Monday, February 12, 2007
Virginia needs a new model for regulation
From the RoundTable blog
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Tom Farrell
Farrell is the president and CEO of Dominion.
Last week the Virginia General Assembly, by votes of 85-13 in the House of Delegates and 37-2 in the state Senate, brought the curtain down on a decade-long experiment in electricity competition. We are now close to approval of a new regulatory model -- one that combines the best of traditional cost-of-service regulation with the lessons learned during the market-oriented restructuring period.
The legislation puts in place both significant consumer protections and performance incentives that will:
n Return utilities in Virginia to regulation under the State Corporation Commission.
n Allow new powers for the SCC to return utility earnings to customers at the discretion of the SCC.
n Help utilities ensure funding for new nuclear and clean coal stations.
n Help make Virginia as energy independent as possible.
Under the new model, the SCC will oversee all rates and have the power to reduce them. The commission will also have the authority to evaluate the prudence of costs incurred by including those for the construction of new power generation, one of Virginia's most pressing needs.
Most important, the very core of this legislation stipulates that the best way to keep rates low for the next 20 years is to build new generation in Virginia for Virginians.
Virginia has hardly stopped growing. Rapid population growth and one of the most dynamic economies in the nation have created a huge demand for electric power, a trend no one sees abating. In fact, Dominion customers will need 4,000 new megawatts of electricity over the next 10 years. That's enough energy to meet the needs of 1 million new homes.
Do we return to a regulatory model first established in Virginia more than a century ago, a time when Virginia Beach did business as Princess Anne County and farms were the predominate source of wealth?
Or do we look ahead to the economic and social needs of tomorrow, knowing that what we do today will shape the commonwealth's potential 20, 30, 40 years from now? The move toward deregulation was undertaken largely out of recognition that the world had changed, that the old arrangements were inadequate to the growing demands of an economy that is vastly more technological and, therefore, energy thirsty.
We need to act now so that we can prepare for the future. Restructuring programs such as those in Illinois, Maryland and Texas sent consumers reeling with "rate shock," as transitional price freezes expired and higher market rates went into effect. That, in turn, undermined consumer confidence and inspired the sort of political backlash that invariably produces shortsighted outcomes.
We have done much better here in Virginia. Based upon a consensus of thinking that had been building for a number of years, the legislature has designed a new regulatory structure that will, upon enactment, safeguard electric reliability, keep rates fair and reasonable, and support economic growth.
As it stands, Virginia no longer produces enough power to meet its existing needs. Power generated here has to be supplemented with power imported from out-of-state sources. To meet the demands of the commonwealth's projected growth -- growth that continues to accelerate in Virginia's key economic regions -- we will have to build new electric generation, primarily nuclear and clean-coal units.
Will we increasingly rely upon new energy efficiency measures, conservation and renewable energy sources? Yes. All of those important objectives are addressed in the legislation.
But will those efforts by themselves suffice? No. That is why financial incentives have been included in the new legislation to ensure the availability of capital dollars crucial to building the state's 21st-century infrastructure, including major environmental programs that will benefit Virginia residents.
Never has Virginia's potential economic growth been greater. But growth, in itself, poses its own set of challenges. If we fail to provide the necessary energy infrastructure to support our needs, we will fail our own hopes and aspirations.
Thanks to last week's overwhelming votes by the General Assembly, Virginia will soon have a framework in place to fulfill its potential. Dominion will be able to attract investors and acquire the capital it needs to construct major energy projects. In short, we will keep the lights burning today, tomorrow and long into the future.
