Task Force on Stranded Costs and Related IssuesAugust 21, 1998, Richmond
September 18, 1998, Richmond
The task force met twice to consider and approve a draft staff report and an updated matrix summarizing the legislative proposals submitted by stakeholders.
Staff ReportThe staff report summarized key stakeholder positions relating to the definition and recovery of stranded costs. The staff report analyzes (i) what elements are to be included in the determination of stranded costs or benefits, (ii) who is to make these key determinations and what guidance the General Assembly should provide in any restructuring legislation, (iii) when recovery of stranded costs or benefits begins and ends, and (iv) how such costs are to be recovered.
Following the presentation of the staff matrix and the staff report, task force members engaged stakeholders in discussions about their respective positions on the issues associated with stranded costs and benefits. In addition to hearing from each stakeholder on its proposal, the task force also considered issues such as the appropriate treatment of transition costs, the length of recovery period for stranded costs or benefits, and the feasibility of charging "exit fees" for customers who disconnect from the system and generate electricity locally or on-site.
Transition CostsProposals received from the investor-owned utilities and the electric cooperatives included provisions for the collection of transition costs. These transition costs are new expenses incurred during the transition to a competitive retail generation market and include costs for the formation of independent system operators (ISOs) and regional power exchanges (RPXs), employee benefits, public benefits programs, and consumer education.
The task force recognized that transition costs are fundamentally different from stranded costs, which are commonly defined as fixed costs the utility incurred over the years in fulfilling their obligations as a public service company. Several task force members stated that while transition costs may be collected in a manner similar to stranded costs (i.e. through a non-bypassable wires charge or a competitive transition charge), decisions on the treatment of transition costs are better suited for consideration by the Structure and Transition Task Force and the Consumer, Environment, and Education Task Force.
Regardless of which task force ultimately deals with transition costs, there remains a key policy question of who should bear the burden of paying these costs. Virginia Power suggested that if these transition costs are to be paid by suppliers of electricity, efforts must be made to impose these costs so that there is incentive for new electricity suppliers to enter the Virginia retail market.
Stranded CostsThe length of any transition period during which stranded costs are recovered will have direct impact on the amount of stranded costs paid by consumers. The investor-owned utilities all proposed plans that would allow recovery of stranded costs over a time period ranging from three to five years, claiming that a relatively quick recovery will enable consumers to enjoy the benefits of competition as soon as practicable. Other stakeholders, including the SCC staff and the Virginia Committee for Fair Utility Rates, stressed the unique characteristics of each of the utilities and suggested that any transition period should be based on the criteria of each utility.
Exit FeesThe task force also discussed various positions on the treatment of consumers who decide to disconnect from their supplier and generate their own electricity on-site. The task force heard from several stakeholders that the technology is rapidly developing to a point where such an option will soon be available and feasible to certain consumers. Virginia Power and the electric cooperatives favor imposing disconnection fees on those consumers who forgo electric service from a public utility and opt instead to generate their electricity on-site. Consumer groups such as ALERT and potential suppliers like Washington Gas oppose any such "exit fee."
Report AvailableThe draft staff report and an updated matrix summarizing the legislative proposals submitted by stakeholders are available on the joint subcommittee website (http://dls.state.va.us/sjr91.htm). The task force will present these materials to the joint subcommittee at the September 23, 1998, meeting in Roanoke.
The Honorable Richard J. Holland, Co-Chairman
The Honorable John Watkins, Co-Chairman
Legislative Services contact: Robert A. Omberg