ALBANY - The Public Service Commission is meeting this week to consider Iberdrola SA's $4.5 billion acquisition of Energy East Corp., and its eventual vote on the matter later this month may test one of the state's long-standing energy policies.
One of the most contentious issues in the merger of the two utilities is whether Iberdrola, which is based in Spain, should be allowed to own electricity-generating wind farms in New York.
Iberdrola, the world's largest wind farm developer, is a 50 percent owner in the 321-megawatt Maple Ridge Wind Farm in Lewis County, the largest wind farm in the state.
It also is developing 10 other projects around New York worth a combined $2 billion. The closest of those is in Jordanville in Herkimer County, an 80-megawatt project that has faced local resistance and has been scaled down from a larger size.
Energy East, based in Maine, owns two New York utilities, Rochester Gas & Electric and New York State Electric & Gas. NYSEG serves 1.3 million customers in upstate New York, including parts of the Capital Region and the North Country.
As part of its push to deregulate the energy markets in New York and encourage more competition, the PSC has pushed a decade-long policy of getting utilities to sell their power plants.
The thinking is that separating electric generation from transmission and distribution frees the power plants to openly compete, lowering costs for consumers and businesses.
The PSC also asserted in a 1998 policy statement that the separation of generation and transmission is the best way to protect consumers from what's known as "vertical market power," in which a utility can leverage its generation assets to drive up prices.
"In creating a competitive electric market, the commission has viewed divestiture as a key means of achieving an environment where the incentives to abuse market power are minimized," the policy states.
There are people on both sides of the issue. Staff at the Department of Public Service, the state agency that works closely with the five PSC commissioners, have sought an all-out ban on Iberdrola owning wind farms.
Iberdrola Chairman Ignacio Galan has said that if the PSC places any limits on his company's ability to build wind farms in New York, it could walk away from the deal, sending signals to the global business community that the state is hostile to business.
Gov. David Paterson and U.S. Sen. Charles Schumer, D-Brooklyn, have urged the deal be approved, saying a $2 billion investment in wind projects by Iberdrola would go a long way in helping the state meet its aggressive renewable energy goals.
But not everyone wants to give Iberdrola carte blanche when it comes to wind farms.
The Independent Power Producers of New York, an Albany-based trade group that represents power plant owners in the state, has argued that Iberdrola should be limited to owning wind farms outside the NYSEG and RG&E service territory. The group is worried that allowing Iberdrola to serve as both a utility and power plant owner would open up the floodgates for other utilities to get back into the generation business.
"It's just a bad precedent," said Gavin Donohue, president of IPPNY. "The market rules work. Iberdrola should be required to adhere to the rules."
Iberdrola officials declined to be interviewed for this story, although they have commented extensively on the issue in the past.
A company spokesman said Iberdrola would stand by its voluminous testimony and filings in the case that address vertical market concerns.
Essentially, Iberdrola has argued in those filings that wind power is such an intermittent power source that it is "ill-suited" for market manipulation. The company has also pointed to ample state and federal oversight to prevent vertical market power from being exercised.
That doesn't quell the concerns of James Hall, a spokesman for Cohoctan Wind Watch, a citizens group opposed to wind farm development in Steuben County.
Hall, a NYSEG customer, said he believes that if Iberdrola is allowed to take over Energy East and own wind farms in its service territory, that will only mean higher rates.
Hall supports the recommendation by the administrative law judge overseeing the case for the PSC, Rafael Epstein, to limit Iberdrola's wind farm ownership to outside the NYSEG and RG&E service territories. That solution, which is also supported by IPPNY, would allow Iberdrola to keep its interest in Maple Ridge, which is in the National Grid service territory.
In fact, only three of the 10 projects proposed by Iberdrola in New York would be in the NYSEG service territory; none would be in RG&E's.
"We certainly hope they (the PSC commissioners) have the conviction to hold to his recommendation," Hall said. "They can't have it both ways. The PSC policy is pretty clear."
That may be, but the PSC also has noted that its vertical market power policy includes what is known as a "rebuttable presumption," a legal term meaning that exceptions can be made to the policy if a utility convinces the commission that owning generation won't harm the electricity markets.
And generation assets still are owned by utilities in New York. Central Hudson Gas & Electric in Poughkeepsie has been allowed to hold on to small hydro plants since they are so insignificant to the overall electric markets, and Consolidated Edison owns power plants to generate steam for New York City. Energy East still owns a coal plant near Rochester and hydro plants, although Iberdrola has vowed to sell the Rochester plant and smaller fossil-fuel plants Energy East owns. It wants to hold on to the hydro plants.
Maureen Helmer, a partner in the Albany law firm Green Seifter, was chairwoman of the PSC when the vertical market power policy was adopted. She said exceptions can be made to the policy because of the rebuttable presumption that it creates.
"If the commission determines that the presumption has been overcome in this case, it would be my hope that it would include measures to mitigate any vertical market power created as well as restate the commission's commitment to maintaining competitive, divested wholesale markets in New York."
It's unclear what the PSC commissioners will decide at this point. The commission is scheduled to take up the case at its regular monthly meeting on Wednesday; it also has scheduled a special session Aug. 27 when a vote on the merger is possible. Typically during merger cases, senior staff at the Department of Public Service craft an order for the five PSC members to consider for a vote.
Iberdrola and the other parties involved in the case, including the Department of Public Service, could also reach a settlement that would outline conditions of the merger. Rumors have swirled in recent days of a settlement in the works, but PSC spokesman James Denn said Friday that department staff are not involved in any talks with Iberdrola.
"The commission can accept, reject or modify whatever is put before them at session," Denn said. "They have the opportunity to review all the evidence in the case and make the best determination possible."
No comments:
Post a Comment