- Email: [email protected]
Boost for retail wheeling
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pages of the most complex logic I have ever seen outside of a computer program. The present proposal further envelopes this original simple idea in over 250 pages of red tape and unnecessary cost and burden. In fact, I am thinking of sending a copy of the proposal to Boris Yeltsin as an example of how not to create a free market economy. For while EPA gives lip service to a free market for allowances, its information requirements are depressingly onerous and familiar. i i | 'm not against marketable | permits," Wojick said in an interview. "I am against myopia and the risky wrinkles" EPA has built into its rules to implement trading. As an example, he cites the detailed regs EPA has proposed for continuous emissions monitoring. "I can't see any reason whatever for all this accuracy" that EPA is requiring. The CEM rules, he told EPA, "are best described as outlandish. It is inconceivable that these requirements might pass the maximumnet-benefits test" of the executive order that governs what rules agencies may promulgate. Wojick's great fear for the allowances market is that it will oscillate between glut and shortage, producing what he calls "a dassic Huberman game" in which a majority will lose no matter how they bet. B.A. Huberman is a chaos theoretician at Xerox Palo Alto Research Center. "What I'm trying to get people to understand," Wojick wrote in a letter to Morton Sterling at Detroit April 1992
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Edison last summer, "is that the design of the allowance program (or tons game) is based on a false fundamental assumption. All of the models used to simulate the market assumed a perfectly efficient mechanism. But the pervasive effects of nonlinear dynamic phenomena (i.e., chaos) are bound to make the market highly inefficient (65% of optimum, say). 'ql~ese inefficiencies take the form of firms making bets (i.e., spending money or failing to spend money) that they lose. Too many scrub - - tons are too cheap.
Too many don't scrub - - tons are too expensive, etc. In games like this, the majority is always
wrong." So far, it appears to many who have looked at early compliance plans that scrubbing will be the dominant compliance strategy for Phase I of the acid rain program. As a result, estimates of allowance prices are falling dramatically. A recent Bechtel estimate has tons pegged at $80 per ton, a tenth of estimates as recent as a year ago. "We're going to start out with glut," Wojick said. "People building new plants now are going to get cheap tons. Right now, every-
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body is trying to generate as many allowances as possible. But the speculators could step in and buy up those tons." Then demand could start up again, and that could transfer to a severe allowance shortage later on, causing prices to spike dramatically. "If the invisible hand of the market moves at all it is likely to be pretty shaky," he said. - - Kennedy P. Maize
Boost for Retail Wheeling
Consumers Power Finds "Making Up Is Hard to Do, as Commission, Parties Weigh Proposed Settlement OUble-prone Consumers ower Co., flagship and cash cow of the CMS Energy empire, has had little luck lately in disposing of an unwelcome surplus commodity: litigation. Some relief could be in sight as a result of a wide-ranging "joint resolution" of litigation matters reached by Consumers and a former staunch adversary - - the Association of Businesses Advocating TariffEquity (ABATE). ABATE numbers General Motors and Ford among its members and swings a considerable stick in Michigan. The Michigan Public Service Commission staff is also party to the resolution. According to ABATE legal counsel Roderick Coy, the resolution 7
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would resolve a number of old regulatory issues relating to Consumers' abandoned Midland nuclear plant, now reborn as the Midland Cogeneration Venture (or MCV), in which Consumers retains a substantial interest. It could also open the door to Consumers Power offering retail wheeling to ABATE members. nder the proposed resolution, all Consumers electric customers would receive a $75 million refund over two years, as a result of making permanent a temporary disallowance by the Michigan PSC of Consumers' costs in 1990 and '91 for power purchased from MCV. In addition, there would be a 15% credit (bill reduction) due any Consumers customer who loses electric service longer than 72 consecutive hours. (There has been continuing conflict over Consumers' quality of service, which was exacerbated by a number of storm-related and other outages during 1991.) Other elements of the proposed settlement - - Coy pointed out that, technically, it could not be a settlement unless it were adopted by or enforced on all the litigation parties - - indude: • a 12-month freeze on Consumers Power's base electric rates, followed by a maximum rate increase of $20 million (about 1%); there could be no further rate increases without a general rate case being filed; • an outline for a competitive bidding program and adoption of measures to prevent Consumers
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from giving u n d u e advantage to its MCV project or other affiliates in future purchase negotiations; • Consumers' agreement to pay ABATE $7.5 million to compensate it for its legal fees in the various proceedings with the company since 1984. But the biggest prize in the proposed settlement - - unmentioned in ABATE's news release - - may be the retail wheeling and interruptible rate agreements ABATE wrung from Consumers. Under the former, whenever Consumers went out for an additional piece of new supply,
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placement power from other sources "if there was power available and if they were willing to pay the going rate," said Coy. "It gives them flexibility," he added. Other Consumers adversaries, also parties to the cases proposed to be settled, are not enamoured of the proposal. They admit ABATE got a sweet deal. But, they sa~ it does nothing for residential customers, independent power firms with which Consumers competes through its nonutility affiliates, for Michigan coops and public power systems, or for the broader public interest. he Michigan Commission itself seems unready to embrace the settlement. Its first step was to reject the schedule Consumers and ABATE proposed for hearing evidence and argument and to substitute its own. In its March 10 order, the Commission signalled its desire for much more information about the deal and raised questions about aspects of the settlement - - w h y most of the parties to the litigation were not parties to the resolution, and about the extent of agreements between Consumers and ABATE. "We don't like it at all," said Gary Zimmerman, of the Michigan Municipal Cooperative Group, of the proposal. Admitting he was disappointed at losing longtime ally ABATE to the other side, Zimmerman said there was nothing in the settlement for the several interests on the other side, including most of Consumers' own ratepayers.
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ABATE members would be entitled to have 10% of that supply wheeled to them either from the Consumers resource or another resource of its choosing. "If we could get something more attractive elsewhere and that served to delay Consumers' need for new generation," says ABATE's Coy, "everyone would be better off." Under the interruptible rate arrangement, ABATE members could choose to take lower cost interruptible service at a much lower cost, but would risk service interruptions. However, they would be permitted to arrange re-
The Electricity Journal
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Another opponent is Luis Fernandez, Michigan's deputy attorney general. 'Tne stipulation is not in the public interest," says Fernandez. "For one thing, it calls for a $20 million rate increase that would violate Michigan law, since it's not based on evidence on the cost of service. For another, there's no jurisdiction in the Commission. [The matters in the stipulation] are already on appeal." Fernandez also believes the setflement contains disincentives for Consumers Power to operate efficientl)a 'q'he formula for paying MCV [the nuclear plant cum cogeneration venture of which Consumers' parent, CMS Energ~ is a major owner] is based on the capacity factor of Consumers' coal units. The closer the capacity of MCV to the capacity factor of Consumers' coal, the more MCV gets paid for availability." In a marginally related matter, Fernandez' boss, Michigan Attorney General Frank J. Kelley, earlier asked the Securities and Exchange Commission to revoke as contrary to law the exemption from Public Utility Holding Company Act regulation SEC earlier granted CMS Energy. MMCG's Zimmerman agrees that it is hard for the state to keep up with CMS Energy and its burgeoning family of affiliates. "CMS Energy only became a holding company in 1987," he said, 'q~ut they've already got 60-odd companies. You can't follow the money." - - Robert O. Marritz
April 1992
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The House Energy Bill
Bang! Dingell's Silver Gavel Came Down on Their Heads
~
t was a spectacular demonstration of the differences in personality and institutional style between the U.S. House and the Senate. In under five hours, the House Energy and Commerce Committee on March 11 cleared for floor action a massive, 12-title energy bill that, among other
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the House is usually disciplined, punctual, and sometimes a touch autocratic. So it was with the energy bill. The final committee vote on the measure, H.R. 776, was 42-1, with only Rep. W'flliam Dannemeyer (R-Calif.) voting by proxy against the bill. With an overflow crowd of Gucci-shod lobbyists hanging on every nuance, Chairman John Dingell (D-Mich.) gaveled through title after title. Dingell brooked no delay and countenanced no amendments other than those agreed upon following behind-the-scenesbargaining among himself, Energy and Power Subcommittee Chairman Philip Sharp (D-Ind.) and Norman Lent (R- N.Y.), the ranking Republican on Dingell's committee. uring the forced march through the bill, Sharp joked that the goal of the committee was to "cut down on the billings" of the well-dressed throng inside and outside the spacious Rayburn Building committee room. The quip was on the mark. The markup was one of the hottest tickets in town for the expense account set. Lining up for the opening statements on Tuesday was a vast array of Washington talent. Near the head of the line was the legendary Washington insider Tommy Boggs of the law firm of Patton, Boggs and Blow. Boggs is the son of the late House Majority Leader Hale Boggs, a Louisiana Democrat who died in a plane crash in Alaska in the 1970s. His
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things, would dramatically change the way the electric utility industry is regulated in Washington. A similar measure occupied weeks of Senate committee action, a filibuster and a nasty defeat last November, resurrection early this year after a policy haircut on oil drilling in Alaska and auto fuel efficiency standards, and a week on the floor last month that resulted in some 100 amendments adopted by voice vote. While the Senate is always rumpled, disorderly and disdainful of schedules,
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pages of the most complex logic I have ever seen outside of a computer program. The present proposal further envelopes this original simple idea in over 250 pages of red tape and unnecessary cost and burden. In fact, I am thinking of sending a copy of the proposal to Boris Yeltsin as an example of how not to create a free market economy. For while EPA gives lip service to a free market for allowances, its information requirements are depressingly onerous and familiar. i i | 'm not against marketable | permits," Wojick said in an interview. "I am against myopia and the risky wrinkles" EPA has built into its rules to implement trading. As an example, he cites the detailed regs EPA has proposed for continuous emissions monitoring. "I can't see any reason whatever for all this accuracy" that EPA is requiring. The CEM rules, he told EPA, "are best described as outlandish. It is inconceivable that these requirements might pass the maximumnet-benefits test" of the executive order that governs what rules agencies may promulgate. Wojick's great fear for the allowances market is that it will oscillate between glut and shortage, producing what he calls "a dassic Huberman game" in which a majority will lose no matter how they bet. B.A. Huberman is a chaos theoretician at Xerox Palo Alto Research Center. "What I'm trying to get people to understand," Wojick wrote in a letter to Morton Sterling at Detroit April 1992
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E
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S
I
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F
Edison last summer, "is that the design of the allowance program (or tons game) is based on a false fundamental assumption. All of the models used to simulate the market assumed a perfectly efficient mechanism. But the pervasive effects of nonlinear dynamic phenomena (i.e., chaos) are bound to make the market highly inefficient (65% of optimum, say). 'ql~ese inefficiencies take the form of firms making bets (i.e., spending money or failing to spend money) that they lose. Too many scrub - - tons are too cheap.
Too many don't scrub - - tons are too expensive, etc. In games like this, the majority is always
wrong." So far, it appears to many who have looked at early compliance plans that scrubbing will be the dominant compliance strategy for Phase I of the acid rain program. As a result, estimates of allowance prices are falling dramatically. A recent Bechtel estimate has tons pegged at $80 per ton, a tenth of estimates as recent as a year ago. "We're going to start out with glut," Wojick said. "People building new plants now are going to get cheap tons. Right now, every-
O
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S
body is trying to generate as many allowances as possible. But the speculators could step in and buy up those tons." Then demand could start up again, and that could transfer to a severe allowance shortage later on, causing prices to spike dramatically. "If the invisible hand of the market moves at all it is likely to be pretty shaky," he said. - - Kennedy P. Maize
Boost for Retail Wheeling
Consumers Power Finds "Making Up Is Hard to Do, as Commission, Parties Weigh Proposed Settlement OUble-prone Consumers ower Co., flagship and cash cow of the CMS Energy empire, has had little luck lately in disposing of an unwelcome surplus commodity: litigation. Some relief could be in sight as a result of a wide-ranging "joint resolution" of litigation matters reached by Consumers and a former staunch adversary - - the Association of Businesses Advocating TariffEquity (ABATE). ABATE numbers General Motors and Ford among its members and swings a considerable stick in Michigan. The Michigan Public Service Commission staff is also party to the resolution. According to ABATE legal counsel Roderick Coy, the resolution 7
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would resolve a number of old regulatory issues relating to Consumers' abandoned Midland nuclear plant, now reborn as the Midland Cogeneration Venture (or MCV), in which Consumers retains a substantial interest. It could also open the door to Consumers Power offering retail wheeling to ABATE members. nder the proposed resolution, all Consumers electric customers would receive a $75 million refund over two years, as a result of making permanent a temporary disallowance by the Michigan PSC of Consumers' costs in 1990 and '91 for power purchased from MCV. In addition, there would be a 15% credit (bill reduction) due any Consumers customer who loses electric service longer than 72 consecutive hours. (There has been continuing conflict over Consumers' quality of service, which was exacerbated by a number of storm-related and other outages during 1991.) Other elements of the proposed settlement - - Coy pointed out that, technically, it could not be a settlement unless it were adopted by or enforced on all the litigation parties - - indude: • a 12-month freeze on Consumers Power's base electric rates, followed by a maximum rate increase of $20 million (about 1%); there could be no further rate increases without a general rate case being filed; • an outline for a competitive bidding program and adoption of measures to prevent Consumers
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from giving u n d u e advantage to its MCV project or other affiliates in future purchase negotiations; • Consumers' agreement to pay ABATE $7.5 million to compensate it for its legal fees in the various proceedings with the company since 1984. But the biggest prize in the proposed settlement - - unmentioned in ABATE's news release - - may be the retail wheeling and interruptible rate agreements ABATE wrung from Consumers. Under the former, whenever Consumers went out for an additional piece of new supply,
O
C
U
S
placement power from other sources "if there was power available and if they were willing to pay the going rate," said Coy. "It gives them flexibility," he added. Other Consumers adversaries, also parties to the cases proposed to be settled, are not enamoured of the proposal. They admit ABATE got a sweet deal. But, they sa~ it does nothing for residential customers, independent power firms with which Consumers competes through its nonutility affiliates, for Michigan coops and public power systems, or for the broader public interest. he Michigan Commission itself seems unready to embrace the settlement. Its first step was to reject the schedule Consumers and ABATE proposed for hearing evidence and argument and to substitute its own. In its March 10 order, the Commission signalled its desire for much more information about the deal and raised questions about aspects of the settlement - - w h y most of the parties to the litigation were not parties to the resolution, and about the extent of agreements between Consumers and ABATE. "We don't like it at all," said Gary Zimmerman, of the Michigan Municipal Cooperative Group, of the proposal. Admitting he was disappointed at losing longtime ally ABATE to the other side, Zimmerman said there was nothing in the settlement for the several interests on the other side, including most of Consumers' own ratepayers.
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ABATE members would be entitled to have 10% of that supply wheeled to them either from the Consumers resource or another resource of its choosing. "If we could get something more attractive elsewhere and that served to delay Consumers' need for new generation," says ABATE's Coy, "everyone would be better off." Under the interruptible rate arrangement, ABATE members could choose to take lower cost interruptible service at a much lower cost, but would risk service interruptions. However, they would be permitted to arrange re-
The Electricity Journal
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E
Another opponent is Luis Fernandez, Michigan's deputy attorney general. 'Tne stipulation is not in the public interest," says Fernandez. "For one thing, it calls for a $20 million rate increase that would violate Michigan law, since it's not based on evidence on the cost of service. For another, there's no jurisdiction in the Commission. [The matters in the stipulation] are already on appeal." Fernandez also believes the setflement contains disincentives for Consumers Power to operate efficientl)a 'q'he formula for paying MCV [the nuclear plant cum cogeneration venture of which Consumers' parent, CMS Energ~ is a major owner] is based on the capacity factor of Consumers' coal units. The closer the capacity of MCV to the capacity factor of Consumers' coal, the more MCV gets paid for availability." In a marginally related matter, Fernandez' boss, Michigan Attorney General Frank J. Kelley, earlier asked the Securities and Exchange Commission to revoke as contrary to law the exemption from Public Utility Holding Company Act regulation SEC earlier granted CMS Energy. MMCG's Zimmerman agrees that it is hard for the state to keep up with CMS Energy and its burgeoning family of affiliates. "CMS Energy only became a holding company in 1987," he said, 'q~ut they've already got 60-odd companies. You can't follow the money." - - Robert O. Marritz
April 1992
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S
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F
The House Energy Bill
Bang! Dingell's Silver Gavel Came Down on Their Heads
~
t was a spectacular demonstration of the differences in personality and institutional style between the U.S. House and the Senate. In under five hours, the House Energy and Commerce Committee on March 11 cleared for floor action a massive, 12-title energy bill that, among other
0
C
U
S
the House is usually disciplined, punctual, and sometimes a touch autocratic. So it was with the energy bill. The final committee vote on the measure, H.R. 776, was 42-1, with only Rep. W'flliam Dannemeyer (R-Calif.) voting by proxy against the bill. With an overflow crowd of Gucci-shod lobbyists hanging on every nuance, Chairman John Dingell (D-Mich.) gaveled through title after title. Dingell brooked no delay and countenanced no amendments other than those agreed upon following behind-the-scenesbargaining among himself, Energy and Power Subcommittee Chairman Philip Sharp (D-Ind.) and Norman Lent (R- N.Y.), the ranking Republican on Dingell's committee. uring the forced march through the bill, Sharp joked that the goal of the committee was to "cut down on the billings" of the well-dressed throng inside and outside the spacious Rayburn Building committee room. The quip was on the mark. The markup was one of the hottest tickets in town for the expense account set. Lining up for the opening statements on Tuesday was a vast array of Washington talent. Near the head of the line was the legendary Washington insider Tommy Boggs of the law firm of Patton, Boggs and Blow. Boggs is the son of the late House Majority Leader Hale Boggs, a Louisiana Democrat who died in a plane crash in Alaska in the 1970s. His
D
things, would dramatically change the way the electric utility industry is regulated in Washington. A similar measure occupied weeks of Senate committee action, a filibuster and a nasty defeat last November, resurrection early this year after a policy haircut on oil drilling in Alaska and auto fuel efficiency standards, and a week on the floor last month that resulted in some 100 amendments adopted by voice vote. While the Senate is always rumpled, disorderly and disdainful of schedules,
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