California Deregulation Postponed Until March

The startup of the deregulation of California's electric industry has been postponed until March 31, 1998. The startup date was originally planned for Jan. 1, 1998. According to the announcement by the California Power Exchange (PX) and the state's independent system operator (ISO), the startup was delayed because there had been inadequate time to test the computer systems responsible for pricing and scheduling electricity deliveries throughout California.

There are no fundamental flaws in the computer system, according to PX Chief Executive Officer Dennis Loughridge. The new starting date includes a 15-day notification to the U.S. Federal Energy Regulatory Commission that all systems are functional, tested and ready to go. In addition, the schedule includes end-to-end market simulation during which the PX and the ISO must achieve seven days of successful results.

"Our first priority is to resolve existing software problems, especially those related to ancillary services and supplemental energy, and to work with the ISO to ensure that other interface matters are resolved," said Loughridge.

The delay did not affect the 10% rate reduction for residential and small commercial customers using less than 20 kW who are customers of California's three investor-owned utilities. This reduction went into effect on Jan. 1, as scheduled.

AEP and CSW Approve A Merger Agreement The boards of directors at American Electric Power Co., Inc. (AEP) and Central and South West Corp.. (CSW) have approved a definitive merger agreement for a tax-free, stock-for-stock transaction creating a company with a market capitalization of approximately US$28.1 billion (US$16.5 billion in equity, US$11.6 billion in debt and preferred stock). The combination is expected to be accounted for as a pooling of interests.

This combination creates a diversified electric utility serving more than 4.6 million customers in 11 states and approximately 4 million customers outside the United States. Both companies have low-cost generation and offer their customers in every state prices below the national average. Over the last two years, both AEP and CSW have ranked among the top five electric utilities in customer satisfaction in the American Customer Satisfaction Index.

CSW stockholders will own approximately 40% of the combined company. Both companies anticipate continuing their current dividend policies until the close of the transaction.

Help for Brazilian Privatization Effort The state of Sergipe, Brazil has turned over operation of the Energipe electric distribution utility to Companhia Forca e Luz Cataguazes-Leopoldina (CFLCL) as part of its privatization efforts. Energipe serves 348,000 customers in Sergipe in northeastern Brazil.

CFLCL submitted a winning bid of R$577.1 million (US$520.3 million) for 86.4% of Energipe.

CMS Electric and Gas Co., an international utility subsidiary of CMS Energy, has agreed to acquire a 42.6% ownership interest in the CFLCL/Energipe combined company and assume an active role in advising the company on technical matters. CMS expects to acquire the shares for a purchase price of US$180 million.

Canadian, U.S. Companies Agree To Energy Swap Hydro-Quebec and Constellation Power Source of Baltimore, Maryland, U.S., have concluded an agreement for electricity storage services, which includes the delivery of energy directly into the eastern interconnections of the United States.

The transaction is the result of a request for proposals for storage capacity launched in August 1997 by Hydro-Quebec.

Utilities Toss ISO Plan For Regional Entity On Dec. 9, 1997, 11 investor-owned utilities snubbed their noses at a Midwest independent system operator (ISO) plan and instead signed a memorandum of understanding to explore the creation of an independent, regional transmission entity. Companies participating in the memorandum were Consumers Energy, Detroit Edison, Duquesne Light Co., The Illuminating Co., Ohio Edison Co. Pennsylvania Power Co., Toledo Edison Co., Virginia Power and the Allegheny Power companies (Monongahela Power Co., The Potomac Edison Co. and West Penn Power Co.).

The announcement threw a crimp in the Midwest ISO plan that some of these utilities had been discussing along with about 20 other utilities. In fact, the date the regional transmission entity memorandum was signed was the scheduled date for the vote on the Midwest ISO.

The companies say they will remain flexible and continue to investigate, and may pursue, other opportunities and arrangements that could develop regarding independent system operators or independent transmission companies.

Line Construction Contract Awarded GEEAC (Generator Group of Comahue Area) recently awarded a contract to Transener S.A.-EHV Transmission Co. to construct, operate and maintain a 1290 km, 500-kV transmission line and to enlarge five substations. All work, including commissioning, is to be completed in 23 months.

The total investment involves US$24.5 million, of which nearly 75% will be spent on building the line.

Transener won the contract by offering the lowest annual payment payable in 15 years after commissioning - an offer based on financial, commercial and technical decisions.

The technical commitment is based on the use of the cross rope suspension tower concept, which was developed by a Canadian consultant, Brian White, and supported by ESKOM of South Africa. ESKOM has applied the concept successfully over the last four years.

Besides the lower cost for material and construction, the CRS tower type improves the performance against tornadoes and other severe storms that are a frequent threat on the Pampas plains. The long length of the line forces the use of several shunt reactor and series capacitor banks for compensation. The amount of compensation is greatly reduced by the phase compaction permitted by the CRS system.

This new fourth line will be added to the other three 500-kV lines extending from the Comahue region (north Patagonia near the Andes foothills) to Buenos Aires. All four lines provide 4600 MW.

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