Utilities Biweekly Report

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=09 Utilities Biweekly Report =09
A news service for energy professionals =09 October 17, 2001 =09

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FERC Rejects Reasons for Suppliers Higher Prices
In an order issued on October 5, the Federal Energy Regulatory Commission =
(FERC) rejected the cost justifications of several power suppliers that so=
ld wholesale electricity above the proxy market-clearing price during July=
2001. The electricity had been sold into the California Independent Syste=
m Operator (CA-ISO) and Western Systems Coordinating Council (WSCC). FERC =
said that the justifications from Dynegy, Reliant Energy, Mirant, and Willi=
ams Energy were "either untimely filed and/or unsupported" and has ordered=
refunds on those transactions. The four suppliers submitted their cost ju=
stifications in compliance with FERC's April 26 order that established pri=
ce mitigation for sales into the CA-ISO's spot markets starting in late Ma=
y. That order required power suppliers and generators who submitted bids a=
bove the market-clearing price to file a justification for the higher pric=
es within seven days of the end of the month in which the sale occurred. F=
ERC did not disclose how much money would be refunded since the four compa=
nies requested that the matter be treated confidentially. In a separate ca=
se, FERC Administrative Law Judge Bruce Birchman has until March 8 to issu=
e a report on whether California is entitled to refunds of nearly $9 billi=
on for wholesale power purchases when prices skyrocketed in the past year.=
The report's recommendations will be considered by FERC commissioners for=
further action.
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Nuclear plant had long list of failings
Inexperience, sloppy work habits and poor maintenance increased the chance=
s of dangerous accidents at the Bruce nuclear power station in Ontario, th=
e world's largest atomic facility, says a secret report obtained by The Gl=
obe and Mail. The report was compiled in 1998 by a group of highly trained=
, independent nuclear experts from the World Association of Nuclear Operat=
ors (WANO), an industry advisory group based in Atlanta. It was given to O=
ntario Power Generation, the provincially owned utility, the following year=
. Among its findings: Some operators were unaware of such important topics=
as the time it would take for water in reactors to begin boiling away if =
flows of cooling water were blocked. Nuclear-plant operators disconnected =
warning alarms they found too noisy. Operators sometimes did not watch ins=
trument control panels, but had their backs turned to them, which could sl=
ow any response to a problem. "Should an inadvertent loss of primary heat =
transport coolant occur, operator response could be delayed, resulting in =
a loss of core cooling." More than 2,500 nuclear-plant modifications were =
not incorporated into design manuals, leading to confusion about how the p=
lant actually runs. There was a backlog in preventive and corrective maint=
enance and some maintenance work was poorly done. WANO tried to block The =
Globe's access to the report, which listed dozens of other sloppy practice=
s at the Bruce facility, and a second related report that found troubling =
safety lapses at the Pickering nuclear station. But the organization recen=
tly abandoned a court challenge seeking to have the documents remain confi=
dential. It is the first time WANO reports assessing the performance of nu=
clear plants have been publicly released anywhere in the world. A Bruce st=
ation official said its performance has improved dramatically since the cr=
itical report was written. WANO now considers Bruce "one of the fastest im=
proving nuclear plants in North America," said Duncan Hawthorne, chief exe=
cutive officer at the site. One nuclear energy critic said concerns raised =
in the report about possible loss of cooling -- an interruption in the flo=
w of water that keeps a reactor from overheating -- describes an event tha=
t could cause a serious mishap by allowing unwanted nuclear chain reaction=
s. "It could result in some form of criticality accident, which could even=
tually lead to a meltdown," said David Martin, a nuclear safety consultant=
with the Sierra Club of Canada. The Globe and Mail requested the reports =
under Ontario's freedom of information act in 1999. Both Ontario Power and=
WANO opposed the releases. Ontario Power argued that public knowledge of =
the reports would jeopardize its finances and increase the cost of its lia=
bility insurance. The government utility completed a long-term agreement l=
easing the Bruce facility, located on the shores of Lake Huron, to a unit =
of British Energy earlier this year. WANO, in seeking to keep the records =
secret, asserted nuclear safety is enhanced if the public is kept in the d=
ark about its findings because nuclear staff are more likely to be honest =
about mistakes if their remarks are kept confidential. But Ontario's Infor=
mation and Privacy Commissioner ruled last year there was a "compelling in=
terest" for the public to have the nuclear-safety information. Shortly aft=
er the newspaper made its request for the records, the Ontario government =
changed its information law to exempt provincially owned electricity compa=
nies from the act, blocking future public access to these safety reports. =
The WANO reports, known as peer reviews, were viewed at the highest level o=
f the utility, with copies sent to Ronald Osborne, Ontario Power's preside=
nt. During WANO reviews, a team of nuclear experts scours the plant, looki=
ng for sloppy work practices, poor maintenance and inadequate training, wh=
ile also trying to discover the causes of these failings. At the Bruce pla=
nt, WANO officials reviewed four of the eight reactors. The officials foun=
d the failure to keep accurate designs at the station, known as Bruce B, h=
elped create confusion over three unplanned reactor shutdowns in 1997 that=
were caused by the triggering of automatic safety systems. Operators had =
a hard time figuring out why the shutdowns happened because the designs sh=
owed wiring layouts from the wrong nuclear stations. The report also noted=
that 10 forced reactor shutdowns were caused by equipment problems. These=
have arisen because the station had a "large and increasing backlog" in p=
reventive and corrective maintenance tasks. Staff also conducted incompet=
ent maintenance work. In one case, a pump needing an overhaul was taken fr=
om service, but it was later discovered that the spare parts for this work=
were unavailable. "The pump was subsequently returned to service without =
undergoing the associated maintenance," the report said. I1998, there were =
about 4,000 corrective maintenance tasks at the station. Mr. Hawthorne sai=
d that total is now less than 200, reflecting the plant's improving perfor=
mance. However, there was a backlog of about 1,000 preventive maintenance =
tasks in 1998, a figure that has since grown to 1,200. Mr. Hawthorne said t=
he total of preventive jobs is considered normal within the industry.
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Barton Adds Supports for FERC Authority and RTOs
Senate Energy and Air Quality Subcommittee Chairman Joe Barton (R-TX) has =
revised his draft electricity bill to support the Federal Energy Regulator=
y Commission's (FERC) proposed requirement that forces utilities to partic=
ipate in regional transmission organizations (RTOs). The proposal requires=
that all transmitting utilities form or participate in an RTO within 18 m=
onths. Barton's draft bill also gives additional authority to FERC by allo=
wing the commission to propose changes to applications if minimum standards=
are not met. Utilities would have the right to appeal FERC's decision to =
the federal courts. While FERC is pushing for the creation of four RTOs, B=
arton's draft bill does not recommend a specific number of RTOs. The revis=
ed legislation requires a 40,000 MW generation minimum from any new RTO. T=
his requirement was added to minimize the amount of inter-RTO transmission=
problems. The bill includes an incentive rate provision which opponents c=
laim would undermine FERC's authority to determine just and reasonable rat=
es. Proponents argue that incentive rates are necessary to account for the=
inherent risks that transmission companies face.
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FERC's Public Access Rulemaking is Questioned
A Federal Energy Regulatory Commission (FERC) proposed rulemaking on public=
access of informational filings is generating mixed reactions. FERC is pr=
oposing that utilities and power marketers electronically file an "index o=
f customers" on a quarterly basis with a summary of the contractual terms =
and conditions for market-based power sales, cost-based power sales, and t=
ransmission services. The proposed rule would require that the information=
be posted on a publicly available Internet website. State regulators see =
FERC's July rulemaking proposal as an opportunity to improve regulatory ov=
ersight of competitive markets. The National Association of Regulatory Uti=
lity Commissioners (NARUC) applauds the proposal, stating, "One of the mos=
t important and formidable tools in market monitoring is access to data th=
at is readily available and useful to the public." However, utilities are =
warning FERC that making such "proprietary and commercially sensitive info=
rmation" available to the public "could be harmful to the development of r=
obust electricity markets." The Edison Electric Institute's Alliance of En=
ergy Suppliers is requesting that FERC defer action on the rulemaking.
Debate Over Use of PJM as Model for Northeast RTO
Wholesale suppliers and the PJM Interconnection have recommended that PJM's=
market design and governance structure be used as a model for a Northeast=
regional transmission organization (RTO). They believe that using the PJM=
model would facilitate the quickest transition from the current system of=
independent system operators (ISOs) to one large RTO. Duke Energy North A=
merica reported to Platts Electric Power Daily that "The PJM market-buildi=
ng philosophy of cautious, incremental, modular building blocks which emph=
asizes market-driven solutions rather than command-and-control decision an=
d frequent market interventions has worked far better than approaches take=
n in either New York or New England." Administrative Law Judge Peter Young=
recommended on September 17, 2001 to the Federal Energy Regulatory Commis=
sion (FERC) that PJM be used as a starting point. Young proposed an RTO pl=
an that would have an operational RTO within 36 months of the FERC order. =
His recommendations resulted from the July 2001 mediation talks that discu=
ssed the creation of a Northeast RTO. FERC has since asked for comments re=
garding Young's plan. Enron and PJM contend that an RTO could be operation=
al within one year if FERC acts expeditiously. New York ISO and New Englan=
d ISO argue that FERC should consider another approach because using PJM a=
s a model would ignore geographic and philosophic differences. The PJM uti=
lities do not have divested generating assets, as do the two regions not c=
overed by PJM. The ISOs also pointed out that PJM does not contain so-calle=
d load centers like New York City or Boston.
Support for Delay in Arkansas' Deregulation
Entergy, Arkansas' largest electric utility, has agreed with State Attorney=
General Mark Pryor to support a delay in the state's restructuring effort=
s. An amended restructuring statute in effect as of April 2001 pushed back=
the start date of deregulation to October, 2003. The Public Service Commi=
ssion (PSC) was given the authority to delay deregulation further until 20=
05 if necessary to ensure that deregulation will benefit consumers. Severa=
l concerns still exist, according to local sources. A study by La Capra As=
sociates showed that Arkansas consumers might experience higher, more vola=
tile electric rates if the retail market is deregulated before October 200=
5. The study also reports that wholesale electric markets and operating el=
ectronic systems haven't developed, both are necessary for successful reta=
il market competition. Entergy's President, Hugh McDonald, has also expres=
sed concern that the Federal Energy Regulatory Commission's (FERC) push to=
create four regional transmission organizations (RTOs) may slow the move =
to retail competition. Additionally, State Attorney General Pryor has note=
d that two utilities serving the Arkansas market are experiencing difficul=
ty meeting the January 2002 deregulation deadline in Texas. The governor, =
PSC, and the Arkansas Electric Cooperative Corporation consider repeal of =
deregulation to be the best choice for consumers. Entergy believes repeal =
is unnecessary and that delaying until 2005 will cause no harm to consumer=
s. A PSC hearing on the topic is set for October 18, 2001.
Entergy seeks deregulation delay in Texas
Texas is experiencing a less than seamless transition to a competitive ret=
ail electric market. Entergy Corp. has asked the Public Utility Commission=
of Texas (PUC) to delay deregulation in the Southeast Texas service area =
for 8 ? months, transmission congestion is costing some Texas utilities mi=
llions of dollars, and reports show that Texas consumers have been subject=
to "slamming" (switching utility providers without their consent.) Enterg=
y's request is a turnaround from the corporation's announcement in Septemb=
er that deregulation should move forward and that it was ready to move int=
o a competitive marketplace. The corporation has now filed a memorandum al=
ong with the PUC staff, an industrial electricity users group, and the Off=
ice of the Public Utility Council, asking the PUC to delay deregulation fo=
r 8 ? months. Entergy's spokesperson says that the request stems from the =
Federal Energy Regulatory Commission's and Entergy's inability to come to =
consensus on an independent regional transmission operator. =20
Problems For Texas on the Path To Deregulation
Municipally-owned Austin Energy is among a group of Texas utilities that h=
ave experienced rising costs in a deregulated energy market. Their agreeme=
nt to share transmission costs across the state for generated electricity =
is costing more than anticipated. The PUC and the Electric Reliability Cou=
ncil of Texas (ERCOT) estimated last year that a state program designed to=
ensure that enough electricity can move around the state during peak peri=
ods would cost utilities $20 million in the year starting July 31, 2001. S=
ince each utility's share of the cost is based on its use of the grid, Aust=
in Energy expected its 4 percent share to be $800,000 for the first year. =
However, Austin Energy has already been billed approximately $2 million fo=
r the period between July 31 and September 21.
North Carolina Regulators Oppose Southeastern RTO =20
The North Carolina Utilities Commission (NCUC) has expressed opposition to =
the Federal Energy Regulatory Commission's (FERC) move to create four regi=
onal transmission organizations (RTOs). In September, an administrative la=
w judge reported on closed-door mediation discussions aimed at developing =
an RTO in the Southeast. NCUC considers the 45-day long talks illegal. FER=
C supports the creation of a Southeast RTO, reflecting RTO proposals submi=
tted by GridSouth, GridFlorida, and Entergy. NCUC objects that "...FERC is=
now attempting to strip retail customers of all rights to existing transm=
ission capacity and make it available...to relatively new entities, such a=
s Independent Power Producers and marketers. This attempt must fail." NCUC=
says that it will take its case to court to prevent FERC from moving forw=
ard on this issue.
"Slamming" reported in Texas pilot program
Problems arising from Texas' move towards a competitive retail electric ma=
rket have also spread to the consumers. Under the state's pilot project, 5=
percent of the market was opened to competition, allowing companies to co=
mpete for consumers by offering lower prices and different service plans. =
The Texas deregulation law strictly prohibits "slamming," electric provide=
rs switching consumer's service without obtaining permission. New Power Co=
mpany received at least 14 complaints about slamming; Green Mountain, Reli=
ant, First Choice and Shell each received one "slamming" complaint. The Fo=
rt Worth Star-Telegram reported that 68 complaints have been filed between=
March 1, 2001 and September 27, 2001 concerning billing procedures, delay=
s in the pilot project, customer service and deceptive trade practices. On=
one positive note for consumers, the PUC has published a consumer educati=
on brochure, "The Electricity Facts Label: What it is and How it Will Help=
You Shop for Electricity." The brochure will help consumers understand the=
new electricity labels that Retail Electric Providers (REPs) are required=
to provide when retail competition begins. The label gives information on=
electricity prices, contract terms, generation sources, and emissions in =
a standardized format. The labels are intended to help customers make info=
rmed decisions about choosing their electric service.
Texas' Power Supply to Increase
Two new developments in Texas are expected to increase power supply in the=
state. American Electric Power Co. (AEP) is currently seeking approval fr=
om the Public Utility Commission of Texas (PUC) to provide energy supply s=
ervices to large commercial and industrial customers if deregulation begin=
s in January 2002. AEP has a total of about 1 million customers in Texas w=
ith its three subsidiaries: Central Power and Light Co., West Texas Utilit=
ies and Southwestern Electric Power Co. The company expects the PUC to act=
within two to three months. In addition, Steag Power, the Houston-based u=
nit of Germany-based electricity utility Steag AG, plans to develop a 900 =
MW to 1,200 MW gas-fired power station in Ennis, Texas. The company submit=
ted its application to the Electric Reliabilty Council of Texas and the So=
uthwest Power Pool. Construction is planned to begin next year and reach c=
ommercial operation by 2004. The plant will increase Texas' generating cap=
acity and may help to relieve the state's congestion problem of transmittin=
g power from south to north. New power plants, as well as new transmission=
lines, are needed in the north to ease congestion.
Bingaman to Resume Work on Comprehensive Energy Bill
Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-Ne=
w Mexico) will resume consideration of a comprehensive energy bill the wee=
k of October 14. The bill includes provisions related to electricity restr=
ucturing, including expansion of the Federal Energy Regulatory Commission'=
s (FERC) authority over municipal and cooperative utilities. The proposed =
legislation would also allow regional transmission organizations to rely o=
n FERC to rule when transmission projects are delayed or rejected by state=
officials.
Federal Trade Commission Issues Report on Electric Power Regulatory Reform
A new report has been issued by the Federal Trade Commission (FTC) that ex=
amines state retail electricity programs and their ability to provide cons=
umer benefits. Competition and Consumer Protection Perspectives on Electri=
c Power Regulatory Reform: Focus on Retail Competition compares state and =
federal authority on competitive issues and implementation of successful r=
etail competition programs. The FTC report finds that most electric market=
s are in a transitional phase. The benefits of a competitive market will n=
ot be realized until the advent of full competition, without price regulati=
on, has been achieved. The report also explains that competitive wholesale=
markets must accompany competition in retail markets. The report notes, "=
... as wholesale and retail markets become regional, governing policies an=
d jurisdictional approaches also must move in that direction for wholesale=
and retail competition to be successful." The FTC report also cites that =
artificially low "standard-offer rates," which are provided to customers w=
ho do not choose a new supplier, may act as a barrier for new retail suppl=
iers. These low rates reduce the incentive for customers to seek alternati=
ve suppliers. The report urges retail suppliers to offer competitive meter=
ing and billing services in addition to variable pricing for generation se=
rvices. Standardized labeling of power products and services, enforcement =
of truth-in-advertising laws, and consumer education efforts will help con=
sumers make informed decisions.
Supreme Court Hears Arguments on Open-Access Rules
The Supreme Court heard arguments on Wednesday on Federal Energy Regulator=
y Commission (FERC) jurisdiction to regulate wholesale transmission servic=
es and power sales. The Court's ruling will have an important impact on th=
e U.S. power market. It could either open the transmission grid to retail =
competition or limit competition to the retail level. As Dow Jones reports=
, "The case has great ramifications for congressional debate on electric i=
ndustry restructuring legislation and FERC's ongoing efforts to promote co=
mpetition as a surrogate for regulation." Nine states, led by New York, arg=
ued that FERC overstepped its authority with Order 888, that required util=
ities to open their transmission lines to competing power merchants. Lawre=
nce Malone, general counsel for the group, argued that the order preempted=
state authority to regulate retail sales and set rates. In 1999, FERC car=
ried the order further by mandating that utilities turn over control of th=
eir power lines to independent regional transmission organizations, or RTO=
s. The states are appealing the District of Columbia Court of Appeals deci=
sion in June 2000 that upheld FERC's orders. Currently, FERC is working to=
establish four RTOs to control the nation's transmission system. Meanwhil=
e, Enron, the largest U.S. wholesale power player, argued that FERC violat=
ed federal law because it did not require access to transmission lines whe=
n utilities kept transmission and retail sales as one operation. This bund=
led service remains in many states where competition is not yet allowed. C=
aught in the middle, FERC argued that its orders were issued to achieve a =
balance between giving competitors equal access to power lines and leaving=
retail market issues to the states.
FERC Chairman Unveils Plans
Pat Wood, the Federal Energy Regulatory Commission's new Chairman, has pro=
posed a set of issues on which he wants the Commission to focus. At the Co=
mmission's September 26th meeting, Wood proposed the following for FERC's =
upcoming agenda: ensuring adequate generation capacity; transmission const=
raints; regional transmission organizations (RTOs); energy infrastructure;=
standards of conduct for transmission providers; market monitoring and en=
forcement; and market based rates. One important proposal unveiled at this=
meeting would mandate that transmission owning utilities be given until D=
ecember 15, 2001, to join an approved RTO or lose their right to charge ma=
rket based rates. Additionally, Wood recommended that mergers would only b=
e approved for power entities belonging to operational RTOs. "Once the ent=
ire country is covered by RTOs," he said, "states will have the option to =
deregulate on the retail level or not." Wood also proposed a rulemaking on=
market design and structure in order to make a seamless national power ma=
rketplace. A new transmission tariff would replace the pro forma open acce=
ss transmission tariff established by Order 888. Staff at FERC discussed c=
hanging the Commission's methodology for assessing market power for the pu=
rpose of approving market-based rate applications. While none of the propo=
sals were voted on, the meeting was important for opening up discussion and=
addressing the Commission's key challenges and objectives for the coming =
year. A series of commissioner-led workshops will be held at FERC's headqu=
arters from October 15-19, 2001. Congestion management, cost recovery, mar=
ket monitoring, transmission planning, business and reliability standards,=
and the nature of transmission rights have been proposed for discussion a=
t the workshops.
Maryland and DC Blast FERC on RTO plan
Both the Maryland and Washington DC public service commissions have expres=
sed concern over the Federal Energy Regulatory Commission's (FERC) initiat=
ive to integrate the U.S. Northeast transmission network. In a new plan pr=
oposed by FERC Chairman Pat Wood, utilities would have to submit plans by =
December 15, 2001, to join a regional transmission organization (RTO) or l=
ose the right to sell electricity in the wholesale market. Catherine Reill=
y, Chairman of the Maryland Public Utility Commission, is concerned about =
the plan's effect on the Northeast's economy and the potential for creatin=
g another California-type crisis. The Maryland Commission held hearings on=
RTOs in Baltimore on Wednesday and Thursday of this week.
Southwest and Midwest Utilities Form Transmission Groups
FERC's push for utilities to merge their networks into regional transmissi=
on organizations (RTOs) came one step closer to being realized this week. =
Six Southwestern utilities have signed an initial "Memorandum of Understan=
ding" regarding the formation and operation of an RTO and plan to file wit=
h FERC by mid-October. The new RTO, WestConnect, will be created by Arizon=
a Public Service Co., Salt River Project, El Paso Electric Co., Public Ser=
vice Company of New Mexico, Tucson Electric Power Co., and Texas-New Mexic=
o Power Co. In addition, six Midwestern utilities filed with FERC last Fri=
day to create an independent, for-profit transmission company, TRANSLink. T=
he utilities include Alliant Energy, Corn Belt Power Cooperative, MidAmeri=
can Energy, Nebraska Public Power District, Xcel Energy, and Omaha Public =
Power District. "A for-profit entity, focused solely on the growth and enh=
ancement of a robust transmission system over a large region, will be much=
more effective than either the current situation or transferring operatio=
nal control to an independent system operator," said Wayne Brunetti, chair=
man, president, and CEO of Xcel Energy. The six companies have asked FERC =
to expedite their application so that TRANSLink can be formed by early nex=
t year.
North Carolina's Restructuring Plans Still on Hold
The North Carolina Study Commission on the Future of Electric Service has =
decided to place its restructuring deliberations on hold until early next =
year. Study Commission meetings were interrupted early in 2001 due to the =
length of the state legislative session, which occupied several Study Comm=
ission members. Members of the Commission have expressed concern about imp=
lementing electricity restructuring. Sen. Kay Hagan, D-Guilford, explained =
that, "I can't see us doing anything...There are so many people worried a=
bout...California." Hagan and Rep. Mary Jarrell, D-Guilford, also on the C=
ommission, have urged North Carolina to take the steps necessary to avoid t=
he same problems experienced in California. Neither legislator foresees th=
e Study Commission resuming its deliberations until January 2002.
Pennsylvania Retail Electricity Shopping Declines
According to figures released last Tuesday by the Pennsylvania Office of C=
onsumer Advocate, electricity retail shopping fell during the third quarte=
r of 2001. The number of consumers buying from alternative suppliers dropp=
ed 8% from July 1st. This decline is less than the 32% drop that occurred =
between April and July; total electric load has declined by 10% since July=
. 337,918 or 6.4% of the customers in the state are buying 1,458 MW from o=
ther suppliers, or approximately 6% of the state's total load. Again, this=
is less than the 67% decline in electric load purchased from other suppli=
ers that occurred between April and July. According to the Electric Power =
Daily Online, "Load fell more dramatically than customer participation in t=
he spring because many of the expiring long-term contracts were held by la=
rge industrial and commercial customers." Pennsylvania opened its electric=
ity market to competition in 1999. In April of 2000, 10% of the state resi=
dents chose alternative energy suppliers, subsequently, high gas prices an=
d tight electric capacity drove up wholesale prices in the summer of 2000.=
Many alternative suppliers pulled out of the market, as they were unable =
to offer competitive prices. Participation in the retail electricity marke=
t has been declining since then.
Texas' Electricity-Grid Operator Needs More Power Lines
An annual report released on Monday by the Electric Reliability Council of=
Texas states that Texas needs more electricity transmission lines, raisin=
g concern as the state plans to open its electricity market to competition=
in January 2002. Without adequate transmission lines, congestion problems=
will likely arise and the flow of power may be interrupted. The report ha=
s identified six zones where more lines are needed to deliver power from s=
outh to north Texas and to bring electricity into the Dallas area. Eight m=
ajor projects are being developed to address the problems and others are be=
ing considered.

Copyright ? 2001 Egnatia Research & Management. All rights reserved