Commission on Electric Utility Restructuring
June 29, 2004
The first meeting
of 2004 of the Commission on Electric Utility Restructuring focused on
the status of regional transmission entities (RTEs), also known as regional
transmission organizations (RTOs).
RTOs are entities
created to operate transmission grids and ensure short-term system reliability,
independent of control by incumbent utilities and other market participants.
RTO independence is intended to ensure that incumbent utilities, which
traditionally have controlled the generation, distribution, and transmission
of electricity, do not use the control of transmission assets to favor
their generation arms over competing suppliers. As such, they are viewed
as necessary to the development of a competitive retail market for electric
generation. Virginias Electric Utility Restructuring Act, as amended
in the 2003 Session, requires incumbent utilities to transfer ownership
or control of their electric transmission assets to an RTO between July
1, 2004, and January 1, 2005, subject to the approval of the State Corporation
of PJM Interconnection, LLC, a Pennsylvania-based RTO, updated the Restructuring
Commission on the status of the efforts of Dominion Resources and AEP
to join PJM. AEP filed its application with the SCC on December 19, 2002,
and Dominion filed its application on June 27, 2003. Hearings on AEPs
and Dominions SCC applications are scheduled to start on July 27,
2004, and October 12, 2004, respectively.
to join PJM prompted the Federal Energy Regulatory Commission (FERC) to
initiate a proceeding on November 25, 2003, in which FERC asserted that
§ 205(a) of the Public Utilities Regulatory Policy Act (PURPA) authorized
the federal agency to exempt AEP from requirements of the Restructuring
Act, including those requiring that the SCC approve any transfer of a
utilitys ownership or control of transmission capacity to an RTE.
PURPA § 205(a) provides that the FERC is not authorized to exempt
utilities from a state law that is designed to protect the public health,
safety, or welfare or the environment; to conserve energy; or to mitigate
the effects of fuel shortages.
On June 17, 2004,
the FERC issued its opinion affirming its initial decision that it has
the authority to permit AEP to integrate into PJM notwithstanding Virginias
laws, rules, and regulations, and setting October 1, 2004, as the date
for AEP to join PJM. The FERC noted that it will not exercise its authority
to integrate AEP into PJM if the SCC timely finds that AEP completes its
proceedings in time to meet that deadline and reaches agreement regarding
reasonable conditions that do not prevent or prohibit integration.
According to PJM,
several benefits would accrue from AEP and Dominion joining PJM, among
them improving management of the electricity transmission grid through
mandatory reliability rules and centralized dispatch of generation and
control of power systems. PJM membership would also enhance reliability
of the electricity transmission grid, attract new power supply and transmission
investments, reduce wholesale energy prices, and implement demand response
programs. PJMs congestion management pricing system ensures that
costs are borne by entities causing the costs rather than by all consumers,
and the company claims that investments in new generating resources are
occurring in PJMs proposed footprint, which extends from Northern
Illinois to North Carolinas Outer Banks, as evidenced by the 4,000
MW of capacity currently under construction.
PJMs wholesale markets is voluntary, and participants have realized
advantages where its markets have been deployed. In response to questions
regarding PJMs perspective on the protection of native load, a PJM
representative observed that member utilities have exercised self-supply
and bilateral contract options to comply with states concerns that
native loads be protected from the possibility that low-cost power could
be sold for greater profit in high-cost markets.
to join an RTO was a condition for approval of its merger with another
utility, and RTOs are seen as a necessary ingredient of effective retail
consumer choice programs. Though AEPs system-wide costs of joining
PJM will be between $50$55 million annually, the companys
studies show that these costs are slightly exceeded by the financial benefits.
AEP chose PJM as its RTO because its sophisticated markets will facilitate
retail competition, PJMs impressive reliability record, and the
benefits of having a single RTO manage the transmission systems of AEP
and Allegheny Power in the congested West Virginia-Virginia border area.
PJMs system was described as compatible with AEPs power pool,
and AEP will be able to continue to provide power for its own retail customers
on a cost basis, rather than a market price basis, while it will be able
to sell its surplus power in the market.
With respect to the
pending hearing on AEPs request for SCC approval of its application
to join PJM, the parties have reached an impasse in attempting to negotiate
a settlement. AEP did reach a settlement with Kentucky regulators, which
addressed concerns regarding assurances that PJMs markets are and
would remain voluntary, that in the event of a power shortage AEPs
power supplies would not be shifted to other states to the detriment of
its customers, that reliable transmission was available to serve native
loads, and that Kentucky was not ceding any of its jurisdiction.
Dominion is involved
in three separate proceedings relating to RTO membershipbefore the
SCC, the North Carolina Utilities Commission, and the FERC. The companys
goal is to turn over control and management of its transmission system
to PJM by November 1. In May 2004 PJM and Dominion filed an application
with FERC to form the PJM South RTO, which provides in part that transfer
of control of transmission assets is conditioned upon FERCs approval
of a request that it be authorized to sell energy and capacity at market-based
rates within its service territory.
In addition, Dominion
has sought to condition the transfer of control of transmission assets
to PJM upon FERCs approval of a request that Dominion be permitted
to defer for future recovery approximately $240 million in costs associated
with RTO membership. Dominion is seeking to defer expensing these costs
until the end of the capped rate period under the Restructuring Act, January
1, 2011. In response to a question by Senator Watkins, Dominion stated
that in its FERC case it is asking only for permission regarding the deferred
accounting treatment for these expenses, and acknowledged that their recovery
would be determined in a rate proceeding at the end of the capped rate
PJM will result in value added for Dominions customers, according
to company representatives. The benefits include greater reliability and
enhanced retail and wholesale competition. Greater access to surplus power
from other areas within PJM will result in a reduced need to build generation
facilities as well as the ability to procure imported power at lower prices
than Dominion could charge. An analysis by Charles River Associates concludes
that Dominions membership in PJM will result in a reduction in Dominions
revenues of between $281$537 million and net savings to Virginia
retail customers of between $255$464 million over the period from
2004 to 2014.
In response to questions
regarding the ability to withdraw from PJM, Dominions representatives
cited the decision of the D.C. Circuit Court involving Atlantic City,
in which the FERC was held not to have the authority to bar a member from
withdrawing. In such event, a member may withdraw by simply filing a new
transmission tariff with the FERC.
Commissions next meeting, scheduled for September 8, will be conducted
jointly with the Virginia Coal and Energy Commission.
The Hon. Thomas
K. Norment, Jr.
Franklin D. Munyan
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