Return to Virginia Business - April 2002

by Thomas F. Farrell II

We were disappointed in Ms. Paula Squires' February column that overlooked several key aspects of Dominion's plan to place its electric delivery and generation businesses in separate subsidiaries.

Debt restructuring was an essential part of Dominion's plan. The debt issue was not relegated to afterthought status. The legal separation proposal contained strong provisions assuring that Dominion Generation, the entity owning the power stations, would bear responsibility for its appropriate share of the corporate debt. Dominion Generation was prepared to sign a binding contract with its sister distribution affiliate, Dominion Virginia Power. The contract would have guaranteed that Dominion Generation would cover all payments for principal, interest, and any other fees and costs associated with its debt share. The idea of transferring debt between parties is hardly novel or risky. Millions of homeowners have made similar arrangements by assuming mortgages.

Both Dominion itself and Dominion Energy Holdings Inc. - the holding company that would have owned the generators - offered to guarantee Dominion Generation's debt obligations. Other corporate elements, including Dominion, the parent company, also offered to guarantee Dominion Generation's obligations, further ensuring that the distribution company and its customers would never be burdened with the debt. That is more protection than ratepayers have today.
It is true that the exact amount of Dominion Generation's share of the debt could not have been calculated until after a legal separation order allocating assets, revenues and expenses between the two sister companies. As the State Corporation Commission staff agreed, a separate filing after the legal separation ruling would have been required for commission approval of debt allocation.

There is also no basis for the view that legal separation would somehow have threatened our 2 million retail electric customers in Virginia. The reorganization would not have forced Dominion Virginia Power customers to search for "a reliable substitute for electricity" from the company in an immature market. The Virginia Electric Utility Restructuring Act requires Dominion Virginia Power - and all the other incumbent utilities in the commonwealth - to offer service, at capped rates, to any customer who wants it through mid-2007. After that, the SCC has the right to require Dominion Virginia Power - or another entity, if it chooses - to furnish default service. The default provider would offer service, at prices set by the commission, to customers who fail to choose a supplier, cannot find one or contract with one that fails to deliver.

Additionally, the Restructuring Act orders all providers of capped rate and default service to secure all the generation they need to provide a reliable supply of electricity to their customers. Under our legal separation plan, Dominion Virginia Power would have fulfilled this obligation through a binding contract with Dominion Generation. This power purchase agreement would have required Dominion Generation to furnish all the electricity that Dominion Virginia Power needed to supply all capped rate and default customers.

It is true that the Dominion Generation - Dominion Virginia Power agreement would have been a wholesale contract, subject to Federal Energy Regulatory Commission oversight. However, this would not have left retail prices in Virginia subject to the whims of "federal bureaucrats in Washington." FERC has absolutely no direct jurisdiction over retail electric rates, including the capped and default rates for customers here in Virginia.

It is no secret that we also viewed legal separation as good for our company. With legal separation, the Dominion-owned generators would have been able to compete on the same terms, and under the same regulations, as their deregulated rivals in the fiercely competitive energy market. But we also believed that our plan made sound economic sense for the commonwealth. Approval of the plan would have given a Virginia-based generation business the opportunity to grow and enhance its stature as a major energy player. Allowing our businesses to grow and compete only serves to promote the continued economic health and development of our state.

While we are disappointed by the commission's rejection of our legal separation plan, we will continue to work hard to ensure that Virginia's consumers have a strong, reliable energy market for the future. We will also continue to work toward legal separation because it is the best structure for competition.

The writer is CEO of Dominion Energy Inc.

Return to Virginia Business -April 2002