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Developed and maintained by the Division of Legislative Automated Systems.
2011 SESSION
11104136DPatrons-- Merricks, Carrico, Crockett-Stark, Kilgore, Marshall, D.W. and Morefield
Be it enacted by the General Assembly of Virginia:
1. That § 56-585.1 of the Code of Virginia is amended and reenacted as follows:
§ 56-585.1. Generation, distribution, and transmission rates.
A. During the first six months of 2009,
the Commission shall, after notice and opportunity for hearing, initiate
proceedings to review the rates, terms and conditions for the provision of
generation, distribution and transmission services of each investor-owned
incumbent electric utility. Such proceedings shall be governed by the
provisions of Chapter 10 (§ 56-232 et seq.) of this title, except as modified
herein. In such proceedings the Commission shall determine fair rates of return
on common equity applicable to the generation and distribution services of the
utility. In so doing, the Commission may use any methodology to determine such
return it finds consistent with the public interest, but such return shall not
be set lower than the average of the returns on common equity reported to the
Securities and Exchange Commission for the three most recent annual periods for
which such data are available by not less than a majority, selected by the
Commission as specified in subdivision 2 b, of other investor-owned electric
utilities in the peer group of the utility, nor shall the Commission set such
return more than 300 basis points higher than such average. The peer group of
the utility shall be determined in the manner prescribed in subdivision 2 b.
The Commission may increase or decrease such combined rate of return by up to
100 basis points based on the generating plant performance, customer service,
and operating efficiency of a utility, as compared to nationally recognized
standards determined by the Commission to be appropriate for such purposes. In
such a proceeding, the Commission shall determine the rates that the utility
may charge until such rates are adjusted. If the Commission finds that the
utility's combined rate of return on common equity is more than 50 basis points
below the combined rate of return as so determined, it shall be authorized to
order increases to the utility's rates necessary to provide the opportunity to
fully recover the costs of providing the utility's services and to earn not
less than such combined rate of return. If the Commission finds that the
utility's combined rate of return on common equity is more than 50 basis points
above the combined rate of return as so determined, it shall be authorized
either (i) to order reductions to the utility's rates it finds appropriate,
provided that the Commission may not order such rate reduction unless it finds
that the resulting rates will provide the utility with the opportunity to fully
recover its costs of providing its services and to earn not less than the fair
rates of return on common equity applicable to the generation and distribution
services; or (ii) direct that 60 percent of the amount of the utility's
earnings that were more than 50 basis points above the fair combined rate of
return for calendar year 2008 be credited to customers' bills, in which event
such credits shall be amortized over a period of six to 12 months, as
determined at the discretion of the Commission, following the effective date of
the Commission's order and be allocated among customer classes such that the
relationship between the specific customer class rates of return to the overall
target rate of return will have the same relationship as the last approved
allocation of revenues used to design base rates. Commencing
in 2011, the Commission, after notice and opportunity for hearing, shall
conduct biennial reviews of the rates, terms,
and conditions for the provision of generation, distribution, and transmission services by
each investor-owned incumbent electric utility, subject to the following provisions:
1. Rates, terms, and conditions for each service shall be reviewed separately on an unbundled basis, and such reviews shall be conducted in a single, combined proceeding. The first such review shall utilize the two successive 12-month test periods ending December 31, 2010. However, the Commission may, in its discretion, elect to stagger its biennial reviews of utilities by utilizing the two successive 12-month test periods ending December 31, 2010, for a Phase I Utility, and utilizing the two successive 12-month test periods ending December 31, 2011, for a Phase II Utility, with subsequent proceedings utilizing the two successive 12-month test periods ending December 31 immediately preceding the year in which such proceeding is conducted. For purposes of this section, a Phase I Utility is an investor-owned incumbent electric utility that was, as of July 1, 1999, not bound by a rate case settlement adopted by the Commission that extended in its application beyond January 1, 2002, and a Phase II Utility is an investor-owned incumbent electric utility that was bound by such a settlement.
2. Subject to the provisions of subdivision 6, fair rates of return on common equity applicable separately to the generation and distribution services of such utility, and for the two such services combined, shall be determined by the Commission during each such biennial review, as follows:
a. The Commission may use any methodology to determine such return it finds consistent with the public interest, but for a Phase II Utility such return shall not be set lower than the average of the returns on common equity reported to the Securities and Exchange Commission for the three most recent annual periods for which such data are available by not less than a majority, selected by the Commission as specified in subdivision 2 b, of other investor-owned electric utilities in the peer group of the utility subject to such biennial review, nor shall the Commission set such return more than 300 basis points higher than such average.
b. In selecting such majority of peer group investor-owned electric utilities, the Commission shall first remove from such group the two utilities within such group that have the lowest reported returns of the group, as well as the two utilities within such group that have the highest reported returns of the group, and the Commission shall then select a majority of the utilities remaining in such peer group. In its final order regarding such biennial review, the Commission shall identify the utilities in such peer group it selected for the calculation of such limitation. For purposes of this subdivision, an investor-owned electric utility shall be deemed part of such peer group if (i) its principal operations are conducted in the southeastern United States east of the Mississippi River in either the states of West Virginia or Kentucky or in those states south of Virginia, excluding the state of Tennessee, (ii) it is a vertically-integrated electric utility providing generation, transmission and distribution services whose facilities and operations are subject to state public utility regulation in the state where its principal operations are conducted, (iii) it had a long-term bond rating assigned by Moody's Investors Service of at least Baa at the end of the most recent test period subject to such biennial review, and (iv) it is not an affiliate of the utility subject to such biennial review.
c. The Commission may increase or decrease such combined rate of return by up to 100 basis points based on the generating plant performance, customer service, and operating efficiency of a utility, as compared to nationally recognized standards determined by the Commission to be appropriate for such purposes, such action being referred to in this section as a Performance Incentive. If the Commission adopts such Performance Incentive, it shall remain in effect without change until the next biennial review for such utility is concluded and shall not be modified pursuant to any provision of the remainder of this subsection.
d. In any Current Proceeding, the Commission shall determine whether the Current Return has increased, on a percentage basis, above the Initial Return by more than the increase, expressed as a percentage, in the United States Average Consumer Price Index for all items, all urban consumers (CPI-U), as published by the Bureau of Labor Statistics of the United States Department of Labor, since the date on which the Commission determined the Initial Return. If so, the Commission may conduct an additional analysis of whether it is in the public interest to utilize such Current Return for the Current Proceeding then pending. A finding of whether the Current Return justifies such additional analysis shall be made without regard to any Performance Incentive adopted by the Commission, or any enhanced rate of return on common equity awarded pursuant to the provisions of subdivision 6. Such additional analysis shall include, but not be limited to, a consideration of overall economic conditions, the level of interest rates and cost of capital with respect to business and industry, in general, as well as electric utilities, the current level of inflation and the utility's cost of goods and services, the effect on the utility's ability to provide adequate service and to attract capital if less than the Current Return were utilized for the Current Proceeding then pending, and such other factors as the Commission may deem relevant. If, as a result of such analysis, the Commission finds that use of the Current Return for the Current Proceeding then pending would not be in the public interest, then the lower limit imposed by subdivision 2 a on the return to be determined by the Commission for such utility shall be calculated, for that Current Proceeding only, by increasing the Initial Return by a percentage at least equal to the increase, expressed as a percentage, in the United States Average Consumer Price Index for all items, all urban consumers (CPI-U), as published by the Bureau of Labor Statistics of the United States Department of Labor, since the date on which the Commission determined the Initial Return. For purposes of this subdivision:
"Current Proceeding" means any proceeding conducted under any provisions of this subsection that require or authorize the Commission to determine a fair combined rate of return on common equity for a utility and that will be concluded after the date on which the Commission determined the Initial Return for such utility.
"Current Return" means the minimum fair combined rate of return on common equity required for any Current Proceeding by the limitation regarding a utility's peer group specified in subdivision 2 a.
"Initial Return" means the fair combined rate of return on common equity determined for such utility by the Commission on the first occasion after July 1, 2009, under any provision of this subsection pursuant to the provisions of subdivision 2 a.
e. In addition to other considerations, in
setting the return on equity within the range
allowed by under this section, the Commission shall strive to maintain costs of
retail electric energy that are cost competitive with costs of retail electric
energy provided by the other peer group investor-owned electric utilities.
f. The determination of such returns, including the determination of whether to adopt a Performance Incentive and the amount thereof, shall be made by the Commission on a stand-alone basis, and specifically without regard to any return on common equity or other matters determined with regard to facilities described in subdivision 6.
g. If the combined rate of return on common equity earned by both the generation and distribution services is no more than 50 basis points above or below the return as so determined, such combined return shall not be considered either excessive or insufficient, respectively.
h. Any amount of a utility's earnings directed by the Commission to be credited to customers' bills pursuant to this section shall not be considered for the purpose of determining the utility's earnings in any subsequent biennial review.
3. Each such utility shall make a biennial
filing by March 31 of every other year, beginning in 2011, consisting of the
schedules contained in the Commission's rules governing utility rate increase
applications (20 VAC 5-200-30); however, if the Commission elects to stagger the dates of the
biennial reviews of utilities as provided in subdivision 1, then Phase I
utilities shall commence biennial filings in 2011 and Phase II utilities shall
commence biennial filings in 2012. Such filing shall encompass the two
successive 12-month test periods ending December 31 immediately preceding the
year in which such proceeding is conducted, and in every such case the filing
for each year shall be identified separately and shall be segregated from any
other year encompassed by the filing.
If the Commission determines that rates should be revised or credits be applied to customers' bills pursuant to subdivision 8 or 9, any rate adjustment clauses previously implemented pursuant to subdivision 4 or 5 or those related to facilities utilizing simple-cycle combustion turbines described in subdivision 6, shall be combined with the utility's costs, revenues and investments until the amounts that are the subject of such rate adjustment clauses are fully recovered. The Commission shall combine such clauses with the utility's costs, revenues and investments only after it makes its initial determination with regard to necessary rate revisions or credits to customers' bills, and the amounts thereof, but after such clauses are combined as herein specified, they shall thereafter be considered part of the utility's costs, revenues, and investments for the purposes of future biennial review proceedings.
4. The
following costs incurred by the utility shall be deemed reasonable and prudent:
(i) costs for transmission services provided to the utility by the regional
transmission entity of which the utility is a member, as determined under
applicable rates, terms and conditions approved by the Federal Energy
Regulatory Commission and (ii) costs charged to the utility that are associated
with demand response programs approved by the Federal Energy Regulatory
Commission and administered by the regional transmission entity of which the
utility is a member. Upon petition of a utility Phase
II Utility at
any time after the expiration or termination of capped rates, but not
more than once in any 12-month period, and
as provided in subdivision 5 with respect to a petition of a Phase I Utility, the Commission shall approve a rate adjustment clause under which
such costs, including, without limitation, costs for transmission service,
charges for new and existing transmission facilities, administrative charges,
and ancillary service charges designed to recover transmission costs, shall be
recovered on a timely and current basis from customers. Retail rates to recover
these costs shall be designed using the appropriate billing determinants in the
retail rate schedules.
5. A utility Phase I Utility may in one
combined proceeding per yeay, and
a Phase II Utility may at any time,
after the expiration or termination of capped rates,
but not more than once in any 12-month period, petition the Commission for
approval of one or more rate adjustment clauses for the timely and current
recovery from customers of the following costs:
a. Incremental costs described in clause (vi) of subsection B of § 56-582 incurred between July 1, 2004, and the expiration or termination of capped rates, if such utility is, as of July 1, 2007, deferring such costs consistent with an order of the Commission entered under clause (vi) of subsection B of § 56-582. The Commission shall approve such a petition allowing the recovery of such costs that comply with the requirements of clause (vi) of subsection B of § 56-582;
b. Projected and actual costs for the utility to design and operate fair and effective peak-shaving programs. The Commission shall approve such a petition if it finds that the program is in the public interest; provided that the Commission shall allow the recovery of such costs as it finds are reasonable;
c. Projected and actual costs for the utility to design,
implement, and operate energy efficiency programs, including a margin to be
recovered on operating expenses, which margin for the purposes of this section
shall be equal to the general rate of return on common equity determined as
described in subdivision A
2 of this section. The
Commission shall only approve such a petition if it finds that the program is
in the public interest. As part of such cost recovery, the Commission, if
requested by the utility, shall allow for the recovery of revenue reductions
related to energy efficiency programs. The Commission shall only allow such
recovery to the extent that the Commission determines such revenue has not been
recovered through margins from incremental off-system sales as defined in §
56-249.6 that are directly attributable to energy efficiency programs.
None of the costs of new energy efficiency programs of an electric utility, including recovery of revenue reductions, shall be assigned to any customer that has a verifiable history of having used more than 10 megawatts of demand from a single meter of delivery. Nor shall any of the costs of new energy efficiency programs of an electric utility, including recovery of revenue reductions, be incurred by any large general service customer as defined herein that has notified the utility of non-participation in such energy efficiency program or programs. A large general service customer is a customer that has a verifiable history of having used more than 500 kilowatts of demand from a single meter of delivery. Non-participation in energy efficiency programs shall be allowed by the Commission if the large general service customer has, at the customer's own expense, implemented energy efficiency programs that have produced or will produce measured and verified results consistent with industry standards and other regulatory criteria stated in this section. The Commission shall, no later than November 15, 2009, promulgate rules and regulations to accommodate the process under which such large general service customers shall file notice for such an exemption and (i) establish the administrative procedures by which eligible customers will notify the utility and (ii) define the standard criteria that must be satisfied by an applicant in order to notify the utility. In promulgating such rules and regulations, the Commission may also specify the timing as to when a utility shall accept and act on such notice, taking into consideration the utility's integrated resource planning process as well as its administration of energy efficiency programs that are approved for cost recovery by the Commission. The notice of non-participation by a large general service customer, to be given by March 1 of a given year, shall be for the duration of the service life of the customer's energy efficiency program. The Commission on its own motion may initiate steps necessary to verify such non-participants' achievement of energy efficiency if the Commission has a body of evidence that the non-participant has knowingly misrepresented its energy efficiency achievement. A utility shall not charge such large general service customer, as defined by the Commission, for the costs of installing energy efficiency equipment beyond what is required to provide electric service and meter such service on the customer's premises if the customer provides, at the customer's expense, equivalent energy efficiency equipment. In all relevant proceedings pursuant to this section, the Commission shall take into consideration the goals of economic development, energy efficiency and environmental protection in the Commonwealth;
d. Projected and actual costs of participation in a renewable energy portfolio standard program pursuant to § 56-585.2 that are not recoverable under subdivision 6. The Commission shall approve such a petition allowing the recovery of such costs as are provided for in a program approved pursuant to § 56-585.2; and
e. Projected and actual costs of projects that the Commission finds to be necessary to comply with state or federal environmental laws or regulations applicable to generation facilities used to serve the utility's native load obligations. The Commission shall approve such a petition if it finds that such costs are necessary to comply with such environmental laws or regulations. If the Commission determines it would be just, reasonable, and in the public interest, the Commission may include the enhanced rate of return on common equity prescribed in subdivision 6 in a rate adjustment clause approved hereunder for a project whose purpose is to reduce the need for construction of new generation facilities by enabling the continued operation of existing generation facilities. In the event the Commission includes such enhanced return in such rate adjustment clause, the project that is the subject of such clause shall be treated as a facility described in subdivision 6 for the purposes of this section.
The Commission shall have the authority to determine the duration or amortization period for any adjustment clause approved under this subdivision.
Notwithstanding any provision of this section to the contrary, in order that the retail customers of a Phase I Utility are not subjected to more than one change in rates in any calendar year, except for any revisions to rates authorized by § 56-242, 56-245, or 56-249.6, petitions for approval of rate adjustment clauses under this subdivision and subdivisions 4 and 6 shall be combined into single annual proceedings. The Commission shall consider all rate adjustment clause petitions filed under this section by a Phase I Utility as part of a single combined proceeding consolidating all rate adjustment clause proceedings and the biennial review if the rate adjustment clause petition is filed during the 12 months preceding the filing of the Phase I Utility's biennial review, or in a single, combined proceeding consolidating all rate adjustment clause proceedings, if the rate adjustment clause petition is filed during the 12 months following the filing of the Phase I Utility's biennial review. A rate adjustment clause proceeding for any year shall be filed by March 31. In each such rate adjustment clause proceeding for a Phase I Utility, the Commission shall (i) provide for the recovery of approved costs, including any allowed enhanced rate of return on common equity, through a rate rider that provides for such recovery through current or future rates over the duration or amortization period of the rate adjustment clause; (ii) determine the duration or amortization period for the rate adjustment clause; (iii) take into account the utility's base rate earnings for the 12-month test period ending December 31 immediately preceding the year in which the proceeding is conducted in order to ensure that the amount of any rate rider does not authorize the Phase I Utility to charge rates that in the aggregate would provide revenues that allow the utility to earn in excess of the authorized rate of return established (a) in the utility's most recent biennial review if the proceeding is not conducted in a year when it has a biennial review or (b) in the biennial review if the proceeding is conducted in a year when it has a biennial review; (iv) provide for future adjustment of the amount of any such rider in any biennial review or rate adjustment clause proceeding in order to account for any changes in costs and earnings, so as to minimize over-collections and under-collections and to prevent excess earnings; (v) be authorized to reduce the amount of any rate rider if the Commission determines that the Phase I Utility's base rate earnings exceed the amount required to earn the authorized return, if doing so would not reduce the utility’s earned rate of return to a level that is less than the authorized rate of return; and (vi) be authorized, in future proceedings, to reduce a rate rider if the rider generates excess revenues.
6. To ensure a reliable and adequate supply of electricity, to
meet the utility's projected native load obligations,
and to promote economic development, a utility Phase II Utility
may at any time, after the expiration
or termination of capped rates and
a Phase I Utility may
in the combined annual
rate adjustment clause proceeding as provided in
subdivision 5, petition the Commission for approval of a
rate adjustment clause for recovery on a timely and current basis from
customers of the costs of (i) a coal-fueled generation facility that utilizes
Virginia coal and is located in the coalfield region of the Commonwealth, as
described in § 15.2-6002, regardless of whether such facility is located within
or without the utility's service territory, (ii) one or more other generation
facilities, or (iii) one or more major unit modifications of generation
facilities; however, such a petition concerning facilities
described in clause (ii) that utilize nuclear power, facilities described in
clause (ii) that are coal-fueled and will be built by a Phase I utility, or
facilities described in clause (i) may also be filed before the expiration or
termination of capped rates. A utility that constructs any
such facility shall have the right to recover the costs of the facility, as
accrued against income, through its rates, including projected construction
work in progress, and any associated allowance for funds used during
construction, planning, development and construction costs, life-cycle costs,
and costs of infrastructure associated therewith, plus, as an incentive to
undertake such projects, an enhanced rate of return on common equity calculated
as specified below. The costs of the facility, other than return on projected
construction work in progress and allowance for funds used during construction,
shall not be recovered prior to the date the facility begins commercial operation.
Such enhanced rate of return on common equity shall be applied to allowance for
funds used during construction and to construction work in progress during the
construction phase of the facility and shall thereafter be applied to the
entire facility during the first portion of the service life of the facility.
The first portion of the service life shall be as specified in the table below;
however, the Commission shall determine the duration of the first portion of
the service life of any facility, within the range specified in the table
below, which determination shall be consistent with the public interest and
shall reflect the Commission's determinations regarding how critical the
facility may be in meeting the energy needs of the citizens of the Commonwealth
and the risks involved in the development of the facility. After the first
portion of the service life of the facility is concluded, the utility's general
rate of return shall be applied to such facility for the remainder of its
service life. As used herein, the service life of the facility shall be deemed
to begin on the date the facility begins commercial operation, and such service
life shall be deemed equal in years to the life of that facility as used to
calculate the utility's depreciation expense. Such enhanced rate of return on
common equity shall be calculated by adding the basis points specified in the
table below to the utility's general rate of return, and such enhanced rate of
return shall apply only to the facility that is the subject of such rate
adjustment clause. No change shall be made to any Performance Incentive
previously adopted by the Commission in implementing any rate of return under
this subdivision. Allowance for funds used during construction shall be
calculated for any such facility utilizing the utility's actual capital
structure and overall cost of capital, including an enhanced rate of return on
common equity as determined pursuant to this subdivision, until such
construction work in progress is included in rates. The construction of any
facility described in clause (i) is in the public interest, and in determining
whether to approve such facility, the Commission shall liberally construe the
provisions of this title. The basis points to be added to the utility's general
rate of return to calculate the enhanced rate of return on common equity, and
the first portion of that facility's service life to which such enhanced rate
of return shall be applied, shall vary by type of facility, as specified in the
following table:
Type of Generation Facility Basis Points First Portion of Service Life
Nuclear-powered 200 Between 12 and 25 years
Carbon capture compatible,
clean-coal powered 200 Between 10 and 20 years
Renewable powered 200 Between 5 and 15 years
Conventional coal or combined-
cycle combustion turbine 100 Between 10 and 20 years
Generation facilities described in clause (ii) that utilize simple-cycle combustion turbines shall not receive an enhanced rate of return on common equity as described herein, but instead shall receive the utility's general rate of return during the construction phase of the facility and, thereafter, for the entire service life of the facility.
For purposes of this subdivision, "general rate of return" means the fair combined rate of return on common equity as it is determined by the Commission from time to time for such utility pursuant to subdivision 2. In any proceeding under this subdivision conducted prior to the conclusion of the first biennial review for such utility, the Commission shall determine a general rate of return for such utility in the same manner as it would in a biennial review proceeding.
Notwithstanding any other provision of this subdivision, if the Commission finds during the biennial review conducted for a Phase II utility in 2018 that such utility has not filed applications for all necessary federal and state regulatory approvals to construct one or more nuclear-powered or coal-fueled generation facilities that would add a total capacity of at least 1500 megawatts to the amount of the utility's generating resources as such resources existed on July 1, 2007, or that, if all such approvals have been received, that the utility has not made reasonable and good faith efforts to construct one or more such facilities that will provide such additional total capacity within a reasonable time after obtaining such approvals, then the Commission, if it finds it in the public interest, may reduce on a prospective basis any enhanced rate of return on common equity previously applied to any such facility to no less than the general rate of return for such utility and may apply no less than the utility's general rate of return to any such facility for which the utility seeks approval in the future under this subdivision.
7. Any petition filed pursuant to subdivision 4, 5, or
6 by a Phase I Utility shall be considered by the Commission after
taking into consideration the other costs,
revenues, investments, or earnings of the utility as
provided in subdivision 5. Any petition filed pursuant to
subdivision 4, 5, or 6 by a Phase II Utility shall be considered by the Commission on a stand-alone basis
without regard to the other costs, revenues, investments, or earnings of the
utility. Any costs incurred by a utility prior to the filing of such a
rate adjustment clause petition, or during the
consideration thereof by the Commission, that are proposed for recovery in such
petition and that are related to clause (a) of
subdivision 5 a,
or that are related to facilities and projects described in clause (i) of
subdivision 6, shall be deferred on the books and
records of the utility until the Commission's final order in the matter, or
until the implementation of any applicable approved rate adjustment clauses,
whichever is later. Any costs prudently incurred on or after July 1, 2007, by a
utility prior to the filing of such petition, or during the consideration
thereof by the Commission, that are proposed for recovery in such petition and
that are related to facilities and projects described in clause (ii) of
subdivision 6 that utilize nuclear power, or
coal-fueled facilities and projects described in clause (ii) of subdivision 6 if such coal-fueled facilities will be built by a Phase
I Utility, shall be deferred on the books and records of the utility until the
Commission's final order in the matter, or until the implementation of any
applicable approved rate adjustment clauses, whichever is later. Any costs
prudently incurred after the expiration or termination of
capped rates related to other matters described in subdivisions subdivision 4, 5, or 6
shall be deferred beginning only upon the expiration or
termination of capped rates, provided, however, that no provision of
this act shall affect the rights of any parties with respect to the rulings of
the Federal Energy Regulatory Commission in PJM Interconnection LLC and
Virginia Electric and Power Company, 109 F.E.R.C. P 61,012 (2004).
The Commission's final order regarding any petition filed by a Phase II Utility pursuant to subdivision 4, 5 or 6 shall be entered not more than three months, eight months, and nine months, respectively, after the date of filing of such petition. If such petition is approved, the order shall direct that the applicable rate adjustment clause be applied to customers' bills not more than 60 days after the date of the order, or upon the expiration or termination of capped rates, whichever is later. The Commission's final order regarding any rate adjustment clause proceeding for a Phase I Utility shall be entered (i) if issued for a year in which a biennial review is conducted for the utility, concurrently with the Commission's final order in the utility's biennial review as provided in subdivision 8 or (ii) if the petition is filed other than for a year in which a biennial review is conducted for the utility, by a date that allows any revision in rates so ordered to take effect not later than May 1 of the year following the year in which the biennial review commenced.
8. If the Commission determines as
a result of such any biennial review that:
(i) a. The
utility has, during the test period or periods under review, considered as a
whole, earned more than 50 basis points below a
fair combined rate of return on both its generation and distribution services, as
determined in subdivision 2, without regard to any return
on common equity or other matters determined with respect to facilities
described in subdivision 6, the Commission shall order
increases to the utility's rates necessary to provide the opportunity to fully
recover the costs of providing the utility's services and to earn not less than
such fair combined rate of return, using the most
recently ended 12-month test period as the basis for determining the amount of
the rate increase necessary. However, the Commission may
not order such rate increase unless it finds that the resulting rates will
provide the utility with the opportunity to fully recover its costs of
providing its services and to earn not less than a fair combined rate of return
on both its generation and distribution services, as determined in subdivision
2, without regard to any return on common equity or other matters determined
with respect to facilities described in subdivision 6, using the most recently ended 12-month test
period as the basis for determining the permissibility of any rate increase
under the standards of this sentence, and the amount thereof;
(ii) b. The
utility has, during the test period or test periods under review, considered as
a whole, earned more than 50 basis points above a
fair combined rate of return on both its generation and distribution services, as
determined in subdivision 2, without regard to any return
on common equity or other matters determined with respect to facilities
described in subdivision 6, the Commission shall, subject to the provisions of subdivision 9, direct that 60 percent of the amount of such earnings that were more than 50 basis points above such fair combined rate of return for the test period or periods
under review, considered as a whole, shall be
credited to customers' bills. Any such credits shall be amortized over a period
of six to 12 months, as determined at the discretion of the Commission,
following the effective date of the Commission's order, and shall be allocated
among customer classes such that the relationship between the specific customer
class rates of return to the overall target rate of return will have the same
relationship as the last approved allocation of revenues used to design base
rates; or
(iii) c. Such biennial review is the second consecutive biennial review
in which the utility has, during the test period or test periods under review,
considered as a whole, earned more than 50 basis points above a fair combined
rate of return on both its generation and distribution services, as determined
in subdivision 2, without regard to any return on common equity or other matter
determined with respect to facilities described in subdivision 6, the Commission shall, subject to
the provisions of subdivision 9 and in addition to the actions authorized in clause (ii) of this subdivision b, also order reductions to the utility's rates it finds
appropriate. However, the Commission may not order such rate reduction unless
it finds that the resulting rates will provide the utility with the opportunity
to fully recover its costs of providing its services and to earn not less than
a fair combined rate of return on both its generation and distribution services,
as determined in subdivision 2, without regard to any return on common equity
or other matters determined with respect to facilities described in subdivision 6, using the most recently ended
12-month test period as the basis for determining the permissibility of any
rate reduction under the standards of this sentence, and the amount thereof.
The Commission's final order
regarding such a
biennial review for a Phase I Utility shall
be entered not more than nine months after the end
of the test period, and any revisions by a date that allows
any revision in rates or credits so ordered shall to
take effect not more than 60 days
after the date of the order not
later than May 1 of the year following the
year in which the biennial review commenced.
The Commission's final order regarding a biennial
review for a Phase II Utility shall be entered not more than nine months after
the end of the test period, and any revisions in rates or credits so ordered
shall take effect not more than 60 days after the date of the order.
9. If, as a result of a biennial review
required under this subsection and conducted with respect to any test period or
periods under review ending later than December 31, 2010 (or, if the Commission
has elected to stagger its biennial reviews of utilities as provided in
subdivision 1, under review ending later than December 31, 2010, for a Phase I
Utility, or December 31, 2011, for a Phase II Utility), the Commission finds,
with respect to such test period or periods considered as a whole, that (i) any
utility has, during the test period or periods under review, considered as a
whole, earned more than 50 basis points above a fair combined rate of return on
both its generation and distribution services, as determined in subdivision 2,
without regard to any return on common equity or other matters determined with
respect to facilities described in subdivision 6, and (ii) the total aggregate regulated rates of such utility
at the end of the most recently-ended 12-month test period exceeded the annual
increases in the United States Average Consumer Price Index for all items, all
urban consumers (CPI-U), as published by the Bureau of Labor Statistics of the
United States Department of Labor, compounded annually, when compared to the
total aggregate regulated rates of such utility as determined pursuant to the
biennial review conducted for the base period, the Commission shall, unless it
finds that such action is not in the public interest or that the provisions of clauses (ii) and (iii) of subdivision subdivisions 8 b and c are more consistent with the public interest, direct that any
or all earnings for such test period or periods under review, considered as a
whole that were more than 50 basis points above such fair combined rate of
return shall be credited to customers' bills, in lieu of the provisions of clauses (ii) and (iii) of subdivision subdivisions 8 b and c. Any such credits shall be amortized and allocated among
customer classes in the manner provided by clause (ii) of subdivision 8 b. For purposes of this subdivision:
"Base period" means (i) the test period ending December 31, 2010 (or, if the Commission has elected to stagger its biennial reviews of utilities as provided in subdivision 1, the test period ending December 31, 2010, for a Phase I Utility, or December 31, 2011, for a Phase II Utility), or (ii) the most recent test period with respect to which credits have been applied to customers' bills under the provisions of this subdivision, whichever is later.
"Total aggregate regulated
rates" shall include: (i) fuel tariffs approved pursuant to § 56-249.6,
except for any increases in fuel tariffs deferred by the Commission for
recovery in periods after December 31, 2010, pursuant to the provisions of
clause (ii) of subsection C of § 56-249.6; (ii) rate adjustment clauses
implemented pursuant to subdivision 4 or 5; (iii) revisions to the utility's rates pursuant to clause (i) of subdivision 8 a; (iv)
revisions to the utility's rates pursuant to the Commission's rules governing
utility rate increase applications (20
VAC 5-200-30), as permitted by
subsection B, occurring after July 1, 2009; and (v) base rates in effect as of
July 1, 2009.
10.
For purposes of this section, the Commission shall regulate the rates, terms
and conditions of any utility subject to this section on a stand-alone basis
utilizing the actual end-of-test period capital structure and cost of capital
of such utility, unless the Commission finds that the debt to equity ratio of
such capital structure is unreasonable for such utility, in which case the
Commission may utilize a debt to equity ratio that it finds to be reasonable
for such utility in determining any rate adjustment
pursuant to clauses (i) and (iii)
of subdivision subdivisions 8 a and c, and without regard to the cost of capital, capital
structure, revenues, expenses or investments of any other entity with which
such utility may be affiliated. In particular, and without
limitation, the Commission shall determine the federal and state income tax
costs for any such utility that is part of a publicly traded, consolidated
group as follows: (i) such utility's apportioned state income tax costs shall
be calculated according to the applicable statutory rate, as if the utility had
not filed a consolidated return with its affiliates, and (ii) such utility's
federal income tax costs shall be calculated according to the applicable
federal income tax rate and shall exclude any consolidated tax liability or
benefit adjustments originating from any taxable income or loss of its
affiliates.
B. Nothing in this section shall preclude an investor-owned incumbent electric utility from applying for an increase in rates pursuant to § 56-245 or the Commission's rules governing utility
rate increase applications (20 VAC 5-200-30); however, in any such filing, a fair rate of return on common
equity shall be determined pursuant to subdivision 2. Nothing in this
section shall preclude such utility's recovery of fuel and purchased power
costs as provided in § 56-249.6.
C. Except as otherwise provided in this section, the
Commission shall exercise authority over the rates, terms and conditions of
investor-owned incumbent electric utilities for the
provision of generation, transmission,
and distribution services to retail customers in the Commonwealth pursuant to
the provisions of Chapter 10 (§ 56-232 et seq.) of
this title, including specifically § 56-235.2.
D. Nothing in this section shall preclude the Commission from
determining, during any proceeding authorized or required by this section, the
reasonableness or prudence of any cost incurred or projected to be incurred, by
a utility in connection with the subject of the proceeding. A determination of
the Commission regarding the reasonableness or prudence of any such cost shall
be consistent with the Commission's authority to determine the reasonableness
or prudence of costs in proceedings pursuant to the provisions of Chapter 10 (§
56-232 et seq.) of this title.
E. The Commission shall promulgate such rules and regulations as may be necessary to implement the provisions of this section.