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Interesting ideas on Reliant and Orion asset transfer. Jim -----Original Message----- From: =09"PennFuture" <pennfuture@pennfuture.org<@ENRON =20 Sent:=09Thursday, November 08, 2001 5:29 PM To:=09Friends of PennFuture Subject:=09PennFuture's E-cubed - When is Bigger Better? Reminder - the Second Annual Green Power: Turn It On! Awards Luncheon is o= n November 15!=20 REGISTER TODAY!! =20 using renewable energy?Promotes energy independence. Ensures a cleaner and= healthier future for Pennsylvania. Builds regional economic development a= nd job creation. =20 Want to know how? Just ask the executives from IKEA, CARNEGIE MELLON UNIVE= RSITY, GIANT EAGLE, PENN STATE, EBARA SOLAR, and the many other Pennsylvan= ia businesses and institutions that will be honored on November 15th. Join= PennFuture and friends as we celebrate the people, businesses and institu= tions that are blazing the trail towards a cleaner and healthier Pennsylva= nia by purchasing green power, advancing policies that develop the renewab= le energy market, and taking the lead in creating new renewable supply! = =20 =20 November 15, 2001 - 12:00 to 2:00 p.m. Omni William Penn Hotel - Pittsburgh $25 per ticket, $15 for members=20 Respond to this email, see our website www.pennfuture.org , or call 717-2= 14-7920 ------------------------------------------------------------------- November 8, 2001 Vol. 3, No. 21 When is Bigger Better? The Acquisition of Orion by Reliant The possible acquisition of Orion Power, the owner of many plants that ser= ve the Pittsburgh area, by Reliant Resources is the fifth major transactio= n affecting Pennsylvania's generation and electric service since 1996. Rel= iant Resources' attempt to buy Orion Power, however, raises issues not see= n before in other transactions.=20 Those transactions - the PECO Energy and Unicom merger, the GPU and First = Energy merger, the sale of GPU's power plants, and Duquesne Light Company'= s swap of plants with First Energy and subsequent purchase by Orion - did = not increase the market power of a particular generation owner. =20 Why not? All the other transactions involved companies operating in differ= ent markets, or companies that did not own generation, or sale of power pl= ants from one company to one or more companies. In fact, taken together the= se transactions reduced consumer costs, protected rate caps, and decreased= stranded costs. They also led to important environmental improvements lik= e new pollution control investments and support for renewable energy. Reliant Resources, however, already owns generation within PJM and the pur= chase of Orion would add generation to its PJM share, once Duquesne joins = PJM West. For this reason, the transaction should be carefully reviewed an= d used to formulate a new policy concerning consolidation of generation as= sets within a single market. Specifically, regulatory bodies should make increased demand response a co= ndition for any transaction that increases generation consolidation as dem= and response strongly mitigates market power. Funds should be devoted to e= nsuring that all consumers with a load of 50 kilowatts and above are equipp= ed with time-of-use meters. This measure is necessary, as the single bigge= st regulatory mistake to date in electricity restructuring is the failure = to make demand response a central part of restructuring. Without it, worka= bly competitive markets will not develop or be sustained. Apart from increasing demand response, regulators and the Office of Consum= er Advocate should get answers to the following questions: - Will Reliant Resources permit Duquesne Light Company, the local distribu= tion utility, to offer in its service territory a competitive default serv= ice (CDS) program modeled after the successful CDS program operating in th= e PECO Energy service territory?=20 - Will Reliant Resources exercise market power within local markets and sh= ould particular plants be excluded from this acquisition to eliminate mark= et power? =20 - Will Reliant Resources commit to supporting economic demand-response pro= grams within PJM, instead of voting against demand response as it has done = recently? - Will Reliant Resources acquisition help finance installation of time-of-= use meters for all customers with demand more than 50 kilowatts within the= Duquesne control area? - What will Reliant Resources do to clean up some of the heavily polluting= plants that it owns now or will acquire from Orion? =20 Reliant owns portions of Keystone and Conemaugh and Shawville power plants= . It would buy from Orion the Cheswick unit. Keystone and Cheswick have no = scrubbers installed to reduce sulfur dioxide emissions, while Shawville ha= s been scrubbing one out of four boilers. In 2000, Keystone, Shawville and= Cheswick respectively released 153,490 tons, 48,243 tons, and 44,908 tons= of SOx into Pennsylvania's air. Keystone is also the biggest emitter of m= ercury in the entire country and all four plants spew huge amounts of nitr= ogen oxide - at a rate more than double the modern standard of .15 lbs/mmb= tu. That's not all - all four plants produce an amazing 30 million tons of= carbon dioxide, helping Pennsylvania to contribute 1 percent of the entir= e world's human-induced global warming gases. Reliant can begin cleaning up by implementing in the Duquesne area the equ= ivalent of the PECO Service Territory's CDS program, which includes a Rene= wable Portfolio Standard that increases annually the amount of renewable e= nergy that must be supplied to customers. CDS customers there are served b= y New Power and Green Mountain Energy at 5.56 cents per kilowatt-hour (kWh= ), more than three cents less than the 8.65 cents per kWh PECO Energy char= ged its residential customers in 1996 for coal and nuclear power. =20 Market Power Issues In addition to environmental issues, market power issues must be examined.= Such an inquiry hinges on defining the relevant market and products.=20 Nationally, total generation capacity is approximately 800,000 MW, with mo= st of it subject to base rate regulation in the retail market. Despite reg= ulation at retail, wholesale generation transactions are generally price d= eregulated in all 50 states, whether or not the entities engaged in the tr= ansactions are deregulated generation owners, regulated public utilities, = municipal utilities, or electric cooperatives and whether or not necessary= market institutions required for workably competitive markets exist.=20 Orion Power has been participating in the deregulated wholesale market. It= owns 81 power plants in New York, Pennsylvania, Ohio, and West Virginia, = producing approximately 6,000 MW and has another 5,000 MW under constructi= on. Orion has done an exceptional job, improving the forced outage rates, = especially among its New York City resources. The proposed acquisition of Orion Power by Reliant Resources will form the= nation's second largest deregulated power generation owner, controlling 1= 7,279 MW, or 6.15 percent of the deregulated generation market that totals= 281,000 MW of the country's total capacity. Reliant Resources has a small= er share of the nation's total generation capacity.=20 Yet these small national shares do not guarantee that Reliant Resources co= uld not have market power in portions of the PJM Market.=20 Prior to this proposed acquisition, Reliant Resources owned about 7 percen= t of total PJM generation, or 4,262 MW of generation capacity within the 5= 8,000-MW PJM market. These facilities include 2,009 MW of base load, 803 M= W of intermediate load, and 1,450 MW of peaking capacity. They are quite o= ld and formerly owned by GPU and Sithe (see table in attached document). R= eliant Resources is also developing another 1,316 MW within PJM.=20 These numbers would indicate that regulators should focus on possible mark= et power within the Duquesne Control Area of the units that Reliant Energy= is purchasing from Orion. The Duquesne Control area is scheduled to becom= e part of PJM West in 2002, but regulators and the Office of Consumer Advo= cate should ensure that no plant is strategically located within the trans= mission system so that it possesses market power even after incorporation = of the control area within PJM West. If any plants that would give Reliant= Resources market power are identified, they should be removed from this a= cquisition. =20 Addressing Market Power The combination of large generation owners creates concerns over market po= wer that can only be identified and addressed by sound regulatory action. = In all three of the Northeastern ISOs, there have been incidents of market= power which have resulted in numerous rule changes. There are several rea= sons that the electric industry is sensitive to market power. First is the= inability to store energy. In many other industries surpluses can be buil= t up in low demand periods and used to fill in gaps during high demand per= iods. In the electric industry, energy is produced and consumed virtually = instantaneously. Second, there are barriers to entry in the electric indus= try, including discriminatory interconnection practices and other incumbent= advantages. Third, historically the demand for electricity has been inela= stic and creates the opportunity for inflated prices. Inelastic electricit= y demand is not surprising when most customers see average prices and do n= ot have metering or the ability to respond to prices. For these reasons, concrete steps to combat market power in the electric i= ndustry must be taken. For starters, the existing market mitigation measur= es, such as PJM's $1,000 price cap, should be examined to determine if the= y are sufficient, while not being burdensome as to limit new generation re= sources from entering the market.=20 Secondly, barriers to entry should be reduced, especially for distributed = generation and environmentally beneficial grid technologies like wind ener= gy.=20 Lastly and most importantly, demand-response programs can and must be deve= loped. California has shown that energy efficiency can preserve reliabilit= y and break the market power of generation owners. Changing the demand for= electricity is the biggest and best protection against market power.=20 A Deeply Troubling Tale Unfortunately, Reliant Resources did not support PJM's Economic Demand Res= ponse programs, voting against them last year in the Members Committee. It= had company, with all generation owners voting as a block, with one excep= tion, against demand response. Three cheers for the exception: Edison Miss= ion.=20 In the face of the mass opposition of generation owners, PJM wobbled but d= id not cave. It changed but submitted demand-response programs to FERC whi= ch were approved for the summer of 2001.=20 The moral of this tale is that the public interest needs regulators, the P= JM Board, and other interested parties to further demand-response initiati= ves, because generation owners will likely be roadblocks. In particular, r= eal-time metering, residential air conditioning and heating programs, and = wholesale markets all need to be developed.=20 It is time for strong action on these points. Regulators must begin by req= uiring Reliant Resources to finance the installation of time-of-use meters= for all customers with demand of 50 kW or more within the Duquesne contro= l area. This is especially important as the transition there may be comple= ted by 2004.=20 =20 ------------------------------------------------------------------- Our events calendar is full at PennFuture! Our Global Warming Conference i= s coming up on November 9 in Camp Hill, and our Green Power Awards Luncheo= n is on November 15 in Pittsburgh. =20 Election 2001: The Calm Before the Storm luncheon program is on December 3= at 11:30 a.m. at the Harrisburg Hilton, followed by an open house in our = Harrisburg office. For more information on any of our events or to registe= r, please visit our website at www.pennfuture.org and click on Events/Cam= paigns. We hope to see you at one of our upcoming events! ------------------------------------------------------------------- E-Cubed is available for reprint in newspapers and other publications. Aut= hors are available for print or broadcast.=20 =20 PennFuture (www.pennfuture.org ), with offices in Harrisburg, Philadelphia= and Pittsburgh, is a statewide public interest membership organization, w= hich advances policies to protect and improve the state's environment and = economy. PennFuture's activities include litigating cases before regulator= y bodies and in local, state and federal courts, advocating and advancing = legislative action on a state and federal level, public education and assi= sting citizens in public advocacy. =20 To unsubscribe, simply reply to this email with "unsubscribe" in the subje= ct. - vol3no21_110801.doc
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