In the mid-1980s William W. Berry, president of Dominion Energy predecessor Vepco, championed the cause of deregulating electricity markets. He proposed breaking the electricity industry into separate components: generation, transmission, and retail distribution. Only retail electric lines, he suggested, were a “natural” monopoly. Berry’s vision, which was never fully executed in Virginia, bore strong similarities to the proposals outlined today by the Virginia Energy Reform Coalition (VERC).
VERC, a coalition of free-market, environmental and anti-poverty groups, is calling for a massive restructuring of Virginia’s system of regulated electric utilities. The existing monopoly structure is “broken,” argued a series of speakers at a noon press conference, because politically powerful utilities utilize campaign contributions and their lobbying clout to advance their interests in the General Assembly at the expense of the public.
That argument has been heard frequently from Dominion’s foes on the Left side of the ideological spectrum. And indeed, Clean Virginia, which has promised to contribute to any Virginia legislator who spurns Dominion money, is a member of the group. But Clean Virginia and other long-time Dominion foes were joined by representatives of conservative and libertarian groups such as FreedomWorks, the Reason Foundation, R Street, and the Virginia Institute for Public Policy.
The coalition proposes opening up Virginia to competition in generation and transmission (moving bulk electricity long distances on high-voltage wires) while allowing utilities to continue to owning and maintaining the retail grid (lower-capacity distribution wires that reach individual customers). However, the distribution monopolies would be managed by independent operators, and earnings would be based on performance, not how much capital the utility invested.
“As energy technology rapidly changes we need a modernized electricity market to incorporate those changes to improve reliability, especially for the grid, and provide more options for consumers,” said Adrian Moore, vice president of policy for the Reason Foundation.
Dominion responded that deregulation would be a step backward for Virginia. “Californians left with skyrocketing electric bills and in the dark from rolling blackouts following deregulation proved that all too well,” said Rayhan Daudani, manager-media relations for Dominion Energy.
Customers in deregulated states pay electric rates that are 40% higher on average than in Virginia, Daudani said in an email communication. “Virginia customers get a great value. We keep our costs low, while our reliability remains high. Our residential Virginia customers pay a bill 35% below the average of mid-Atlantic and northeastern states.”
Meanwhile, Daudani added, “we’re reducing our carbon emission by 80 percent, investing in a massive expansion of renewable energy, transforming the energy grid, launching nearly a dozen energy-efficiency programs and increasing our commitment to our EnergyShare program for our most vulnerable customers. This coalition’s collection of grab bag policies was tried and failed and ultimately led to the bankruptcy of Enron. We know how this story ends, and it is wrong for Virginia.”
However, VERC spokesmen said their deregulatory model bears no resemblance to California’s partial and ineptly managed transition, which they acknowledge was a massive failure. Rather, the proposals are modeled mainly on Texas, with an add-on feature that caps electric rates for lower-income Virginians based on a successful program in Ohio.
Despite Bill Berry’s advocacy of restructuring the electricity industry, full deregulation was never tried in Virginia either, they say. Dominion did divide its Virginia operations into a generating company and a distribution company. But meaningful retail competition never surfaced, and after the collapse of Enron the General Assembly “re-regulated” electricity in Virginia. Since then, the General Assembly has enacted a series of initiatives largely at the behest of Dominion, the result of which, foes say, has been a shift of regulatory control from the independent State Corporation Commission to the easily manipulated legislative branch.
VERC has articulated nine broad policy objectives:
- Establish a well-designed, competitive retail electricity market;
- Establish an independent grid operator;
- Establish streamlined and uniform interconnection standards;
- Implement performance-based regulation;
- Establish a low-income bill assistance and weatherization program;
- Implement an “all-cost-effective” energy efficiency standard;
- Ensure additional consumer protections and education;
- Fully integrate grids, markets, and operations;
- Phase out wholesale capacity markets.
You can find a detailed explanation of these initiatives here.
Free-market advocates say that a deregulated electricity system and a de-bundling of flat and uniform residential rates would encourage innovation. In Texas, 42 retailers provide more than 100 alternatives to customers. Enterprises provide service at different price points with different features and attributes. Some retailers might provide an all-green electricity product based on solar and wind power. Others might vary prices by fluctuations in demand and give consumers the tools to manager their consumption in response. Yet others might offer lower rates if, say, homeowners agree to turn off their air conditioner when demand exceeds supply.
Also, handing over distribution lines to an independent operator, say market advocates, would eliminate the incentive for utilities to increase profits by finding ways to boost capital investment. For example, if population growth and electricity demand were increasing near a particular sub-station, the utility’s incentive under the current regulatory model is to expand the sub-station. But an independent entity might look at less expensive alternatives such as installing a micro-turbine, providing battery-storage backup, or finding ways to conserve energy.
The competitive landscape is very different than it was when Virginia re-regulated the electricity industry more than a decade ago, market advocates say. Virginia now belongs to a deregulated wholesale energy market administered by PJM (an independent operator similar in concept to the distribution-system operators called for). New digital technologies make it possible to create electric grids, manage the flow on distribution systems, and fine-tune electricity consumption at the household level. Dozens of retail providers have emerged from Texas and other states.
The basic regulatory model in Virginia has changed little in a hundred years, said, Ken Cuccinelli, former Virginia Attorney General and regulatory director at the FreedomWorks Foundation. “It’s time to drag Virginia electric regulatory system kicking and screaming into the 21st century.”
