United States: Energy Update

In December of 1988, CP&L sought an amendment to the operating license for its Harris Nuclear Plant from the Nuclear Regulatory Commission (NRC) to store additional spent fuel rods in existing pools. Orange County intervened to protest; the NRC appointed a three-member Board to hear its concerns. The Board upheld CP&L’s storage plan, and the NRC issued the license amendment in December of 2000.

Orange County appealed to the Court of Appeals for the D.C. Circuit. On September 19, the Court issued an order stating: "Finding no error in NRC’s determinations, the court hereby denies the petitions for review primarily for the reasons stated in the agency’s orders."

On September 20, the Federal Energy Regulatory Commission (FERC) approved the environmental plans for Duke Energy’s Patriot pipeline project with minor variations. The Patriot project will expand the existing East Tennessee Natural Gas (ETNG) system into southwest Virginia and northern North Carolina through a new 94-mile natural gas pipeline. The Company is working toward an in-service date of May 1, 2003.

In August 1998, the Public Staff filed a joint stipulation with CP&L, Duke, and Dominion NC Power setting out guidelines for the determination and reporting of nuclear decommissioning costs. The guidelines call for the Utilities to file site-specific decommissioning cost studies every five years and several annual reports. Public Staff filed its review of the first site-specific reports in 1999 for Dominion NC Power, 2000 for CP&L, and 2001 for Duke. The Public Staff and the Utilities reached a stipulation on the outstanding issues.

The parties filed a Joint Report discussing the status of negotiations on an issue-by-issue basis, on May 3, 2002. CUCA made data requests to CP&L and Duke and requested a hearing, which the utilities opposed. The Commission agreed with the stipulating parties that a hearing is premature because sufficient information is not available to resolve the open issues, such as determining the appropriate funding mechanism for decommissioning costs. The first plants to be decommissioned are CP&L’s Robinson in 2010, Duke’s Oconee 1 in 2013, and Dominion NC Power’s Surry 1 in 2012. On September 11, the Commission issued an order denying CUCA’s request.

Regulatory Condition 21 of the CP&L Florida Progress merger requires the CP&L to give a 20-day advance notice before entering into wholesale contracts at native load priority. Having asserted jurisdiction over such contracts by Order of July 10, 2002, the Commission has moved on to other issues relating to wholesale contracts at native load priority. On September 11, the Commission ordered the Public Staff to convene a meeting and file a report within 60 days proposing safe harbor guidelines for wholesale contracts.

The concept of a safe harbor for wholesale contracts recognizes the utilities have participated in the wholesale market for some time and have built their systems to serve retail and wholesale customers. CP&L argues that it should be allowed to maintain the level of wholesale business it had at the time of the merger. The safe harbor would allow replacement of wholesale customers who left with new ones as long as the level of wholesale business did not exceed that in effect on August 22, 2000, when Regulatory Condition 21 was adopted. In the hope that settling the safe harbor question will shed light on other issues relating to the wholesale contracts, the Commission has not sought further comment at this time.

The state’s electricity providers have filed NC GreenPower Program tariffs which would allow all customers to purchase green power on the same terms — $4.00 per month for a 100 kWh block of electricity generated from renewable resources (including solar, wind, small hydroelectric and biomass) to be delivered to the Grid in the state. The funds will be transferred to the Advanced Energy Corporation (AEC) to distribute to generators selected for participation. However, a number of issues remain, including national accreditation. The NC GreenPower proposal did not receive accreditation because of opposition to the inclusion of hydro and animal waste-related fuels.

To address those concerns, the AEC held an Advisory Committee meeting on September 12. The AEC proposed a bifurcated offering, one for commercial and industrial customers, and one for residential customers. Hydro-electric power and animal waste fuels would be included in the offering to industrial and commercial customers, for which accreditation would not be sought. On September 10, the Public Staff filed a motion with the Commission to defer ruling on the green power program tariffs while the parties continue to explore a structure that will enable the NC GreenPower program to be accredited.

The Center for Resource Solutions is holding an accreditation meeting on October 4, 2002.

In April of 2001, the NCUC issued an order asking the Public Staff to investigate and report on the adequacy of North Carolina’s infrastructure to support the development of new electric generation and particularly merchant facilities in the state. After a number of extensions, the Public Staff filed a lengthy report on July 26, 2002, dividing the investigation into four areas — fuel, water, air quality and transmission.

Since the majority of electric generating currently being constructed will be fueled with natural gas, the Public Staff focused on the issues of pipeline capacity and availability of the commodity. With respect to the former, the Public Staff concluded that almost no new gas-fired generating could be constructed in North Carolina until interstate pipeline capacity is constructed. With respect to the commodity, concerns about the adequacy of natural gas reserves are too amorphous to be evaluated in detail. Two of the proposed interstate pipeline projects would give North Carolina access to sources of supply other than the Gulf, but ultimate issues as to whether production can keep pace with demand at affordable cost remain.

According to the Public Staff, the effects of merchant generating on transmission may prove to be the most negative of the infrastructure issues discussed, as well as the most difficult to quantify. Its investigation revealed that North Carolina’s transmission systems are currently "in very good shape overall." However, proposed merchant plants, if constructed, will be "using transmission capacity that currently exists as a reserve for retail native load customers and historically served wholesale customers within the control areas of the state’s utilities." The Public Staff recommended that the Commission conduct additional study, and consideration of such issues as whether it could legally condition merchant certificates on an appropriate allocation of costs for transmission upgrades to their proposed plants.

On September 18, 2002, the Commission issued an order requesting comments on the report from interested parties by October 18.

Adopting the August 27, 2002 Joint Proposed Order of Carolina Power & Light Company (CP&L) and the Public Staff, the Commission issued its order on September 10 in CP&L’s annual fuel charge adjustment proceeding. The message to be distributed in CP&L’s bill summarizes the results:

The N.C. Utilities Commission issued an Order on September 10, 2002, after public hearings and review, approving a fuel charge increase of approximately $46.3 million in the rates and charges paid by North Carolina retail customers of CP&L. The rate increase will be effective for service rendered on and after October 1, 2002, and will result in a monthly rate increase of $1.38 for a typical customer using 1,000 kWh per month.

The Carolina Industrial Group for Fair Utility Rates II (CIGFUR II), Carolina Utility Customers Association (CUCA), and the Attorney General intervened. The hearing was August 6.

Several regulatory conditions involving advance notices were adopted as part of the Carolina Power & Light (CP&L) merger with Florida Progress. These include a 20-day advance notice of intent to enter into proposed wholesale contracts at native load priority (Regulatory Condition 21), and a 90-day notice of intent to transfer employees and functions associated with fuel procurement (Regulatory Condition 23). The parties to the merger have been working toward resolution of procedural and substantive issues with respect to implementing these regulatory conditions, and in compliance with the Commission’s request to accelerate the process of consensus, filed drafts of principles and procedures on August 2. In its September 11 order, the Commission adopts new procedures based on the points of agreement among the parties and makes decisions on the parties’ disagreements. The areas of disagreement concern shortening some of the advance notice periods, the burden of proof at a hearing protesting an advance notice, and the precedential effect of a party not complaining during an advance notice period.

The Commission’s new procedures require:

CP&L to ask the parties to the merger if they would like to receive advance notices pursuant to the various regulatory conditions. The parties who wish to receive the advance notices shall receive them and participate in the advance notice proceedings without having to petition to intervene. Other interested parties shall follow the usual intervention procedures.

CP&L shall work with the parties who wish to receive the advance notices to develop the lists of pertinent information to be included.

Parties may request information during the advance notice period, and the Commission encourages a free exchange of information. CP&L may file for a protective order within three days of any discovery request it objects to that cannot be resolved with the requesting party.

If a party objects to the proposed activity, the Public Staff shall place the matter on a Commission Staff Conference agenda two weeks later.

The precedential effect of not objecting during the advance notice period will be determined on a case-by-case basis. However, the Commission notes that parties would be well-advised to object during the advance notice period, and that objections afterward will have fewer and less effective remedies available.

In April of 2002, CP&L applied for a certificate of environmental compatibility and public convenience and necessity to construct approximately 26 miles of 230kV transmission line from the Cape Fear Stream Electric Plant in Chatham County to a new substation in Lee County. CP&L held a number of public meetings to obtain input in the site selection process. A public hearing was held on August 13.

The Commission issued the Certificate on September 26, but required CP&L to work with affected landowners to investigate alternatives that minimize disruption to the use of their land.

North Carolina statutes provide for annual fuel charge adjustment proceedings for electric utilities engaged in the generation of electricity by fossil or nuclear fuels. NC Power filed testimony on September 13, 2002. On September 18, the NCUC issued on order scheduling the matter for hearing on November 26. Petitions to intervene and intervenor testimony are due November 18.

On June 11, 2001, Duke Power filed a letter asking the Commission to approve service agreements pursuant to which Duke Energy Fossil Hydro and Duke Energy Nuclear would perform the construction, operation and maintenance for Duke Power’s generating facilities. DE Fossil Hydro and DE Nuclear are direct, wholly-owned subsidiaries of Duke Energy Generation Services (DEGS), which is an indirect- wholly-owned subsidiary of Duke. Industrial representatives CUCA and CIGFUR and the Attorney General intervened.

On February 5, 2002, following a hearing in November of 2001, the Commission issued an Order disapproving the agreements because of "serious concerns as to the Commission’s ability to protect the interests of North Carolina retail ratepayers. . ." The Commission noted that its decision was without prejudice to Duke’s right to file supplemental testimony incorporating certain conditions: (1) that Duke ensure that its retail operations receive the highest priority of work performed by the affiliates; (2) that Duke conduct regular and independent auditing; and (3) that Duke request Commission approval prior to any transfer or assignment of any ownership interest in the affiliates.

In March of 2002, Duke filed a stipulation with the Public Staff including additions to its Code of Conduct and agreement to changes in the overall structure and format of Duke’s Cost Allocation Manual (CAM) with specific allocations for DEGS, and including conditions reflecting the Commission’s concerns. A hearing was held on the Stipulation in May.

On September 26, 2002, the Commission issued an Order finding that Duke had carried its burden of proving that the Agreements, when subjected to the conditions imposed and the revised Code of Conduct and CAM, were just and reasonable.

North Carolina gas companies charge residential and commercial customers a Weather Normalization Adjustment based on the difference between normal degree days and actual degree days that lets the utilities recoup their costs even when the weather is warmer than usual during the heating season. The WNA has traditionally appeared as a separate line item on the monthly bill.

In June, the Public Staff asked the Commission to substitute a bill insert for the line item on the bill on the theory that the bill insert would explain the purpose and operation of the WNA and eliminate confusion. The gas companies supported the petition, stating that 24-hour customer service representatives could explain the surcharge to interested customers. The Attorney General opposed the petition, saying that because the WNA generates many complaints, it would be better to reevaluate its validity and to explain it better rather than decrease the information provided.

On September 5, the Commission issued an order requiring both line item and bill insert notice, and told the companies to produce a draft notice for the new bill insert by September 23 so it can be mailed at the beginning of this winter’s heating season. The Commission also encouraged the four gas companies, the Public Staff, and the Attorney General to work together to improve gas bills.

Frontier Energy, LLC (Frontier) filed an application on September 13, 2002 seeking authority to increase its sales rates by $0.75 per dekatherm (dt), effective October 1, 2002. The increase is a result of a change in Frontier’s Benchmark Commodity Gas Cost from $3.90 to $4.65/dt. The Commission issued an order approving the request.

In February of 2002, NCNG applied to the Commission in a different docket, G-21, Sub 424, for permission to increase its rates to produce additional annual revenues of $47.6 million. Other parties intervened and challenged NCNG’s compliance with the CP&L/NCNG merger order moratorium on general rate cases prior to November of 2003. NCNG subsequently withdrew that application. On May 16, NCNG filed a petition with the Commission specifically under Regulatory Condition No. 17 of the merger order to rebalance its rates and increase its approved margin on gas sales by $4.1 million.

The Commission held the evidentiary hearing on September 10. All the intervenors agreed to waive cross-examination. On September 23, the Commission issued an order approving NCNG’s request.

The Commission concluded that NCNG’s request to increase its margin rates was justified in order to incorporate its investment in four major pipeline expansion projects – the Sandhills pipeline, the Martin/Bertie main extension, the Tabor City main extension, and the Clayton compressor project. The Commission also approved NCNG’s proposed rebalancing, the effect of which is to increase the rates applicable to residential and commercial customers and to reduce them for industrials for all other rate schedules. NCNG asserts a two-fold basis for the shift: (1) it shifts a greater portion of the fixed gas recovery responsibility to those customers who receive the most firm level of service, and (2) it encourages more industrial customers to purchase or transport natural gas to meet their energy needs rather than use alternative fuels such as No. 2 and No. 6 fuel oil. Encouraging these customers to purchase or transport gas on NCNG’s system allows the company to spread its fixed gas cost recovery over a broader base of customers.