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


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Pepco to Supply Electricity in  Maryland
Beginning in July of this year, Pepco Energy Services  will provide electricity 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 period. Six percent of the total electricity supply will be generated  from renewable resources. This award from the State of Maryland is the latest of  $800 million worth of contracts for Pepco's services awarded within the  last 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 deregulation until  2007. Principles of the NMPRC policy include requiring utilities to operate  adequate distribution infrastructure, requesting an in-depth analysis 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 commission's  energy principles [can] be implemented only on a temporary basis."
 
Seven New Power Plants for New Mexico
Five power  companies serving customers in New Mexico have committed to build  seven new power plants in the state between now and the inception of  deregulation. These seven plants are expected to generate 2,200 MW of new  electricity supply. The power companies include Duke Energy, Public Service  Company of New Mexico, Tri-State Generation and Transmission, Peabody Energy,  and Cobisa Corporation, all of which have begun construction or are still in the  planning stages.
 
Exelon CEO Supports Continued Deregulation  Efforts
Speaking at an energy conference at the Federal Reserve  Bank of Chicago, Exelon co-CEO John Rowe said that the nation cannot return to  the failed regulatory structures of the past. Referring to Enron's  bankruptcy and California'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 Oldsmobile." He also urged FERC to establish RTOs and disagreed  with the agency's November decision to give up price setting responsibility for  three large U.S. utilities.
 
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 the opposition denounces  the campaign as "propaganda." "This isn't about public information; this is  about brainwashing," NDP Leader Howard Hampton said yesterday. "It's just  fundamentally wrong." Mr. Hampton said advertising industry sources told him the  government was planning five different television spots to announce that private  companies will be allowed to sell electricity to consumers starting May 1. The  government responded that only one ad was produced, as part of a broader  campaign to educate consumers about their choices under the new system. The  brief piece resembles many of the other ads produced by the Progressive  Conservative government, some of which have been criticized for trying to  bolster public support for controversial policies. Soft-focus pictures of  smiling people in everyday settings run underneath a voice track explaining why  deregulation of Ontario's electricity is necessary. "As we grow, we're going to  need more electricity," says the advertisement's voice-over. "And more companies  generating electricity." "We're not trying to sell privatization," said Mike  Krizanc, a spokesman for the Ministry of Energy, Science and Technology. He  noted that 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  electricity 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 public  opinion," Mr. Hampton said.
New Requirements for ESCOs in New York
The New  York State Public Service Commission has approved new financial requirements 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 deposits. ESCOs that do not earn  the minimum rating will have to put security deposits in escrow or issue an  irrevocable letter of credit; they will not be allowed to offer prepayment  plans. PSC Chairwoman Maureen Helmer explained last week that, "the additional  consumer protections balance key interests in the energy markets. Specifically,  our administrative flexibility enables us to balance vital consumer interests  with the interest in offering 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 days. Reportedly, deregulation is complicating the way  that orders for new electricity service are placed and processed, in that  consumers may select from a number of retail electricity providers (REPs) when  they decide to order new service or switch to a different provider. After being  notified by a customer, the provider must contact ERCOT, the Electric  Reliability Council of Texas. ERCOT, which is responsible for managing the power  grid, then notifies the current utility that its customer has opted to change  service. Before January 1, 2002, only the regulated utility needed to be  contacted; 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 typically takes  two to five days. The Houston Chronicle is reporting that one Houston family  endured 10 days without electricity while waiting for power in their new  apartment. Tom Noel, ERCOT's president and chief executive officer, explained  that "we've traded off reduced rates for a little less convenience. In other  words, in the past when there was a monopoly utility in this city, they  [consumers] made one phone call, and that was the only party 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 week's open meeting. Terry  Hadley, a spokesman for the Austin-based commission, said that the delays are of  concern to the commission and that it is looking 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 them 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 publicly called for  power-market competition while privately demanding a continuation of the subsidy  that allows them to buy electricity at below-market prices. Big companies, such  as Dofasco Inc., Bowater Pulp and Paper Canada Inc., and up to 79 other large  electricity users, will continue to receive the subsidy when the Ontario  electricity market opens for competition on May 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 ways to increase demand through what were  termed "special rate" deals. Since then, about 7 per cent of Ontario's  electricity has been covered by these deals, which were supposed to end when the  electricity market was opened to competition. Companies receiving the subsidies  would suddenly face price increases of up to 64 per cent, the records say. The  cost of the subsidies will be carried by Ontario Power Generation, one of  Ontario Hydro's successor companies, and Ontario Electricity Financial Corp.,  the body paying off Ontario Hydro's debts, according to the records. The  documents show that senior executives at big companies began pressuring Premier  Mike Harris, 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, cabinet  approved continuing the subsidies through regulation, despite an assessment by  the Ministry of Energy that said Ontario Power Generation could lose up to  $190-million over four years, compared with selling the electricity 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 "price to beat" electricity  rate has been set as a benchmark for cost comparison in the state's developing  deregulated electricity market. The rate will be reset on a yearly basis.  Electricity suppliers wishing to compete in the market must offer service at a  lower rate or provide a unique service such 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 existing electric company, but the average price to compare  is 3.3 cents per kilowatt-hour for residential customers. During the state's  pilot customer choice program, some Virginia Power customers chose to switch to  Dominion which charges between 4.35 cents and 4.97 cents per kilowatt-hour for  electricity. At the time of the pilot, these rates were competitive with  rates offered by other utilities serving customers in Virginia. The SCC is now  cautioning those customers to reconsider their switch based on the new "price to  beat" rate. A spokesman from Dominion said last week that the company has no  immediate plans to lower its rates, but is pleased that new rates have been  announced, stating, "We have a number we can shoot at. We welcome  it." Customers who switch their electricity supplier in the new market must  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 that the charge be phased out. Some concern has been expressed that  the low benchmark 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  compete 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 the  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 hurt 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 regulated markets.
Long Island Opens to Retail Competition
The Long  Island Power Authority (LIPA) has announced that is has completely opened the  island's electricity market to retail competition under the LIChoice  Program.  This achievement is seven years ahead of the schedule imposed by  the Public Authorities Control Board (PACB) in May 1998 and a year in advance of  LIPA's own 2003 deadline.  Under LIPA's retail competition program, three  Energy Services Companies (ESCOs) have been certified to supply electricity to  residential and commercial customers on Long Island.  Currently, 38,039  residential and commercial customers receive approximately 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 well 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 and capacity costs that LIPA avoids  when an ESCO takes over provision of electric 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 provide ESCOs with a greater  incentive to supply competitively priced electricity to consumers.  Retail  deregulation in the state began in May 1998 when LIPA first reduced electric  rates by an average of 20%, resulting in savings of $1.5 billion.  LIChoice  began its phased-in approach to deregulation 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 considerably over the  past few months.  Despite the findings of the Florida Energy 2020 Study  Commission's December report that recommended initiation of a competitive  wholesale market, little additional discussion has occurred, and the state  Legislature is not expected to act on the recommendations in the report.   The Orlando Sentinel reported last week that the Legislature has other, more  critical issues on its agenda, including the recession, 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 preoccupied as well with congressional  redistricting and the state's budget crisis.  He also mentioned that the  Energy Commission's report will require substantial analysis which the  Legislature does not have time to do.  The bankruptcy of Enron Corporation  has also contributed to a lack of interest in deregulation.  The company's  collapse has caused stakeholders in Florida to question the ability of  electricity generators and transmission and distribution companies to supply  uninterrupted flows of power at an affordable price.  Despite the lack of  deregulation in Florida, the electricity market in the state appears to be  stable and healthy.  The state's large power companies are consistently  profitable and have been able to adjust customer prices as compensation for  investments in new generating plants and fluctuations in fuel costs.  The  utilities do not expect wide variations in fuel costs in the coming year and  believe they have sufficient generating capacity to cover the demand for  power.  Creation of a regional transmission organization (RTO) to serve the  state is not planned, regardless of collaborative efforts during 2001 to form a  statewide RTO, Grid Florida.  This plan has been stalled due to the Federal  Energy Regulatory Commission's preference for interstate RTOs.
North Carolina Study Commission To Resume
The  Study Commission on the Future of Electric Service in North Carolina will resume  on February 6, 2002.  Deliberations on electric deregulation are not  expected to take center stage; rather, the Commission's work to resolve the debt  burden of several towns and cities will likely be the focus of discussion.   In April 2000, the Commission approved a set of recommendations that included  moving to a fee-market system for all power sales in the state by 2006.   California's energy crisis, however, resulted in the Commission's design to  delay these plans.  Commission Co-Chairman Senator David Hoyle (D-Gaston)  told reporters this week that the he does not expect the 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 and plans in addition to a report on  available power supplies for the state's 4 million electric customers.   Senator Kay Hagan  (D-Guilford) agrees with Senator Hoyle and does not  expect the Commission to move forward with deregulation plans.  "This is so  complex that it's not easy to even figure out what questions to ask," she said.  North Carolina regulators are expected to closely follow electricity  restructuring in the neighboring state of Virginia.
Pennsylvania Utility Denies Market  Manipulation
PPL Corporation, headquartered in Allentown,  Pennsylvania, has denied charges that it set artificially high prices for  wholesale products in its service territory.  The Pennsylvania Public  Utility Commission (PUC) is investigating PPL in the aftermath of charges  leveled at it from PJM Interconnection LLC, the wholesale market operator, and  NewPower Holdings Incorporated.  PPL claims that a "readily foreseeable  increase in demand" resulted in price increases during the first quarter of 2001  rather than an effort to control prices.  The PUC is interested in the case  because these price control charges pose questions about the success of the  state's deregulated electricity market.  PJM required that electric  companies under its jurisdiction 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 consumer advocates are following the case closely to judge its  potential consequences for the future of electric competition.  John  Hanger, a former PUC commissioner and now head of PennFuture, a Harrisburg  consumer interest group, said that "nobody believes that there wasn't market  manipulation going on."  PPL contests in its filing to the PUC that the  price increases did not prevent alternative electricity suppliers from competing  at the retail 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 high  prices in March of 2001.  The PUC confirmed that only 72 of the original 97  electric companies operating in the Mid-Atlantic region last January are still  in the market.
 

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