SB 1269

Legislative Transition Task Force of the Virginia Electric Utility Restructuring Act

June 23, 1999, Richmond

The first meeting of the Legislative Transition Task Force featured reports on the implementation of 1999's Virginia Electric Utility Restructuring Act, the proposed Alliance regional transmission organization, and four retail competition pilot programs.

Duties of the Task Force

The members were briefed on the task force's duties under the Restructuring Act. Electric utility restructuring has been examined by a joint subcommittee for the preceding three years, most recently under SJR 91 (1998). The joint subcommittee crafted Senate Bill 1269, which was enacted by the 1999 Session of the General Assembly as the Virginia Electric Utility Restructuring Act. The act implements consumer choice in the purchase of electricity generation services.

The act establishes the Legislative Transition Task Force to work collaboratively with the State Corporation Commission (SCC) in conjunction with the phase-in of retail competition within the Commonwealth. In addition to monitoring the work of the commission in implementing the act, the task force is directed to (i) determine whether, and on what basis, incumbent electric utilities should be permitted to discount capped generation rates; (ii) monitor the recovery of stranded costs by incumbent electric utilities; (iii) examine utility worker protection during the transition to retail competition; (iv) examine generation, transmission and distribution systems' reliability concerns; (v) examine energy assistance programs for low-income households; (vi) examine renewable energy programs; and (vii) examine energy efficiency programs. The task force is further directed to make annual reports concerning the progress of each stage of the phase-in of retail competition, offering recommendations to maintain the Commonwealth's position as a low-cost electricity market and ensuring that residential customers and small business customers benefit from competition.

Additional task force activities are directed to commence at specified future dates. By December 1, 1999, the task force will receive the SCC's findings and recommendations on a consumer education program. On or after January 1, 2002, the SCC is to report to the task force on its assessment of the regional transmission entity's success in facilitating the orderly development of competition in the Commonwealth. Beginning December 1, 2004, the commission is required to make annual reports to the task force concerning modification or termination of default service.

SCC Implementation of the Act

In addition to ongoing administrative efforts to ensure that the act's provisions are implemented in a timely manner, the SCC is adopting a regulatory approach that recognizes competition as a new constituency. This approach requires commission staff to inquire whether actions will facilitate or hinder competition, and whether actions will reward the efficient while holding the inefficient accountable.

The SCC will play a prominent role in the establishment of regional transmission entities (RTEs) in the Commonwealth. The act requires that every incumbent electric utility owning, operating, controlling or having an entitlement to transmission capacity shall join or establish an RTE by January 1, 2001. The Federal Energy Regulatory Commission (FERC) issued a notice of proposed rulemaking in May, and the SCC will provide comments by the August deadline that are consistent with the mandates of the act. Participants in the proposed Alliance regional transmission organization (RTO) filed a request with the FERC in June, and the SCC is preparing to file a notice of intervention by July 7. On May 26, 1999, the commission issued an order establishing an investigation of, and requesting comments on, proposed guidelines for transfer of control of transmission assets to RTEs.

The act imposes two duties on the SCC relating to RTEs. Commission approval is a prerequisite to the transfer of ownership or control of transmission assets. It must also adopt rules and regulations for RTEs, including whether incumbent electric utilities may transfer to an RTE all or part of their control of, ownership of, or responsibility for transmission capacity. The SCC staff is focusing on ways to use the multistate transmission grid, of which Virginia is a member, in a manner that advances competition.

Other substantive areas in which the SCC is active include:

The commissioners have placed Solicitor General Stewart Farrar in charge of a working group responsible for accomplishing the tasks given to the SCC by the act. The SCC vowed to the task force that it would provide extensive opportunities for public participation as it implements its duties.

Alliance RTO

Representatives of American Electric Power and Virginia Power reported on the status of the Alliance RTO. These two utilities, along with Consumers Energy, Detroit Edison, and FirstEnergy, filed a proposal for the RTO with the FERC in early June. These five firms serve a population of 26 million and have 43,000 miles of transmission lines, service territories of 124,000 square miles, and over 71,000 megawatts of generating capacity. If approved, the Alliance RTO will be the largest RTE in the nation in terms of generating capacity and control area peak load, and tied for second-largest in terms of square mileage of combined service areas.

A spokesman for Virginia Power testified that under the business model for the RTO, all electric suppliers will have equal, nondiscriminatory access to the electric power grid and to wholesale and retail customers. The proposed structure of the Alliance RTO calls for a publicly held independent transmission organization that would control and operate, and perhaps own, transmission facilities, thereby giving the owners of transmission assets the flexibility to maintain or divest ownership of these facilities. It will be controlled by an independent board of directors, the members of which will be prohibited from having any material business relationship with any member or user of the RTO.

AEP's representative expressed the belief that the Alliance RTO meets most if not all of the standards established by the FERC. The RTO bridges the issue of whether a regional independent systems operator is preferable to a more efficient transmission corporation, or "transco." The formation of the RTO will involve seven states stretching from Michigan to North Carolina, as well as the FERC, and will require coordination and cooperation. He cautioned that conflicting requirements could prevent the development of the RTE by the January 1, 2001, deadline.

Pilot Programs

Both Virginia Power and AEP-Virginia have filed proposals for retail customer choice pilot projects with the SCC. Hearings on these filings are scheduled for September and November, 1999, respectively. In addition, two distribution cooperatives--Mecklenberg Electric Cooperative and Rappahannock Electric Cooperative--intend to file proposals for pilots by this fall.

Virginia Power's Customer Choice program is viewed as the first step in a seamless transition to full retail competition between January 1, 2002, and January 1, 2004. The prototype pilot, which will encompass 24,000 customers drawn from all classes, will help the utility understand the processes and systems required for retail competition. Alternative suppliers are expected to begin providing electricity to customers who participate in the pilot around June 1, 2000. The pilot will end on January 1, 2002, when full retail competition begins to be implemented.

Under the program's first phase, choice will be offered to residential and small commercial customers in the Richmond area. In its second phase, choice will be offered to a limited number of large commercial and industrial users throughout Virginia. The project manager noted that the pilot's design will give about 7.4 percent of the customers in the phase one area the option to buy electricity from a competitive service provider. The program proposal includes a rescission period for customers who change their minds, safeguards to prevent unauthorized switching of customers, and other consumer protection measures.

A spokesman for AEP-Virginia recounted the history of pilot programs. In March 1998, the SCC issued an order requiring AEP and Virginia Power to file retail access pilot programs by August 1, 1998. On November 2, 1998, AEP filed a pilot program with the SCC whereby between 3,200 and 3,500 of its customers would have a choice regarding the provider of their electric power. Representing all classes, these customers would account for two percent, or 50 MW, of the supplier's Virginia retail customer load. Following the enactment of SB 1269 by the 1999 Session, however, the utility has been redrafting its pilot program to incorporate a wires charge and other aspects of implementing choice in accordance with the parameters described in the legislation. AEP now plans to resubmit its pilot proposal by September 1, 1999. Depending on the outcome of the pending interim rules case and the nature of the approvals granted by the commission, a customer choice pilot could begin in AEP-Virginia's service territory by mid-2000.

A Mecklenberg Electric Cooperative representative voiced two reasons for its decision to establish a retail customer choice pilot program. First, the cooperative may influence the restructuring process in such a manner that residential and small business consumers will benefit on a par with industrial, government, or aggregated loads. Second, it may provide knowledge relating to the administrative and technical changes that must be made to fully implement retail competition. The co-op's plan is expected to include about 350 customers, most of whom are residential, or approximately three megawatts of load, near Chase City. During the pilot program, participants will be able to allowed to change suppliers as of their monthly meter reading date.

Rappahannock Electric Cooperative identified three issues that are critical to pilot programs. First, they provide an opportunity to help formulate and test the interim rules relating to codes of conduct applicable to various parties participating in pilot projects. The interim rules, which may be the foundation for the permanent rules during and after the transition to a competitive energy market, were initiated by the SCC in December 1998. An Interim Rules Task Force has participated in the rule-making process, and the hearing examiner's recommendations are expected to be released soon. Second, the development of standards for electronic data interchange (EDI) is crucial if a competitive marketplace will be able to efficiently distribute the ensuing large volume of data to the local delivery company, the transmission entity, the competitive service provider, the generator, and the customer. An EDI working group is assisting in the development of standards that will be effective and acceptable to all of these groups. The third issue is consumer education. The educational programs, it was suggested, should be coordinated with the pilot projects so that the effectiveness of educational materials can be evaluated prior to their distribution to all Virginians.

REC's Energy Choice pilot proposal anticipates including 1.4 percent of its system load. Approximately 900 customers, of whom the vast majority will be residential customers, will be allowed to participate. Though customers within all classes will be eligible to participate in the pilot, the selection method for each class will vary in order to ensure that the load dedicated to each class will roughly match existing load characteristics. The pilot is expected to start in the spring or summer of 2000 and run until December 31, 2001.

Future Task Force Activities

The task force designated Delegate Plum as its liaison to the Consumer Advisory Board. The CAB, which is directed by the act to assist the task force in its work, is expected to work on many of the issues that were raised but not resolved during last year's work under SJR 91.

The Honorable Thomas K. Norment, Jr., Chairman
Legislative Services contact: C. Maureen Stinger