THE VIRGINIAN-PILOT  
              Copyright (c) 1996, Landmark Communications, Inc.

DATE: Tuesday, August 13, 1996              TAG: 9608130269
SECTION: BUSINESS                PAGE: D1   EDITION: FINAL  
SOURCE: BY DAVE MAYFIELD, STAFF WRITER 
                                            LENGTH:   62 lines

CORRECTION/CLARIFICATION: ***************************************************************** Due to a technical problem, the first name and title of Paul Hilton, Virginia Power's manager of rates and regulation, were omitted from a Business News story Tuesday about a Navy contract. Correction published Wednesday, August 14, 1996, page D2. ***************************************************************** UTILITIES WANT SLICE OF NAVY CONTRACT A LONG-TERM DEAL WITH VIRGINIA POWER HAS SHUT THEM OUT OF THE COMPETITION.

Three energy companies are protesting a long-term agreement between the Navy and Virginia Power. They want a chance to compete to sell electricity to federal installations in Virginia.

Virginia Power and the Navy say the protest has little chance of succeeding. But the flap is indicative of a growing national trend toward competition among electric utilities.

The Navy sparked the controversy by asking federal regulators earlier this year for the authority to shop for power in Virginia.

The sea service dropped its request in June after Virginia Power agreed to a long-term cut in electricity rates it charges the federal government, the utility's single largest customer. Because the Navy is the single largest buyer of electricity among all federal agencies in Virginia, the utility stood to lose more than $100 million a year in sales - 2 percent of its overall business.

The agreement between the utility and Navy was protested last month by the Kansas City, Mo.-based UtiliCorp United Inc. and two Houston-based companies, Enron Corp. and Destec Energy Inc. The three companies want Defense Secretary William Perry to overturn the Virginia Power pact and give them a chance to bid to supply federal installations in the state.

``Electricity is the only thing that DOD doesn't bid competitively, and we think that ought to change,'' said Al Butkus, a UtiliCorp spokesman.

Largely due to changes in federal regulatory policies, competition among electric utilities has been heating up on other fronts in recent years. But it mostly has involved fighting to supply so-called wholesale customers like electric cooperatives and city-owned power authorities, which redistribute the electricity they buy to homeowners, factories and other end users.

Industry executives widely expect the competitive battle to be pushed down from wholesale customers to end users as well. That's largely why Virginia Power has eliminated 1,200 jobs in the past 16 months.

Hilton said that traditionally Virginia Power has adjusted the rates it charges federal installations in the state to reflect the wholesale price of power. He said Virginia is the only state whose utility commission doesn't regulate the price of power supplied to federal agencies.

In response to the Navy's threat to bypass it, Virginia Power agreed to cut its rates more than it ordinarily would, Hilton said. He declined to provide details, but said the concessions are justified because the Navy agreed to remain a customer for at least five more years. Sam DeFrawi, the Navy's director of rate intervention, said he thinks the Navy had only a ``slim opportunity'' to win the Federal Energy Regulatory Commission's go-ahead to shop for power. But he said the threat proved a useful ``negotiating tactic'' with Virginia Power. Utilities in Florida and Maine have also signed long-term rate-cutting agreements with federal agencies, he noted.

Officials of Enron and Destec had no comment Monday. by CNB