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Power
to Choose
After
Isabel struck, electric consumers just wanted
their power restored. But the SCC, which recently
dissed deregulation, should take a longer view of
the future of the electric-power industry.
When
Isabel roared through Virginia
Thursday and Friday, the storm took down
electrical power to hundreds of thousands. The
power outages, in turn, cut water supplies to
millions, scrambled traffic and shut down computer
networks, a compounding of difficulties that
proves how interdependent modern systems have
become. Those of us who could tune in
uninterrupted to Virginia Tech’s football win as
the storm moved through, suffering no hardship
other than boiling our drinking water in our air
conditioned homes, are the lucky ones.
For
the record, Isabel didn’t care whether there is
retail competition in Virginia’s
energy sector. The storm wasn’t concerned with
transmission operations, planning, pricing,
generation dispatch, reserve requirements or
market power control. Neither were the millions of
people faced with a loss of electricity in the
storm’s aftermath, whose thoughts went no
further than getting power back on as quickly as
possible.
Unfortunately,
a report from the State Corporation Commission
earlier this month suggests the SCC doesn’t care
about retail competition either, despite a process
the General Assembly put in motion four years ago
for the SCC to facilitate. Still assessing the
future using measurements from the regulated past,
the SCC said energy choice to date is a failure:
Only 2,300 retail customers have chosen a provider
other than Dominion Virginia Power, and there are
no competitive offers of electricity being made in
Virginia
despite 12 competitive suppliers being licensed to
do so. The SCC recommended the governor and
General Assembly suspend portions of Virginia’s
Electric Utility Restructuring Act, re-bundle
rates and extend a moratorium on
the transfer of
control of electric transmission systems to
federally regulated regional transmission
entities.
There
is a huge difference, of course, between
deregulation as a philosophy and deregulation as a
practical matter. Still, policy-makers and
consumers in
Virginia
should take this traditional, short-term view
offered by the SCC, a state regulatory agency
determined to justify its existence, with a grain
of salt. Its insistence that the Commonwealth of Virginia
retain the authority to ensure reliable service at
just and reasonable rates leaves only the old
regulatory regime as an acceptable option. Despite
a disclaimer that suspension of the process should
last “only as long as necessary to provide Virginia
policy-makers a reasonably clear view of the
likely nature of the transformed industry,” the
SCC basically calls on
Virginia
to abandon the deregulation process and keep the
SCC in control.
A
basic flaw in the SCC’s reasoning, of course, is
the failure to acknowledge that a freer market in
energy is a continuing process, not a specific
result. Just as regulation doesn’t guarantee
power in a storm, deregulation will not
automatically provide reliable service or just and
reasonable rates or perfectly ethical energy
traders or generating and transmission assets
dedicated only to Virginians. Deregulation means
competition. Competition means options. Options
mean risk. Risk tolerates a certain level of
failure. So waiting for a clear view of a complex
and dynamic process before committing to
fundamental change really is an endorsement of
regulation over market forces.
A
second flaw is the expectation that somehow the
Commonwealth
of Virginia
can provide for its own electricity needs in
isolation from what is happening in other states,
regions and even foreign countries. In the
regulated environment most familiar to the SCC,
greater reliance on wholesale market purchases of
power by energy companies also has its risks. In a
market-driven system over time, a greater reliance
on wholesale market purchases of power positively
encourages more investment in efficient and
productive operations.
Virginia
electricity generators already are linked in
multi-state grids, such as the Appalachian
Power’s participation in an interconnection
agreement among providers in Virginia,
West
Virginia,
Ohio,
Michigan
and
Indiana.
Attempting to bottle up the Commonwealth’s
low-cost electricity providers, such as Dominion
Virginia Power, inside its political borders and
keep Virginia
out of the competition cannot work.
A
third flaw is suggesting that all future policy
decisions of federal regulators and regional
transmission authorities will work to the
detriment of Virginia consumers, businesses and
industrial users in ways that continued regulation
at the state level will not. Actually, stalling of
the process in the Commonwealth has produced an
“unregulated monopoly” status for Dominion
Virginia Power, which has found the perfect middle
ground with a “rate to compare” high enough to
generate profits, but too low to invite
competition. Provisions of current law that
require alternative providers to pay wire charges
to Dominion Virginia Power make it even harder for
others to compete.
But
the retail competition equation is broader and
wider than the simple comparison of cost per
kilowatt hour. Consider, for example, the simple
statement that only about 2,300 Virginians have
chosen a supplier of electricity other than
Dominion Virginia Power. Most of those have chosen
Pepco Energy Services, which offers electricity
generated from renewable sources -- wind, solar,
hydroelectric, biomass -- at a slightly higher
rate per kilowatt hour. But Pepco Energy Services
markets itself as “more than energy,” with an
integrated systems approach that weaves energy
information systems, efficiency solutions, project
financing, operations and maintenance, onsite
generation and supply and advisory services into
broad cost savings. Such an approach is attractive
to large business, industrial and institutional
users, such as the U.S. Department of Energy, the
National Institutes of Health, Arlington
County,
Maryland
state agencies and the Camden Yards sports complex
in Baltimore
that Pepco Energy Services has signed up.
The
SCC September report sets up more critical
questions than answers for the Commission on
Electric Utility Restructuring (COEUR), formerly
known as the Legislative Transition Task Force.
But the lessons of Isabel and the August Northeast
Blackout are clear. From a stand-alone electricity
generating and transmission system regulated at
the state level, the Commonwealth
of Virginia
has grown into a node in a multi-state network of
infrastructure networks. Virginia
’s
electricity systems no longer function separately
from others in the region and they rely, in turn,
on communications, transportation and other
networks in a larger integrated, inter-dependent
system. Dynamic change driven by and adjusting to
market forces across electricity systems and
across complementary infrastructure is the new
reality. That means more regional, national and
even international market agreements ahead.
So
while old regulatory schemes may seem warm and
fuzzy, COEUR shouldn’t turn voyeur and just
watch. Speeding up restructuring is what will
transform the power to choose into real choice.
Move ahead prudently, but move ahead.
September
25, 2003
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