DATE: Saturday, November 8, 1997            TAG: 9711080292

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: BY LOIS CALIRI 

        THE ROANOKE TIMES 
                                            LENGTH:   65 lines

COMMISSION IS CAUTIOUS ON DEREGULATION LEGISLATORS URGED TO CAREFULLY CONSIDER ALLOWING RETAIL COMPETITION FOR UTILITIES.

The State Corporation Commission Friday laid out a road map for electric deregulation that follows a commodity-type model proposed by American Electric Power. But the SCC stopped short of saying Virginia's utilities need to be deregulated and urged legislators to proceed with ``deliberation and caution.''

Virginia two major utilities, AEP and Virginia Power, want state officials to act quickly. They argue that customers would benefit from deregulation because competition would generate lower rates, more choices and better services.

The SCC's recommendation to the Joint House-Senate Subcommittee on Restructuring the Electric Utility Industry gave a thumbs-up to two key ingredients critical to retail competition - an independent system operator (ISO) and a regional power exchange. The ISO would manage the transmission system throughout a wide region of the country and guarantee independent power producers access to utility-owned power lines. The power exchange would be a stock market for energy where power could be bought and sold on a hourly basis by large users and re-sellers.

Virginia Power had hoped the SCC would take an aggressive approach. ``We're concerned that the federal government will pass deregulation laws in 1998 and we're opposed to federal regulation,'' said Eva Tieg, Virginia Power spokeswoman. ``We want Virginians to control our destiny.''

Power companies in states that do not deregulate would be governed by federal deregulation. Virginia Power is considering drafting plans for Virginia.

``We're not convinced that all Virginians will benefit,'' said SCC Director Ken Schrad. ``AEP's rates are far below the national average. If a competitive market drives prices toward a regional level or national average, then we can't guarantee AEP's customers are going to benefit from lower rates.

AEP's rates are 38 percent below national average. Virginia Powers's rates are 9 percent below.

AEP disagrees with Schrad's reasoning. ``We think that competition across the board will drive down prices, even for low-cost providers like AEP,'' said Tom Ayres, spokesman for AEP.

Under the SCC proposal, electricity generators would sell their power to big users and electricity brokers in a power pool, or open market. Because of the competitiveness, the price of electricity would depend on supply and demand, not regulated rates.

Large industrial customers might have the option of entering into bilateral contracts with suppliers. Such big power users can create their own markets and could end up paying even less than they would through the power pool.

``An efficient, open, ISO-operated spot market would benefit primarily smaller, less diversified players who are poorly represented in the political and technical back rooms where the critical details are being decided. Large players with diversified portfolios can operate their own spot markets and hence would get less benefit from an ISO-operated spot market than do smaller, undiversified players,'' wrote Dr. Larry E. Ruff, managing director of Putnam, Hayes & Bartlett, in an article published in The Electricity Journal.

The SCC acknowledged some disadvantages with the power pool concept.

``Number one, the cost,'' Schrad said. The power pool's infrastructure would be expensive. In addition, the utilities might not keep smaller power reserves. ``If capacity reserves become so narrow that they drive up the cost of electricity, then you lose supply and demand interaction.''

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