Virginia continues gradual path toward retail electric choice

RICHMOND, Va., Aug. 30, 2002 — A State Corporation Commission (SCC) report to the Governor and the General Assembly says Virginia is making slow progress toward allowing Virginians to competitively choose their supplier of electricity.

The second annual SCC report concerning retail electricity choice says Virginia’s new market structure has not yet developed to the point where competitors are vying for customers’ business. The report also notes that other states offering retail choice are largely experiencing the same lack of competitive activity.

Success in attracting competitive suppliers to Virginia’s retail electricity market depends greatly on a healthy regional wholesale market.

Recent disclosures of wholesale market improprieties, combined with the economic slow down, have caused most energy marketers to either stop or delay the marketing of electricity supply service in those states with more mature restructuring programs. These factors may also be playing a role in Virginia.

Approximately 1.3 million Virginians currently have the opportunity to choose their supplier of electricity. Only about 2,500, or .2 percent, actually do so.
Another 750,000 become eligible to choose on September 1, 2002.

As retail choice continues to phase-in across the state, the number of eligible customers will approach three million on January 1, 2003. The remaining 150,000 customers will have retail choice by January 1, 2004.

The SCC’s report on the status of the development of a regional competitive energy supply market finds there has been a slight nationwide increase in residential offers since last year, mostly in Texas.

The report shows that during the 12-month period ending July 2002, the number of competitive offers at or below the prices paid by nonshopping customers to their incumbent utilities increased from nine to 44 nationwide. Excluding Texas, offers increased from nine to 15.

According to Dr. Kenneth Rose, an economist with the National Regulatory Research Institute (NRRI), the capacity credit market’s problem combined with the energy market prices in early 2001 clearly caused a drop-off in retail market activity in Virginia and nearby states considered a part of Virginia’s regional market.
Currently, Virginia has no residential competitive offer below the “price to compare” of any incumbent utility in the state. Pennsylvania has three such offers. Maryland has two. The District of Columbia has one.

Of greatest concern to Dr. Rose is the apparent increasing evidence that significant market power is being exercised in all wholesale power markets. Simply put, market power means the ability of sellers in a market to set prices for products, rather than taking prices resulting from competitive activity.

Until the amount of wholesale market power exercised by existing suppliers is tempered, it will prevent the development of a workable retail electricity market.

The Commission report outlines developments that may contribute toward competitive wholesale and retail markets. For example, by January 1, 2004, all of Virginia’s utilities should be members of operating regional transmission organizations.

As envisioned by the Federal Energy Regulatory Commission, these independent entities can spur the development of dependable and effective wholesale markets by providing a more efficient and fairly priced means of transmitting wholesale electric energy, thereby promoting competitor entry into the retail market.

To date, the SCC has issued 21 licenses to new competitive suppliers of electricity or natural gas. Specifically, 15 are licensed to provide electric supply service themselves or will pool together the electric needs of groups of consumers and then shop for electric service on the group’s behalf (this is known as aggregation).

The SCC report outlines a number of proposals for consideration by the General Assembly that may foster the development of competition. Many of the proposals were suggested by electric utilities, competitive suppliers, business groups, electric consumers, and others.

One suggestion, which requires legislation, is designed to provide more incentives and opportunities for industrial and large commercial customers to switch suppliers. If retail market activity becomes attractive for large customers, it may ultimately improve the chance of competitive offers being made to residential customers.

The Virginia Electric Utility Restructuring Act of 1999 requires the SCC to file a report on September 1 of each year during the state’s move to a competitive energy supply market. The report, delivered to the General Assembly’s Legislative Transition Task Force and the Governor, looks at competition in and around Virginia and offers recommendations for facilitating an effective market in the Commonwealth.

The report is available on the SCC Web site at: .htm

For additional information about the state’s progress toward developing a competitive energy supply market, including a list of licensed suppliers, consumers are encouraged to visit the Virginia Energy Choice Web site at:, or call toll free: 1-877-YES-2004.

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