[BETA] Fortnightly

Some see utilities fixing prices under competition. Really? I'm shocked.

Did you hear the one about the 10,000 percent rate increase? Ask FERC chairman James Hoecker or his colleague, Curt Hébert. They'd be happy to tell you. They don't even need their own joke writers. This story, you see, is absolutely true.

It seems that Virginia Electric & Power Co. wanted to squeeze just a little more profit from its Kerr-Henderson transmission line. VEPCO uses that line to wheel power for the Southeastern Power Administration, one of those federal power marketing administrations that the conservative think tanks are always saying should be sold off as private businesses. SEPA generates electricity at its John H. Kerr Dam, in south central Virginia, a few miles from the Carolina border. It relies on VEPCO transmission to carry the Kerr capacity and energy to its hydro preference customers in North Carolina.

But what do you know? Last fall VEPCO informed SEPA of a slight adjustment in transmission rates: up from $13 per megawatt per month to $1,310 per MW/month. SEPA's typical yearly bill for this particular transmission service would rise 100 times over - from $14,400 to about $1.4 million.

So it came as no surprise that when the Federal Energy Regulatory Commission took up the case on Dec. 29, it suspended the proposed rate increase and begged the parties to try to settle. The FERC appeared sympathetic to SEPA's plight. It showed its colors by quoting a supporting protest filed by the North Carolina Eastern Municipal Power Agency, one of SEPA's preference customers: "[It's] difficult to imagine how a rate increase of this magnitude could be justified under any meaningful definition of 'just and reasonable.'" Docket No. ER99-417-000, 85 FERC ¶61,448.

Enter Hoecker and Hébert. "Get over it," was the unspoken message in their joint dissenting opinion filed Jan. 11. "Genuine issues of material fact are not in dispute."

According to H&H, neither SEPA nor any other intervenor had even suggested that VEPCO's proposed rate exceeded costs. VEPCO, you see, had determined that about 70 percent of SEPA's wheeled power ended up going elsewhere over the company's transmission system. Thank heaven for loop flows. So VEPCO rolled in the embedded costs of its entire grid into SEPA's little short-haul wheel. It was all perfectly kosher, wrote Hoecker and Hébert: "SEPA and the other intervenors do not even argue that VEPCO's proposed rate is not cost-justified." The dissenters felt that if a hearing were justified, it would serve only to settle the one single issue in the case: "Whether the Kerr-Henderson line is or is not integrated with the entire VEPCO transmission system.

"If one concludes, as we have, that VEPCO is entitled to recover its costs ¼ then any recovery below that level ¼ would come out of someone else's pocket."

LAST MONTH I SPENT TIME ON THE PHONE WITH WILLIAM HOGAN, the well-known economics professor from Harvard University, famous for his work with the Harvard Electricity Policy Group and the consulting firm Putnam, Hayes & Bartlett, and tried to get him to admit -