Fortnightly
News Digest
May 01, 2001
Power Markets
PX Chargebacks. As a stopgap measure, the Federal Energy Regulatory Commission (FERC) directed the California Power Exchange to rescind all prior "chargeback" actions attempting to assess unpaid liabilities of PG&E and Southern California Edison Co. to other PX participants, and to refrain from any such future actions, pending the outcome of other judicial and administrative actions.
The FERC said it would await a decision of Edison's state court complaint alleging that it is not in default of its PX participant's agreement, on the theory that its failure to pay PX liabilities arose because of "uncontrollable forces." (See also, "Power Bill Paid?" Public Utilities Fortnightly, Apr. 1, 2001, p. 4.) Also, the FERC will wait for the outcome of the complaint filed by the Power Exchange before a California state claims board, seeking compensation for the action by Gov. Gray Davis in issuing executive orders that commandeered the outstanding financial rights of PG&E and Edison regarding block forward contracts in the PX market.
Nevertheless, the FERC then muddied the water by expressing an apparently gratuitous opinion that the chargeback provision in the PX tariff "was not designed to address [a] default of this magnitude." Docket Nos. EL01-29-000 et al., et al. 95 FERC &61,020, Apr. 6, 2001. \(em B.W.R.
Gas Markets
California Gas Imports. Denying a complaint filed a year ago by the state of California, the FERC ruled that El Paso Natural Gas Co. did not act improperly when it entertained bids on pipeline capacity rights for delivery of natural gas into southern California and eventually awarded the rights to its own corporate affiliate, El Paso Merchant.
At the same time, however, the FERC opened an investigation to study whether El Paso had acted in a way to drive up the price of natural gas at the California border, after hearing reports of statements by El Paso officials that suggested that the company contemplated taking actions to gain greater control over the market. Docket No. RP00-241-000, 94 FERC & 61,338, March 28, 2001. \(em P.C.
QF Avoided Costs. Though the state lost its complaint at the FERC regarding allocation of pipeline capacity rights for imports of natural gas (see above), the California PUC still found a way to reiterate its arguments about gas price manipulation for imports into southern California.
It did so by saying that it would switch to using the price of gas arriving at the Oregon border, rather than the Arizona border (the interface with El Paso Natural Gas), to calculate the avoided cost of natural gas as an element of rates for electricity sold to electric utilities by qualifying cogeneration and small power production facilities. Decision 01-03-067, R. 99-11-022, March 27, 2001 (Cal.P.U.C.). \(em P.C.
Price Conspiracies. On March 20, the cities of Los Angeles and Long Beach filed separate lawsuits in Los Angeles Superior Court, alleging that Southern California Edison, PG&E, and San Diego Gas & Electric Co. violated state antitrust law by allegedly attempting to manipulate natural gas prices. \(em L.A.B.
Mergers & Acquisitions
DTE + MCN. The Federal Trade Commission (FTC) OK'd the merger between DTE Energy and MCN Energy Group, but only after the companies agreed to divest certain natural gas assets to Exelon. The case marked the first time the FTC had challenged a merger between gas and electric utilities because of possible anticompetitive effects, on the theory that natural gas and electricity service are substitutes for each other because of the outlook for growth of gas-fired distributed generation.
To win FTC approval, the merger partners agreed to grant an easement allowing Exelon to gain access to MCN's gas distribution system to market natural gas and introduce competition in the geographic area in which MCN's otherwise exclusive gas service territory overlapped with DTE's exclusive electricity distribution territory.
Otherwise, the post-merger company would have controlled all gas and electric distribution service within the overlap area. File No. 001-0067, Mar. 22, 2001 (F.T.C.). \(em L.A.B.
State PUCs
Rotating Blackouts. California took steps to ease the hardship from electricity outages by allowing customers of Southern California Edison to "opt out" of interruptible tariffs and by exempting certain essential services from rotating blackouts, including fire protection, police, prisons, government agencies needed for national defense, and hospitals (above a certain size and regardless of availability of backup or standby generation).
The PUC justified the opt-out permission by noting that the electric system was operating "outside any reasonable bounds, or any realistic assumptions" that customers could have been expected to make regarding terms of service.
Exemptions from rotating blackouts were also extended to communications utilities, fuel and fuel transportation services critical to electric power system operation, navigation communications systems, traffic control, commercial air and seal control operations, rapid transit facilities used to protect public safety, and radio and television emergency broadcasting. Decision 01-04-006, R. 00-10-002, Apr. 3, 2001 (Cal.P.U.C.). \(em P.C.
Retail Electric Choice. Favoring the shortest possible phase-in for electric supply competition, Virginia OK'd a "flash cut" startup date of Jan. 1, 2002 for retail choice for Delmarva Power & Light, AEP Virginia, and Allegheny Power.
It rejected a complaint from Virginia Power that the new schedule would amount to an "acceleration" of retail choice not allowed under the state's electric restructuring law, which otherwise requires the phase-in of electric competition to begin by Jan. 1, 2002 and be completed by Jan. 1, 2004. Virginia Power is set to phase in retail choice over a one year period ending Jan. 1, 2003. Case No. PUE000740, Apr. 2, 2001 (Va.C.C.). \(em P.C.
Residential Rate Hikes. California assessed an emergency surcharge of 3 cents per kilowatt-hour on residential electric customers of Southern California Edison and PG&E, boosting the average total bill for consumers by 28 percent and promising $2.5 billion per year in added revenue for each utility.
To mitigate the impact on residential consumers, and to encourage energy conservation, the PUC withheld the surcharge from any usage less than 130 percent of the "residential baseline allowance. (The allowance is equal to about one-half of the average monthly residential electricity use.)
The PUC said also that it would adopt a tiered approach that would allocate the surcharge at different rates to various usage levels, as a benefit to those customer classes that do not have the opportunity to pay time-of-use rates. Decision 01-03-082, March 27, 2001 (Cal.P.U.C.). \(em P.C.
Standard Offer Portfolios. Oregon OK'd various standard offers of optional energy portfolios for residential and small commercial electricity customers of PacifiCorp and Portland General Electric, as required under the state's electric restructuring law, which requires the two utilities to provide such customers a market-price portfolio option and at least one optional portfolio made up of renewable resources.
The approved options include (1) a time-of-use rate option (on-peak, mid-peak, and off-peak blocks) requiring a minimum commitment of one year, (2) various options to purchase committed "blocks" of energy from renewable resources, (3) a renewable resources "blend" option (50-50 from renewable and conventional resources), and (4) an environmental mitigation option combining the blended renewable portfolio with a voluntary contribution dedicated to fish restoration.
Customers will pay a traditional cost-of-service rate as a default charge if they do not select a portfolio option by the required deadline. UE 118, UE 119, March 20, 2001 (Ore.P.U.C.). \(em L.A.B.
Courts
Nuclear Waste Storage. A federal appeals court allowed electric utilities to sue the state of Nebraska for actions allegedly aimed at undermining the licensing of a disposal facility for low-level nuclear waste, deciding that the state had given up its sovereign immunity against such suits by voluntarily joining a multi-state compact to deal with nuclear waste.
Nevertheless, the court ruled that certain state officials named in the suit enjoyed "qualified immunity" shielding them from liability for damages as long as their conduct could be found not to violate established statutory or constitutional rights. Entergy Arkansas Inc. v. Nebraska, Nos. 99-4263, 99-4265, March 8, 2001 (8th Cir.). \(em P.C.
Power Plants
Retained State Jurisdiction. Montana regulators ruled that the state can assert "continuing jurisdiction" over generating assets sold off by the electric utility Montana Power Co. to the unregulated power producer PPL Montana, on the theory that it had not yet approved a final restructuring order for Montana Power, and that generation assets cannot be transferred out of the regulated utility rate base until such a final order is issued. In essence, the commission said that the assets would be "held in trust" as regulated assets pending a final restructuring order. Docket No. D97.7.90, March 15, 2001 (Mont.P.S.C.). \(em P.C.
Demand-Side Resources. Montana regulators also issued a notice of inquiry to solicit comments on its proposal to set up a power pool to provide reasonably priced energy to large industrial customers, to avoid plant shut downs or worker layoffs. The power pool, known as the "customer demand exchange program," would be formed by customers choosing to forgo power consumption and instead deliver their unused power back into the pool.
The commission anticipates that eventually, small commercial customers or even residential users might also participate, perhaps by selling unused power into the pool for cash or in exchange for a lower rate. \(em P.C.
Nevada Divestitures. The Nevada PUC was set to conduct a joint hearing on April 6 to hear a request by the state attorney general to postpone any move that would force the state's electric utilities to sell off generating plants. Docket No. 01-1042 (Nev.P.S.C.).
Earlier, on March 22, the Nevada PUC voted to intervene in proceedings at the FERC concerning the sale of Nevada Power Co.'s Reid Gardner, Clark, and Sunrise generating stations.
"We have spent a great deal of time on this issue at the state level; however, the final decision will be made on the federal level," said PUC chairman Don Soderberg, explaining the vote.
"We have to be sure that the FERC understands how the Nevada situation has changed during the last year." \(em C.J.L.
Construction in Texas. Generation capacity tallies for Texas continue to grow, according to the ERCOT Wholesale Market Report.
Released in March, the report shows an increase of 10 new power plants since a previous update in February. That reflects 27 completed plants since 1995, 27 more under construction and 31 in the planning stages. The plants put the state in the position of having a 23 percent excess power margin for the coming summer peak. \(em C.J.L.
Business Wire
Entergy Corp. has selected ABB Entergy Interactive Inc.'s Energy Profiler Online (EPO) software to administer voluntary load curtailment programs for its subsidiaries. "One of Entergy's subsidiaries has offered energy information services to customers for some time using EPO under the product name DataLink, so adding the curtailment functionality was a natural step," said Peter Lendrum, Entergy vice president, sales and marketing. Previously, Entergy had relied completely on manual processes to notify customers of curtailment events and receive confirmation of their participation.
British integrated energy company Innogy plc has opened Innogy America LLC, which will be headquartered in Chicago, to help U.S. power companies succeed commercially in a deregulated environment. Innogy America looks to capitalize on its experience participating in the deregulation of Great Britain's power industry. Chief among Innogy's technologies is the concept of creating "Optionality" \(em using new technologies to match energy production to market conditions accurately and efficiently.
Kase and Co. Inc., an energy risk management and trading advisory firm, has been awarded a comprehensive natural gas and oil risk management contract by Kansas City Power and Light (KCPL). In addition to reviewing KCPL's existing policies, Kase will guide the regulated utility through a risk assessment process and develop strategies for 2001 and 2002. Following the implementation of the program, Kase will continue to offer advice on managing their natural gas and oil exposure through the use of Kase's HedgeModel software and Monte Carlo, VAR solutions. \(em C.J.L. F
News Digest was compiled on April 8 by Bruce W. Radford, editor-in-chief, from contributions as noted from Carl J. Levesque, associate editor, and Phillip S. Cross and Lori A. Burkhart contributing legal editors.
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