Edison Not Sure About Mountainview Despite FERC Approval

With the February 29 option-to-purchase date looming, Southern California Edison executives said they cannot commit to the Mountainview deal despite this week?s conditional approval by the Federal Energy Regulatory Commission. ?We?re working intensely to sort this through. We wouldn?t want to say definitively that it can be [done],? said Ted Craver, executive vice president, chief financial officer, and treasurer of Edison?s parent company, Edison International. Craver said that the problem lies in ?small differences of reasonably technical approaches? between the FERC order and an earlier approval order by the California Public Utilities Commission. ?Our best judgment is that [the two commissions] don?t intend to let small, fairly technical differences stand in the way,? he said. FERC conditionally approved Mountainview?s sale on February 25. Federal regulators said the 1,054 MW partially built plant?s power-purchase agreement between Edison and its newly minted Mountainview affiliate would be subject to tweaking. While allowing the contentious project to go forward, FERC added that future affiliate deals will face closer scrutiny through competitive bidding. In spite of approving the project, FERC expressed uneasiness about the possibility that Edison could favor rates offered by its Mountainview affiliate over lower rates offered by nonaffiliate sellers. Affiliate preference, said FERC, could also discourage nonaffiliates from adding supply, harming wholesale competition and customers. ?In order to protect wholesale power customers and guard against potential abuse of self-dealing in a market where cost-based rates may exceed market rates,? the commission will require future transactions to market test or offer proof that sales from affiliates are competitively priced. The Mountainview arrangement has drawn the wrath of the generators who have maintained that ratepayers were denied lower-priced deals because the project was picked without a competitive bidding process. On the other side, US Senator Dianne Feinstein (D-California) is among politicians who have thrown their support behind the plant, saying it is needed to bolster California?s power supply. Calpine was among critics who said revamped affiliate rules came too late. ?In its ruling today, FERC recognized the need to protect consumers against potential abuse from self-dealing,? said Calpine executive vice president James Macias. ?FERC clarified that all future power contracts between utilities and their affiliates should be closely scrutinized through an open, public process. FERC did not apply this scrutiny to the Mountainview contract?they should have.? Calpine plans to appeal the decision. FERC said it will hold Edison to its commitment to sell output from Mountainview at cost-based rates for the 30-year term of the contract, even though market rates can be higher. Edison contended that cost-based rates will eliminate the risk that the utility?s shareholders will reap excess returns. Moreover, Edison contended that it will need to purchase additional power from other sources, and Mountainview will not compete with these suppliers. Although Edison executives wouldn?t say which technical details were giving them pause, Edison International chair and chief executive officer John Bryson noted further work would be needed on the power-purchase agreement. The deal must also integrate FERC?s system of accounting, as well as future filing obligations, he added. CPUC president Michael Peevey appeared unaware that Edison had voiced doubts about its commitment to Mountainview, and described changes required by FERC as minor. He expressed confidence that Edison ?will and should exercise its option to buy the plant in the next day or so.? Peevey said he plans to issue a draft decision up for vote on March 16 that would ratify acceptance of FERC?s conditions to the power-purchase agreement. Edison was able to buy an option on Mountainview for $703 million from its former owner, Intergen, a joint Shell-Bechtel project. The utility said that option could be used to its best advantage if it could arrange to own the plant through an affiliate that would be regulated by FERC instead of the CPUC. Edison successfully won CPUC approval late last year. Because of the controversy, the CPUC made that approval an exception to its rules. Since December, the state agency has cemented its ban on affiliate transactions. FERC ducked on the issue of whether Edison needs additional capacity, saying that matter is part of the CPUC?s turf. But California regulators were essentially told to back off when it comes to rate setting for Mountainview. The Mountainview contract, as well as the rulings of the CPUC, provide that certain costs and terms of service are subject to that body?s regulatory review, said FERC. ?We note that the [FERC] is the ultimate arbiter of the rates, terms, and conditions of service of a power purchase agreement that is subject to our jurisdiction.? As for concerns about potential lack of future review of costs for Mountainview, the commission determined that the power-purchase agreement should be modified to include FERC account numbers for specifically identified cost categories. The utility maintains that the state could face power shortages as early as 2006. Mountainview is expected to be up and running by March of that year. J.A. Savage also contributed to this report.

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Edison Not Sure About Mountainview Despite FERC Approval

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