Utilities Biweekly Report

=09 Utilities Biweekly Report =09
A news service for energy professionals =09 January 29, 2002 =09

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Pepco to Supply Electricity in Maryland
Beginning in July of this year, Pepco Energy Services will provide electri=
city to sixteen Maryland state agencies. The contract is worth nearly $65 =
million for 1.6 billion kilowatt-hours, to be provided over a two year per=
iod. Six percent of the total electricity supply will be generated from re=
newable resources. This award from the State of Maryland is the latest of =
$800 million worth of contracts for Pepco's services awarded within the la=
st two years.
New Mexico Passes Electric Energy Policy
On January 8th, the New Mexico Public Regulation Commission (NMPRC) passed=
a resolution adopting a new electric energy policy for the state, despite=
the fact that the New Mexico legislature had earlier postponed deregulati=
on until 2007. Principles of the NMPRC policy include requiring utilities =
to operate adequate distribution infrastructure, requesting an in-depth an=
alysis of New Mexico's transmission system, redesigning retail rates, and =
considering alternative forms of regulation. Commission staff noted that "=
without legislative intervention to repeal the restructuring act, the comm=
ission's energy principles [can] be implemented only on a temporary basis.=
"
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Seven New Power Plants for New Mexico
Five power companies serving customers in New Mexico have committed to bui=
ld seven new power plants in the state between now and the inception of d=
eregulation. These seven plants are expected to generate 2,200 MW of new e=
lectricity supply. The power companies include Duke Energy, Public Service =
Company of New Mexico, Tri-State Generation and Transmission, Peabody Ener=
gy, and Cobisa Corporation, all of which have begun construction or are st=
ill in the planning stages.
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Exelon CEO Supports Continued Deregulation Efforts
Speaking at an energy conference at the Federal Reserve Bank of Chicago, E=
xelon co-CEO John Rowe said that the nation cannot return to the failed re=
gulatory structures of the past. Referring to Enron's bankruptcy and Calif=
ornia's energy crisis, Rowe noted that "The grand experiment has had some =
fairly substantial hiccups, [but] we can't go back to our grandfather's Ol=
dsmobile." He also urged FERC to establish RTOs and disagreed with the age=
ncy's November decision to give up price setting responsibility for three =
large U.S. utilities.
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Deregulation ad campaign denounced
The Ontario government will launch a $2.3-million series of television ads=
to publicize the arrival of competition in the electricity market, but th=
e opposition denounces the campaign as "propaganda." "This isn't about pub=
lic information; this is about brainwashing," NDP Leader Howard Hampton sa=
id yesterday. "It's just fundamentally wrong." Mr. Hampton said advertisin=
g industry sources told him the government was planning five different tel=
evision spots to announce that private companies will be allowed to sell e=
lectricity to consumers starting May 1. The government responded that only=
one ad was produced, as part of a broader campaign to educate consumers a=
bout their choices under the new system. The brief piece resembles many of=
the other ads produced by the Progressive Conservative government, some o=
f which have been criticized for trying to bolster public support for cont=
roversial policies. Soft-focus pictures of smiling people in everyday sett=
ings run underneath a voice track explaining why deregulation of Ontario's=
electricity is necessary. "As we grow, we're going to need more electrici=
ty," says the advertisement's voice-over. "And more companies generating e=
lectricity." "We're not trying to sell privatization," said Mike Krizanc, =
a spokesman for the Ministry of Energy, Science and Technology. He noted t=
hat the ads are part of an education campaign for which the government has=
handed out almost a million eight-page pamphlets about changes to the ele=
ctricity system. Ministry officials are also holding public meetings around=
the province, particularly with seniors who might be confused about their=
new choices. "This is . . . a propaganda campaign to try to turn around p=
ublic opinion," Mr. Hampton said.
New Requirements for ESCOs in New York
The New York State Public Service Commission has approved new financial re=
quirements for energy service companies, or ESCOs. ESCOs doing business in=
New York will now have to meet a minimum bond rating from an independent =
rating agency before offering prepayment plans or requiring security depos=
its. ESCOs that do not earn the minimum rating will have to put security d=
eposits in escrow or issue an irrevocable letter of credit; they will not =
be allowed to offer prepayment plans. PSC Chairwoman Maureen Helmer explai=
ned last week that, "the additional consumer protections balance key inter=
ests in the energy markets. Specifically, our administrative flexibility e=
nables us to balance vital consumer interests with the interest in offerin=
g innovative competitive energy services."
Problems in Texas Leave Customers Without Electricity
Recent reports of pitfalls in Texas' newly deregulated electricity market =
note that some customers are being left without electricity for several da=
ys. Reportedly, deregulation is complicating the way that orders for new e=
lectricity service are placed and processed, in that consumers may select =
from a number of retail electricity providers (REPs) when they decide to o=
rder new service or switch to a different provider. After being notified b=
y a customer, the provider must contact ERCOT, the Electric Reliability Co=
uncil of Texas. ERCOT, which is responsible for managing the power grid, t=
hen notifies the current utility that its customer has opted to change ser=
vice. Before January 1, 2002, only the regulated utility needed to be cont=
acted; now there are three different entities involved with the change. The=
usual wait for a service change had been 24 to 48 hours. Now, it typicall=
y takes two to five days. The Houston Chronicle is reporting that one Hous=
ton family endured 10 days without electricity while waiting for power in =
their new apartment. Tom Noel, ERCOT's president and chief executive offic=
er, explained that "we've traded off reduced rates for a little less conve=
nience. In other words, in the past when there was a monopoly utility in t=
his city, they [consumers] made one phone call, and that was the only part=
y they needed to call." This issue had impacted enough consumers to cause =
the state's Public Utility Commission to place it on the agenda at last we=
ek's open meeting. Terry Hadley, a spokesman for the Austin-based commissi=
on, said that the delays are of concern to the commission and that it is l=
ooking to improve the process.
Cost of Ontario Hydro subsidies revealed
Fearful that competition would lead to sharply higher electricity prices, =
a group of Ontario industrial companies persuaded the province to give the=
m a subsidy extension worth up to $197-million. Records on the size of the=
subsidy were obtained by Canadian newspaper "The Globe and Mail" through =
the freedom-of-information legislation. It is the first time the amount of=
the price break given by the Progressive Conservative government has been=
made public. The records also indicate that the Ministry of Energy viewed=
major electricity-consuming companies as hypocrites, because they publicl=
y called for power-market competition while privately demanding a continua=
tion of the subsidy that allows them to buy electricity at below-market pr=
ices. Big companies, such as Dofasco Inc., Bowater Pulp and Paper Canada I=
nc., and up to 79 other large electricity users, will continue to receive =
the subsidy when the Ontario electricity market opens for competition on M=
ay 1. The extension could last for up to four years. Subsidized power was =
first offered by Ontario Hydro in 1993, when the company was looking for w=
ays to increase demand through what were termed "special rate" deals. Sinc=
e then, about 7 per cent of Ontario's electricity has been covered by thes=
e deals, which were supposed to end when the electricity market was opened=
to competition. Companies receiving the subsidies would suddenly face pri=
ce increases of up to 64 per cent, the records say. The cost of the subsid=
ies will be carried by Ontario Power Generation, one of Ontario Hydro's su=
ccessor companies, and Ontario Electricity Financial Corp., the body payin=
g off Ontario Hydro's debts, according to the records. The documents show =
that senior executives at big companies began pressuring Premier Mike Harr=
is, former finance minister Ernie Eves, and Energy Minister Jim Wilson in =
1999, threatening that if the government didn't continue the subsidy, the =
company's investments in the province would be at risk. In June of 2000, ca=
binet approved continuing the subsidies through regulation, despite an ass=
essment by the Ministry of Energy that said Ontario Power Generation could=
lose up to $190-million over four years, compared with selling the electr=
icity at market prices. Ontario Electricity Financial Corp. would receive =
$7-million less in dividends over that period.
"Price to Beat" Set in Virginia
The Virginia State Corporation Commission announced this week that a "pric=
e to beat" electricity rate has been set as a benchmark for cost compariso=
n in the state's developing deregulated electricity market. The rate will =
be reset on a yearly basis. Electricity suppliers wishing to compete in th=
e market must offer service at a lower rate or provide a unique service su=
ch as a green power package. The actual price to compare for a particular =
customer will vary depending on usage and the rate schedule of the existin=
g electric company, but the average price to compare is 3.3 cents per kilo=
watt-hour for residential customers. During the state's pilot customer cho=
ice program, some Virginia Power customers chose to switch to Dominion whi=
ch charges between 4.35 cents and 4.97 cents per kilowatt-hour for electri=
city. At the time of the pilot, these rates were competitive with rates of=
fered by other utilities serving customers in Virginia. The SCC is now cau=
tioning those customers to reconsider their switch based on the new "price =
to beat" rate. A spokesman from Dominion said last week that the company h=
as no immediate plans to lower its rates, but is pleased that new rates ha=
ve been announced, stating, "We have a number we can shoot at. We welcome =
it." Customers who switch their electricity supplier in the new market mus=
t also consider the transition charge they must pay for the next 5 years.=
This charge was created to compensate utilities for losses on investments=
they made previously to serve those customers. Two licensed competitors, =
Old Mill Power Company and AES New Energy Incorporated, have requested tha=
t the charge be phased out. Some concern has been expressed that the low b=
enchmark price makes it difficult for new retail electricity suppliers to =
enter the market. Eric Matheson, AES New Energy's director of new markets,=
is arguing that the low price makes it "impossible" for his company to co=
mpete with incumbent utilities in Virginia.
Efforts to Deregulate Electricity Will Be Slowed
A top DOE official told reporters this week that efforts to deregulate the=
electricity market in the United States will be slowed for years due to t=
he collapse of Enron Corporation and the well-documented energy crisis in =
California. Vicky Bailey, Assistant Secretary for International Affairs =
and Domestic Policy, said that the ramifications of California's crisis and=
the fall of Enron could slow the progress of electricity deregulation for=
two to three years. She does not expect this to end further developments=
in deregulation throughout the country however. Bailey, a former Federal =
Energy Regulatory Commission member, believes that Enron's absence may hur=
t the industry's push toward deregulation, but competition will ultimately=
prevail. The restructuring issue she added is "larger than Enron" and too=
much progress has been made in support of restructuring to go back to reg=
ulated markets.
Long Island Opens to Retail Competition
The Long Island Power Authority (LIPA) has announced that is has completel=
y opened the island's electricity market to retail competition under the L=
IChoice Program. This achievement is seven years ahead of the schedule im=
posed by the Public Authorities Control Board (PACB) in May 1998 and a yea=
r in advance of LIPA's own 2003 deadline. Under LIPA's retail competition=
program, three Energy Services Companies (ESCOs) have been certified to s=
upply electricity to residential and commercial customers on Long Island. =
Currently, 38,039 residential and commercial customers receive approximat=
ely 220.4 MW of electricity from ConEd Solutions, NIMO Energy Marketing or=
KeySpan Energy Solutions. LIPA has invited the Suffolk County Electrical=
Agency (SCEA) to formally participate in the customer choice program as w=
ell and hopes it will sell as much electricity as it can obtain under its =
ESCO provisions. LIPA Chairman Richard M. Kessel hopes that these efforts =
will encourage more ESCOs to join the market. LIPA has also increased the=
Energy Bill Credit, or shopping credit, from 3.5 cents per kilowatt-hour =
to 4.5 cents per kilowatt-hour to further encourage competition within the=
market. This credit is equal to the cost of generation-related energy an=
d capacity costs that LIPA avoids when an ESCO takes over provision of ele=
ctric service. The funds derived from the credit are returned to the ESCO=
to help cover its generation costs. It is hoped that the increase will p=
rovide ESCOs with a greater incentive to supply competitively priced elect=
ricity to consumers. Retail deregulation in the state began in May 1998 w=
hen LIPA first reduced electric rates by an average of 20%, resulting in s=
avings of $1.5 billion. LIChoice began its phased-in approach to deregula=
tion in April 1999, followed by a second phase in May 2000.
Florida Loses Interest In Deregulation
Interest in a deregulated electricity marketplace in Florida has waned con=
siderably over the past few months. Despite the findings of the Florida E=
nergy 2020 Study Commission's December report that recommended initiation =
of a competitive wholesale market, little additional discussion has occurr=
ed, and the state Legislature is not expected to act on the recommendation=
s in the report. The Orlando Sentinel reported last week that the Legisla=
ture has other, more critical issues on its agenda, including the recessio=
n, reapportionment, and the state's response to terrorism. Sanford Berg, =
a 2020 Commission member who directs the Public Utilities Research Center =
at the University of Florida, explained that the Legislature is preoccupie=
d as well with congressional redistricting and the state's budget crisis. =
He also mentioned that the Energy Commission's report will require substa=
ntial analysis which the Legislature does not have time to do. The bankru=
ptcy of Enron Corporation has also contributed to a lack of interest in de=
regulation. The company's collapse has caused stakeholders in Florida to =
question the ability of electricity generators and transmission and distri=
bution companies to supply uninterrupted flows of power at an affordable p=
rice. Despite the lack of deregulation in Florida, the electricity market=
in the state appears to be stable and healthy. The state's large power c=
ompanies are consistently profitable and have been able to adjust customer=
prices as compensation for investments in new generating plants and fluct=
uations in fuel costs. The utilities do not expect wide variations in fue=
l costs in the coming year and believe they have sufficient generating cap=
acity to cover the demand for power. Creation of a regional transmission =
organization (RTO) to serve the state is not planned, regardless of collab=
orative efforts during 2001 to form a statewide RTO, Grid Florida. This p=
lan has been stalled due to the Federal Energy Regulatory Commission's pre=
ference for interstate RTOs.
North Carolina Study Commission To Resume
The Study Commission on the Future of Electric Service in North Carolina w=
ill resume on February 6, 2002. Deliberations on electric deregulation ar=
e not expected to take center stage; rather, the Commission's work to reso=
lve the debt burden of several towns and cities will likely be the focus o=
f discussion. In April 2000, the Commission approved a set of recommendat=
ions that included moving to a fee-market system for all power sales in th=
e state by 2006. California's energy crisis, however, resulted in the Com=
mission's design to delay these plans. Commission Co-Chairman Senator Dav=
id Hoyle (D-Gaston) told reporters this week that the he does not expect t=
he panel to make any major recommendations before legislators convene May =
28th for the 2002 session. He also noted that the Commission is expecting=
updates from other states on their electricity deregulation activities an=
d plans in addition to a report on available power supplies for the state'=
s 4 million electric customers. Senator Kay Hagan (D-Guilford) agrees wi=
th Senator Hoyle and does not expect the Commission to move forward with d=
eregulation plans. "This is so complex that it's not easy to even figure =
out what questions to ask," she said. North Carolina regulators are expect=
ed to closely follow electricity restructuring in the neighboring state of=
Virginia.
Pennsylvania Utility Denies Market Manipulation
PPL Corporation, headquartered in Allentown, Pennsylvania, has denied char=
ges that it set artificially high prices for wholesale products in its ser=
vice territory. The Pennsylvania Public Utility Commission (PUC) is inves=
tigating PPL in the aftermath of charges leveled at it from PJM Interconne=
ction LLC, the wholesale market operator, and NewPower Holdings Incorporat=
ed. PPL claims that a "readily foreseeable increase in demand" resulted i=
n price increases during the first quarter of 2001 rather than an effort t=
o control prices. The PUC is interested in the case because these price c=
ontrol charges pose questions about the success of the state's deregulated=
electricity market. PJM required that electric companies under its juris=
diction have the ability to meet 119% of their expected demand. Therefore=
, PPL's high prices have a negative effect on competing electric companies=
, which often purchase supplemental generating capacity from the utility. =
NewPower, which serves 192,000 Pennsylvania customers, called last year's=
market prices "unjust and unreasonable." Other electric companies and co=
nsumer advocates are following the case closely to judge its potential con=
sequences for the future of electric competition. John Hanger, a former P=
UC commissioner and now head of PennFuture, a Harrisburg consumer interest=
group, said that "nobody believes that there wasn't market manipulation g=
oing on." PPL contests in its filing to the PUC that the price increases =
did not prevent alternative electricity suppliers from competing at the re=
tail level nor did they affect consumers negatively. Most consumers in the=
mid-Atlantic region are protected from price fluctuations by rate caps so =
they did not directly feel the effects of higher wholesale prices. Hanger=
maintained that retail suppliers began leaving the market following the h=
igh prices in March of 2001. The PUC confirmed that only 72 of the origin=
al 97 electric companies operating in the Mid-Atlantic region last January=
are still in the market.
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