FERC says utility should join power grid

Va., Ky. oppose U.S. action on American Electric

November 27, 2003|By BLOOMBERG NEWS

WASHINGTON -American Electric Power Co. should join the PJM Interconnection, the grid operator for the Mid-Atlantic states, federal regulators said yesterday in a preliminary order asserting authority to exempt the company from state rules.

The Federal Energy Regulatory Commission said the third-largest U.S. utility by sales must meet a previous commitment to put most of its transmission facilities under PJM's control. Regulators in Virginia and Kentucky have been hindering the move on concern that cheap power might be drained from their states.

"The preliminary finding made by the FERC threatens to brush aside the public interest laws" of Virginia, said Ken Schrad, a spokesman for the Virginia State Corporation Commission. The state regulators are "shocked and troubled" by the federal agency's order, he said.

The case tests FERC Chairman Patrick H. Wood III's plan to foster wholesale power competition by pushing utilities into regional transmission organizations such as PJM.

An energy bill that stalled this week in the Senate would delay until 2007 any FERC rule that would force utilities into grid groups.

American Electric's plan to join PJM may "frame the battle on federal supremacy" on the formation of regional transmission organizations, said Mark Williams, a former FERC staff attorney who heads the energy regulatory practice at the law firm of Bingham Dana LLP in Washington.

The agency's authority covers economic and market issues, while its jurisdiction is less clear on the operation of the physical grid, he said. "FERC can end up litigating its way to have the ability to override state law."

FERC will hold hearings on the conflict with the states before making a final ruling. The commissioners directed an administrative law judge to prepare a proposed decision in the case, based on the hearings, by March 15.

"We think FERC and the states need to collaborate to resolve jurisdictional issues," said David Hagelin, a spokesman for Columbus, Ohio-based American Electric. "It appears this would provide a forum for that."

The federal agency said joining PJM, based in Valley Forge, Pa., would reduce AEP's market dominance. Putting most of its utility units into PJM was a condition regulators placed on AEP when it bought Central & South West Corp. in 2000.

AEP subsidiaries in Indiana, Kentucky, Michigan, Ohio, Tennessee, Virginia and West Virginia would join PJM. The company's units in Texas, Oklahoma, Louisiana and Arkansas would not join a regional transmission group.

In July, Kentucky regulators ordered American Electric to show proof that shifting grid control to PJM would benefit consumers in the state. Virginia lawmakers passed legislation in February that prohibits utilities from transferring control of their transmission to a regional operator before July.

The states "appear to have opposing views from the FERC on this issue," said Andrew Melnykovytch, a spokesman for the Kentucky Public Service Commission in Frankfort, Ky.

Virginia produces low-cost power "which they don't want sucked out of the state," Williams said.

PJM has included AEP's system in computer models and technical planning even after Kentucky and Virginia acted to delay membership.

"Anything that moves forward the integration of utilities that want to join PJM is a good thing," said Joe Patterson, a spokesman for PJM, which operates the largest U.S. wholesale power market.

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