Virginia Is Redrafting Electricity Regulation

Dominion-Backed Bill Prompts Rate Fears

RICHMOND -- The Virginia General Assembly is trying to rewrite the complex laws that govern the state's power companies, moving toward an untested approach to electricity regulation and prompting charges from consumer groups that monthly bills will rise.

Legislation speeding through the House of Delegates and Senate would ensure that the state's largest power company, Dominion Virginia Power, continues to be regulated by the State Corporation Commission. But the bills would give the company broad rate flexibility it says is necessary to build a new generation of coal, natural gas and nuclear power plants.

If the legislature doesn't act, Dominion will be free of regulation in 2010, the result of previous action intended to give consumers a choice in their electric companies. But competition that was once predicted has not materialized, giving rise to fears that rates for electricity could soar even higher without the changes. That's what happened last year in Maryland, where utility rates in some areas rose as much as 75 percent.

But instead of returning to a system of regulation that controlled prices for almost 50 years, Dominion is pushing for a novel approach that has angered state regulators, environmentalists and consumer protection groups. Dominion serves 2.2 million customers in Virginia, including about 860,000 in the Washington area.

The approach would restrict regulators' ability to reduce Dominion's rates if the company's profits soar. Instead, Dominion would share its profits with customers. With "the old system, the message that we got was, 'If you do very well, then your reward's going to be we're going to reduce your rates,' " said Paul Hilton, the company's senior vice president for regulation. "What we're proposing with an incentive system is, 'If you do well, you share in that.' "

The Dominion-backed bills would also help ensure the company's ability to earn profits similar to those for other electric companies in the South. Under the proposal, the SCC commissioners could not lower rates below a certain, predefined point. And if profits were higher than expected, the company would split the excess with customers.

Critics of the plan say it will lead to higher electric bills and will strip the SCC of the necessary authority to rein in rate increases. They say the pending legislation would allow Dominion to increase rates with impunity.

"If you want to have rates going up higher than they ought to be, take this bill," Theodore V. Morrison Jr., one of three commissioners on the SCC, warned House lawmakers Thursday night. "I don't see there's anything but higher rates."

The House Commerce and Labor Committee ignored those warnings, voting to approve the Dominion-backed bill 18 to 1 and sending it to the full House for approval. It is scheduled for a full vote there early next week. A Senate committee is expected to vote on a similar measure Monday.

But all sides say the legislation is still a work in progress, with more changes likely as critics and supporters struggle over what the far-reaching measure will mean for the state's future.

"There's still more work to be done on the bill before it will be acceptable to business customers," said Mike Carlin, a lobbyist who represents industrial and retail companies. "We need to make sure we take the amount of time to make the right decision."

A Tough Choice

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After nearly a decade of marching toward deregulation, Virginia is now racing the other way.