Powered by the attorneys of Bracewell, Energy Legal Blog® is your resource for updates and analysis on national and global energy issues.
  1. FERC Proposes Tenth Anniversary Tune-Up of Open-Access Rules

    Friday, May 26, 2006 3:38 am by

    In a May 19 notice of proposed rulemaking (NOPR) FERC proposes to modify its ten-year old open-access transmission tariff and accompanying rules.  Comments on the NOPR must be filed with the agency within 60 days of publication in the Federal Register — sometime in late July — and reply comments are due 30 days later.

    The modifications, according to the agency, are intended to increase “clarity and transparency” and “reduce the opportunity for transmission providers to engage in undue discrimination.”  FERC takes pains to depict its NOPR as targeting only the original purpose of open access — eliminating undue discrimination in access to transmission service — and not as proposing to create new market structures, such as its star-crossed standard market design.  No structural reforms are demanded in the NOPR and no new transmission services are prescribed beyond the network and point-to-point services of FERC’s original 1996 Order No. 888.  Notwithstanding its modest pretensions, however, the May 19 NOPR proposes important reforms in standardizing the information that is available about transmission grid capabilities, opening the planning process for investments in grid upgrades and expansions, expanding and clarifying the rights of transmission customers, and making changes in rates, charges and priorities for transmission services.  The NOPR addresses modifications to transmission availability, planning, pricing, firm point-to-point service, and reservation priorities.  To read a complete summary of the NOPR, please click here.

  2. PPL Montana Rebuts Presumption of Market Power

    Wednesday, May 24, 2006 8:31 pm by

    On May 18, FERC issued an order finding that PPL Montana, PPL Colstrip I, and PPL Colstrip II had successfully rebutted the presumption of generation market power in the companies' submission of a delivered price test (“DPT”) for the NorthWestern Energy's control area.  Last September, PPL Montana initially failed to satisfy the interim generation market power screens (soon to become permanent under FERC's recently issued proposal to codify its market-based rate authority test).  Under FERC's test, such failure resulted in an automatic presumption of generation market power, which PPL Montana could either rebut or accept (and mitigate through the adoption of cost-based rates or other mitigation measures).  PPL Montana chose to rebut the market power presumption, and submitted a more detailed analysis of its market concentration and its status as a pivotal or non-pivotal supplier, in the form of a DPT, which has been used by FERC in approving mergers under Federal Power Act § 203 for years.  FERC's May 18 order accepted PPL Montana's study, even though its wholesale market share was above FERC's 20% threshold, because the DPT showed that PPL Montana is a non-pivotal supplier during peak periods and that its market concentrations are below FERC's accepted thresholds.  The order thus permitted PPL Montana to continue to make wholesale power sales at market prices in the NorthWestern control area, its home control area. 

    Although many sellers who fail FERC's initial screens choose to adopt mitigation measures, the PPL Montana order illustrates that FERC is amenable to considering seller information that rebuts initial presumptions of market power.  FERC has similarly accepted the results of DPTs submitted by Kansas City Power & Light and Cleco Power in recent months.

  3. Southern California Edison and Renewable Suppliers Agree on Fixed Prices

    Sunday, May 21, 2006 8:06 pm by

    Southern California Edison (SCE), reputed to be the nation’s largest wholesale purchaser of renewable energy, announced it has reached an agreement with four of its largest renewable energy suppliers establishing a fixed price for the utility’s renewable energy purchases.  Subject to California Public Utilities Commission approval, the agreement would amend certain existing contracts for SCE’s power purchases from Qualifying Facilities (QF).  It applies to wind, solar, biomass, geothermal, and small hydro purchases through mid-2012, and would pay participating developers 6.15 cents per kilowatt-hour, increasing by 1% per year. 

    Not clear at this time is whether SCE will seek to offer these terms to future as well as existing renewable energy suppliers.  Nor did the utility elaborate on its reasons for seeking to amend the contracts.  Since the inception of QF “avoided cost” pricing in 1978, prices under QF agreements have been a point of contention between owners of QFs and utilities.  The fixed price now adopted by SCE appears to mirror the fixed-priced feed-in tariffs that have been used in countries such as Spain and Germany.  By offering all renewable energy developers the same price, and by mandating that utilities buy renewable output at that price, the feed-in tariffs have spurred a great deal wind energy development in those countries.  Until now feed-in tariffs have not been used in the United States, where renewable portfolio standards (RPS) and the federal production tax credit have been the primary stimulus for renewables development.  However, in some states, including California, the administrative process for implementing and complying with RPS has proven cumbersome and unattractive to many developers.  It remains to be seen whether standardizing prices, or other contract terms, might help promote further renewable energy development in the US as it has in Europe.

  4. Seven States Vie to Host FutureGen Alliance "Clean Coal" Power Plant

    Wednesday, May 17, 2006 11:15 pm by

    Seven states have reportedly submitted bids to host a proposed zero-emissions coal-fueled generation facility, the developer FutureGen Industrial Alliance announced on May 9.  The proposed 275 MW plant would burn gasified coal to produce electricity and transportation-grade hydrogen for use in fuel cells.  Carbon dioxide waste generated by the plant, normally vented into the air, would either be sequestered or stored underground.  See Alliance Starts Site Selection for Zero-Emissions Coal Plant.  FutureGen reported that Illinois, Ohio, Texas, Kentucky, North Dakota, West Virginia, and Wyoming all submitted bids; some of the states submitted bids for more than one site, bringing the total number of sites under consideration up to twelve.  FutureGen indicated it would review the proposals, come up with a short list of candidates by this summer, and make a final site determination by late summer 2007.

    A poster child for the Bush administration’s energy policy, the project will receive significant funding from the federal government.  In 2004, Congress appropriated up to $700 million to build and operate the plant through 2018 and to sequester its carbon emissions.  Further financial support will be provided by a coalition of industry participants, including two foreign-owned companies, representing Australian and Chinese coal interests.  The governments of India and China also have each agreed to provide $10 million for the development of the prototype.  Both countries are desperately in need of energy, and are hoping their investment will pay dividends in the form of relatively clean future coal plants in their respective countries.

  5. Maryland Pols and Regulators Backpedal from 1999 Legislation to Shield Standard Offer Consumers from Market Prices

    Sunday, May 14, 2006 11:33 pm by

    Reacting to public outrage over the specter of large rate increases following several years of frozen rates, a politically pressed Maryland Public Service Commission (PSC) reached settlements — called Rate Stabilization Plans — with three of the state’s utilities to phase-in market pricing of Standard Offer Service (SOS). 

    Under Maryland legislation, consumers who fail to select a competitive supplier default to SOS provided by the incumbent utility in their area.  Power supply for SOS service is procured through a competitive bidding process involving electricity suppliers.  Under Maryland’s 1999 electricity deregulation legislation, SOS rates were frozen until summer 2006.  With the impending expiration of the rate freeze, and intervening increases in power costs, Maryland ratepayers who did not select another retail power supplier faced large rate increases to cover the cost of competitively bid supplies.  Faced with consumer backlash, the PSC struck deals with the utilities to phase in market rates for SOS service. 

    As of June 1, Pepco and Delmarva residential customers stood to pay an additional 39% and 35%, respectively, for SOS.  Under these plans, a participating SOS consumer will see its rate increase implemented over an 18-month period from June 1, 2007 to November 30, 2008; no carrying charges will accrue on the deferred amounts.  A Baltimore Gas and Electric (BG&E) SOS consumer would have seen an even more dramatic rate increase of 72% on July 1, when that utility’s rate freeze is scheduled to end.  BGE’s Rate Stabilization Plan, however, now calls for incremental rate increases for participating customers beginning July 1 and every six months thereafter until January 1, 2008, when full market rates take effect.  Again, no carrying charges will accrue on deferred amounts.  At the end of the transition period all SOS customers will pay the same rate.

    These developments may expose the distortions that can attend frozen-rate transitions to retail competition.  Ratepayers are lulled into a false sense of entitlement to below market priced energy.  (In the case of BGE, the frozen rates were based on the last BGE rate case, which hearkened back to 1993, and BGE’s customers received a further 6.5% discount off of  those rates.)  Then when rate freezes expire, SOS-type consumers are caught off guard, unprepared to transition to pent-up market prices, and react with predictable outrage.  Allegations of competitive abuse are thrown around, and politicians are forced to spring into action lest they be seen as too sympathetic to utilities and other power companies.  This scenario is playing itself out with increasing frequency.

  6. Ohio Court Rejects FirstEnergy’s Rate Program

    Thursday, May 11, 2006 4:13 am by

    In what could be a boost for electric choice in Ohio, on May 3, the Ohio Supreme Court ruled that the Ohio Public Utilities Commission (OPUC) had violated the state's energy choice law by approving FirstEnergy's rate stabilization plan, which would have stabilized rates until 2008.  The FirstEnergy rate plan failed to provide customers with any competitive alternatives.

    Rejecting FirstEnergy’s and OPUC’s contention that the state's electric market is not yet fully developed enough for any choice to be meaningful.  To the contrary, in order to comply with the 1999 law, the court ruled that OPUC and FirstEnergy must provide customers with a choice or at least some level of customer participation.  The choice requirement does not necessarily translate into a mandatory competitive-bidding process, the court instructed.  But alternatives to a competitive-bidding mechanism must provide customers with options similar to competitive bidding. 

    Cases involving similar rate stabilization plans for several other Ohio utilities are also currently pending before the Supreme Court.  In light of the FirstEnergy ruling, it appears unlikely that these other utilities' plans will survive the court's scrutiny.

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