and their willingness
to deal with different classes of customers with different economic characteristics.
Docket No. 00-054-U, Order No. 1, Feb. 28, 2000 (Ark.P.S.C.).
DSM Incentives. Massachusetts
expanded incentives for utility stockholders in approving final guidelines
for demand-side management and energy efficiency programs designed to
avoid costs incurred by utilities for electric generation, gas supply,
transmission, distribution, and environmental compliance.
Rather than limit performance
incentives to reflect only the direct costs of program implementation,
the commission broadened the plan to cover costs associated with plan
administration, marketing, market research, and program monitoring and
evaluation.
As the commission acknowledged,
"it is not [our] intention to promote unnecessary outsourcing of services...
or to promote shoddy analyses." D.T.E. 98-100, Feb. 7, 2000 (Mass.D.T.E.).
Electric Default Service.
GPU Inc. announced Feb. 3 that it had not received any bids to furnish
state-mandated default energy supply services in 2000 for as much as 20
percent of its customer base. Seven companies had begun the pre-qualification
process, but none submitted bids by the Jan. 31 deadline.
QF Cost Recovery. State
regulators allowed Montana Power Co. to continue to defer unrecovered
out-of-market costs associated with power from qualifying cogeneration
facilities (QFs) and to recover such costs eventually from customers that
choose an alternative energy supplier.
It OK'd a $16.7 million interim
rate reduction in the same case, reflecting a retirement of regulatory
assets after a sale of certain of the company's generating assets had
produced above-book proceeds sufficient to amortize the amounts. Docket
No. D97.7.90, Order No. 5986, Feb. 4, 2000 (Mont.P.S.C.).
Electric Universal Service.
In preparation for a July 1 startup date for electric retail choice, Maryland
regulators imposed a 23-tiered fee structure to govern how to raise $24.4
million during the next three years from the state's commercial and industrial
(C&I) electric customers (and $9.6 million from residential customers)
to support a state-mandated universal service program.
C&I customers will pay from
$3 to $3,500 per month, according to the size of the customer's utility
bill, while residential users will pay a uniform statewide fee, running
about $5 per customer per year. Case No. 8738, Order No. 75935, Jan.
28, 2000 (Md.P.S.C.).
Utility-Affiliate Transactions.
In a rehearing order the Ohio PUC reiterated that utilities may share
information and employees with affiliates for reasons of safety, economic
efficiency, and operational stability, but only if such sharing does not
impede competition. Case No. 99-1141, Jan. 27, 2000 (Ohio P.U.C.).
Electric Stranded Costs.
The West Virginia PSC issued a revised plan to meet the Jan. 1 startup
date for electric utility competition that will not require calculation
of stranded costs, but instead will impose a cap on default service rates
to balance risks between ratepayers and utility stockholders.
Because the plan would not
force electric utilities to divest their generation assets, nor require
them to provide below-cost power, the PSC concluded that "the utilities
are not forced to sustain stranded costs." Case No. 98-0452-E-GI, Jan.
28, 2000 (W.Va.P.S.C.).
Electric Restructuring.
In a 240-page report, the Texas PUC concluded that it did not have enough
information to rule on whether to require electric utilities to create
separate corporations for regulated and deregulated functions to implement
Senate Bill 7, the state's electric restructuring law enacted last year.
The commission will revisit that issue in another docket, along with rate
design of nonbypassable competition transition charges. Project No.
21083, Jan. 19, 2000 (TexasP.U.C.).
Natural Gas Rates. Connecticut
regulators rejected a performance-based rate plan proposed by Southern
Connecticut Gas Co., explaining that the PBR plan failed to quantify savings
anticipated from the company's merger with Energy East.
At the same time, the commission
refused to eliminate SCG's purchased gas adjustment clause, noting that
state law barred such a move absent proof that gas supply costs are stable.
It denied SCG's request for
a 10.56 percent rate increase ($24 million) and instead granted a 0.2
percent hike ($500,000). Docket No. 99-04-18, Jan. 28, 2000 (Conn.D.P.U.C.).
Employee Bonuses. On
Jan. 31 the Rhode Island PUC ordered Narragansett Electric Co. to stop
paying employee bonuses out of a fund earmarked to aid energy conservation,
even though the purpose of the bonuses was to reward utilities for reducing
energy usage.
The PUC called for an audit
of all the utility's bonus plans and may consider the issue as part of
its larger review of the proposed merger between New England Electric
System (owner of Narragansett Electric) and Blackstone Valley Electric
and Newport Electric.
Merger Savings. The
Kansas commission ordered West Plains Energy Kansas (an operating division
of UtiliCorp United) to reduce charges by $8.7 million to reflect savings
realized by the acquisition of Centel Corp in 1991.
But the commission set return
on equity at 10.55 percent, rejecting a lower figure proposed by its staff
because it reflected a study that had counted Empire State Electric and
St. Joseph Power & Light as proxy companies when at the same time they
proposed to merge with UtiliCorp. Docket No. 99-WPEE-818-RTS, Jan.
19, 2000 (Kan.C.C.).
Water Plant Construction.
The West Virginia PSC approved a partnership whereby West Virginia-American
Water Co. will construct and lease new water utility facilities to be
funded and owned by a municipal agency. The utility would collect a surcharge
to fund the repayment of bonds issued by the municipality, while adding
the leased property to rate base. Case No. 99-0674-PWD-PC-CN, Jan.
11, 2000 (W.Va.P.S.C.).
Business Wire
In one of the largest commitments
of its type in the history of the U.S. power industry, GE Power Systems
has completed a multi-year effort and secured agreements totaling nearly
$4 billion to supply power generation equipment and services to Duke
Energy North America. The agreements cover the purchase of 84 gas
turbines, 17 steam turbines, and long-term services agreements for up
to 23 merchant power plants across the country. When completed, the power
plants will produce more than 13 gigawatts of power for the wholesale
U.S. market.
United American Energy Corp.
and Southern Co. Energy Marketing have entered a fuel-for-electricity
agreement for United American Energy's 82-megawatt power plant in Lowell,
Mass. In what is known as a "tolling" agreement, Southern Co. Energy Marketing
will have the exclusive right to supply fuel to and receive electricity
from the generating plant, which operates primarily on natural gas. Southern
will market and trade electricity from the plant in the New England
Power Pool. Exact terms of the deal were not disclosed.
Unitil Corp. has signed
an agreement with BusinessEdge Solutions Inc. to further automate
the Usource product line for the mid-market segment of small to medium
industrial and commercial customers. Usource is Unitil's Internet energy
auction system serving large commercial and industrial customers. Under
the technology agreement with Unitil, BusinessEdge will design and implement
an eBusiness strategy using flow-through processing of transactions in
a deregulated energy environment. BusinessEdge will integrate Unitil's
enhanced back-office applications with the Enermetrix.com Exchange
while providing gateway connectivity to suppliers.
Altair Energy, Public Service
Co. of Colorado's solar electric partner, has announced that a Jefferson
County, Colo., family has chosen to meet most of its estate's electric
needs with a record-sized solar electric system, the largest ever to be
installed on a home with existing utility power in the Rocky Mountain
region. The system, owned by Jack Rickard, includes a battery bank that
provides emergency backup power features and was designed to meet a major
portion of the electric needs typically required by his 6,000-square-foot
Morrison home and family of eight. Altair installed the system.
Convergent Group Corp.
has filed a registration statement with the Securities and Exchange
Commission for an initial public offering of $115 million of its common
stock, including an over-allotment option from the company and certain
selling shareholders. Convergent Group is a provider of professional services
that enable its utility and local government clients to implement Internet-based
eBusiness solutions.
Transmission & ISOs
New England ISO. The
Competitive Power Coalition, comprised of eight generating companies representing
the majority of the installed capacity in New England, said on Feb. 10
that the New England ISO was misapplying market rules, creating serious
implementation problems.
Earlier, on Feb. 7, Coalition
members had met individually with the commissioners at the Federal Energy
Regulatory Commission to elaborate on concerns set out in a complaint
filed with the FERC on Feb. 1. See FERC Docket No. EL00-40-000.
Coalition members say they
are willing to explore an alternative power exchange because "NEPOOL is
dysfunctional." The Coalition on Jan. 21 released a white paper explaining
perceived problems with the ISO and potential solutions. It is available
from the Coalition at 617-248-9772.
RTO Rule Redux. On rehearing
the FERC largely reaffirmed its final rule issued Dec. 20 (Order 2000)
governing regional transmission organizations (RTOs), but issued clarifications
on three points: (1) the definition of the term "market participant" and
whether parties meeting that definition are viewed as providing transmission
service to an RTO, (2) audits to ensure compliance with tests for independent
governance, and (3) the extent to which RTO proposals must document outreach
efforts to include cooperatively owned utilities as members.
In particular, the revised
rule explains that a firm that functions as a pure transmission company
and provides transmission service to an RTO should not be considered a
market participant. That change was designed to ensure that independent
transmission companies (transcos) can satisfy all legal tests under the
RTO rule, yet the FERC cautioned that the change should not imply that
a pure transmission company will never affect the governance of an ISO,
or preclude the FERC from considering on a case-by-case basis whether
a transco meets the independence standard.
Moreover, the FERC reiterated
that an independent transco cannot own or operate generation, even if
only to serve a non-competitive transmission function, without stepping
over the line as a market participant (unless such generation supplies
ancillary services of last resort, which is a required function of an
RTO). Docket No. RM99-2-001, Order No. 2000-A, 90 FERC ¶61,201, Feb.
25, 2000.
ComEd ITC. The FERC
granted partial approval of the petition filed by Commonwealth Edison
Co., IES Utilities, Interstate Power, and MidAmerican Energy to form an
independent transmission company (ITC) that would function as a so-called
"binary RTO," holding primary operational authority, but remaining nested
within the structure of the Midwest Independent System Operator, which
would oversee the ITC.
The ITC would plan and carry
out its own transmission additions and upgrades, and file its own rate
structures for transmission, congestion management, and ancillary services,
with its own scheme of performance-based incentives - factors that have
led some to question whether the ITC might overshadow the Midwest ISO.
The FERC acknowledged that
ComEd's binary RTO proposal was not yet fully formed, but deflected objections
by intervenors who complained that the ITC had not committed to a single
system rate, as had the Midwest ISO, but would reduce MISO's regional
value by retaining separate tariff filing authority. The FERC preferred
to praise the ITC's flexibility and noted that its proposed congestion
management system included "many appropriate elements," while the MISO
had not yet developed its own market-based system for congestion pricing.
Docket EL00-25-000, 90 FERC ¶61,192, Feb. 24, 2000.
Line Construction. On
Feb. 29 the New York PSC announced that it had authorized the Long Island
Power Authority to construct a 22.5-mile underground electric transmission
line, set to begin operations at 69 kilovolts, but capable of expanding
to 138 kV. Case 99-T-1423 (N.Y.P.S.C.).
Public Power
Co-op Support Structure.
California's electric industry has formed a new rural electric cooperative,
known as Golden State Power, to serve as a statewide support organization
for utility cooperatives. The new co-op also will collaborate in California
with Anza Electric Co-op and Plumas-Sierra Rural Electric Co-op, and with
two newly formed energy buyer cooperatives, the California Electric Users
Co-op and the California Oil Producers Energy Co-op.
Studies & Reports
Ancillary Service Pricing.
The Oak Ridge National Laboratory has published a study by Brendan Kirby
and Eric Hirst providing a more detailed look at some of the ideas regarding
pricing of ancillary services that the authors explored earlier in these
pages in their article, "Ancillary Services: A Call for Fair Prices,"
published Jan. 1 in Public Utilities Fortnightly, p. 32.
In their Oak Ridge study (ORNL/CON-474),
"Customer-Specific Metrics for the Regulation and Load-Following Ancillary
Services," Kirby and Hirst offer a "vector-allocation method" for calculating
correlations between loads and requirements for ancillary services. For
more detail, see www.EHirst.com.
Retail Competition.
A study released by the National Energy Marketers Association claims that
regulators impede energy competition by setting rules that assign default
customers (those choosing not to choose) to incumbent utilities.
"A presumption that customers
want the utilities to supply competitive services does not exist in the
telecom industry and should not exist in the new energy industry either,"
said NEMA president Craig Goodman.
In its study, "National Guidelines
for Designing and Pricing Default Energy and Related Services," the NEMA
suggests that the markets are developing quickly where default pricing
reflects the true costs of providing retail services, as opposed to where
those costs are hidden in distribution rates. It cites Massachusetts and
California, where default prices at the start of competition were set
at or below the wholesale cost of power (with some generation service
costs buried in the distribution rate), spawning few active competitive
suppliers and prompting very few consumers (about 1 percent) to choose
a competitive supplier.
In Pennsylvania, however, where
NEMA contends that shopping credits come closer to matching actual costs,
the association says that about 10 percent of customers had switched after
one year of competition. See www.energymarketers.com.
Courts
Consumer Privacy. A
Pennsylvania court ruled that PECO Energy had no standing to challenge
a state PUC order that obliged utilities to release limited customer proprietary
data to competitive energy retailers, since a utility "does not represent
the interests of its ratepayers." Mid-Atlantic Power Supply Assoc.
v. Pa. PUC, No. 1683 C.D. 1999, Feb. 25, 2000 (Pa.Cmwlth.).
Cross-Selling Discounts.
A Michigan court ruled that Ameritech violated a state law ban against
predatory pricing for telephone service (any charges below the TSLRIC
rate, or "total service element incremental costs") when it offered vouchers
to customers redeemable for credit against bills either for telephone
or cable television service. Ameritech Michigan v. Mich. P.S.C., No.
209011, Feb. 22, 2000 (Mich.App.).
Gas Rate Design. In
a natural gas rate order, the North Carolina Supreme Court affirmed use
of a "peak-and-average" method over the "peak responsibility" formula
to allocate fixed costs, noting that the PR method would give a "free
ride" to interruptible customers, who receive uninterrupted service on
most days of the year. State ex re. Utils. Comm'n v. Carolina Util.Customers
Assoc., No. 170A99, Feb. 4, 2000 (N.C.).
Submetering. A Georgia
court upheld a state PSC ruling that let Georgia Power serve a large apartment
complex located within the service territory of an electric co-op, since
the apartment was a single customer and thus qualified for the "large
load exception" under state law. Georgia PSC v. Sawnee Elec. Memb.
Corp., Nos. A99A18560 et al., Feb. 1, 2000 (Ga.App.).
Slamming. The Alabama
Supreme Court ruled that the state utility commission - not the courts
- has exclusive authority to resolve complaints by telephone customers
about slamming under a new state law. QCC Inc. v. Hall, No. 1980591,
Jan. 28, 2000 (Ala.).
Power Plants
Deferred Tax Normalization.
In light of a private letter ruling issued by the Internal Revenue Service
on Jan. 6, which concluded that any flowback to utility customers of deferred
unamortized investment tax credits (ITCs) or excess deferred income taxes
(EDITs) associated with divested generating assets would violate the normalization
rules in the federal income tax code, the Maine PUC has OK'd a stipulation
that promises no such mandatory flowthrough and allows Central Maine Power
to remove from its balance sheets the regulatory liabilities relating
to such unamortized ITCs or EDITs.
The stipulation also settled
certain issues concerning accounting for gain on the sale of generating
assets and how to reflect such gain in standard-offer rates. Docket
No. 97-580, Feb. 24, 2000 (Me.P.U.C.).
Fossil Unit Divestitures.
Potomac Electric Power Co. has begun site tours for prospective buyers
of its four power plants and mailed an "information memorandum" to nearly
2,000 interested parties in February to kick off a two-stage auction process
expected to be completed by year end.
"We are extremely pleased with
the level of interest shown in our generation assets thus far in the auction
process," said Bill Sim, group vice president for generation. The company
said that large multi-national power producers, independent power producers,
and utility affiliates all had expressed interest.
The assets represent over 6,000
MW, including four power plants, five purchased power agreements, and
certain ancillary services.
Nuclear Relicensing.
Entergy Corp. on Feb. 1 applied to the Nuclear Regulatory Commission for
renewal of the operating license for Unit 1 of its Arkansas Nuclear One
generating plant, which is licensed to operate until 2014, a renewal that
would authorize it to operate until 2034. The request marks the third
renewal application to the NRC, behind Baltimore Gas & Electric's Calvert
Cliffs plant and Duke Energy's Oconee plant.
Nuclear Unit Sales.
The New York Power Authority and Entergy Corp. have reached an agreement
in principle for the sale to Entergy of the Power Authority's two nuclear
power plants - the Indian Point 3 plant in Buchanan, and the James A.
FitzPatrick plant in Oswego County - for $50 million at closing and seven
annual installments of about $84 million. In consideration for fuel, Entergy
also has agreed to pay seven annual installments of about $24 million.
"The NYPA plants are a good
fit for Entergy's growth strategy and its environmental leadership commitment,"
said Entergy chief executive officer Wayne Leonard, referring to his company's
growth strategy in the Northeast.
Power Markets
Electronic Trading.
The New York Mercantile Exchange was to switch electricity trading from
an "open outcry" mode to its new ACCESS electronic trading system following
the close of business on March 2. The new system initially would keep
trading open for 22 1/2 hours a day, and then move to a 24-hour system.
"I could see [24-hour trading]
happening by the end of this year," said NYMEX president R. Patrick Thompson,
who says the electric industry has shown the greatest level of acceptance
of electronic trading. Thompson also acknowledged that while NYMEX would
have "many of the same-looking products" as HoustonStreet.com, the longer-term
goal of the electronic system was greater integration of physical and
derivatives markets, allowing for the creation of new products.
"In electric power... the level
of information that can be delivered about those markets on an equal-footing
basis is quite significant," Thompson said.
Energy Imbalances. Saying
the utility's plan did not go far enough, the FERC expanded Commonwealth
Edison Co.'s proposal for automated trading in energy imbalances to allow
both wholesale and retail energy suppliers to participate. Trading would
be conducted via a secure Internet site owned and operated by Automated
Power Exchange. Docket No. ER99-3886-001, Feb. 9, 2000 (F.E.R.C.).
Commissioner Curt Hébert predicted
that the program would reduce penalties to be paid by retail customers:
"I wonder why the FERC didn't think of it."
Retailer Licensing.
The Maine PUC granted a license to Enron Power Marketing Inc. to operate
in the state as a competitive energy retailer, serving commercial and
industrial customers. Docket No. 2000-113,
Feb. 23, 2000 (Me.P.U.C.).
State Legislatures
Idaho Merger Review.
Responding to criticism that regulators were too quick to approve the
merger between ScottishPower and PacifiCorp, Idaho legislators have proposed
a bill aimed at giving the Idaho PUC more power in approving or rejecting
energy company mergers. The bill would change Idaho code to require that
ratepayers be "positively impacted" by a merger, rather than the present
requirement that ratepayers not be "adversely affected." See http://www.state.id.us/legislat/elec203.html.
Virginia Electric Restructuring.
On Jan. 17 the Legislative Transition Task Force, formed to implement
Virginia's recently enacted electric restructuring law, proposed a final
draft for new legislation to amend the state's restructuring law. The
new legislation would require the state commission to develop a code of
conduct governing transactions between incumbent electric utilities and
any affiliates conducting unregulated activities.
The bill also would allow distribution
utilities to construct and operate generating facilities, as long as that
would have "no material adverse effect" on reliability. It would guarantee
the preservation of territorial rights for distribution service by incumbent
electric utilities. See http://dls.state.va.us/elecutil/meetings.htm.
Nuclear Power - NRC
Jurisdiction Questioned for Antitrust Reviews
By Carl J. Levesque
The Nuclear Regulatory Commission
wants out of the antitrust review business for asset transfers, but a
DOJ initiative could render the rulemaking moot.
For once, The IOUs like
what they see at the NRC. Comments filed in the Nuclear Regulatory
Commission's proposed rulemaking that would rid it of responsibility to
conduct antitrust reviews for nuclear asset license transfers show a clear
split between investor-owned utilities, who favor the initiative, and
public power entities, who want the NRC to review the license transfers
for market power issues.
At issue is whether Section
105 of the Atomic Energy Act calls for NRC antitrust reviews of asset
transfers. While both sides generally agree that that Section expressly
calls for antitrust review for plant construction approval and, subsequently,
for operating license issuance, the IOUs argue that the statute does not
stipulate that NRC jurisdiction goes beyond those two instances.
"Section 105 simply does not
mention, nor contemplate antitrust reviews for post-operating license
transfers," noted FirstEnergy Nuclear Operating Co., operator of FirstEnergy
Corp.'s nuclear plants. Siding with FirstEnergy is a group of utilities
including Western Resources Inc., Kansas Gas & Electric Co., Wisconsin
Electric Power Co., Public Service Electric & Gas Co., and Rochester Gas
& Electric Co.
"Section 105 does not contemplate
Commission review of antitrust issues upon a license transfer after the
initial operating license is issued," the group of utilities said in their
jointly filed comments. The Nuclear Energy Institute also favored the
rulemaking, citing, as the IOUs did, the Wolf Creek Generating Station,
Unit 1 license transfer proceeding in which the NRC "appropriately reconsidered
its past practice of reviewing antitrust issues in license transfer proceedings."
Public power entities, however,
didn't see it the same way. Comments filed jointly by the American Public
Power Association, the Antitrust Institute and various municipalities
claimed that the NRC's conclusion that Section 105 does not authorize
it to conduct an antitrust review for asset transfers "is clearly erroneous."
A transfer of an operating license to an entity that was not previously
a licensee, APPA said, should be considered an initial application for
an operating license "not preceded by a construction permit, and therefore
an antitrust review is necessary." A group called the Citizens Awareness
Network agreed, claiming that the rulemaking would be an "[a]bdication
of Congressional charge."
The IOU comment letters called
the NRC antitrust reviews duplicative, since at least three other federal
bodies - the Federal Energy Regulatory Commission, the Federal Trade Commission,
and the U.S. Department of Justice's Antitrust Division - review nuclear
power plant license transfers as well. "The NRC's primary mission is to
protect the public health and safety, not to economically regulate utilities,"
the comment letter from Western Resources and other utilities said.
But in the long run, the outcome
of the NRC rulemaking could be irrelevant. On Feb. 28, the Department
of Justice's Antitrust Division received from the DOJ-appointed International
Competition Advisory Committee a report calling for regulatory agencies
to be relieved of antitrust review responsibility in mergers so as to
consolidate the federal merger approval process. The report's primary
purpose was to address international antitrust and competition policy
issues, but it concluded that "federal antitrust authorities" are better
able to conduct antitrust reviews than "federal sectoral regulators."
A majority of the committee recommended "removing the competition policy
oversight duty from the sectoral regulators and vesting such power exclusively
in the federal antitrust agencies."
To view the report, see www.usdoj.gov/atr/icpac/icpac.htm.
For information on the NRC proposed rulemaking, including comments filed,
see http://ruleforum.llnl.gov/cgi.bin/rulemake. F
Carl J. Levesque is associate
editor at Public Utilities Fortnightly.
Plant Divestiture - No
More Winner's Curse?
By Bruce W. Radford
Top bidders in Alberta's
novel gen auction get capacity only, and pay a monthly lease to TransAlta,
which keeps plant ownership.
On March 31, with assistance
from the energy consulting firm Charles River Associates, the Alberta
Department of Resource Development was scheduled to open the season for
qualification of bidders for an auction of generating assets that will
differ from the typical plant sale conducted in the United States. The
Alberta procedure will auction off power purchase agreements (PPAs) rather
than the plants themselves.
CAPACITY RIGHTS. Buyers
will acquire rights to capacity for up to 20-year terms. They may sell
those rights at market prices to marketers, customers, the Alberta Power
Pool (APP), or the independent transmission administrator. They accept
the risk of a fixed monthly lease payment owed to TransAlta Utilities,
which will remain the nominal owner of the generating units and enjoy
certain incentives for exceeding target ratios for plant availability.
However, bidders may submit a negative bid. If a negative bid should win,
the PPA owner would actually receive a monthly payment from APP's balancing
pool. A negative price might reflect the bidder's expectation that market
revenues from plant output will fall short of lease payments owed to TransAlta
to cover operating costs.
ASSETS AVAILABLE. The
auction will cover rights to 32 thermal generating units (6,558 MW), grouped
into 13 tranches of PPAs, plus a single PPA tranche for hydro facilities.
The hydro PPA will be transferred to the Power Pool, with net proceeds
allocated to the APP's balancing pool, and TransAlta retaining dispatch
control to ensure proper coordination of hydro plant operation with water
resource management. No one buyer may acquire more than 20 percent of
total PPA capacity, nor an unbalanced combination of rights from plants
with low and high marginal costs.
AUCTION FORMAT. The
format is called a transparent "simultaneous ascending auction," opening
all 13 thermal PPAs for bidding at the same time (and all remain open
as long as bidding continues on any one PPA). Bidders are informed of
the standing high bid and required minimum bid to remain active at the
end of each round. An activity rule prevents bidders from sitting on the
sidelines and then jumping in; bidders lose in successive rounds if they
fail to submit valid bids in current rounds.
NO OVERBIDS? According
to Jan Paul Acton and Douglas R. Bohi, each a vice president at Charles
River, the unusual auction format was made possible because most generating
resources in the province operated at or below market rates, posing no
problem with stranded costs and thus giving little incentive to the plant
owner to sell the bricks and mortar to guarantee recovery of transition
costs.
Acton and Bohi add that under
Alberta's transparent format, bidders should be able to discern true market
valuations, avoiding the "winner's curse" of bidding more than needed
to win the day, or the fear of the winner's curse, which by contrast encourages
bidders to underbid and curtail auction proceeds.
For more detail, see www.resdev.gov.ab.ca/electric/index.htm,
and www.auctionppa.com.
Bruce W. Radford is editor-in-chief
of Public Utilities Fortnightly.
News Digest
was compiled by Carl J. Levesque, associate editor, Lori Burkhart and
Phillip Cross, contributing legal editors, and Bruce W. Radford, editor-in-chief.
For more frequent updates, see www.pur.com.
Public
Utilities Fortnightly & Spark
