Utilities Biweekly Report

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=09 Utilities Biweekly Report =09
A news service for energy professionals =09 December 4, 2001 =09

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Enron's Collapse Has Experts Questioning Future of Electric Deregulation
The collapse of energy company Enron has several experts questioning its i=
mpacts on the future of electric deregulation. Analysts say that the compa=
ny's public championing of electric deregulation in Florida and its curren=
t financial situation might signal caution to state regulators. "Enron was=
the most visible and ardent cheerleader of deregulation, and I think what=
's happened to them is going to raise all these questions about deregulati=
on," says Jim Owen, spokesman for the Edison Electric Institute. Another v=
iew comes from Steven Weiss of the Center of Responsive Politics in Washin=
gton, who says that politicians may step away from deregulation because th=
ey view Enron "like a rotten egg." Other insiders believe that Enron's sit=
uation may be another reason that Florida's Governor Jeb Bush has postponed=
any movement toward deregulation until after his 2002 re-election campaig=
n. Jon Cartwright, a senior energy analyst with Raymond James & Associates=
, says that it will be difficult for deregulation plans to be completely h=
alted, but Enron is going to give regulators something to think about in a=
ddition to California's problems with deregulation.
Retail Choice Available in Massachusetts
Dominion Retail Inc. has become the first residential supplier to enter Ma=
ssachusetts' near-moribund competitive retail electricity market. Until no=
w, no companies have attempted to enter the state's retail marketplace. Ro=
b Wilson, a spokesman from Massachusetts Division of Telecommunications an=
d Energy, said that low electric rates have made the market unattractive f=
or new power providers. He also said suppliers were deterred by the nature=
of the default/standard-offer system that tends to spread potential custo=
mers in the default group over a broad area. Dominion will offer an altern=
ative choice of power supply to Massachusetts Electric's 270,000 residenti=
al customers who are now receiving their power on default service. Default=
customers can receive their power from Dominion at $66.31 per month if th=
ey commit to a three-year deal, which is slightly less than the $67.75 ave=
rage cost for Massachusetts Electric default customers. However, it is sti=
ll more than the proposed $57.56 per month that an average Massachusetts E=
lectric standard-offer customer will pay beginning January 1, 2002, pendin=
g state approval. Currently there are already several companies competing =
for commercial and industrial customers in the state's electric marketplac=
e.
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Consumer Choice Drives Green Power Market
A new study from the National Renewable Energy Laboratory (NREL) and the L=
awrence Berkeley National Lab's Environmental Energy Technology Division h=
as found that consumers prefer to receive their power from clean energy so=
urces. If consumers are given the choice, they will choose power from clea=
ner sources such as wind, solar, geothermal, and biomass. The study says t=
hat in order for green power to gain full support in the marketplace, rest=
ructuring should proceed without delay and that market rules in restructur=
ed markets should be conducive to competition. "Our study shows that givin=
g consumers energy supply choices can be a powerful mechanism for moving r=
enewable energy into the marketplace," says Blair Swezey of NREL, coauthor=
of the study entitled "Forecasting the Growth of Green Power Markets in t=
he United States." Under the best conditions, use of green power could gro=
w 40 percent in less than a decade, to a capacity of 7,000 megawatts. Howe=
ver, the study concludes that it is more likely that renewables will exper=
ience a slow growth in the market. In addition to a competitive marketplac=
e, vigorous promotion and education will also be necessary to ensure the s=
uccess of green power.
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Electricity Bill Will Be Put Off Until Next Year
The House Energy and Air Quality Subcommittee is preparing an electricity =
bill that will focus on increasing power supplies and improving electricit=
y transmission from one part of the country to another. Subcommittee Chair=
man Joe Barton (R-TX) has not set a date for markup, an aide said, but aims=
to consider the bill during the first two weeks of December. Accordingly,=
Energy and Commerce Committee Chairman, Billy Tauzin (R-La) announced at =
a news conference yesterday that he expects to receive the bill for consid=
eration by the year's end. Chairman Tauzin told reporters that Congress sh=
ould allow states to make their own decisions regarding siting transmissio=
n facilities within their boundaries, but that interstate projects might r=
equire Federal intervention. He also noted that grid connections among sta=
tes are necessary for regional transmission organizations as a means to ex=
pand the grid and eliminate electricity bottlenecks. Separately, Senate Ma=
jority Leader Tom Daschle (D-SD) is expected to introduce a Senate energy =
bill that includes an electricity title, but said that the Senate will not=
consider it until next year.
FERC Underestimated Environmental Impacts of Competition
The final environmental impact statement the Federal Energy Regulatory Com=
mission (FERC) completed for Order 888 underestimated the effects that a c=
ompetitive wholesale power market would have on air pollutants, a new stud=
y says. Synapse Energy Economics, a Massachusetts-based firm, prepared the=
study for the commission. It reviewed the accuracy of FERC's predictions o=
n the effects competition would have on the environment in the year 2000. =
The most important conclusion from the analysis is that FERC's modeling me=
thodology was too narrowly defined to capture the effects, the report says=
. Synapse found that FERC did not fully consider the impacts from increase=
s in electricity demand, improvements in nuclear plant efficiency, and the=
extension of nuclear and coal plant lifetimes. The study concludes that F=
ERC's forecast of NOx emissions was roughly four percent lower than actual=
experience and its forecast of CO2 emissions was roughly eight percent lo=
wer. Also, the report finds that FERC underestimated actual national elect=
ricity demand through 2000 by 4.6 percent. The North American Commission f=
or Environmental Cooperation, a panel created under the North American Fre=
e Trade Agreement, was expected to address these findings and other enviro=
nmental concerns among the United States, Canada, and Mexico at a forum he=
ld November 29-30, 2001, in San Diego.
Michigan PSC Protects Consumers from Retail Slamming
The Michigan Public Service Commission (MPSC) has adopted standards to pro=
tect retail electric consumers from slamming and cramming. Slamming is the=
unauthorized switching from one electric customer from electric service p=
rovider to another, while cramming is the billing of a customer for unauth=
orized electric services. The Customer Choice and Reliability Act of 2000 =
requires that the Commission issue orders to protect Michigan's electric c=
ustomers from slamming and cramming and authorizes the Commission to condu=
ct contested proceedings to investigate any violations. Under the new meas=
ures, customers may authorize switching of their electric service provider =
through written authorization, a call to a toll-free telephone number voic=
e response unit, a Web-based connection, notice to an appropriately qualif=
ied third party, or a three-way call between the new supplier, the custome=
r, and the older supplier. New suppliers must notify customers and the exi=
sting provider within seven days of the requested change in service. Viola=
tors can be fined up to $30,000 for the first offense, up to $50,000 for t=
he second offense, and up to $70,000 for repeated violations.
Michigan PSC Approves Commonwealth Energy as Alternative Supplier
The Michigan Public Service Commission (MPSC) has approved Commonwealth En=
ergy Corporation's application to sell electric generation to Michigan ret=
ail customers. The commission approved Commonwealth's license to be the 12=
th alternative electric supplier in the state under the Customer Choice an=
d Electricity Reliability Act of 2000. The state regulators concluded that=
approval of the alternative electric supplier license would expand the op=
portunities for retail electric competition in the state. The commission g=
ranted the license conditioned upon Commonwealth providing electric servic=
e within a reasonable time and indicated that failure to do so may result =
in revocation of the license. Commonwealth will operate in Michigan under t=
he name ElectricAmerica.
Hearing Held on Pennsylvania's Electric Deregulation
The Pennsylvania House Democratic Policy Committee held a hearing on elect=
ric deregulation on November 28, 2001, during which witnesses testified on=
the state's future electricity needs and the impacts of deregulation. The=
committee is concerned about whether enough power plants will be built to=
meet the state's future demand. Robert Hinkle of PJM Interconnection, whi=
ch manages the mid-Atlantic transmission grid and serves as a wholesale el=
ectricity market, said that 4,000 megawatts of increased electricity capac=
ity are planned for the next three years. With this increase, the region's=
capacity would reach 60,000 megawatts, which is more than sufficient to m=
eet the region's electricity needs for the foreseeable future, Hinkle said=
. Richard Maurer, of Local 29 International Brotherhood of Electrical Work=
ers, testified that deregulation has resulted in layoffs and more burdens o=
n an increasingly aging work force that his union represents. On the other=
hand, Duquesne Light Company President Victor Rogue told the committee th=
at Pennsylvania's electric deregulation has been a success. Rogue said tha=
t Duquesne Light customers have been protected from steep rate increase an=
d can expect an estimated 16 percent decline in the rates early next year.
Northeast May See Increased Power Costs
Energy Security Analysis (ESAI), a Boston-based consulting firm, reports t=
hat urban areas in the Northeast may experience increased power prices unl=
ess investments are made in regional power generation and transmission sys=
tems. ESAI director Ed Krapels said that, while electricity restructuring =
resulted in new power plant construction in many states, urban areas remai=
n at risk for higher prices. ESAI's 10-year power price forecast report fo=
r New England says that 2003 and 2004 are "shaping up as years with premiu=
ms close to the double digits in both on- and off-peak markets" for the Ne=
w York Power Pool unless additional power and transmission are developed. =
The report also concludes that Boston and southwestern Connecticut will re=
quire additional generation and transmission "to keep their urban premiums=
in check." The forecast estimates that premiums in the PJM region could i=
ncrease by $10 per megawatt should no new generation be developed. However=
, new transmission projects will likely stimulate the development of the n=
ew generation projects that are currently stalled. New generation will hel=
p stabilize the New Jersey market as well as contribute to New York City's=
power needs.
Ontario Power planning long-term debt offering in new year
Ontario Power Generation is planning a long-term debt offering some time n=
ext year, the company said yesterday. "We do intend to tap the long-term m=
arket for the first time next year," Ronald Osborne, president and chief e=
xecutive officer, told reporters following an industry breakfast in Toront=
o. Mr. Osborne could not provide details on the proposed offering, but sai=
d it would most likely be a long-term, or possibly medium-term, issue. This=
would be the first long-term debt offering for the company, which was spu=
n off from debt-ridden Ontario Hydro in the 1990s. Mr. Osborne said the pr=
oceeds from the offering would be used to replace old Ontario Hydro debt t=
hat has reached maturity. By the middle of next year, Ontario Power expect=
s to pay off $400-million of debt. Ontario Power is one of two main spinof=
fs of Ontario Hydro. The other is Hydro One,which is slated to become a pu=
blicly traded company following the planned deregulation of the market nex=
t year. Ontario Power is readying itself for the electricity market to ope=
n to competition next year. The province has already pushed back its origi=
nal November, 2000, deadline for electricity-system deregulation by 18 mon=
ths.
Rates Decrease For Texas Provider of Last Resort
The Texas Public Utility Commission (PUC) and Assurance Energy have agreed=
to reduce previously announced rates for guaranteed back-up electric serv=
ice in the Houston area and south Texas when retail competition begins on =
January 1, 2002. Assurance Energy will be the provider of last resort (POL=
R) for residential and small non-residential customers in these areas of T=
exas. As a POLR, Assurance is required to assure continued service at a fix=
ed non-discountable rate to consumers who have been dropped by their curre=
nt electric provider. The new prices will be 9.5 cents per kilowatt-hour (=
kWh) for summer months and 7.4 cents per kWh for non-summer months, compar=
ed to the previous respective prices of 12.5 cents per kWh and 9.5 cents p=
er kWh. The previous agreement was negotiated early this year when the pri=
ce for natural gas, a major fuel for generating electricity, reached histo=
rical highs. Currently, natural gas prices are substantially lower.
Louisiana Considers a Limited Deregulation Plan
The Louisiana Public Service Commission (PSC) is considering a limited ele=
ctricity deregulation plan that would allow large energy consumers to shop=
for competitive rates. Under the plan, companies that use five megawatts =
or more of energy would be allowed the option of leaving the regulated mar=
ket every two years starting in 2003. The proposed plan does not include r=
etail competition for residential or small business consumers. Not all com=
missioners support the plan, however; Commissioner Don Owen has said that h=
e does not think deregulation will benefit electricity users in the state.=
Opposition to the proposal has also come from the Louisiana Energy Users =
Group (LEUG) and the Louisiana Midcontinent Oil and Gas Association, which=
maintain that large industrial users should be given the choice to leave =
the market annually. The groups also argue that the plan hampers large ind=
ustrial customers from building cogeneration plants because of a provision=
that requires large industrial cogenerators to pay a stranded costs recov=
ery fee. Industrial customers with new cogeneration facilities are allowed=
to apply for an exemption. The PSC has not yet determined the stranded co=
st fee structure under the proposed deregulation plan. David Dismukes, an =
associate professor of energy studies at Louisiana State University, says =
that this uncertainty may make companies hesitant to build cogeneration pl=
ants. State regulators had included the fee in the proposed plan so that s=
tranded cost recovery would not be unfairly shifted to residential ratepay=
ers who remain in the regulated system. The PSC is scheduled to vote on th=
e plan next month.
Deregulation in Mississippi Not Expected Soon
In a recent speech to the Vicksburg Civic Club, Public Service Commissione=
r Nielsen Cochran said it is unlikely that Mississippi will soon open its =
electricity market to competition. Cochran explained that, in order for co=
mpetition or deregulation to work, there must be a greater abundance of ge=
neration options in the state. After two years of hearings that ended in 1=
999, the Public Service Commission advised lawmakers that Mississippi was =
not ready for deregulation. Cochran said that deregulation would result in=
more expensive electricity rates for consumers across the state.
Texas Electricity Provider Opposes Texas Deregulation Delay
The New Power Company, an electricity provider that is participating in Te=
xas' pilot deregulation program, said that it opposes delaying the January=
1, 2002, start of electricity deregulation. New Power has been a major pl=
ayer in the pilot program, but has experienced its share of obstacles alon=
g the way. Computer glitches have caused the company to send out customer =
bills late and at times without appropriate charges. Representatives from =
the company say that the company needs information from companies that ope=
rate the electricity transmission and metering systems in order to issue a=
ccurate bills. New Power and the Electric Reliability Council of Texas, whi=
ch is responsible for making the information available, have been communic=
ating to improve the situation. New Power is confident that its problems w=
ill be resolved in time for the January 1, 2002, deregulation date. The Pu=
blic Utility Commission requested comments from electricity companies on w=
hether the state should move the date back from January 1, 2002.
New California crisis: Too much electricity
A man approaches a woman in a grocery-store aisle and asks whether she wou=
ld rather have dinner with him tonight. Sorry, she replies, she'll be doin=
g her laundry late this evening. And not tomorrow night, either, because s=
he'll be doing her vacuuming in those off-peak hours. Energy conservation,=
you know. Californians have been forced to watch this state government TV=
commercial over and over in recent months, but are now rolling their eyes=
at its outdated message. The Governor ordered the ads advocating radical =
energy conservation after an unprecedented wave of blackouts that plagued =
the state earlier this year. But if ads were being ordered now, they might=
suggest that Californians turn on extra lights, plug in some heavy applia=
nces and run their air conditioners at full blast. In only a few months, C=
alifornia has gone from an energy drought to a flood, in which the state i=
s now forced to sell or give away a glut of excess electricity at prices f=
ar below those it paid. California's double-whammy energy crisis -- a shor=
tage followed by an overstock -- serves as a cautionary tale for other jur=
isdictions looking to privatize their utilities. California led the way i=
n placing its electricity on the open market, and last year fell prey to w=
hat some describe as a failure in its regulatory structure, and what Gover=
nor Grey Davis calls "a monumental scam" committed by power-generating com=
panies against the state. One thing is certain: When electricity demand was=
driven up by poor weather last January, generators began charging the sta=
te prices hundreds of times more than what it had paid only months before.=
Because California bought its power on a day-by-day basis, prices fluctua=
ted dramatically: One generator billed the state $3,880 (U.S.) for a megaw=
att that had cost $29 the previous year. And because most of the state's u=
tilities had capped domestic rates, the price increase had to be borne by =
the state treasury. Mr. Davis now claims that the state is owed a refund o=
f more than $9-billion from those generators. Federal regulators agree wit=
h him, although the amount of the refund still must be negotiated. However=
, the crisis left the state with debts in the tens of billions of dollars,=
consumer electrical rates were raised by 43 per cent and people were terr=
ified by days of rolling, random blackouts that threatened to drive busine=
sses away from California's already beleaguered economy. Now Mr. Davis is =
coming under fire for his solution to that crisis: As the blackouts were t=
aking place, he signed $43-billion worth of long-term power contracts, som=
e of them for many years, at rates averaging $69 a megawatt. These seemed =
to provide stability, but now they seem onerous: With demand for oil and n=
atural gas dropping in the wake of Sept. 11, rosy weather forecasts and doz=
ens of new generating stations coming on line, open-market energy prices h=
ave dropped below $20 a megawatt. Suddenly, California faces the prospect =
of paying tens of billions of dollars a year above market rates for electr=
icity. "Our children and grandchildren will be the ones who have to pay fo=
r his mistakes," said Richard Riordan, former mayor of Los Angeles and Mr.=
Davis's chief Republican opponent. To make matters worse, those energy-co=
nservation TV ads appear to have worked too well. Californians are now usi=
ng less electricity per capita than any other state. While this is applaud=
ed by utility officials and environmentalists, it leaves California with c=
ontracts for far more electricity than it needs. Energy companies, which h=
ad rushed in to build or upgrade power plants during this year's crisis, h=
ave been scaling back dramatically. Since September, at least half a dozen=
planned generating stations have been cancelled. But experts warn that th=
is, too, could backfire, warning that California could be hit by another r=
ound of blackouts in five years.

Copyright ? 2001 Egnatia Research & Management. All rights reserved