In a proceeding that involves questions of federal and state regulatory jurisdiction, the Virginia State Corporation Commission (SCC) recently rejected a proposal by Virginia Electric & Power Co. (VEPCO) to make wholesale sales of power at cost-based rates to affiliate Dominion Retail Inc.

The SCC in June 2002 issued an order conditionally accepting the proposed power sales subject to certain conditions. Specifically, the state commission told VEPCO and Dominion Retail to revise their power purchase and sale agreement to state that the SCC has continuing supervisory control over the power agreements between the two companies and will continue to have the authority to terminate the agreement in the future. The SCC also conditioned its approval upon FERC’s signing off on the revised agreement.

More recently, the Federal Energy Regulatory Commission in May conditionally accepted the VEPCO-Dominion Retail agreement, subject to one modification. FERC rejected the language required by the SCC and directed VEPCO to make a compliance filing removing such language from the agreement.

VEPCO agreed to make the compliance filing, but said that it would not engage in any transactions with Dominion Retail pending a decision by the SCC in the proceeding.

The SCC, in a June 27 order, said that VEPCO and Dominion Retail may not engage in the proposed affiliate transactions and that any related agreements are “not valid or effective.” The state commission said that it would be “improvident and unwise” for it to approve the proposed transactions after FERC has “explicitly stated that [Virginia] cannot exercise its supervisory control and reserved power over this affiliate arrangement as provided for by Virginia statute.”

The SCC noted that VEPCO and Dominion Retail have said that irrespective of FERC’s decision, they will agree to terminate the agreement if ordered to do so by the SCC. But the state commission said that such a stipulation doesn’t confer jurisdiction to Virginia or the SCC. Such a stipulation also does not provide the state with supervisory control and reserved power over the affiliate deal “as required to protect and promote the public interest,” the SCC added.

In addition, the transactions under the agreement will be part of the competitive wholesale market. Those transactions, the SCC pointed out, will not only impact VEPCO and Dominion Retail, but may also impact third parties that haven’t agreed to any stipulation made by VEPCO and Dominion Retail. These third parties could “actively oppose” the SCC’s authority and contest Virginia’s jurisdiction to take continuing steps that may be needed to protect and promote the public interest. In such a situation, FERC may assert that it has the authority to prohibit a termination of the agreement.

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