RD57 - Status Report: The Development of a Competitive Retail Market for Electric Generation within the Commonwealth of Virginia


Executive Summary:
It has been over five years since the Virginia General Assembly passed the Virginia Electric Utility Restructuring Act (*1) (“the Act”); less than three years remain until the mid-2007 end of the transition period set forth in the Act. Section 56-596 of the Act requires the Virginia State Corporation Commission (“SCC”) to report to the Commission on Electric Utility Restructuring (“CEUR”) and the Governor by September 1 of each year on the status of competition in the Commonwealth, the status of the development of regional competitive markets and the SCC’s recommendations to facilitate effective competition in the Commonwealth as soon as practicable. This section of the statute also requires the SCC to report any recommendations of actions to be taken by the General Assembly, electric utilities, suppliers, generators, distributors, and regional transmission entities that the SCC considers to be in the public interest.

The SCC offers this Report pursuant to the requirements of the Act consisting of three parts. Part I is a description of evolving regional retail and wholesale markets prepared by Dr. Kenneth Rose, Senior Fellow, Institute of Public Utilities at Michigan State University. Part II reports on the status of retail access and competition in the Commonwealth. Part III presents and discusses recommendations to facilitate effective competition in Virginia that were raised by stakeholders responding to an annual SCC solicitation of potential recommendations and actions by the SCC.

Part I of this Report contains detailed data and information on restructured wholesale and retail electricity markets around the United States. The economic health of these markets is questionable. Major generating companies continue to face substantial financial difficulties. The industry credit crunch continues as does fallout from securities and trading scandals. At the same time that generating companies are facing these difficult financial conditions, Dr. Rose reports that there remains strong concern that significant market power is being exercised in all wholesale markets that have been independently analyzed. The coincidence of these two phenomena -- the alleged exercise of market power that serves to increase market prices and thus the returns to generators, coupled with the widespread financial distress in the industry which should be alleviated by the exercise of market power -- is puzzling. These two coincident results, taken together, illustrate the difficulty of fashioning electricity markets that ensures both the provision of safe and reliable service and the vigorous competition needed to forestall any exercise of market power.

Dr. Rose’s Part I also provides extensive descriptions of retail markets on a state-by-state basis. He reports that 16 states and the District of Columbia continue to allow retail access. Several states have decided to delay retail access, restrict retail access to only larger customers or otherwise curtailed their retail access efforts. Of the 17 jurisdictions that allow retail access, there is little, if any, effective retail competition for electric service in the residential and small commercial market.

On the basis of the extensive information submitted by Dr. Rose in Part I of this Report, the SCC concludes that, while retail access is widely available in many jurisdictions, vigorous retail competition has yet to develop. This national result, when combined with results obtained here in the Commonwealth as detailed in Part II of this Report, 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.

Part II of the Report focuses on activities in Virginia related to retail access and resulting competition in the electricity market over the past year. It also reviews the SCC’s efforts to develop a proper infrastructure to accommodate competition and to prepare Virginians for consumer choice for generation, as directed by the Act.

During the past year the SCC has continued to implement the Restructuring Act. At the present time, about 3.1 million electricity customers in Virginia have the right to choose an alternative supplier of electricity. Approximately 29,400 customers in the southwestern part of the Commonwealth exempted from the Act by legislation enacted by the General Assembly in 2003 and approximately 7,600 customers served by Powell Valley Electric Cooperative.

As we reported last year, the right to choose has not yet evolved into the ability to choose. While it is clear that the SCC, the utilities and the various stakeholders have effectively enabled almost universal retail access in Virginia, there is little competitive activity in the Commonwealth. We understand that many suppliers still perceive little economic incentive to enter the Virginia retail market. No competitive service provider is offering energy priced so that switching customers may save money. Currently, one supplier continues to serve less than 1,900 residential customers and 20 small commercial customers in northern Virginia with an environmentally-friendly “green” power offer. This service is more expensive than Dominion Virginia Power’s price-to-compare. Again, as detailed in Part I, this lack of activity is not unique to the Commonwealth; 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.

Over the past twelve months, the SCC, aided by the incumbent utilities and interested stakeholders, continued to make strides in preparing the Commonwealth for the arrival of competition for the generation component of electric service. Work coordinated by the Staff has assisted the SCC to provide the foundation for retail access by examining many issues, including competitive metering, supplier billing, default service, energy infrastructure, and regional transmission organizations (“RTO”). The SCC appreciates the time and effort of the respondents that have contributed to Staff’s efforts.

The SCC has issued orders or reports during the past year relating to issues such as competitive metering, supplier billing, market price/wires charge determination, regional transmission organizations, and pilot programs within Dominion Virginia Power’s territory. Slow development of competitive activity and statewide budget constraints have caused the SCC to continue suspension of its consumer education efforts.

Part III of the Report includes discussion of recommendations and comments advanced by various stakeholders as a means of facilitating effective competition in the Commonwealth as soon as practicable as well as the Commission’s activities to properly align processes and systems to foster effective competition.

As outlined in this Report, the problems that are impeding the development of retail competition in Virginia and other regional markets continue unabated. In terms of the existence of retail competition, little, if anything, has changed since last year. There still appears to be universal agreement that before a viable competitive retail market develops in the Commonwealth there must be a robust wholesale market and an operational and independent regional transmission organization. While much work has been done or is in the process of being done, it will take more time before that foundation becomes a reality. We currently have the basic rules, systems, and procedures in place to harmonize retail access and will continue to monitor market conditions and react accordingly.
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(*1) Title 56, Chapter 23 of the Code of Virginia.