Return to Virginia Business - February 2002

by Paula C. Squires

On the regulatory front, sometimes the rights of everyday consumers are actually protected. That's what occurred when the State Corporation Commission denied a plan in December that would have caused the state to lose control over much of the power supply generated in Virginia.

Dominion Virginia Power, the state's largest utility backed by powerful lobbyists, wanted to transfer $6.7 billion worth of power plants to a legally separate subsidiary of its parent company, Dominion. The move would have switched oversight for sales from the plants from the SCC, charged with protecting Virginia consumers, to federal bureaucrats in Washington. The utility pushed hard for the change - a key step in its drive to realize huge, money-saving efficiencies that it needs to become a nationally competitive player in the wholesale electricity market. Approval of this new set up would have paved the way for Dominion to consolidate all of its generation assets into a wholly owned subsidiary, Dominion Generation. Then, it could run a single trading floor for electricity sales, rather than multiple floors, saving more than $6 million a year.

But while the company seeks to transfer its Virginia generating assets - paid for primarily by Virginia customers - the utility didn't want to be encumbered by the $3.8 billion in debt on the assets, at least not initially. Debt restructuring would have come later after the transfer was made.

Rejecting the plan, the commission told Dominion that the utility was asking for too much, too soon in Virginia's five-year transition to a fully deregulated market for retail electric competition. The agency worried that while the plan might benefit Dominion, it doesn't serve the public interest or ensure consumer protections such as capped rates included in Virginia's electric restructuring law. SCC judges questioned the impact on rates if control over power plant sales moved to the Federal Energy Regulatory Commission. They slammed Dominion's plan because, "It imparts unacceptable risks on Virginia citizens and businesses that depend on Virginia Power to supply the power for vital commercial, industrial and domestic needs."

One major problem is that the deregulated market has just been born. In Virginia, it began Jan. 1. At present, there is no competitor in place who could serve as a reliable substitute for electricity from Dominion Virginia Power, which supplies 2 million customers. Nor is there a regional transmission organization in place to ensure that power can be transmitted at fair prices throughout the commonwealth. With such big pieces of the puzzle missing, the commission rightfully decided to go slow. It didn't rule out legal separation when deregulation is further down the road.

Dominion's plan was opposed by the SCC staff, the Virginia Attorney General's consumer counsel, consumer groups and potential power suppliers. One consumer advocate pointed out that not transferring some $3 billion in debt along with the power plants would be a great deal for a utility and a bad deal for consumers. Mark Cooper, director of research for the Consumer Federation of America who testified against Dominion's plan last fall, says, "If you haven't carried any costs with you, then everything the marketplace does is profit for you. It's pure gravy ... The commission had the good sense to tell these guys to take a hike."

It appears Dominion plans an end run around the SCC by appealing to the General Assembly. Before the ink was dry on December's order, the company jumped on a suggestion from one commissioner that it get clearer direction from the legislature on such a major policy change as ceding over control of the state's power plants to the federal government. Company lawyers and lobbyists asked a legislative subcommittee last month to sanction a group of the interested stakeholders, about 17 different parties, to see if they can work out a "consensus" on how legislation might be tweaked to allow for legal separation. But isn't it a little too soon to be revisiting the issue? The commission spent nine days during public hearings last fall listening to testimony from 27 people, including some of the top officers of Dominion Virginia Power, before making up its mind. Shouldn't 2,000 pages of testimony count for something?

For now, the SCC ruling shows just how much energy deregulation has been rethought, especially since the California power debacles and the collapse of once-mighty Enron Corp., the world's largest energy trader. The Houston-based company filed for bankruptcy and is the subject of a government investigation into dubious accounting practices. As disasters like Enron point out, deregulation needs more time. So far, only 12 competitive suppliers have received a license to compete in Virginia. If they can have enough time to develop their pieces of the market, then perhaps real deregulation can occur without costly pitfalls.

Return to Virginia Business - February 2002