May 2003

DOE Says SMD Would Increase Prices in Some Regions,
Reduce Them in Others

(May 20)  The Federal Energy Regulatory Commission’s proposed standard market design rule would reduce wholesale electricity prices nationwide on average, but some regions would see increases, according to the Energy Department.

In a congressionally mandated study of estimated SMD impacts, DOE projected that the SMD rule would produce modest net savings for consumers nationwide of approximately $1 billion per year for the first six years. Those benefits would decline over time, to about $700 million per year for the long term (2016-2020), according to the study, released May 12.

The mid-Atlantic region would be the big winner under SMD, with wholesale prices declining 11% between 2005 and 2010 before leveling off at a 6% reduction by 2020, the report estimated. The Southwest Power Pool would see wholesale price reductions of 4% in the near-term, 8% mid-term (2011-2015) and 7% long-term (2016-2020). Other winners under SMD include the Northwest Power Pool region, Florida, California and the Virginia/Carolinas region. However, in some of these regions (such as the Northwest and Florida), consumers would see increases in retail generation/transmission prices.

Several regions would see wholesale prices increase under SMD, the study projected. The Midwest would see wholesale price increases of 10% in the near-term, 7% mid-term and 4% long-term.

The Northern Plains region would suffer a 10% near-term increase, but that would drop to a 1% reduction in the long-term, DOE estimated. Wholesale prices in the Tennessee Valley Authority’s territory would rise by 4% in the near-term, 2% in the mid-term and 7% in the long-term.

Source: Public Power Weekly

Energy Bill May Return in Early June

(May 20)  Senate Energy Committee Chairman Pete Domenici (R-N.M.) is trying to quash rumors that energy has been downgraded from high to low priority on the Senate agenda, telling reporters his comprehensive bill will return to the floor in early June.

During a briefing with Energy Secretary Spencer Abraham, Domenici said he has received assurances from the Senate GOP leadership that the energy debate will resume following the Memorial Day recess. Energy was suspended because the president's tax relief package became ready for the floor, Domenici explained, not because it isn't a high priority.

Still, the delay has led some on the Hill to speculate that neither the Bush administration nor the Senate Republican leadership views energy as a high domestic policy priority, leading to rumors that the debate will drag on into the fall. In mid-May, Senate Majority Leader Bill Frist (R-Tenn.) abruptly pulled energy from the floor and did not list the bill (S. 14) among his "must-do" priorities before the May 23 start of the weeklong recess.

Source: Environment and Energy Daily

State Regulators Concerned About Utilities’ Financial Health

(May 14) A recently completed survey of state regulators for Standard & Poor's Ratings Services revealed significant shifts in regulator priorities since the previous survey of January 2001.

The interviews, which polled 47 different state jurisdictions, rated financial issues the most important consideration for regulators, followed by federal-state jurisdictional disputes, and generation and transmission resource adequacy. Two years ago, the primary issues noted by regulators were the development of distributed generation and service reliability, followed by transmission issues.

The responses indicate that utilities' financial status matters greatly to state regulators, at least in the short term. Regulators overwhelmingly stated that utilities need to maintain strong financial profiles. In fact, the number of regulators who highlighted this concern increased threefold, and more than a third expressed extreme concern about utilities' financial health, compared with less than 10% in 2001. Along with this position was the view by almost half of the respondents that utilities had weakened during the past three years, particularly those in the Midwest and the West. Only half of all commissioners said they had as much confidence in the integrity of utility financial statements compared with a few years ago.

However, about half of the Northeastern state regulators believe that utilities have actually strengthened, reflecting the conversion of many utilities to basically lower-risk transmission and distribution companies.

State regulators clearly expect to be more involved in monitoring utilities in their jurisdictions. However, while utilities' financial conditions and, more specifically, their insulation from nonregulated activities, ranked first among the most pressing issues, opinion is evenly divided on whether current laws provide enough authority for regulators to ensure that utilities are not adversely affected by unregulated affiliates.

Source: RiskCenter.com

Senate Energy Panel Approves Electricity Title, Energy Bill

(May 6)  After significant late changes and strong White House lobbying, the Senate Energy and Natural Resources Committee approved the electricity title and then the entire comprehensive energy bill on April 30. After rejecting a Democratic alternative, the committee approved an electricity title as revised by Chairman Pete Domenici, R-N.M., the day before the markup. Major changes included the addition of provisions to repeal the Public Utility Holding Company Act, elimination of controversial provisions on regional transmission organizations and revised language delaying the Federal Energy Regulatory Commission’s standard market design rule.

The full Senate is scheduled to take up the bill (the Energy Policy Act of 2003) beginning May 5. Debate is expected to last two to three weeks, although it could easily take longer. The committee left some issues for the full Senate to address, notably greenhouse gas emissions.

In another change to the electricity title, the legislation now would prohibit FERC from issuing a final standard market design rule before July 1, 2005. That ban includes "any rule or order of general applicability within the scope of the proposed rulemaking." Any final SMD rule also must be preceded by a notice of proposed rulemaking issued after enactment of the bill and a public comment period. The bill also expresses the sense of the Congress that all transmitting utilities should voluntarily join regional transmission organizations.

Other significant provisions of the electricity title include:

• "FERC lite" language giving the commission limited jurisdiction over public power utilities; 
• a service obligation section preserving firm transmission rights of load-serving entities; 
• reliability language agreed to by the industry;
• market transparency requirements;
• market manipulation provisions (which would apply to public power utilities), increased penalty authority for FERC and consumer protection (against slamming and cramming);
• net metering, time-of-use metering and interconnection requirements;
• a directive that FERC issue a transmission pricing rule that would allocate costs fairly and encourage new transmission at the lowest overall risk and cost to consumers; and
• reform of the Public Utility Regulatory Policies Act.

Source: Public Power Weekly

State Commissioners from Eastern/Midwestern States
Support National Regulation of Transmission Systems

(May 1) Seventy state utility commissioners, from 19 states, have announced their support for regulatory efforts to further improve America's wholesale power markets. All of the states except Oregon and Texas are in the Northeast, Mid-Atlantic region or Midwest.

According to the Statement of Principles signed by the bipartisan group of state commissioners, well-designed and effectively monitored markets are in the best interest of consumers. The Statement of Principles also noted that:

". . . We believe that well designed and monitored markets are in the best interest of customers. We believe that wholesale market reforms have already produced significant cost savings for both wholesale and retail customers alike. What is needed now is a move forward to establish more dynamic wholesale power markets. . .

"Properly developed and consistently monitored energy markets can exert downward pressure on consumer prices, create incentives for private-sector investment in new sources of supply, and encourage the development of cleaner power technologies.

"In addition, modern, regional systems of transmission and oversight will:

• Provide fair and equal access to the transmission network
• Increase the reliability of the electrical grid
• Facilitate the interconnection of new sources of electricity including renewable energy sources
• Foster the development of demand side resources
• Provide appropriate oversight of market participants
• Promote greater stability of electricity supplies
• Promote development of advanced infrastructure to reduce "bottlenecks" in transmission
• Encourage the appropriate development and placement of generation resources where they are needed most, and
• Complement state efforts to structure their power markets.

"Recognizing the benefits that consumers receive due to the establishment of more dynamic wholesale power markets, we, the undersigned, call on members of Congress and other policymakers to support current regulatory efforts to further improve the wholesale power markets of our states and of our nation."

Source: PR Newswire

Volatile Natural-Gas Markets  

(May 1) Natural gas prices are on track to be the highest ever during a summer. Not all industry officials consider it a crisis yet, but producers and regulators say the nation's gas markets are so unstable that they will continue sapping the economy until long-term changes are put into place.

Many officials are also worried about supply shortages later this year if producers can't replenish storage facilities in time for the high-demand winter season. In the last three years, prices have spiked as much as 500 percent between the summer and winter.

About 25 percent of the nation's energy supply comes from natural gas, compared with about 38 percent from crude oil. More than 90 percent of the new power plants built over the last decade run on natural gas, replacing higher-polluting coal and oil plants.

With supplies on a tightrope, natural gas prices are expected to face significantly more volatility in the years ahead. Prices went from $3 per million British thermal units to almost $10 in the 2000-01 winter. The next summer, they collapsed to $2. Futures prices hit $10 again two months ago – with spot prices almost double that – during a cold winter storm. Natural gas for May delivery closed Friday at $5.48 per million BTU on the New York Mercantile Exchange.

Amid the price uncertainty, investors are holding back as producers wait to decide whether drilling more wells is profitable. The industry also faces the problems of aging pipelines and other infrastructure that are necessary for supplying power plants and consumers. But accessing capital has been difficult in the post-Enron environment.

Avoiding supply shortages for natural gas is far more difficult than it is for crude oil. As fears of an oil shortage mounted earlier this year, Saudi Arabia simply opened its spigots to keep the market supplied.

But less than 1 percent of U.S. natural gas is imported from outside of North America. While that figure is expected to grow to 20 percent over the next two decades, some experts worry whether imports of liquefied natural gas would be enough to meet growing demand.

Producers say they need greater access to drill on federal lands and tax incentives, which were included in versions of an energy bill moving through Congress.

Source: The Dallas Morning News

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