Letter to the Editor
March 2004
To the Editor:
The January issue's Commission Watch/i> article, "Grid Battle Is Joined," reports on the effort, pursuant to Section 205(a) of PURPA, by the Federal Energy Regulatory Commission (FERC) to exempt American Electric Power (AEP) from compliance with the laws of the Commonwealths of Kentucky and Virginia. In his "Frontlines" column, Editor Richard Stavros offers another perspective on this proceeding. Both pieces contain factual inaccuracies that the Virginia State Corporation Commission (VSCC) wishes to correct.
First, Ms. Burkhart and Mr. Radford state, in their otherwise fine article, "Grid Battle Is Joined," that in a ruling issued late last year the FERC "exempted [AEP] from contrary instructions from Kentucky and Virginia, and compelled AEP to join the PJM RTO and to participate fully in PJM market structures[.]" This statement is incorrect. The FERC's Order of Nov. 25, 2003, made only preliminary findings that AEP should be exempted from compliance with state laws and regulations. The matter is currently proceeding before an administrative law judge and both Virginia and Kentucky are vigorously defending the propriety of their state laws, rules, and regulations from this unprecedented federal action. Many other states have intervened in support of the Kentucky and Virginia position as well.
Next, in discussing the "fine print" of PURPA Sec. 205(a), Burkhart and Radford assert that "regulators in Virginia and Kentucky had claimed that their situations meshed exactly with loophole letter 'C'-that their states had imposed full economic regulation for traditional, bundled retail utility service, and that such regimes ... would suffer under FERC's exemption" and that FERC anticipated this argument in its order. At the time the article was printed, neither Virginia nor Kentucky had ever made such statement in this matter. FERC's Order recites, at 124, that "there is no showing that Virginia and Kentucky are seeking to protect public health, safety or welfare or the environment, or that their actions are intended to conserve energy or mitigate the effects of emergencies resulting from fuel shortages."
It is hardly surprising that there was "no showing" in this regard. The question whether FERC would invoke PURPA Sec. 205(a) and its "fine print, loophole letter 'C'" was not noticed in FERC's procedural orders establishing this "inquiry" proceeding that led to its issuance of the Nov. 25, 2003, order. During the inquiry, discovery was not permitted, cross-examination was not permitted any of the parties, and testimony was received only from a limited number of participants. No notice was given that the matter of PURPA Section 205(a) was under consideration and no opportunity was provided to make such showing. FERC made pre-emptive findings on these questions without the benefit of a developed record. That is among the subjects of the ongoing case before the ALJ.
On page 22 of the January issue, there is a chart accompanying the "Grid Battle Is Joined" article. Among its entries, the chart states that in "Feb. 2003 - Virginia enacts law barring RTO membership w/o OK from state PUC." This too is incorrect, or at least misleading. The Virginia Electric Utility Restructuring Act (Restructuring Act) was passed in 1999 and requires incumbent utilities operating in Virginia to join or establish a regional transmission entity, a point the article omits entirely. Approval of any transfer of ownership or control over transmission assets has required the approval of the VSCC from the inception of the Restructuring Act. VSCC approval authority over utility asset transfers has existed since at least the 1940s. The chart is misleading in implying that the 2003 action of the Virginia General Assembly created any new regulatory authority in this regard and that the legislative action was taken in response to the announcement in December 2002 by AEP of its agreement to enter PJM.
It is worth noting that the Restructuring Act originally required incumbent utilities to join or establish regional transmission entities on or before Jan. 1, 2001. The article understandably does not detail the considerable efforts of AEP, Dominion Virginia Power, and others to establish such an organization, the "Alliance RTO," both prior and subsequent to that date. The VSCC established cases for both AEP and Dominion in calendar year 2000 to consider their requests to transfer facilities or operations to the Alliance.
The article notes that the Alliance is "now-defunct," but fails to state why-after receiving several interim approval orders from the FERC, the Alliance RTO was rejected by FERC Order entered Dec. 20, 2001. Thus, years of utility and state regulatory resources were wasted in development and consideration of this proposal that was quashed by federal action.
The 2003 Session of the Virginia General Assembly enacted an amendment to the Restructuring Act that directed incumbent utilities to file, by July 1, 2003, applications to transfer control of their transmission assets and directed the VSCC not to grant approval of any such application before July 1, 2004. The actual transfer of operations is to commence on or before Jan. 1, 2005. Given the experience with the first attempt by incumbent utilities to join or establish regional transmission entities, where federal action initially encouraged, but ultimately thwarted the proposal, the review and consideration period built into the Restructuring Act by the 2003 amendment is eminently reasonable. By comparison, as noted in another sidebar to the article on p. 24, Ohio has suspended indefinitely the pending application of AEP in that state to transfer its considerable Ohio transmission assets to PJM, yet FERC has not sought to exempt AEP from the indefinite delay that the Ohio order might occasion.
Finally, turning to the "Frontlines" column, Mr. Stavros discusses what he believes to be a legal theory applicable to this case, the "state action" doctrine contained in a Supreme Court case that he cites, and asks "whether the Kentucky and Virginia public service commissions are in fact truly representing the wishes of their state when they oppose membership in regional power markets." Mr. Stavros also appears unaware that the requirements of the Restructuring Act do not oppose, but in fact, require membership by incumbent utilities in regional transmission entities. The VSCC has entered no order in AEP's pending application before it opposing that company's proposed membership in PJM. The matter is set for hearing before the VSCC in July.
Citing a Federal Trade Commission study of the state action doctrine, Mr. Stavros questions whether "the utility commissions qualify as instrumentalities of the sovereign state." He asserts that a "state public service commission, for example, is not a sovereign empowered to articulate state policy. It merely performs tasks delegated to it by the state legislature." Without commenting on the efficacy or validity of the state action doctrine, it appears that Mr. Stavros is unfamiliar with the nature, origins and functions of Virginia State Corporation Commission.
The Virginia State Corporation Commission was created by the enactment, in 1903, of Article IX of the Constitution of Virginia. It does perform myriad tasks delegated to it by the state legislature, including implementation of the Restructuring Act, but it also has duties and responsibilities conveyed directly to it by the citizens of Virginia through their ratification of the Virginia Constitution. The Virginia State Corporation Commission is neither an executive, nor legislative, branch agency of the state, but a permanent commission and separate department of government.
Thank you for the opportunity to correct the record on these matters. We appreciate the Fortnightly's interest in and continuing coverage of this controversy.
Sincerely,
William H. Chambliss
General Counsel
Virginia State Corporation Commission
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