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Sat, Aug. 24

FERC cap on spot energy prices may slow down rising costs, Citizens official says

Citizens Utilities may put a damper on rising electricity prices thanks to a decision by a federal agency last week to place caps on wholesale electricity sold on the spot market, a Citizens executive said.

However, Tom Ferry, director of electricity operations for Citizens, said the Federal Energy Regulatory Commission ruling will not affect a request that Citizens made to the Arizona Corporation Commission in September 2000 to pass on to consumers the higher costs of electricity furnished by Citizens' sole supplier, Arizona Public Service of Phoenix.

Citizens placed the proposal on hold so that it can continue negotiations with APS.

Citizens applied to the ACC for relief after its electricity prices rose by $52.3 million last summer.

Citizens had hoped to offset the higher costs by charging customers about 25 percent more a year over a three-year period, subject to a decision to that effect by the ACC.

Overall, Ferry, based in Kingman, said he sees the FERC cap as being beneficial to consumers because it will prevent electricity costs, now about 12 cents per kilowatt-hour, from rising higher than if no price controls existed.

Citizens' ratepayers in the Kingman area pay about $52 a month for electricity and use about 650 kilowatt-hours, Citizens officials have said.

"The FERC regulation or cap could, in fact, help us to keep our costs down," he said.

"If our supplier has to go out on the spot market and purchase power, those costs obviously get passed through to us.

If prices are capped, we will benefit."

The FERC cap applies to electricity sold on the spot market, not to long-term contracts (one or more years), said Heather Murphy, a spokeswoman for the ACC in Phoenix.

"Most of the utilities in Arizona have entered into long-term contracts for their power needs, which would negate potentially or certainly minimize the trips that they would have to make to the spot market," Murphy said.

Because they have those long-term contracts, they have avoided the skyrocketing electricity costs faced by public utilities in California under deregulation, she said.

"Arizona utilities have been allowed to and encouraged to contract for their peak power needs as a way of hedging against price instability," Murphy said.

Citizens has an 11-year contract with APS with three service schedules that expire at different times, said Sean Breen, director of energy supply for Citizens.

Citizens buys approximately 1.3 megawatt-hours per year from APS.

"APS may procure some of the power that they sell to us on the spot market," said Breen, who is based in Flagstaff.

"We are served as if we are a part of APS' total (demand) load."

APS produces about 4,500 megawatts and buys about 800 other megawatts through long-term contracts, spokesman Damon Gross said.

Each megawatt contains enough power to serve 250 to 500 homes during the summer.

With total resources at about 6,500 megawatts, APS only sells electricity on the spot market after meeting the needs of its 857,000 customers, Gross said.

"It means we may have the ability to sell on the spot market."

Gross declined to discuss the contract with Citizens on grounds of confidentiality and said it is too early to tell what kind of effect the FERC ruling will have.

FERC imposed the order to try to have a moderating effect on spot market prices regionally, spokeswoman Barbara Connors said.

"The commission felt that the price mitigation that they put in effect in May in California has met with success because prices had come down," said Connors, who is based in Washington, D.C.

"That coupled with the fact that the sale of electric power in the Western markets is an inter-related market."

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