Fortnightly
News Digest
August 01, 1999
Mergers & Acquisitions
Global Deals. The Federal Energy Regulatory Commission approved the first two mergers with foreign-owned companies taking over major domestic utilities. Commissioner Linda Breathitt noted that U.S. utilities long had been buying overseas utilities.
• ScottishPower + PacifiCorp. ScottishPower of Glasgow would acquire PacifiCorp, with equity value at $7.9 billion, plus assume $4.9 billion in debt, upping the deal to $12.8 billion. Docket No. EC99-49-000, June 16, 1999, 87 FERC ¶61,288.
• National Grid + NEES. Great Britain's National Grid Group would buy New England Electric System in a $3.2 billion deal. Commissioner Curt Hébert called the merger "good news," noting that NEES soon would divest its generation so that "transco meets transco." He credited the FERC's recent rulemaking on regional transmission organizations for making grid investments more attractive. Docket No. EC99-50-000, June 16, 1999, 87 FERC ¶61,287.
AllEnergy + Texas-Ohio. New England Electric System's energy marketing subsidiary, AllEnergy Marketing Co., on June 14 announced that it had agreed to acquire one of the largest, unregulated natural gas providers in the northeast, Texas-Ohio Gas Inc., from e prime, the energy marketing subsidiary of New Century Energies. AllEnergy's 1999 revenue was expected to climb to about $450 million, with $60 million in added revenue from Texas-Ohio.
Southern Union + PEI. Texas-based Southern Union Co. on June 7 said it would take over Pennsylvania Enterprises Inc. for $500 million, adding PEI as a fourth major autonomous division, along with units in Texas, Missouri and Florida. SU chairman and CEO George Lindemann said his company would gain entry to east coast markets.
AEP + Central & SW. The Kentucky PSC OK'd the proposed merger of American Electric Power Co. and Central & South West Corp., calling the settlement a "fair and equitable" distribution of benefits between ratepayers and shareholders.
The deal would credit Kentucky Power customers with $73.8 million in net merger savings out of some $1.96 billion in savings estimated by AEP and CSW. Case No. 99-149, June 14, 1999 (Ky.P.S.C.).
AES + NEV. Global power company AES Corp. announced on June 18 that it had entered into a definitive agreement to acquire New Energy Ventures Inc. in a $90 million deal. AES, which plans to finance the acquisition through a combination of cash, debt and AES common stock, will acquire all of the outstanding NEV shares from UniSource Energy Corp. and New Energy Holdings L.L.C. (owned by senior management of NEV).
Two days earlier, the FERC had OK'd the merger between AES subsidiary Midwest Energy Inc. and CILCORP Inc., parent company of Central Illinois Light Co. Docket No. EC99-40-000, June 16, 1999, 87 FERC ¶61,293.
More Deals. At least four more mergers had been announced at press time:
• Illinova + Dynegy. Illinova Corp. and Houston-based Dynegy Inc. announced a merger agreement on June 14. The combined company would boast $7.5 billion in annual revenues.
• Indiana Energy + SIGCORP. Two Indiana companies, Indiana Energy Inc. and SIGCORP Inc., announced a deal on June 14 to combine into a new holding company, Vectren Corp.
• Energy East + CMP Group. On June 15, Energy East Corp. (parent company of New York State Electric & Gas Corp.) said it would acquire CMP Group Inc. (parent company of Central Maine Power Co.), for $29.50 per share in cash.
• Northeast Utilities + Yankee Energy. On June 15, Northeast Utilities and Yankee Energy System Inc. agreed to a merger whereby Yankee Energy would become a subsidiary of NU, in a transaction valued at $679 million.
Natural Gas Pipelines
Hourly Service. The FERC approved tariffs allowing Reliant Energy Gas Transmission Co. to provide hourly firm gas transportation service reserved via the Internet to serve peaking needs of electric generation customers. Docket No. RP99-282-000, June 16, 1999, 87 ¶ FERC 61,298.
State Legislatures
Gas Retail Choice. On June 22 Gov. Thomas Ridge signed the Natural Gas Choice and Competition Act (66 Pa.Consol.Stats. secs. 2201-2211), allowing retail customers in Pennsylvania to choose their natural gas suppliers, beginning Nov. 1, with utilities able to compete outside their service areas, or inside through marketing affiliates. Two days later, the state PUC issued proposed regulations to implement the act. (See "State PUCs," this issue.)
Electric Retail Choice. Ohio Gov. Bob Taft on July 6 signed into law Senate Bill 3, the state's comprehensive electric restructuring legislation. The measure will allow for retail choice of generation supply by 2001, but left many details up to the state PUC, such as whether and when to introduce retail competition for ancillary, metering, billing or collection services.See www.legislature.state.oh.us/BillText123/123_SB_3_10_N.htm.
Power Plant Siting. The New York Department of Public Service on June 14 proposed legislation that would require the state's Board on Electric Generation Siting to examine whether a proposed plant will yield a net enhancement or improvement to the environment. The maximum application review time period would be increased from 12 months to 18 months.
Rural Cooperatives. In anticipation of electric deregulation, North Carolina Gov. James B. Hunt signed into law House Bill 476, allowing electric cooperatives to expand into water, sewer, telecommunications and energy services. Rep. Joe Tolson, who introduced the bill, said it would prepare co-ops for deregulation: "We think we have them on an even playing field." See www.ncga.state.nc.us/.
Electric Price-Cutting. The New York Assembly majority on June 10 announced a new legislative package ("Competition Plus/Energy 2000") to create jobs by cutting electric rates for small businesses and large corporations. It would cut residential rates by 13 percent to 20 percent through a universal service rate.
"The Public Service Commission has failed to reduce New York's expensive electricity costs and failed to initiate effective competition in the retail electric market," said assembly speaker Sheldon Silver (D).
Electric Stranded Costs. New Hampshire Gov. Jeanne Shaheen on June 14 unveiled a proposed agreement with Public Service Co. of New Hampshire that would slash electric rates by 18 percent, while cutting the company's stranded-cost recovery from 100 percent to 85 percent. PSNH had filed a federal lawsuit against the state and its deregulation plan, holding up the start of competition. The proposal still needs the blessing of the New Hampshire PUC and the state legislature.
Congress
Nuclear Waste Storage. Sen. Frank H. Murkowski (R-Alaska), chairman of the U.S. Senate Committee on Energy and Natural Resources, on June 15 proposed a nuclear waste bill that would grant a request by the Clinton administration for the federal government to take title to waste on-site. The committee on June 16 approved the bill, 14-6.
The bill, the "Nuclear Waste Policy Act Amendments of 1999," would allow the Department of Energy secretary to settle claims relating to its failure to dispose of spent nuclear fuel and high-level waste by taking title to the fuel at reactor sites, providing storage casks to the contract holder, or by compensating the contract holder for the costs of on-site storage. (But the DOE would not be able to use the Nuclear Waste Fund to pay settlements.)
Public Power Financing. Nebraska Gov. Mike Johanns released a letter from the National Governor's Association against the Private Sector Enhancement and Taxpayer Protection Act (H.R. 1253), introduced by Pennsylvania Congressman Phil English, that would impose a federal tax on some revenues of consumer-owned utilities to address arguments that tax-exempt bonds offer them an unfair advantage.
"The nation's governors believe that public power utilities must be treated equitably and that tax-exempt financing for transmission systems is fair," Johanns said.
Business Wire
The Gas Research Institute and EPRI will forge a "strategic alliance" to develop and roll out service and information-related businesses and integrated technology opportunities. One initiative would form a for-profit information services company as a single source for energy information and specialized consulting services.
Altair Energy, of Golden, Colo., has completed its 40th installation of a solar electric system that is connected to local utility lines. The company is helping Public Service Co. of Colorado bring solar electricity to interested Coloradans and schools.
Silicon Valley Power in California has opened its grid to encourage Santa Clara homeowners and businesses to produce their own solar electricity. "Not only will we allow grid connection of a home or business power generation system of less than 10 kW, we will waive standby charges, reduce charges by the amount of power the system generates and offer a first-cost buy-down of $4 per watt." The buy-down program, according to SVP, would offset by about $8,000 the cost of a 2-kW solar power system, which could produce a good portion of home electrical needs and normally would cost $15,000 to $20,000.
Cleco Services LLC, a subsidiary of Cleco Corp., has adopted UtiliTech Solutions as its new marketing name to establish a separate identity. UtiliTech offers electrical line construction, electrical engineering and geographic information services. Cleco Corp. is an energy services company based in Pineville, La., that provides regulated electric utility service to 242,000 retail customers in Louisiana.
British Energy and Indus International have entered a partnership agreement to jointly deploy the latter's Enterprise Asset Management products, services and best-practice business processes throughout British Energy's operations. Indus will receive more than $60 million for software, development and services over three years. Rather than define separate roles, Indus and British Energy will take joint responsibility for product enhancements, implementation and user education.
Courts
Liability for Outages. In a case of first impression, the Texas supreme court upheld a clause in an electric utility tariff limiting liability for service interruptions to the nominal cost of repairs. Otherwise, it said, damage awards could boost rates too high. Houston Lighting & Power Co. v. Auchan USA Inc., No. 97-1052, 1999 WL 374121, June 10, 1999 (Tex.).
Service Territory Disputes. Reversing two legal rulings from lower courts, but reaching the same result on equitable grounds, a state court held that where a rural electric co-op owned rights to serve an unprofitable territory, but for years had let a municipal utility serve the area, the co-op was stopped from asserting its rights later on, after an industrial customer said it would move into the area, adding profit potential. Grayson Rural Elec. Corp. v. City of Vanceburg, No. 98-SC-000202-DG, 1999 WL 402150, June 17, 1999 (Ky.).
Nuclear Whistleblowers. In denying damage claims by utility employees who said they were reassigned (but not fired) for complaining about safety at the Zion nuclear plant, an Illinois court found no right to sue for retaliatory demotion. Welsh v. Commonwealth Ed. Co., No. 1-98-2212, 1999 WL 398731, June 17, 1999 (Ill.App.).
Telecom Access Charges. A federal appeals court barred the Federal Communications Commission from boosting the productivity factor in the price cap plan that sets access charges paid by long-distance telephone carriers. It cited a lack of evidence that recent productivity gains would continue. USTA v. FCC, Nos 97-1469 et al., 1999 WL 317035, May 21, 1999 (D.C. Cir.).
Transmission & ISOs
Line Certification. In rejecting the alternative of new, locally sited generation, the Wisconsin PSC OK'd the $53.5 million Chisago Project, a joint venture between Northern States Power and Dairyland Co-op to construct several new transmission lines, including a 38-mile, 230-kV interstate line that would cross a protected scenic river and wetlands.
It noted that the lines would help alleviate problems of low voltage, voltage collapse, system overloads in northwestern Wisconsin and east-central Minnesota, and "imminent risk" of blackouts in many Wisconsin communities.
It acknowledged that state law set conservation and renewable energy as the first two "preferred options" in meeting energy needs, but called them "unrealistic." It added that distributed generation with least-cost, gas-fired generating plants would be "two to three times" more expensive than the new transmission line. Nos. 1515-CE-102, 4220-CE-155, June 11, 1999 (Wisc.P.S.C.).
Congestion Contracts. The New York ISO on June 10 announced that it will hold its first centralized auction for transmission congestion contracts on Aug. 2.
Ancillary Services. The California Independent System Operator claims that the market for electric ancillary services was viable in most hours during the ISO's first year, after initial market corrections were made.
It notes that ancillary service costs dropped from a high of almost 30 percent of energy costs in May 1998, to one-third that level (10 percent of energy costs) by September, and averaged 11 percent of energy costs over the ISO's first 12 months. See "Annual Report on Market Issues and Performance," at www.caiso.com/newsroom/releases.
Power Plants
Hydroelectric Divestitures. A June 11 report by the Association of California Water Agencies sets a value of $3 billion to $4 billion on the proposed sale of 68 hydroelectric plants by Pacific Gas and Electric Co., a move expected to have far-reaching effects on California's water supply.
It recommends that water agencies get operational guarantees prior to divestiture of water management facilities, though it believes the California ISO could operate the Helms pumped storage project so as to maximize ratepayer benefits. For copies ("Valuation of PG&E Hydroelectric Facilities Based Upon Primary Function"), call ACWA at 916-441-4545.
Deferred Taxes. Two state PUCs recently cited the question of accumulated deferred income taxes (under normalization accounting) as troublesome in approving utility plans for divestiture of generating plants, or sales agreements under already completed auctions.
• New York. In approving a sale of fossil plants by Orange & Rockland Utilities Co. to several Southern Co. affiliates for some $476 million, the New York PSC ruled that utilities cannot convey accumulated deferred taxes or tax credits to the buyer that would have flowed back to ratepayers under continued regulation: "[T]he sale abruptly truncates the systematic passback ... [the] companies' treatment of these tax credits is based on a narrow and self-serving reading of the federal tax code." Case 96-E-0900, June 24, 1999 (N.Y.P.S.C.).
• Connecticut. United Illuminating Co. won approval for phase II of its divestiture plan, but was ordered to seek a private letter ruling on whether it would violate federal income tax regulations to flow back to ratepayers all outstanding accumulated deferred income taxes upon the sale of generating assets subject to normalization tax accounting. Docket No. 98- 10-07, June 9, 1999 (Conn.D.P.U.C.).
Buyer Market Power. New York regulators approved sales agreements between seller Consolidated Edison Co. and buyers NRG (paying $505 million for Con Ed's Arthur Kill facility) and KeySpan (paying $597 million for Con Ed's 2186-megawatt Ravenswood facility), but not without concerns over market power.
The PSC denied claims that NRG's effective control of 11 percent of New York capacity (it also had bought NiMo's Oswego plant) would give it horizontal market power. The PSC noted two distinct and independent electric capacity markets, upstate and downstate, and said NRG could not leverage one market against the other.
It also denied objections over KeySpan's alleged vertical market stemming from its control of natural gas distribution facilities in the New York City area, but warned that "this approval should not be interpreted as a general invitation to other [gas] utility LDCs to acquire and/or build generation in the state." Case 96-E-0897, June 17, 1999 (N.Y.P.S.C.).
Property Tax Refunds. New York OK'd agreements for Niagara Mohawk's $425 million sale of 72 hydroelectric plants to Orion Power Holdings, jointly owned by Goldman Sachs Group and Constellation Power Source (a subsidiary of Baltimore Gas & Electric).
It allowed NiMo to convey a 75 percent interest in any future property tax savings won in cases already pending before the sale, but said that NiMo must pass along to ratepayers a full 90 percent of its remaining 25 percent interest. Case 94-E-00098, May 27, 1999 (N.Y.P.S.C.).
Electric Reliability
Outage Frequency. Electric distribution utilities in Illinois have filed their annual reports for 1998 on electric transmission and distribution reliability, as required by state law, providing details on outages and interruptions (and causation, such as by storm or animal activity), with statistics on SAIFI (System Average Interruption Frequency Index) and CAIDI (Customer Average Interruption Duration Index), along with the results of customer surveys on service quality and plans for upgrading T&D infrastructure.
SAIFI ranged from 2.155 (Mid-American Energy), to 2.23 (Ameren-UE), to 2.84176 (Central Illinois Light). CAIDI ran from 122 (Ameren-CIPS) to 145.84 (Mid-American) to 162.17 (CIL) to 518.84 (AmUE). Docket 98-0878 (Ill.C.C.).
Studies & Reports
Illinois Power Prices. On June 7, neutral fact finder Frank Piantidosi (Deloitte & Touche) issued his report on market prices for electricity in Illinois.
He acknowledged a lack of enough contract or price point observations to make reliable estimates in some categories, but under the more reliable of two methods found a summer peak price (6 a.m. to 10 p.m., M-F) of $32.14 per megawatt-hour for firm power and energy, after having converted any separately stated capacity prices to an energy equivalent.
He also found prices of $29.58 for summer off-peak power, and between $26 and $27 for peak and off-peak winter and shoulder seasons.
See "1999 Neutral Fact-Finder's Calculation of Market Values for Electric Power and Energy for the State of Illinois," posted at the Illinois Commerce Commission website: http://icc.state.il.us/.
Combined Heat & Power. The American Council for an Energy-Efficient Economy says that if regulatory barriers were removed, capacity from technologies that combine heat and power (CHP) could expand from the current 46 gigawatts (9 percent of U.S. electricity) to 73 GW by 2010 and 152 GW by 2020.
The added CHP capacity would reduce national carbon emissions by more than 70 million metric tons by 2010 - 15 percent of the figure required by the Kyoto treaty targets - says the ACEEE. See "Combined Heat and Power: Capturing Wasted Energy," at http://aceee.org.
Colorado Electric Restructuring. A May 1999 report by Stone & Webster Management Consultants Inc., written for the Colorado Electric Advisory Panel, concludes that electric restructuring likely would increase retail electricity rates throughout the state.
It adds that Public Service Co. of Colorado would possess market power in the short term under a "poolco-like" wholesale energy market, but not in the long-term, since new construction of combined-cycle merchant plants would dispel PSCO's market power as early as 2003.
See "Energy and Economic Modeling Issues Related to an Evaluation of the Regulatory Structure of the Retail Electric Industry in the State Colorado," at www.dora.state.co.us/puc/.
Emissions Reductions The U.S. Energy Information Administration has released an analysis of emission reduction activities by electric utilities through projects such as cogeneration, use of nuclear and renewable fuels, and demand-side management programs. See "Voluntary Reporting of Greenhouse Gases 1997," at www/eia.doe.gov/oiaf/1605/vr98rpt/front.html.
State PUCs
Gas Retail Competition. Pennsylvania proposed new rules to implement the state's new law (enacted June 22) allowing competition for retail natural gas supply, forming working groups on safety, reliability, standards of conduct and consumer education.
The law imposed standards of conduct on licensed suppliers, but the PUC also would require (1) plain language in describing services, (2) confidentiality of historic customer payment information, and (3) mandatory third-party access to the supplier's own load and billing information. Docket No. M-00991248F0002, June 24, 1999 (Pa.P.U.C.).
Gas Retail Competition. Citing expanded markets from new pipelines in the Northeast, the Maine PUC opened a docket to develop policy on retail gas competition.
It identified the key issue as how to assign obligations held by gas utilities for pipeline and storage capacity, and hinted at a preference for mandatory assignment to customers or competitive suppliers, as in Massachusetts. It also questioned whether it should require nominating and balancing through supplier-specific aggregation pools (the Massachusetts model) or geographic pools, as in Georgia. Docket No. 99-342, June 4, 1999 (Me.P.U.C.).
Energy Retailing. Maine issued a license to Enron Energy Services Inc. to compete as a retail electricity supplier for "commercial and industrial customers," with the OK to offer "scheduling, billing, metering and aggregation services." Docket No. 1999-330, June 15, 1999 (Me.P.U.C.).
EWG Exemptions. In a case of first impression nationwide, Michigan granted an application by Consumers Energy Co. for an exemption under the sec. 32(k)(2) of the federal Public Utility Holding Company Act to execute energy purchase and call option agreements with an affiliated exempt wholesale generator, Michigan Power, but held the exemption term to one year.
The PSC acknowledged that Consumers Energy might need short-term energy in the summer, but questioned whether the company had met the statutory public interest standard, since it had chosen to seek power resources from an affiliate - not through the PSC's competitive bidding framework for long-term capacity solicitations.
The PSC added: "Some Michigan utilities are engaged in a pattern of waiting until the last minute to file applications in highly controversial cases and then using the threat of a summer power shortage as an argument for expedited consideration. ¼ [That is] not conducive to good public policy ¼ or a fair and competitive market." Case No. U-11954, June 10, 1999 (Mich.P.S.C.).
Return on Equity. The California PUC on June 10 set return on equity at 10.6 percent for both Pacific Gas & Electric and San Diego Gas & Electric, marking the first time it had addressed ROE issues since it unbundled electric services. SDG&E's prior ROE was 11.6 percent.
Return on Equity. In a gas rate case, Colorado set return on equity for Public Service Co. of Colorado at 11.25 percent, where each of the three ROE witnesses had proposed returns higher than indicated under the discounted cash flow method, citing investor needs for greater interest coverage, dividend payouts and market/book ratios above 1.0. Docket No. 98S-518G, adopted May 20, 1999, effective June 8, 1999 (Colo.P.U.C.).
Post-Transition Ratemaking. The California PUC OK'd a settlement for San Diego Gas & Electric Co. to complete the transition to a competitive electric market and end the freeze that held rates at June 1996 levels. Signed by SDG&E and some 13 parties, the deal certifies that the utility has recovered stranded costs for generation assets.
The order will allow SDG&E to set residential, small commercial and lighting customer rates at up to 112.5 percent of the previously frozen rate levels on a monthly average basis during July, August and September 1999. Any revenue shortfall would be recovered from customers in subsequent months. SDG&E will amortize the existing "PX billing lag amount" - the difference between its forecasted energy costs and amounts paid to the PX and ISO - by increasing the PX price for bundled service customers in the period prior to the end of the transition period. Decision No. 99-05-051, May 27, 1999 (Cal.P.U.C.).
Oil Sector Incentives. Kansas allowed Midwest Energy Inc. to implement an electric rate indexed to oil prices, available to customers using electricity to pump crude oil from underground formations. Docket No. 99-MDWE-822-TAR, June 21, 1999 (Kans.Corp.Comm'n).
Renewable Portfolios. Arizona regulators will hold hearings in August in a newly opened docket to consider changes to the state's mandatory portfolio standard for renewable energy.
In April, Commissioner Carl Kunasek wrote to his colleagues to suggest less-ambitious goals, with the portfolio share rising above its one-half percent level after 2002 only if the cost of solar electricity has declined to a commission-approved cost/benefit point.
The hearings will consider various issues posed by the commission staff, such as (1) impacts on typical customer bills, (2) sanctions other than penalties for nonconforming suppliers, and (3) whether to consider technologies other than solar or (4) maintain incentives for resources manufactured within the state. Docket No. E-00000A-99-0205 (Ariz.Corp.Comm'n).
Gas Marketer Behavior. Citing numerous complaints about marketers violating codes of conduct and not complying with retail choice programs for residential and small-volume natural gas customers, the Ohio PUC gave interim approval to rules that would suspend or terminate noncomplying marketers from program eligibility, with the affected customers reverting to the utility's bundled sales service. Case No. 99-661-GA-COI, June 2, 1999 (Ohio P.U.C.).
User-Initiated Curtailments. Ohio OK'd a plan by Toledo Edison, Ohio Edison and Cleveland Electric Illuminating Co. to test customer interest in receiving electric rate credits in exchange for curtailments during periods of capacity shortage and high bulk power prices. Customers with interval meters would elect in real time how much load to curtail (at least 20 percent, in increments of 100 kilowatts above a minimum of 1,000 kW), using a password-protected Internet site. Case Nos. 99-568-EL-ATA et al., May 26, 1999 (Ohio P.U.C.).
Water Rate Design. Idaho rejected a water utility's bid to boost customer charges and replace seasonal rates with an inverted block design, explaining that the summer/winter differential had cut peak use, as intended. Order No. 28043, May 26, 1999 (Idaho P.U.C.).
Bill Unbundling. Connecticut told electric utilities to use a competitive generation rate rather than embedded costs to unbundle customer bills. Docket No. 97-01-15REO1, April 30, 1999 (Conn.D.P.U.C.).
Net Metering. Vermont set standards for interconnection and net metering of customer-owned renewable generation under 15 kW, or agricultural systems up to 100 kW that employ an anaerobic digestion process. Docket No. 6181, April 21, 1999 (Vt.P.S.B.).
News Digest was compiled by Carl J. Levesque, editorial assistant, and Lori A. Burkhart and Phillip S. Cross, contributing legal editors.
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