Power Markets Week

In another report detailing the lack of retail competition in Virginia, the State Corporation Commission last week said the experience of Virginia is not that different from other states where residential customers have a dearth of choices.

The report to the state's governor and General Assembly expressed increasing pessimism about the potential for retail competition to offer lower prices to consumers.

The SCC said that although retail choice is offered in plenty of states and the District of Columbia, "vigorous retail competition has yet to develop. This national result, when combined with results obtained here in [Virginia], still causes serious concern regarding the ability of retail electric competition to provide, at the present time, lower prices for Virginians than would have been charged under the traditional regulation of the industry."

The report said that while almost all of the 3.2 million customers in Virginia have had the right to choose their supplier for more than two-and-a-half years, "the right to choose has still not evolved into the ability to choose" because marketers are not active in the state.

The SCC said the development of a competitive retail market has been slowed by two major factors: the cap on the retail rates charged by incumbent utilities that runs through the end of 2010, and high wholesale prices that have made it difficult, if not impossible, for marketers to make price-competitive offers.

In fact, only one competitive retailer, Pepco Energy Services, currently sells premium-priced "green" power to about 1,600 customers in the northern portion of Dominion Virginia Power's service territory.

"[T]his lack of activity is not unique" to Virginia, the SCC said, noting that "in other states currently offering retail access, few customers have the option to purchase power at a price lower than their incumbent's price-to-compare."

According to the SCC, "the problems that are impeding the development of retail competition in Virginia and other regional markets continue unabated ... There still appears to be universal agreement that before a viable competitive retail market develops in [Virginia] there must be a robust wholesale market under an operational and independent regional transmission organization. Now that [Dominion Virginia Power and American Electric Power] are integrated into PJM, time and experience will determine if such a marketplace will indeed develop."

In one part of the report, a review of markets in other parts of the country by consultant Kenneth Rose and his assistant, Karl Meeusen, concerns were expressed about the extent of true retail competition in most of the 17 jurisdictions that offer retail access. Only two states—Texas and Ohio—have residential load switching greater than 10%, Rose and Meeusen said, adding that in Ohio most of the switching has been through aggregation programs. "Most states are well below 5%. Nine states are at or near 0%."

The situation is better for commercial and industrial load, the consultants said. Six jurisdictions have C&I switching of more than 50%, and two were above 80%.

Still, Rose and Meeusen said the wholesale electricity market remains less than perfectly competitive, with few companies supplying all or most of the output in a region. It is "not known with any certainty" the degree to which major generators in PJM and other power regions are exercising market power and controlling market prices, they said, but "[t]he conditions are such that it is possible that a considerable amount of market power could be exercised."

Most retail customers, especially residents, in restructured states where the transition period had ended and the retail price is now based on the wholesale market, "are seeing prices increase faster than in the non-restructured states or states still in transition with a price cap," Rose and Meeusen concluded.

According to Virginia law, base rates at Dominion Virginia Power will remain capped through the end of 2010, and the fuel portion of Dominion's rates can be adjusted only once more during the rate-cap period, in mid-2007. AEP is allowed to apply for a rate surcharge to recover environment- and reliability-related costs, and it did so in July.

A spokesman for Dominion Virginia Power said the utility believes retail customers "have benefited greatly" from the state's long transition to retail competition and the cap on retail rates. Rates "were capped in 1999 at the same level that customers were paying in 1993," he said, adding that, at a time when energy prices "are going through the roof, our customers are paying historically low prices" for electricity.

The spokesman noted that his utility also has retail pilot programs in place to help encourage the development of a competitive retail market, but that to date high wholesale prices have prevented prospective retailers from participating.