By LOIS CALIRI
THE ROANOKE TIMES

Just as you choose your long-distance telephone carrier, you can select your electricity supplier starting Jan. 1 -- if you're a customer of American Electric Power.

In simplest terms, there are two parts to electricity -- supply and delivery. In today's regulated market, AEP supplies, transmits and delivers power to homes and businesses. In Virginia, the State Corporation Commission regulates the cost of generation and distribution. Federal officials regulate transmission rates.

In a deregulated market, the generation will become competitive. State regulators will no longer set rates and customers can leave AEP, the dominant supplier of electricity in Southwest Virginia, and buy from a competitor. Transmission and distribution remain regulated.

Will electricity be cheaper? Most experts say no. Will competitors bang on the doors in Southwest Virginia? Probably not. They're not likely to beat AEP's prices, which are among the lowest in the nation.

Residential customers are not likely to switch to save a few dollars a month. Some customers, though, can form aggregate buying groups, often made up of several adjoining towns with thousands of power buyers who can buy electricity at a discount.

Customers of electric cooperatives, such as those in Craig, Botetourt and Bedford counties, can begin shopping in 2004.

Salem and Bedford residents who get electricity from their local governments won't be able to shop because state law requires only utilities to restructure. Dominion Virginia Power customers in Central Virginia can start shopping Sept. 1, 2002.

Nationally, about half the states have at least partially deregulated their electricity markets. Those with tight power supplies considered deregulation a way to encourage new power plants. States with low rates, plenty of power and little heavy industry have shown little interest. Many became even more wary after California's power crisis grabbed headlines earlier this year.

Members of Virginia's General Assembly adopted legislation in 1999 establishing a blueprint for investor-owned utilities to restructure.

Of the 16 competitors licensed by the SCC to sell electricity in Virginia, some are backing off from AEP's territory because they can't beat its prices. Others said AEP is discouraging competition by charging high security deposits. And some, such as Amerada Hess Corp., only plan to market to customers who already buy oil and gas from them.

In a competitive environment, the wholesale market -- the prices one energy company charges another to buy electricity -- determines the price of power.

Given the volatility of the wholesale market, Allegheny Energy Supply Co. and Herndon, Va.-based Washington Gas Energy Services are passing on Southwest Virginia, for now. They can't beat AEP's prices.

"Most people are interested in seeing cost savings," said Harry Warren, president of Washington Gas. Sometimes it takes months for customers to switch. Deregulation began in Maryland in July 2000, and Washington Gas waited until that fall to enter the market, when more favorable prices allowed them to sign contracts with large customers. In March, it offered service to residents and small businesses.

Old Mill Power Co. in Charlottesville was willing to go head-to-head with AEP on price, but AEP's security deposits are high, discouraging competitors from selling electricity in Southwest Virginia, said Mitch King, president of Old Mill. He has raised this issue, informally, with the SCC.

Small competitors, such as Old Mill, that do not have credit ratings by major bond rating companies, such as Standard & Poor's, are required to pay security deposits to AEP. AEP does not want to be left holding the bag if a competitor fails to deliver the amount of electricity AEP projected the competitor would need to meet its customer demand. If a shortfall occurred or a company went bankrupt, AEP would have to foot the bill to prevent brownouts or blackouts for those customers.

AEP said the SCC left it up to the host utility to set the security deposits. It would be damaging to AEP and to competition if AEP did not secure the financial integrity of a competitor, said AEP spokesman John Shepelwich.

Deregulation not all that enticing to competitors

Why would utilities embrace deregulation, knowing they risk losing customers?

Deregulation opens doors for an industry not historically known for explosive growth.

Some utilities saw an opportunity to create unregulated subsidiaries to sell electricity around the country. With that incentive, they pushed for deregulation while arguing to resolve key sticking points -- namely so-called stranded costs -- associated with building and operating power plants. Utilities feared that once competition started to erode their captive customers, they wouldn't be able to recover their costs. Many won the right to recoup stranded costs.

Winning that right made more sense than fighting deregulation, said David Joos, president of Consumers Energy Co., a Michigan utility.

AEP, a Columbus, Ohio-based utility, said it wanted to be involved in the development of deregulation, rather than have it handed to them as a finished product. AEP said it wanted to stay viable, make a profit and serve its customers.

Utility officials feared federal regulation, so they lobbied for state laws to govern the way they would restructure, said Eva Hardy, a senior vice president at Dominion Virginia Power, a dominant Virginia-based utility. Also, utility and state surveys showed customers wanted choice.

Consumer groups and the leading General Assembly critic of electric deregulation, Del. Clifton “Chip” Woodrum, D-Roanoke, are skeptical about claims that deregulation will lower prices.

Deregulation does not necessarily equate with competition, said consumer advocates.

Look at what happened in Pennsylvania, the role model of competition, said Irene Leech, president of the Virginia Citizens Consumers Council.

Only 560,000 of the state's 5.4 million eligible customers switched. Most competitors left the market because wholesale prices were too high for them to beat the state’s utilities’ retail prices and make a profit, said Sonny Popowsky, a Pennsylvania consumer advocate.

"It may be some things are provided in the most economical way by a natural monopoly that is regulated," said Leech. Virginia has capped rates through 2007. But rates can be changed to reflect changes in fuel costs and taxes.

"Utilities say rates can be adjusted down if prices drop. I don't think the odds of that happening are great at all," Leech said. Big users thought they could get a better deal and really pushed for deregulation, she said.

In a competitive market, the wholesale market will determine the retail price of electricity, said Woodrum. "Price have no where to go but up," he said.

Lois Caliri can be reached at 981- 3117 or loisc@roanoke.com.

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