Utilities Biweekly Report 	
 A news service for energy professionals   	 October 17,  2001 	


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FERC Rejects Reasons for Suppliers Higher  Prices
In an order issued on October 5, the Federal Energy  Regulatory Commission (FERC) rejected the cost justifications of several power  suppliers that sold wholesale electricity above the proxy market-clearing price  during July 2001. The electricity had been sold into the California Independent  System Operator (CA-ISO) and Western Systems Coordinating Council (WSCC). FERC  said that the justifications from Dynegy, Reliant Energy, Mirant, and Williams  Energy were "either untimely filed and/or unsupported" and has ordered refunds  on those transactions. The four suppliers submitted their cost justifications in  compliance with FERC's April 26 order that established price mitigation for  sales into the CA-ISO's spot markets starting in late May. That order required  power suppliers and generators who submitted bids above the market-clearing  price to file a justification for the higher prices within seven days of the end  of the month in which the sale occurred. FERC did not disclose how much money  would be refunded since the four companies requested that the matter be treated  confidentially. In a separate case, FERC Administrative Law Judge Bruce Birchman  has until March 8 to issue a report on whether California is entitled to refunds  of nearly $9 billion for wholesale power purchases when prices skyrocketed in  the past year. The report's recommendations will be considered by FERC  commissioners for further action.
 
Nuclear plant had long list of  failings
Inexperience, sloppy work habits and poor maintenance  increased the chances of dangerous accidents at the Bruce nuclear power station  in Ontario, the world's largest atomic facility, says a secret report obtained  by The Globe and Mail. The report was compiled in 1998 by a group of highly  trained, independent nuclear experts from the World Association of Nuclear  Operators (WANO), an industry advisory group based in Atlanta. It was given to  Ontario Power Generation, the provincially owned utility, the following year.  Among its findings: Some operators were unaware of such important topics as the  time it would take for water in reactors to begin boiling away if flows of  cooling water were blocked. Nuclear-plant operators disconnected warning alarms  they found too noisy. Operators sometimes did not watch instrument control  panels, but had their backs turned to them, which could slow any response to a  problem. "Should an inadvertent loss of primary heat transport coolant occur,  operator response could be delayed, resulting in a loss of core cooling." More  than 2,500 nuclear-plant modifications were not incorporated into design  manuals, leading to confusion about how the plant actually runs. There was a  backlog in preventive and corrective maintenance and some maintenance work was  poorly done. WANO tried to block The Globe's access to the report, which listed  dozens of other sloppy practices at the Bruce facility, and a second related  report that found troubling safety lapses at the Pickering nuclear station. But  the organization recently abandoned a court challenge seeking to have the  documents remain confidential. It is the first time WANO reports assessing the  performance of nuclear plants have been publicly released anywhere in the world.  A Bruce station official said its performance has improved dramatically since  the critical report was written. WANO now considers Bruce "one of the fastest  improving nuclear plants in North America," said Duncan Hawthorne, chief  executive officer at the site. One nuclear energy critic said concerns raised in  the report about possible loss of cooling -- an interruption in the flow of  water that keeps a reactor from overheating -- describes an event that could  cause a serious mishap by allowing unwanted nuclear chain reactions. "It could  result in some form of criticality accident, which could eventually lead to a  meltdown," said David Martin, a nuclear safety consultant with the Sierra Club  of Canada. The Globe and Mail requested the reports under Ontario's freedom of  information act in 1999. Both Ontario Power and WANO opposed the releases.  Ontario Power argued that public knowledge of the reports would jeopardize its  finances and increase the cost of its liability insurance. The government  utility completed a long-term agreement leasing the Bruce facility, located on  the shores of Lake Huron, to a unit of British Energy earlier this year. WANO,  in seeking to keep the records secret, asserted nuclear safety is enhanced if  the public is kept in the dark about its findings because nuclear staff are more  likely to be honest about mistakes if their remarks are kept confidential. But  Ontario's Information and Privacy Commissioner ruled last year there was a  "compelling interest" for the public to have the nuclear-safety information.  Shortly after the newspaper made its request for the records, the Ontario  government changed its information law to exempt provincially owned electricity  companies from the act, blocking future public access to these safety reports.  The WANO reports, known as peer reviews, were viewed at the highest level of the  utility, with copies sent to Ronald Osborne, Ontario Power's president. During  WANO reviews, a team of nuclear experts scours the plant, looking for sloppy  work practices, poor maintenance and inadequate training, while also trying to  discover the causes of these failings. At the Bruce plant, WANO officials  reviewed four of the eight reactors. The officials found the failure to keep  accurate designs at the station, known as Bruce B, helped create confusion over  three unplanned reactor shutdowns in 1997 that were caused by the triggering of  automatic safety systems. Operators had a hard time figuring out why the  shutdowns happened because the designs showed wiring layouts from the wrong  nuclear stations. The report also noted that 10 forced reactor shutdowns were  caused by equipment problems. These have arisen because the station had a "large  and increasing backlog" in preventive and corrective maintenance tasks.   Staff also conducted incompetent maintenance work. In one case, a pump needing  an overhaul was taken from service, but it was later discovered that the spare  parts for this work were unavailable. "The pump was subsequently returned to  service without undergoing the associated maintenance," the report said. I1998, there were about 4,000 corrective maintenance tasks at the station. Mr.  Hawthorne said that total is now less than 200, reflecting the plant's improving  performance. However, there was a backlog of about 1,000 preventive maintenance  tasks in 1998, a figure that has since grown to 1,200. Mr. Hawthorne said the  total of preventive jobs is considered normal within the industry.
 
Barton Adds Supports for FERC Authority and  RTOs
Senate Energy and Air Quality Subcommittee Chairman Joe  Barton (R-TX) has revised his draft electricity bill to support the Federal  Energy Regulatory Commission's (FERC) proposed requirement that forces utilities  to participate in regional transmission organizations (RTOs). The proposal  requires that all transmitting utilities form or participate in an RTO within  18 months. Barton's draft bill also gives additional authority to FERC by  allowing the commission to propose changes to applications if minimum standards  are not met. Utilities would have the right to appeal FERC's decision to the  federal courts. While FERC is pushing for the creation of four RTOs, Barton's  draft bill does not recommend a specific number of RTOs. The revised legislation  requires a 40,000 MW generation minimum from any new RTO. This requirement was  added to minimize the amount of inter-RTO transmission problems. The bill  includes an incentive rate provision which opponents claim would undermine  FERC's authority to determine just and reasonable rates. Proponents argue that  incentive rates are necessary to account for the inherent risks that  transmission companies face.
 
FERC's Public Access Rulemaking is  Questioned
A Federal Energy Regulatory Commission (FERC) proposed rulemaking on public  access of informational filings is generating mixed reactions. FERC is proposing  that utilities and power marketers electronically file an "index of customers"  on a quarterly basis with a summary of the contractual terms and conditions for  market-based power sales, cost-based power sales, and transmission services. The  proposed rule would require that the information be posted on a publicly  available Internet website. State regulators see FERC's July rulemaking proposal  as an opportunity to improve regulatory oversight of competitive markets. The  National Association of Regulatory Utility Commissioners (NARUC) applauds the  proposal, stating, "One of the most important and formidable tools in market  monitoring is access to data that is readily available and useful to the  public." However, utilities are warning FERC that making such "proprietary and  commercially sensitive information" available to the public "could be harmful to  the development of robust electricity markets." The Edison Electric Institute's  Alliance of Energy Suppliers is requesting that FERC defer action on the  rulemaking.
Debate Over Use of PJM as Model for Northeast  RTO
Wholesale suppliers and the PJM Interconnection have recommended that PJM's  market design and governance structure be used as a model for a Northeast  regional transmission organization (RTO). They believe that using the PJM model  would facilitate the quickest transition from the current system of independent  system operators (ISOs) to one large RTO. Duke Energy North America reported to  Platts Electric Power Daily that "The PJM market-building philosophy of  cautious, incremental, modular building blocks which emphasizes market-driven  solutions rather than command-and-control decision and frequent market  interventions has worked far better than approaches taken in either New York or  New England." Administrative Law Judge Peter Young recommended on September 17,  2001 to the Federal Energy Regulatory Commission (FERC) that PJM be used as a  starting point. Young proposed an RTO plan that would have an operational RTO  within 36 months of the FERC order. His recommendations resulted from the July  2001 mediation talks that discussed the creation of a Northeast RTO. FERC has  since asked for comments regarding Young's plan. Enron and PJM contend that an  RTO could be operational within one year if FERC acts expeditiously. New York  ISO and New England ISO argue that FERC should consider another approach because  using PJM as a model would ignore geographic and philosophic differences. The  PJM utilities do not have divested generating assets, as do the two regions not  covered by PJM. The ISOs also pointed out that PJM does not contain so-called  load centers like New York City or Boston.
Support for Delay in Arkansas' Deregulation
Entergy, Arkansas' largest electric utility, has agreed with State Attorney  General Mark Pryor to support a delay in the state's restructuring efforts. An  amended restructuring statute in effect as of April 2001 pushed back the start  date of deregulation to October, 2003. The Public Service Commission (PSC) was  given the authority to delay deregulation further until 2005 if necessary to  ensure that deregulation will benefit consumers. Several concerns still exist,  according to local sources. A study by La Capra Associates showed that Arkansas  consumers might experience higher, more volatile electric rates if the retail  market is deregulated before October 2005. The study also reports that wholesale  electric markets and operating electronic systems haven't developed, both are  necessary for successful retail market competition. Entergy's President, Hugh  McDonald, has also expressed concern that the Federal Energy Regulatory  Commission's (FERC) push to create four regional transmission organizations  (RTOs) may slow the move to retail competition. Additionally, State Attorney  General Pryor has noted that two utilities serving the Arkansas market are  experiencing difficulty meeting the January 2002 deregulation deadline in Texas.  The governor, PSC, and the Arkansas Electric Cooperative Corporation consider  repeal of deregulation to be the best choice for consumers. Entergy believes  repeal is unnecessary and that delaying until 2005 will cause no harm to  consumers. A PSC hearing on the topic is set for October 18, 2001.
Entergy seeks deregulation delay in Texas
Texas  is experiencing a less than seamless transition to a competitive retail electric  market. Entergy Corp. has asked the Public Utility Commission of Texas (PUC) to  delay deregulation in the Southeast Texas service area for 8 ? months,  transmission congestion is costing some Texas utilities millions of dollars, and  reports show that Texas consumers have been subject to "slamming" (switching  utility providers without their consent.) Entergy's request is a turnaround from  the corporation's announcement in September that deregulation should move  forward and that it was ready to move into a competitive marketplace. The  corporation has now filed a memorandum along with the PUC staff, an industrial  electricity users group, and the Office of the Public Utility Council, asking  the PUC to delay deregulation for 8 ? months. Entergy's spokesperson says that  the request stems from the Federal Energy Regulatory Commission's and Entergy's  inability to come to consensus on an independent regional transmission operator.  
Problems For Texas on the Path To  Deregulation
Municipally-owned Austin Energy is among a group of  Texas utilities that have experienced rising costs in a deregulated energy  market. Their agreement to share transmission costs across the state for  generated electricity is costing more than anticipated. The PUC and the Electric  Reliability Council of Texas (ERCOT) estimated last year that a state program  designed to ensure that enough electricity can move around the state during peak  periods would cost utilities $20 million in the year starting July 31, 2001.  Since each utility's share of the cost is based on its use of the grid, Austin  Energy expected its 4 percent share to be $800,000 for the first year. However,  Austin Energy has already been billed approximately $2 million for the  period between July 31 and September 21.
North Carolina  Regulators Oppose Southeastern RTO  
The North Carolina Utilities Commission (NCUC) has expressed opposition to  the Federal Energy Regulatory Commission's (FERC) move to create four regional  transmission organizations (RTOs). In September, an administrative law judge  reported on closed-door mediation discussions aimed at developing an RTO in the  Southeast. NCUC considers the 45-day long talks illegal. FERC supports the  creation of a Southeast RTO, reflecting RTO proposals submitted by GridSouth,  GridFlorida, and Entergy. NCUC objects that "...FERC is now attempting to strip  retail customers of all rights to existing transmission capacity and make it  available...to relatively new entities, such as Independent Power Producers and  marketers. This attempt must fail." NCUC says that it will take its case to  court to prevent FERC from moving forward on this issue.
"Slamming" reported in Texas pilot  program
Problems arising from Texas' move towards a competitive  retail electric market have also spread to the consumers. Under the state's  pilot project, 5 percent of the market was opened to competition, allowing  companies to compete for consumers by offering lower prices and different  service plans. The Texas deregulation law strictly prohibits "slamming,"  electric providers switching consumer's service without obtaining permission.  New Power Company received at least 14 complaints about slamming; Green  Mountain, Reliant, First Choice and Shell each received one "slamming"  complaint. The Fort Worth Star-Telegram reported that 68 complaints have been  filed between March 1, 2001 and September 27, 2001 concerning billing  procedures, delays in the pilot project, customer service and deceptive trade  practices. On one positive note for consumers, the PUC has published a consumer  education brochure, "The Electricity Facts Label: What it is and How it Will  Help You Shop for Electricity." The brochure will help consumers understand the  new electricity labels that Retail Electric Providers (REPs) are required to  provide when retail competition begins. The label gives information on  electricity prices, contract terms, generation sources, and emissions in a  standardized format. The labels are intended to help customers make informed  decisions about choosing their electric service.
Texas' Power  Supply to Increase
Two new developments in Texas are expected to  increase power supply in the state. American Electric Power Co. (AEP) is  currently seeking approval from the Public Utility Commission of Texas (PUC) to  provide energy supply services to large commercial and industrial customers if  deregulation begins in January 2002. AEP has a total of about 1 million  customers in Texas with its three subsidiaries: Central Power and Light Co.,  West Texas Utilities and Southwestern Electric Power Co. The company expects the  PUC to act within two to three months. In addition, Steag Power, the  Houston-based unit of Germany-based electricity utility Steag AG, plans to  develop a 900 MW to 1,200 MW gas-fired power station in Ennis, Texas. The  company submitted its application to the Electric Reliabilty Council of Texas  and the Southwest Power Pool. Construction is planned to begin next year and  reach commercial operation by 2004. The plant will increase Texas' generating  capacity and may help to relieve the state's congestion problem of transmitting  power from south to north. New power plants, as well as new transmission lines,  are needed in the north to ease congestion.
Bingaman to Resume  Work on Comprehensive Energy Bill
Senate Energy and Natural  Resources Committee Chairman Jeff Bingaman (D-New Mexico) will resume  consideration of a comprehensive energy bill the week of October 14. The bill  includes provisions related to electricity restructuring, including expansion of  the Federal Energy Regulatory Commission's (FERC) authority over municipal and  cooperative utilities. The proposed legislation would also allow regional  transmission organizations to rely on FERC to rule when transmission projects  are delayed or rejected by state officials.
Federal Trade Commission Issues Report on Electric Power  Regulatory Reform
A new report has been issued by the Federal  Trade Commission (FTC) that examines state retail electricity programs and their  ability to provide consumer benefits. Competition and Consumer Protection  Perspectives on Electric Power Regulatory Reform: Focus on Retail Competition  compares state and federal authority on competitive issues and implementation of  successful retail competition programs. The FTC report finds that most electric  markets are in a transitional phase. The benefits of a competitive market will  not be realized until the advent of full competition, without price regulation,  has been achieved. The report also explains that competitive wholesale markets  must accompany competition in retail markets. The report notes, "... as  wholesale and retail markets become regional, governing policies and  jurisdictional approaches also must move in that direction for wholesale and  retail competition to be successful." The FTC report also cites that  artificially low "standard-offer rates," which are provided to customers who do  not choose a new supplier, may act as a barrier for new retail suppliers. These  low rates reduce the incentive for customers to seek alternative suppliers. The  report urges retail suppliers to offer competitive metering and billing services  in addition to variable pricing for generation services. Standardized labeling  of power products and services, enforcement of truth-in-advertising laws, and  consumer education efforts will help consumers make informed decisions.
Supreme Court Hears Arguments on Open-Access  Rules
The Supreme Court heard arguments on Wednesday on Federal  Energy Regulatory Commission (FERC) jurisdiction to regulate wholesale  transmission services and power sales. The Court's ruling will have an important  impact on the U.S. power market. It could either open the transmission grid to  retail competition or limit competition to the retail level. As Dow Jones  reports, "The case has great ramifications for congressional debate on electric  industry restructuring legislation and FERC's ongoing efforts to promote  competition as a surrogate for regulation." Nine states, led by New York, argued  that FERC overstepped its authority with Order 888, that required utilities to  open their transmission lines to competing power merchants. Lawrence Malone,  general counsel for the group, argued that the order preempted state authority  to regulate retail sales and set rates. In 1999, FERC carried the order further  by mandating that utilities turn over control of their power lines to  independent regional transmission organizations, or RTOs. The states are  appealing the District of Columbia Court of Appeals decision in June 2000 that  upheld FERC's orders. Currently, FERC is working to establish four RTOs to  control the nation's transmission system. Meanwhile, Enron, the largest U.S.  wholesale power player, argued that FERC violated federal law because it did not  require access to transmission lines when utilities kept transmission and retail  sales as one operation. This bundled service remains in many states where  competition is not yet allowed. Caught in the middle, FERC argued that its  orders were issued to achieve a balance between giving competitors equal access  to power lines and leaving retail market issues to the states.
FERC Chairman Unveils Plans
Pat Wood, the Federal  Energy Regulatory Commission's new Chairman, has proposed a set of issues on  which he wants the Commission to focus. At the Commission's September 26th  meeting, Wood proposed the following for FERC's upcoming agenda: ensuring  adequate generation capacity; transmission constraints; regional transmission  organizations (RTOs); energy infrastructure; standards of conduct for  transmission providers; market monitoring and enforcement; and market based  rates. One important proposal unveiled at this meeting would mandate that  transmission owning utilities be given until December 15, 2001, to join an  approved RTO or lose their right to charge market based rates. Additionally,  Wood recommended that mergers would only be approved for power entities  belonging to operational RTOs. "Once the entire country is covered by RTOs," he  said, "states will have the option to deregulate on the retail level or not."  Wood also proposed a rulemaking on market design and structure in order to make  a seamless national power marketplace. A new transmission tariff would replace  the pro forma open access transmission tariff established by Order 888. Staff at  FERC discussed changing the Commission's methodology for assessing market power  for the purpose of approving market-based rate applications. While none of the  proposals were voted on, the meeting was important for opening up discussion and  addressing the Commission's key challenges and objectives for the coming year. A  series of commissioner-led workshops will be held at FERC's headquarters from  October 15-19, 2001. Congestion management, cost recovery, market monitoring,  transmission planning, business and reliability standards, and the nature of  transmission rights have been proposed for discussion at the workshops.
Maryland and DC Blast FERC on RTO plan
Both the  Maryland and Washington DC public service commissions have expressed concern  over the Federal Energy Regulatory Commission's (FERC) initiative to integrate  the U.S. Northeast transmission network. In a new plan proposed by FERC Chairman  Pat Wood, utilities would have to submit plans by December 15, 2001, to join a  regional transmission organization (RTO) or lose the right to sell electricity  in the wholesale market. Catherine Reilly, Chairman of the Maryland Public  Utility Commission, is concerned about the plan's effect on the Northeast's  economy and the potential for creating another California-type crisis. The  Maryland Commission held hearings on RTOs in Baltimore on Wednesday and Thursday  of this week.
Southwest and Midwest Utilities Form Transmission  Groups
FERC's push for utilities to merge their networks into  regional transmission organizations (RTOs) came one step closer to being  realized this week. Six Southwestern utilities have signed an initial  "Memorandum of Understanding" regarding the formation and operation of an RTO  and plan to file with FERC by mid-October. The new RTO, WestConnect, will be  created by Arizona Public Service Co., Salt River Project, El Paso Electric Co.,  Public Service Company of New Mexico, Tucson Electric Power Co., and Texas-New  Mexico Power Co. In addition, six Midwestern utilities filed with FERC last  Friday to create an independent, for-profit transmission company, TRANSLink. The  utilities include Alliant Energy, Corn Belt Power Cooperative, MidAmerican  Energy, Nebraska Public Power District, Xcel Energy, and Omaha Public Power  District. "A for-profit entity, focused solely on the growth and enhancement of  a robust transmission system over a large region, will be much more effective  than either the current situation or transferring operational control to an  independent system operator," said Wayne Brunetti, chairman, president, and CEO  of Xcel Energy. The six companies have asked FERC to expedite their application  so that TRANSLink can be formed by early next year.
North Carolina's Restructuring Plans Still on  Hold
The North Carolina Study Commission on the Future of  Electric Service has decided to place its restructuring deliberations on hold  until early next year. Study Commission meetings were interrupted early in 2001  due to the length of the state legislative session, which occupied several Study  Commission members. Members of the Commission have expressed concern about  implementing electricity restructuring. Sen. Kay Hagan, D-Guilford, explained  that, "I can't see us doing anything...There are so many people worried  about...California." Hagan and Rep. Mary Jarrell, D-Guilford, also on the  Commission, have urged North Carolina to take the steps necessary to avoid the  same problems experienced in California. Neither legislator foresees the Study  Commission resuming its deliberations until January 2002.
Pennsylvania Retail Electricity Shopping  Declines
According to figures released last Tuesday by the  Pennsylvania Office of Consumer Advocate, electricity retail shopping fell  during the third quarter of 2001. The number of consumers buying from  alternative suppliers dropped 8% from July 1st. This decline is less than the  32% drop that occurred between April and July; total electric load has declined  by 10% since July. 337,918 or 6.4% of the customers in the state are buying  1,458 MW from other suppliers, or approximately 6% of the state's total load.  Again, this is less than the 67% decline in electric load purchased from other  suppliers that occurred between April and July. According to the Electric Power  Daily Online, "Load fell more dramatically than customer participation in the  spring because many of the expiring long-term contracts were held by large  industrial and commercial customers." Pennsylvania opened its electricity market  to competition in 1999. In April of 2000, 10% of the state residents chose  alternative energy suppliers, subsequently, high gas prices and tight electric  capacity drove up wholesale prices in the summer of 2000. Many alternative  suppliers pulled out of the market, as they were unable to offer competitive  prices. Participation in the retail electricity market has been declining since  then.
Texas' Electricity-Grid Operator Needs More Power  Lines
An annual report released on Monday by the Electric  Reliability Council of Texas states that Texas needs more electricity  transmission lines, raising concern as the state plans to open its electricity  market to competition in January 2002. Without adequate transmission lines,  congestion problems will likely arise and the flow of power may be interrupted.  The report has identified six zones where more lines are needed to deliver power  from south to north Texas and to bring electricity into the Dallas area. Eight  major projects are being developed to address the problems and others are being  considered.

Copyright ? 2001 Egnatia Research &  Management. All rights reserved