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"Yes, but the DSM utility will have lower bills in the long haul."

Cavanagh also acknowledged that utility integrated resource plans should not favor DSM over supply-side alternatives. DSM should be the resource choice "if and only if it is less costly and as reliable as the supply-side choice," he said. Asked why utili- ties should be able to earn much greater rates of return on DSM in- vestments than on generation, Cavanagh said that those high rates of return were available only when the utility realized greater efficiency gains than expected. These are incentive rates of re- turn, which is something he ar- gued ELCON members should favor.

Cavanagh reiterated his opposi- tion to retail wheeling, a practice which some ELCON members be- lieve should be considered a DSM program. "Retail wheeling takes utilities out of the efficiency busi- ness," he argued. Instead, they be- come "solely commodity sellers" with the short-term vision charac-

teristic of commodity markets. "We're troubled with that shift," he said. "Most of the proposals we have seen on retail wheeling do that."

But a slight thaw between in- dustrials and greens - - if it is that

does not signify the arrival of spring. Much opposition to DSM continues within ELCON, typi- fied by a paper ELCON's John Hughes delivered to a NARUC in- tegrated resource planning semi- nar in Burlington, Vt., just weeks before. DSM, said Hughes in so many words, is stifling competi- tion, discriminating against indus- trial customers, serving as a form of industrial bribery, and was not cost-effective.

Cavanagh made joking refer- ence to the Hughes paper and its "34 different reasons to be op- posed to DSM." The central issue, he contended, is whether DSM discriminates against indus- trial customers. "If we can solve this one," he said, "the other 33 are manageable."

Kennedy P. Maize

Taking industrials to the DSM mountain top.

It's Buy v. Build Again

Independents, Utilities War over Wisconsin Commission's Plan

B arely able to catch its breath after 18 months of litigation

over the state's 20-year power supply plan, Advance Plan 6, the Wisconsin Public Service Commis- sion finds itself mired in a debate over the most fundamental issues of compet i t ion- a debate that will define the role of nonutility generators in the state's future supply mix.

In AP-6, the commission ap- proved the proposed utility- owned units as the basis for the 20-year plan, but it also recog- nized six IPP projects as possible alternatives to utility-owned gen- eration - - in part to permit the in- dependents to pursue needed per- mit approvals.

Concurrent with its AP-6 delib- erations, the commission was pre- sented with a number of com- plaints filed by IPPs that had been negotiating with the state's two major utilities, Wisconsin Electric Power Company (WEPCO) and Wisconsin Public Service Corpora- tion 0NPS). The IPPs charge that the utilities are creating barriers to competition, sustained by lack of direction from the state regula- tors.

Partly in response, the commis- sion has convened a "generic in- vestigafion" to tackle charges raised in the complaints and will

10 The Electricity Journal

T H E N E W S I N F O C U S

also rehash other IPP-related is- sues that came up during AP-6 hearings. One key question is how avoided costs should be cal- culated. The utilities presented a united front on the question in AP-6, proposing that avoided costs should be measured by the capacity cost of a gas-fired peaker and the utility's actual marginal energy costs. Nonutility interve- nors argued that a more sophisti- cated approach, reflecting the ac- tual generation displaced, would better capture the cost avoided.

~ econd contentious issue is ow often avoided cost

should be revised. IPPs have com- plained of a constantly shifting target, making price negotiations with the utilities difficult. Accord- ing to one complaint, the utilities routinely alter avoided costs to re- flect new fuel prices, changes in the price of generating equipment and changes in the overall supply plan, even after a firm offer is pre- sented.

Barbara James, chief counsel for the commission's electric division, describes the proceeding as an "evolutionary generic," but warns, "it's not intended to ad- dress all the world's problems." The investigation will attempt to deal with some of the loudest complaints from IPPs, she says. The commission expects to reach a decision in January 1993.

Other big questions to be ad- dressed in the generic:

• Under what circumstances can the commission order a utility to enter a contract with an IPP?

• Ho E long should a contract be locked in?

• What method should be used to evaluate projects competing for a piece of the supply pie?

One utility, WEPCO, is candid about its preference to construct its own generation and plans to do so as long as it remains finan- dally healthy. It currently has one 300 MW combustion turbine under construction and plans to build another, along with a 600 MW baseload plant.

In June, WEPCO submitted to the PSC its proposal to build a 214

MW gas-fired cogeneration plant on the premises of Repap, a paper company, and sell excess steam to Repap. The project was approved "in concept" by the PSC, says the utility, and is awaiting a construc- tion permit. WEPCO has asked for rate base treatment for the plant in its current rate proceed- ing.

WEPCO's Repap agreement is at the center of a complaint filed by the National Independent En- ergy Producers, a Washington, D.C.-based trade association. NIEP says that at the same time WEPCO was seeking commission

approval of its Repap project, the utility had nixed negotiations with several IPPs, saying that its avoided costs had changed and no additional power was needed.

Jeanine Hull, of LG&E Power Systems, a utility-affiliated inde- pendent developer that has been watching the Wisconsin situation with concern, says the WEPCO- Repap case shows that the com- mission needs to clarify the rules of the game. If the utility is going to participate, the same rules should bind utility contracts as those with IPPs, Hull said.

D estec Energy, formerly a Dow Chemical subsidiary

and cogeneration developer, says it met similar problems in trying to negotiate a power sale to WPS. Barry Huddleston, Destec regula- tory affairs specialist, says Destec negotiated with WPS for a year, but discussions continually bogged down, even after the Pub- lic Service Commission began at- tending the meetings as a facilita- tor. WPS repeatedly changed the avoided cost calculation and ulti- mately proposed building a cogeneration facility itself, says Huddleston.

Although Wisconsin has been at the forefront of integrated re- source planning, regulators are only now facing the challenge of how to integrate nonutility re- sources in the p ~ . "The genetic will address problems that are fac- ing IPPs all across tb~ coun~z," ex- plains Huddleston. "lArksconsin hasn't had the need to put a struc- trued process in place before."

- - Catherine Morris

November 1992 11