SJR 91

Task Force on Structure and Transition

August 12, 1998, Richmond

The task force met to hear Virginia's electric utilities, consumer groups, utility regulators and other stakeholders highlight their narrative plans for electric utility restructuring in Virginia. The narrative plans followed the outline of SB 688, a comprehensive restructuring bill referred to the SJR 91 joint subcommittee in a carry-over status.

Broad issues, such as a timetable for Virginia's transition to restructuring and the role of the Virginia State Corporation Commission (SCC) in coordinating that timetable, were addressed in the narrative plans. Additionally, the plans focused on such specific key issues as phase-in periods, rate freezes, pilot programs, eminent domain, pricing of must-run generation, siting of merchant plants, distribution services as competitive services, and generation divestiture.

Areas of Agreement

Nearly all of the responding stakeholders believe that retail competition in Virginia should begin in the furnishing of generation services (at least preliminarily) and only after Independent Systems Operators (ISOs) and Regional Power Exchanges (RPXs) are in place and operational. The narrative plans also revealed only limited opposition to preliminary pilot programs, although some viewed them as unnecessary, and at least one stakeholder (Virginia Power) felt that legislation establishing them was not needed since the SCC has, by order, directed several utilities to develop pilot projects. Both Washington Gas and AOBA, an association of office and apartment building owners, view pilot programs as key to reorienting the market toward competitive electricity services.

The parties found themselves in agreement in several other key areas as well. For example, most agreed that the SCC should participate in the development of ISOs and RPXs to serve Virginia's electric customers. Some parties (notably the Alliance for Lower Electric Rates Today, or ALERT, AOBA and the electric cooperatives) believe that the SCC should condition Virginia utilities' participation in any ISO on that ISO's meeting certain Virginia public interest standards. Others, including Virginia Power and AEP Virginia, believe that the SCC's participation in ISO approvals before the Federal Energy Regulatory Commission (FERC) should be sufficient to protect the public interest.

Areas of Disagreement

When retail competition begins, who gets to go first? This question prompted a variety of responses from study participants. Virginia Power believes that large industrial customers should be the initial participants with a start date for that class of 2002, followed by the commercial class in 2003, and, finally, the residential customers in 2004. Taking an opposite view, the Virginia Council Against Poverty (VCAP) said that residential and small business customers should go first, or at least concurrently with all customer classes. Others, including the Municipal Electric Power Association of Virginia (MEPAV) and Washington Gas generally supported retail customer phase-in. ALERT advocates the most aggressive timetable and a phase-in of one-third of all customers classes each year beginning in 1999 and concluding with full retail competition for all classes by 2001.

One of the most visible areas of disagreement was in the area of market power. For example, some parties, notably the electric cooperatives, feel that generation in transmission-constrained areas should not be deregulated until the constraint is eliminated. Under this view, the pricing of must-run units in these areas would be cost-based during such time. Others, including Virginia Power and ALERT, felt that market power in generation-constrained areas would be mitigated through new merchant plants. Virginia Power also believes that FERC oversight of market-based wholesale prices will ease market power problems as well.

Mandatory generation divestiture as a means of mitigating market power was generally disfavored by Virginia's electric utilities and ALERT. AOBA and Consolidated Natural Gas (CNG) favored furnishing utilities with incentives for divestiture. A third view, voiced by the electric cooperatives, was that in transmission-constrained areas, permissive sales of generation assets should be priced at book value or below.

The parties also disagreed over the issue of "default service"—generation service for those electricity customers who fail to choose a generation supplier in a competitive market. Virginia's electric utilities and electric cooperatives believe that incumbent utilities and distribution providers should provide this service. However, CNG and the Southern Environmental Law Center believe this should be a competitive service. Washington Gas stated that this should be made a competitive service following the transition to competition.

Task Force Wrap-Up Plan

A draft staff matrix summarizing the positions of the stakeholders and interested parties on these key issues is now available on the SJR 91 web site ( under the Structure and Transition Task Force link. Stakeholders and other interested parties have been asked to submit comments on the matrix to the joint subcommittee's staff by August 25. The parties have also been requested to furnish the task force written comments summarizing their views on consensus and disagreement within all of the narrative plans and to offer means of reconciling areas of conflict wherever possible.

The task force will meet again on September 11 at 9:00 a.m. in House Room 4 of the Capitol to review and finalize a report to the full joint subcommittee, to be presented to the joint subcommittee at its September 23 meeting in Roanoke. That meeting will begin at 10:00 a.m. at the Hotel Roanoke.

The Honorable Clifton A. Woodrum, Co-Chairman
The Honorable Thomas K. Norment, Jr., Co-Chairman
Legislative Services contact: Arlen K. Bolstad