UTILITIES

Thatcher, who manages Virginia Power’s wholesale power group, admits that life on the power trading floor is never dull and sometimes risky. But decisions made on the edge – the minute-by-minute buying and selling – get electric power moving through transmission grids and across state lines. And Thatcher knows that when his projections are on target and his prices are competitive, the power-trading group can unload excess power and make a profit at the same time.

"Between 8 a.m. and 10 a.m., the trading is very active, especially from New Jersey,” says Thatcher, checking the activity already on the trading boards for the day. He seems pleased about a sale that went for $45 a megawatt. “It’s a very dynamic market.”

In an industry that has been scrupulously regulated for more than five decades, the buying and selling of wholesale power, also called wholesale wheeling, extends beyond the historically monopolistic power utilities. Thatcher and those like him are a new breed of utility executive.

As the competitive climate of bulk power trading tears down the artificial walls between buyers and sellers, it is forging the way for deregulation of the U.S. power giants. And if current market and legislative forces are any indication, the electric utility monopolies will be broken in the next century, giving way to competition, not only in the wholesale arena, but in the retail markets.

“We already have wholesale wheeling,” says Rep. Thomas J. Bliley Jr., R-Va., who is aggressively pressing forward in his attempts to break up the nation’s power utility monopolies. “And now we need to move to retail wheeling. Most Americans know that competition lowers prices and improves service. That was the result in the long-distance telephone, airline, trucking, gas and railroad industries. ... That’ll be the result with consumer choice in electricity.”

Most power industry experts agree that deregulation and competition are inevitable. The 1992 Energy Policy Act unleashed the wholesale power market to full competition, and the results have been positive. Now the issue is how to take this competition to the retail level.

Regulators and industry gurus across the country are trying to determine how and when we get those electrons moving. Although the overall savings could be enormous, inevitably there will be winners and losers. Large industrial customers, who would be free to cut their own deals, have the most to gain. Residential customers, who benefit from huge subsidies now, could lose.

High-cost states could reap big savings: Virginia’s regulators want to make sure the Old Dominion’s cheaper electricity doesn’t get sucked outside the state. Power companies all want to recover stranded costs Ð investments made in the regulatory era. Turf battles are breaking out already in regulatory hearings, in state legislatures and in Washington as everyone scrambles for their piece of the $200 billion power industry.

“While we think that competition and deregulation are good, we want to take it step-by-step,” says James T. Rhodes, president and CEO of Virginia Power. It’s a position shared by many in the industry. He says cost is only one part of the equation; safety and reliability are also at issue. “The transition to this competitive world must be managed carefully. The nation can’t afford change that will damage the world’s most reliable electrical supply and distribution system. You have to be prudent.”

In 1996, the General Assembly voted into law five energy-related bills designed to get the state ready for deregulation. The General Assembly also is trying to facilitate service expansion through joint ventures and to allow greater flexibility in rates, especially for businesses relocating to Virginia.

Last year’s legislative session also established a joint subcommittee to study the effects of deregulation and restructuring. As part of this committee, the State Corporation Commission, which regulates utilities, was asked to study several issues. The power companies must submit data to the regulatory body this month, and the SCC is scheduled to report to the General Assembly in November. “Congress is also considering mandating where the states will go, but Virginia knows what’s best for Virginia,” says SCC spokesman Ken Schrad. “The commission has taken the position that we want to approach this carefully to make sure all customers benefit.”

The call for careful planning and slow, steady progress is the crux of Virginia Power’s position on deregulation.

Rhodes points to recent West Coast blackouts and the 1965 New York City blackout that affected millions of people on the East Coast. All were caused by overload, he says – something that can happen when there are different players controlling the amount of power traveling across transmission grids. “This can’t be done in a haphazard way, and it really can’t be compared with natural gas or telecommunications,” he warns. “It is a much more delicate thing because of the nature of electricity.”

Not everybody agrees with Virginia Power’s position. Deregulation needs to happen sooner rather than later, says Bliley, who chairs the House Commerce Committee. He’s skeptical of industry warnings of safety problems and network breakdowns. “That’s a familiar cry when breaking up monopolies,” he says. “It was the same with the phone companies. Ma Bell told customers that if they purchased a telephone that Western Electric didn’t produce, the phone would destroy the network. That didn’t happen. ... The same thing happened with the airlines and railroads. But when competition occurred, there was actually more efficiency and better reliability.”

Proponents of rapid change are pushing for federal mandates forcing complete deregulation before the end of this century. “We believe that the only method to provide for fair and complete retail competition is for Congress to enact federal legislation establishing national guidelines applicable to all electric utilities,” says Mike Whitley, chairman and president of Kentucky Utilities, which does business in Virginia as Old Dominion Power. “To allow 50 state regulatory bodies and legislatures to individually define retail competition would provide for a complicated and fragmented structure under which retail competition could not flourish.”

Federal control could be bad for the commonwealth, Rhodes counters, be-cause Virginians enjoy low rates. “States like California, New York and Pennsylvania are pushing for deregulation because their rates are double Virginia’s. Mandates on a federal level have a tendency to be a one-size-fits-all regulatory scheme, and a California fit and a Virginia fit are not the same. I’m not saying that federal legislation will not be required or appropriate at some point, but in the next several years, let the individual states deal with this problem.”

Maryland’s Allegheny Power, which serves northwestern Virginia, says efficient producers should welcome rapid deregulation. “We hope that it comes sooner rather than later,” says spokeswoman Midge Teahan. “Our rates are among the lowest, and we are in a very good position for competition. We are working very hard to maintain our low-rate posture, and we believe impediments to competition should be removed.”

Teahan is encouraged by a recent survey conducted by an advocacy group called Partnership for Customer Choice. “The study,” she says, “found that three out of four Americans believe that electric rates should be set through competition, not regulation.” continued