Message-ID: <15039564.1075840536646.JavaMail.evans@thyme> Date: Tue, 29 Jan 2002 03:17:12 -0800 (PST) From: energy@1stgmc.net To: energygroup@buffalo.com Subject: Utilities Biweekly Report Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: "Energy" @ENRON X-To: energygroup@buffalo.com X-cc: X-bcc: X-Folder: \ExMerge - Gilbert-smith, Doug\Deleted Items X-Origin: GILBERTSMITH-D X-FileName: doug gilbert smith 6-25-02.PST =09 Utilities Biweekly Report =09 A news service for energy professionals =09 January 29, 2002 =09 To Remove, Substitute or Add an email address to our list, please send bri= ef message to msid@ieee.org=20 =20 =20 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.= " =20 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. =20 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. =20 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. =20 Copyright ? 2002 Egnatia Research & Management. All rights reserved