Contact: Priscilla Knight, 703-392-1580, pknight@novec.com
On January 5, 2006, the Northern Virginia Electric Cooperative (NOVEC) asked the Federal Energy Regulatory Commission (FERC) to modify its wholesale power supply contract with Old Dominion Electric Cooperative (ODEC) to allow NOVEC to obtain new power resources from competitive suppliers. At the same time, NOVEC reaffirmed its commitment to continue paying its share of existing ODEC power resources.
“We believe our request is a balanced solution for all parties. It allows NOVEC to shop for the lowest, most competitively-priced power to meet the growing electric needs of our customers and it provides financial stability to ODEC and our sister-cooperatives because NOVEC will continue to pay for ODEC’s existing resources,” said Stan Feuerberg, NOVEC President and CEO. “We think it’s a win-win solution.”
NOVEC’s power supply contract with ODEC was signed in 1983, before Congress enacted the Energy Policy Act of 1992 and before FERC in 1996 adopted Order No. 888, which mandated dramatic changes in the electric utility industry to promote competition and allow utilities access to transmission in order to obtain lower cost power for consumers. The contract, if not modified by FERC, locks NOVEC and its customers into an agreement to pay for any power resources that ODEC acquires until 2028 according to ODEC’s interpretation of it.
Among the determinations NOVEC is asking FERC make is that the terms of the contract are no longer just and reasonable or in the public interest and should be modified for the remaining contract term. NOVEC believes that, at the time the contract was entered into (in 1983 and amended in 1992), neither party could have reasonably envisioned the sweeping changes yet to occur in the utility industry, including:
- the adoption in 1996 of FERC Order Nos. 888 and 888-A, requiring open-access transmission tariffs;
- the adoption of FERC Order No. 2000, which defines the minimum characteristics and functions of a robust, competitive electricity market;
- the creation of Independent System Operators and Regional Transmission Organizations in 2000;
- the development of competitive energy markets and increasing competitive pressure at the state level.
NOVEC notes that FERC, in its recommendations with regard to implementation of Order No. 888-A and the public interest standard, has concluded that “…the industry is in the midst of fundamental change” so it is not in “the public interest to require all customers to be held to requirements contracts that were executed under the prior industry regime, no matter what the circumstances.”
“The utility industry has undergone tremendous change in the last 14 years,” said Feuerberg. “Our 1983 contract with ODEC is an ‘old world’ contract that would deny the benefits of competition to our customers for another 22 years and force us to participate in new power supply investments that we do not think are in the best interest of our consumers.”
When NOVEC began negotiations with ODEC to modify its contract, ODEC’s resources consisted only of ownership shares of a coal-fired plant and a nuclear facility, along with some contract purchases. However, in the past few years, ODEC has invested nearly $600 million in new combustion turbine peaking facilities (CTs). In addition to this $600 million investment, ODEC made a bid to buy yet another peaking CT in December 2004. NOVEC strongly objected to the addition of adding so much peaking capacity to ODEC’s generation mix, arguing that more balance in the resource mix would be needed in a competitive market.
NOVEC remains committed to paying its share of all of ODEC’s existing resources, including the new combustion turbines, despite the fact the costs have dramatically increased since the wholesale power contract-restructuring negotiations began, years ago. However, because NOVEC is a captive customer and pays the largest share of investments that ODEC makes but has no control over ODEC’s decision-making process, NOVEC is asking FERC to allow it to participate in the competitive market going forward in order to control its power supply destiny.
NOVEC is a not-for-profit, consumer-owned electric distribution cooperative. NOVEC provides reliable electric service to more than 130,000 homes and businesses in six counties of Northern Virginia, most of which are in Fairfax, Prince William and Loudoun counties, among the fastest growing in the country. NOVEC’s mission is to provide its cooperative member retail customers with reliable power supply at the lowest cost reasonably possible.
“As a consumer-owned cooperative, we take our mission to provide competitively-priced power very seriously. Our wholesale power billings from ODEC currently comprise about 76 percent of NOVEC’s total operating costs. Clearly, this is unacceptable,” said Feuerberg. “The cooperative business model is consumer-focused and will work well in the new competitive environment, but we must be allowed access to the competitive market.”
