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


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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 impacts on the future of electric deregulation. Analysts  say that the company's public championing of electric deregulation in Florida  and its current 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  deregulation," says Jim Owen, spokesman for the Edison Electric Institute.  Another view comes from Steven Weiss of the Center of Responsive Politics in  Washington, who says that politicians may step away from deregulation because  they view Enron "like a rotten egg." Other insiders believe that Enron's  situation may be another reason that Florida's Governor Jeb Bush has postponed  any movement toward deregulation until after his 2002 re-election campaign. Jon  Cartwright, a senior energy analyst with Raymond James & Associates, says  that it will be difficult for deregulation plans to be completely halted, but  Enron is going to give regulators something to think about in addition to  California's problems with deregulation.
Retail Choice Available in Massachusetts
Dominion  Retail Inc. has become the first residential supplier to enter Massachusetts'  near-moribund competitive retail electricity market. Until now, no companies  have attempted to enter the state's retail marketplace. Rob Wilson, a spokesman  from Massachusetts Division of Telecommunications and Energy, said that low  electric rates have made the market unattractive for new power providers. He  also said suppliers were deterred by the nature of the default/standard-offer  system that tends to spread potential customers in the default group over a  broad area. Dominion will offer an alternative choice of power supply to  Massachusetts Electric's 270,000 residential customers who are now receiving  their power on default service. Default customers can receive their power from  Dominion at $66.31 per month if they commit to a three-year deal, which is  slightly less than the $67.75 average cost for Massachusetts Electric default  customers. However, it is still more than the proposed $57.56 per month that an  average Massachusetts Electric standard-offer customer will pay beginning  January 1, 2002, pending state approval. Currently there are already several  companies competing for commercial and industrial customers in the state's  electric marketplace.
 
Consumer Choice Drives Green Power Market
A new  study from the National Renewable Energy Laboratory (NREL) and the Lawrence  Berkeley National Lab's Environmental Energy Technology Division has found that  consumers prefer to receive their power from clean energy sources. If consumers  are given the choice, they will choose power from cleaner sources such as wind,  solar, geothermal, and biomass. The study says that in order for green power to  gain full support in the marketplace, restructuring should proceed without delay  and that market rules in restructured markets should be conducive to  competition. "Our study shows that giving consumers energy supply choices can be  a powerful mechanism for moving renewable energy into the marketplace," says  Blair Swezey of NREL, coauthor of the study entitled "Forecasting the Growth of  Green Power Markets in the United States." Under the best conditions, use of  green power could grow 40 percent in less than a decade, to a capacity of 7,000  megawatts. However, the study concludes that it is more likely that renewables  will experience a slow growth in the market. In addition to a competitive  marketplace, vigorous promotion and education will also be necessary to ensure  the success of green power.
 
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  electricity transmission from one part of the country to another. Subcommittee  Chairman 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 consideration by  the year's end. Chairman Tauzin told reporters that Congress should allow states  to make their own decisions regarding siting transmission facilities within  their boundaries, but that interstate projects might require Federal  intervention. He also noted that grid connections among states are necessary for  regional transmission organizations as a means to expand the grid and eliminate  electricity bottlenecks. Separately, Senate Majority 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 Commission (FERC) completed for Order 888 underestimated the  effects that a competitive wholesale power market would have on air pollutants,  a new study says. Synapse Energy Economics, a Massachusetts-based firm, prepared  the study for the commission. It reviewed the accuracy of FERC's predictions on  the effects competition would have on the environment in the year 2000. The most  important conclusion from the analysis is that FERC's modeling methodology was  too narrowly defined to capture the effects, the report says. Synapse found that  FERC did not fully consider the impacts from increases in electricity demand,  improvements in nuclear plant efficiency, and the extension of nuclear and coal  plant lifetimes. The study concludes that FERC's forecast of NOx emissions was  roughly four percent lower than actual experience and its forecast of CO2  emissions was roughly eight percent lower. Also, the report finds that FERC  underestimated actual national electricity demand through 2000 by 4.6 percent.  The North American Commission for Environmental Cooperation, a panel created  under the North American Free Trade Agreement, was expected to address  these findings and other environmental concerns among the United States, Canada,  and Mexico at a forum held November 29-30, 2001, in San Diego.
Michigan PSC Protects Consumers from Retail  Slamming
The Michigan Public Service Commission (MPSC) has  adopted standards to protect retail electric consumers from slamming and  cramming. Slamming is the unauthorized switching from one electric customer from  electric service provider to another, while cramming is the billing of a  customer for unauthorized electric services. The Customer Choice and Reliability  Act of 2000 requires that the Commission issue orders to protect Michigan's  electric customers from slamming and cramming and authorizes the Commission to  conduct contested proceedings to investigate any violations. Under the new  measures, customers may authorize switching of their electric service provider  through written authorization, a call to a toll-free telephone number voice  response unit, a Web-based connection, notice to an appropriately qualified  third party, or a three-way call between the new supplier, the customer, and the  older supplier. New suppliers must notify customers and the existing provider  within seven days of the requested change in service. Violators can be fined up  to $30,000 for the first offense, up to $50,000 for the 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 Energy Corporation's application to sell electric  generation to Michigan retail customers. The commission approved Commonwealth's  license to be the 12th alternative electric supplier in the state under the  Customer Choice and Electricity Reliability Act of 2000. The state regulators  concluded that approval of the alternative electric supplier license would  expand the opportunities for retail electric competition in the state. The  commission granted the license conditioned upon Commonwealth providing electric  service within a reasonable time and indicated that failure to do so may result  in revocation of the license. Commonwealth will operate in Michigan under the  name ElectricAmerica.
Hearing Held on Pennsylvania's Electric  Deregulation
The Pennsylvania House Democratic Policy Committee  held a hearing on electric 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, which manages the mid-Atlantic transmission grid and serves as  a wholesale electricity market, said that 4,000 megawatts of increased  electricity capacity 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 meet the region's electricity needs for the foreseeable future,  Hinkle said. Richard Maurer, of Local 29 International Brotherhood of Electrical  Workers, testified that deregulation has resulted in layoffs and more burdens on  an increasingly aging work force that his union represents. On the other hand,  Duquesne Light Company President Victor Rogue told the committee that  Pennsylvania's electric deregulation has been a success. Rogue said that  Duquesne Light customers have been protected from steep rate increase and 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 that urban  areas in the Northeast may experience increased power prices unless investments  are made in regional power generation and transmission systems. ESAI director Ed  Krapels said that, while electricity restructuring resulted in new power plant  construction in many states, urban areas remain at risk for higher prices.  ESAI's 10-year power price forecast report for New England says that 2003 and  2004 are "shaping up as years with premiums close to the double digits in both  on- and off-peak markets" for the New York Power Pool unless additional power  and transmission are developed. The report also concludes that Boston and  southwestern Connecticut will require additional generation and transmission "to  keep their urban premiums in check." The forecast estimates that premiums in the  PJM region could increase by $10 per megawatt should no new generation be  developed. However, new transmission projects will likely stimulate the  development of the new generation projects that are currently stalled. New  generation will help 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 next year, the company said yesterday. "We do intend to tap  the long-term market for the first time next year," Ronald Osborne, president  and chief executive officer, told reporters following an industry breakfast in  Toronto. Mr. Osborne could not provide details on the proposed offering, but  said 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 spun off  from debt-ridden Ontario Hydro in the 1990s. Mr. Osborne said the proceeds from  the offering would be used to replace old Ontario Hydro debt that has reached  maturity. By the middle of next year, Ontario Power expects to pay off  $400-million of debt. Ontario Power is one of two main spinoffs of Ontario  Hydro. The other is Hydro One,which is slated to become a publicly traded  company following the planned deregulation of the market next year. Ontario  Power is readying itself for the electricity market to open to competition next  year. The province has already pushed back its original November, 2000, deadline  for electricity-system deregulation by 18 months.
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 service in the Houston area and south Texas when retail competition  begins on January 1, 2002. Assurance Energy will be the provider of last resort  (POLR) for residential and small non-residential customers in these areas of  Texas. As a POLR, Assurance is required to assure continued service at a fixed  non-discountable rate to consumers who have been dropped by their current  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, compared to the  previous respective prices of 12.5 cents per kWh and 9.5 cents per kWh. The  previous agreement was negotiated early this year when the price for natural  gas, a major fuel for generating electricity, reached historical highs.  Currently, natural gas prices are substantially lower.
Louisiana Considers a Limited Deregulation  Plan
The Louisiana Public Service Commission (PSC) is  considering a limited electricity 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 market every two years starting in 2003. The proposed plan does not  include retail competition for residential or small business consumers. Not all  commissioners support the plan, however; Commissioner Don Owen has said that he  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 industrial customers  from building cogeneration plants because of a provision that requires large  industrial cogenerators to pay a stranded costs recovery fee. Industrial  customers with new cogeneration facilities are allowed to apply for an  exemption. The PSC has not yet determined the stranded cost 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 plants. State regulators had included  the fee in the proposed plan so that stranded cost recovery would not be  unfairly shifted to residential ratepayers who remain in the regulated system.  The PSC is scheduled to vote on the plan next month.
Deregulation in Mississippi Not Expected Soon
In a  recent speech to the Vicksburg Civic Club, Public Service Commissioner Nielsen  Cochran said it is unlikely that Mississippi will soon open its electricity  market to competition. Cochran explained that, in order for competition or  deregulation to work, there must be a greater abundance of generation options in  the state. After two years of hearings that ended in 1999, 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 Texas' pilot deregulation program, said that it opposes  delaying the January 1, 2002, start of electricity deregulation. New Power has  been a major player in the pilot program, but has experienced its share of  obstacles along 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  operate the electricity transmission and metering systems in order to issue  accurate bills. New Power and the Electric Reliability Council of Texas, which  is responsible for making the information available, have been communicating to  improve the situation. New Power is confident that its problems will be resolved  in time for the January 1, 2002, deregulation date. The Public Utility  Commission requested comments from electricity companies on whether 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 would rather  have dinner with him tonight. Sorry, she replies, she'll be doing her laundry  late this evening. And not tomorrow night, either, because she'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 appliances and run their air conditioners at full  blast. In only a few months, California has gone from an energy drought to a  flood, in which the state is now forced to sell or give away a glut of excess  electricity at prices far below those it paid. California's double-whammy energy  crisis -- a shortage followed by an overstock -- serves as a cautionary tale for  other jurisdictions looking to privatize their utilities.  California led  the way in placing its electricity on the open market, and last year fell prey  to what some describe as a failure in its regulatory structure, and what  Governor Grey Davis calls "a monumental scam" committed by power-generating  companies against the state. One thing is certain: When electricity demand was  driven up by poor weather last January, generators began charging the state  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 fluctuated  dramatically: One generator billed the state $3,880 (U.S.) for a megawatt that  had cost $29 the previous year. And because most of the state's utilities 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 of more than $9-billion  from those generators. Federal regulators agree with 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 terrified by days of rolling, random blackouts  that threatened to drive businesses away from California's already beleaguered  economy. Now Mr. Davis is coming under fire for his solution to that crisis: As  the blackouts were taking place, he signed $43-billion worth of long-term power  contracts, some 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  natural gas dropping in the wake of Sept. 11, rosy weather forecasts and dozens  of new generating stations coming on line, open-market energy prices have  dropped below $20 a megawatt. Suddenly, California faces the prospect of paying  tens of billions of dollars a year above market rates for electricity. "Our  children and grandchildren will be the ones who have to pay for his mistakes,"  said Richard Riordan, former mayor of Los Angeles and Mr. Davis's chief  Republican opponent. To make matters worse, those energy-conservation TV ads  appear to have worked too well. Californians are now using less electricity per  capita than any other state. While this is applauded by utility officials and  environmentalists, it leaves California with contracts for far more electricity  than it needs. Energy companies, which had rushed in to build or upgrade power  plants during this year's crisis, have been scaling back dramatically. Since  September, at least half a dozen planned generating stations have been  cancelled. But experts warn that this, too, could backfire, warning that  California could be hit by another round of blackouts in five years.

Copyright ? 2001 Egnatia Research &  Management. All rights  reserved