Federal Ruling Says American Electric Power Can Ignore Virginia Law
Daily Press, Newport News, Va. - March 16, 2004
The federal government issued a preliminary ruling Friday that American Electric Power can ignore a Virginia law preventing the utility from joining a regional power grid until July.
The case is at the forefront of a battle between low-cost Southeastern
utilities that fear being forced into regional power pools governed by the
federal government and Northeastern states and utilities that favor groups like
PJM. Dominion Virginia Power, the dominant electric company in Hampton Roads and
Virginia, won't be affected by the decision immediately.
The judge rebuked Virginia for economic protectionism. He agreed with
testimony that Virginians likely would benefit from the integration of AEP, the
utility with the second most customers in the state, into PJM, a non-profit
company that runs a power grid stretching from the Northeast to the Midwest.
Dominion also has applied in Virginia to join PJM.
"The judge did a very thorough job in analyzing the case," said
Craig Baker, a senior vice president at AEP. "Apparently he believes that
the weight of the evidence supplied by parties other than the Virginia and
Kentucky commissions led him to that decision."
The full FERC commission still must issue a final order. Officials with the
Virginia State Corporation Commission, which was supported in the case by the
governor and attorney general, said they would appeal the case to federal court
if necessary.
"We're trying to preserve our ability to analyze the situation as
required by the Virginia statute and see what's in the public interest in
Virginia," said Howard Spinner, director of the division of economics and
finance.
Virginia regulators and lawmakers fear the loss of authority over its
utilities to the federal government that will accompany the handing of control
over long-haul electric transmission lines to PJM.
Ironically, legislators are about to extend Virginia's capped electric rates
for three years in the hope that wholesale markets like PJM will help
competition develop in Virginia. Both AEP and Dominion expect savings and
efficiencies in PJM that will benefit Virginia ratepayers.
FERC originally required AEP to join PJM as part of a merger with Central and
South West Corporation in 2000. FERC hoped PJM could prevent the merged company
from exercising market power by keeping competitors from moving electricity
across its transmission lines.
Virginia law doesn't prohibit AEP or Dominion Virginia Power from joining PJM.
In fact, the 1999 deregulation law requires the utilities to join a regional
group. But at the urging of the SCC, the General Assembly passed a law last year
prohibiting the Virginia utilities from joining until July 2004 -- and then only
with SCC approval.
The passage of the Virginia law last year prevented AEP from joining PJM by
May 2003, as it had planned and been approved by FERC. Ever since then, the SCC
has had an ongoing case with AEP and has asked for studies proving that
Virginians will benefit from AEP joining PJM.
Finally last November, FERC used a section of a 1978 utility law to order AEP
to ignore the Virginia and Kentucky laws because they aren't designed to protect
the "public health, safety or welfare" or guard against a fuel
shortage.
The states argued that they were trying to protect their ratepayers from high
costs associated with joining PJM. But the judge agreed with testimony
suggesting that Congress only sought to shield states from attacks on their
ability to make environmental and zoning decisions.
The SCC is also concerned that PJM also gains some authority over rates
Virginians will pay. That's because as part of the PJM role as traffic cop, it
fixes overloads of the system by deciding which power generators will run and
that can affect the prices that utilities like AEP and Dominion pay for electric
customers in Virginia.
AEP plans to become part of PJM by October, and hopes to convince Virginia
and Kentucky regulators that it's a good idea.
"Our preference is not to have a conflict with federal or state
regulators," said Baker.
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