You might have thought the Feds closed the book on any broad, region-wide sharing of sunk transmission costs—especially after FERC ruled last spring in Opinion No. 494 that PJM could stick with...
electric restructuring law.
The SCC report characterizes the proposed SMD as a watershed event for the Virginia electric industry, especially FERC's dedication to the elimination of the native load preference. The SCC said that FERC believes that market-based price signals will do a better job than state regulators at determining where and when generation and transmission facilities need to be built, and that ultimately, competition may regulate the reliability and price of electric service.
The SCC said that, nevertheless, the current generation and transmission infrastructure, including facilities built specifically to serve Virginia, was not designed to support a competitive market. Under such circumstances the removal of the native load preference could result in a situation where on the hottest and coldest days of the year, or whenever something threatens the integrity of the regional transmission system, Virginians could experience service interruptions to make sure that the lights stay on somewhere else in the multi-state region. This could occur even though there is adequate capacity located in Virginia. The SCC also said that because the SMD includes a regional market pricing mechanism, generation entities with market power may be able to charge exorbitant rates unless the situation is identified and corrected in a timely manner. It added that the ability of the Federal Energy Regulatory Commission to monitor potential market abuses and correct such problems has been questioned in the past.
The report also indicates that retail competition has not been successful in most areas of the nation. It points out that nine of the 17 jurisdictions with residential retail choice have no competitive offers below the rates of the incumbent utilities. In several other states only one utility faces a competitive offer. The SCC acknowledged that there were some initial indications of success in states like Pennsylvania, but it also noted that these were "largely the result of regulatory action to lower incumbent utility rates while setting market rates at artificially high levels to encourage competitors." Further retail competition is not functioning in Virginia, the SCC said. No offers of any kind are currently being marketed in the state. Only three competitive suppliers are currently certified to make such offerings. In addition, a number of merchant generation projects were delayed or abandoned in Virginia during 2002. The number of power suppliers is diminishing in Virginia and the rest of the nation as such entities face bankruptcy, merge, or simply go out of business.
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