
DATE: Tuesday, March 25, 1997               TAG: 9703250321

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: BY AKWELI PARKER, STAFF WRITER 

                                            LENGTH:  107 lines

PREPARING FOR A COMPETITION SURGEVIRGINIA POWER HAS A PLAN FOR DEREGULATION THAT INCLUDES A RATE FREEZE THROUGH 2002.

Virginia Power wants to rewrite the rules on how it's regulated.

That could be good news for customers, as the company wants to freeze rates at current levels through the year 2002. In exchange, Virginia Power asks that the State Corporation Commission lift a cap on the company's profit, part of which it would use to offset the expected costs of transitioning to a competitive, retail market for electricity.

Virginia Power, which serves 1.9 million customers, filed the request with the State Corporation Commission Monday. SCC spokesman Ken Schrad said the commission hadn't set a date to consider the proposal. But he said the commission would probably issue within a week its plans for reviewing the case.

``This is our blueprint for managing the transition to make sure that all our customers benefit,'' said Bill Byrd, a Virginia Power spokesman.

Members of Congress and some utilities would like to see competition in Virginia by the turn of the century. But others - including Virginia Power - would like it to take longer.

If rates are frozen at current levels, the average customer in 2002 would pay 20 percent less than she did in 1992, after adjustments for inflation, said Ed Roach, Virginia Power's vice president-finance. The last rate increase was in 1992. The freeze would not include the cost of buying fuel to run the utility's generators.

The average monthly residential bill is currently $84 - among the lowest rates in the country.

Another component of the power company's proposal is a so-called ``wire charge'' or in the parlance of the industry, transition cost charge. That's a fee Virginia Power wants to impose on any customer who jumps ship to another power company if and when competition arrives in Virginia.

The charge would vary, but would likely be under one cent per kilowatt hour, Byrd said. For a household using 1,000 kilowatt hours per month, that would work out to a little less than $10 per billing cycle and would be charged over about a seven year period.

Enjoying the status of only-kid-on-the-block for decades, power company monopolies have relied on their captive consumer audience to finance expensive infrastructure investments - generating stations, transmission lines, nuclear plants and the like.

But customers who left for competing power companies would in effect be getting a free ride on the backs of customers who stayed with Virginia Power. Without the transition cost charge, loyal customers would also have to shoulder more of the burden of paying for the company's so-called ``stranded investments.''

The wire charge, which Byrd said utilities in other states have implemented, is designed to recoup those costs.

Unlike the rate freeze, which requires no official action, the transition cost charge wouldn't go into effect until retail competition arrived in Virginia and the SCC approved the move.

Virginia Power's move turns up the heat on the issue of ``retail wheeling,'' the industry term for letting residential and commercial customers shop around for power.

Retail wheeling has gotten off to a quicker start in markets where energy costs more, like in the Northeast. Under pressure from constituents, politicians there have pushed harder to tear down regulatory barriers to competition.

New Hampshire, for instance, has been testing a pilot retail choice program since June 1996. Two-thirds of the electricity-consuming participants were satisfied with the pilot, according to a survey conducted by the New Hampshire Institute for Policy and Social Science Research.

But cautious observers say such successes don't warrant a ``one-size-fits-all,'' industrywide deregulation, which many utilities fear Congress is hankering for too soon.

Some companies, including Virginia Power, say a hasty transition to retail competition risks a breakdown of the power system's reliability.

Another con, they argue: in this state, competition could hurt, not help, the little guy. Out-of-state consumers accustomed to steeper rates will flock to Virginia Power's cheaper power. That higher demand could raise rates for Virginians.

As in the past, Virginia Power will give customers rebates once profits exceed a certain return on equity. The difference this time - profit made between a band of 11.5 and 13 percent return on equity - would go toward defraying transition costs.

Profit above 13 percent would be split between customers and stockholders, Roach said.

The company has been bracing for competition since 1995, when it initiated its ``Vision 2000'' program, a companywide paring that's so far involved the firing of nearly 1,300 workers, with ``several hundred more'' to come before the century's out.

The company isn't worried about declining profits as a result of a rate freeze - it plans to make it up in other areas, including some wheeling to other markets. ILLUSTRATION: The proposal

The key elements of Virginia Power's proposal:

1. A five-year freeze on base rates, at current levels, through

the end of 2002.

2. An earnings-sharing mechanism providing customers and

shareholders an opportunity to benefit if the company performs well

under the proposal.

3. A commitment by Virginia Power to substantially reduce its

potential transition costs and non-utility generators costs during

the rate freeze.

4. A request that the State Corporation Commission establish

policy on transition cost recovery and approve a recovery mechanism

that would be applied only if and when retail competition is