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1999 SESSION

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SB 1269 Electric Utility Restructuring Act.

Introduced by: Thomas K. Norment, Jr. | all patrons    ...    notes | add to my profiles

SUMMARY AS PASSED: (all summaries)

Virginia Electric Utility Restructuring Act. Restructures Virginia’s electric utility industry. The bill deregulates the generation component of electric service, eventually permitting all Virginia electricity customers to purchase generation service from the provider of their choice. Customer choice of generation suppliers will be phased in beginning in 2002, to be completed by 2004. The Virginia State Corporation Commission (SCC) can delay this schedule’s implementation—but not beyond 2005-based on considerations of reliability, safety and market power. Transmission and distribution will remain regulated services, with transmission regulated principally by the Federal Energy Regulatory Commission (FERC) and distribution by the Virginia State Corporation Commission. Electric utilities will retain ownership and control over their current transmission systems and distribution service territories. Additionally, electric utilities are required by 2001, to join or establish regional transmission entities which will manage and control their transmission assets.

During the transition from fully regulated electricity prices to generation customer choice, capped rates for electricity service will be in effect during the period 2001 through 2007. Capped rates fall into two categories: (i) comprehensive (“bundled”) rates for generation, transmission and distribution and (ii) rates for “unbundled” generation services only. The rates will be established on the basis of (i) utilities’ rates in effect on July 1, 1999, or (ii) rates established through utility rate cases filed before January 1, 2001, by utilities not currently bound by any rate case settlements with the SCC. During the capped-rate period, the SCC may adjust these rates to reflect changes in fuel costs, taxes, or utilities’ financial distress beyond their control. The SCC is also authorized, after 2004, to terminate capped rates in an electric utility’s former service territory. Such termination must follow a finding that there is effective competition for generation services within that service territory.

Customers who purchase generation services from alternate generation suppliers (suppliers other than the incumbent electric utilities furnishing electric service to these customers prior to restructuring) during the capped-rate period may be required to pay a usage-based surcharge, or “wires charge.” This charge will cover these “shopping customers’” pro rata share of incumbent utilities’ potential losses, if any, resulting from market-based generation prices that are lower than the capped generation rates. The wires charge will also cover the shopping customers’ pro rata share of any costs incurred by these customers’ former electric utilities as part of their transition to a competitive market for generation services (and determined by the SCC to be just and reasonable). However, the combination of wires charges, together with (i) the unbundled charges for transmission and distribution services and (ii) projected market prices for generation, cannot exceed the capped rate for bundled electric service in effect for each utility during the capped-rate period. The bill stipulates that it is through capped rates or wires charges that Virginia’s electric utilities will recover their just and reasonable net “stranded costs,” if any, that exceed zero value in total.

Customers who are either unable or unwilling to shop for alternative generation suppliers are entitled to receive bundled electric service from “default” providers. Default service would be available after customer choice is available for all customers (as early as 2004, but no later than 2005). The bill requires the SCC to designate default service providers in all of the incumbent utilities’ former service territories. These providers may be designated from among incumbent utilities or from among other suppliers willing to provide one or more components of default service. Rates charged for default generation service will be established by the SCC. On and after July 1, 2004, the SCC is required to annually determine whether default service can be eliminated for particular customers, customer classes, or in particular geographic areas of the Commonwealth. The SCC’s findings are to be reported annually to the Legislative Transition Task Force.

The bill establishes licensing procedures for all persons and entities proposing to furnish competitive generation services in Virginia, either as suppliers or as aggregators. The legislation directs the Virginia State Corporation Commission to establish licensing criteria for both suppliers and aggregators, including requirements concerning (i) technical capabilities, (ii) access to generation and generation reserves, and (iii) adherence to market standards. The bill expressly permits public service companies’ affiliates or subsidiaries to be licensed as suppliers or aggregators under this Act, even if electrical supply or aggregation is not “related or incidental to” these companies’ stated public service company businesses. These affiliates and subsidiaries are also permitted to own, manage or control generation plants or equipment. Additionally, the SCC is directed to establish a reasonable period in which retail customers may cancel, without penalty or cost, any contract for services entered into with licensed suppliers or aggregators. The bill permits local governments and other political subdivisions of the Commonwealth to aggregate (i) the electrical load of governmental installations and facilities and (ii) the energy load of residential, commercial and industrial retail customers within their boundaries on a voluntary, opt-in basis. The Commonwealth is also permitted to aggregate its governmental load.

The bill states that the SCC may not require any incumbent electric utility to divest itself of any generation, transmission or distribution assets as part of the restructuring process. However, these utilities are directed to functionally separate generation, retail transmission and distribution by January 1, 2002, with plans for that purpose to be submitted to the SCC by January 1, 2001. Additionally, the SCC is directed to develop rules and regulations governing conduct between these functionally separate units to prohibit cost-shifting and cross-subsidies between them, and to prohibit them from engaging in discriminatory behavior toward nonaffiliated units. The SCC is also provided review authority concerning any proposed mergers, acquisitions, consolidations or other transfers of control over providers of noncompetitive electric services. However, such authority does not extend to such transactions involving providers of default service. The bill also provides that its provisions are not to be construed as exempting or immunizing from punishment conduct violative of federal or state antitrust laws.

A customer education program, preparing consumers for the transition to a restructured market, is addressed by the bill. The SCC is directed to develop a comprehensive program addressing such issues as customers’ rights and obligations in the purchase of electricity, and marketing and billing information. The SCC will present its findings and recommendations to the Legislative Transition Task Force on or before December 1, 1999, with particular emphasis on such a program’s scope and on its funding. The SCC is also directed to develop regulations governing marketing practices, with particular emphasis on regulations addressing unauthorized switching of suppliers and improper solicitation activities. Standards for marketing and billing information will also be developed by the SCC through regulations.

The SCC is directed by this bill to establish or maintain a complaint bureau to receive and investigate complaints by retail customers against public service companies, licensed suppliers and aggregators, and other providers of competitive services. The SCC may enjoin or punish any violations of the provisions of this bill, pursuant to its existing authority. The Attorney General is authorized to participate in any such proceedings. Additional remedies available to electricity customers include a private right of action designed to provide compensation for customer losses resulting from (i) violations of the marketing regulations developed by the SCC pursuant to this bill or (ii) other deceptive or fraudulent practices. Customers can initiate civil actions to recover their actual damages or $500, whichever is greater. In the case of willful violations, customers may recover treble damages.

A Legislative Transition Task Force is established by the bill to monitor the work of the SCC in implementing the restructuring of Virginia’s electricity market. The bill also indicates that the task force will be receiving reports from the Commission concerning restructuring programs implemented in other states. During its tenure (July 1, 1999, through July 1, 2005), the task force (composed of 10 legislators—six from the House of Delegates and four from the Senate) will also examine several specific issues, including the potential discounting of capped generation rates, utility worker protection, energy assistance programs for low-income households, energy efficiency and renewable energy programs, and the reliability of generation, transmission and distribution systems. Significantly, the task force is also directed to monitor stranded cost recovery authorized under this bill after the commencement of customer choice. This oversight will be accomplished with the assistance of the SCC, the Office of the Attorney General, incumbent electric utilities, suppliers, and retail customers. The purpose of the monitoring is to determine whether the recovery of stranded costs via capped rates and wires charges has resulted or is likely to result in the over-recovery or under-recovery of just and reasonable net stranded costs. The task force will make annual reports to the Governor and General Assembly, and it will be assisted in its efforts by a 17-member Consumer Advisory Board. The bill also indicates that recommendations of the task force will have at their core the policy of maintaining low electricity costs in Virginia, and ensuring that residential and small business customers will benefit from competition.

Other provisions in the bill (i) authorize the SCC to conduct retail customer choice pilot programs, (ii) exempt municipal power systems from retail competition unless the municipalities operating them (a) elect to permit it or (b) compete for electric customers outside the service territories currently served by such systems, (iii) permit electric cooperatives to furnish default service in their current service territories unless they seek to provide default service in the former service territories of other electric utilities, (iv) permit the SCC to adjust generation rates within transmission-constrained areas to the extent necessary to protect customers from the effects of market power, (v) eliminate the use of eminent domain in conjunction with generation facilities constructed on and after January 1, 2002, (vi) require the SCC to submit annual reports on the potential for future competition in metering, billing and other electric services not made competitive by this bill, and (vii) permit customer-generators who are self-generating with solar, wind or hydroelectrical generating systems to employ “net metering” equipment, subject to capacity restrictions and the provisions of regulations to be developed by the SCC.


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