SB 1269

Legislative Transition Task Force of the Virginia Electric Utility Restructuring Act

November 26 , 2001, Richmond

The Legislative Transition Task Force’s third meeting focused on two issues relating to implementation of the Virginia Electric Utility Restructuring Act: regulation of the rates, terms and conditions of electric distribution service of Virginia’s electric cooperatives and environmental issues pertaining to the process for siting electric generation facilities.

Member Regulation of Electric Cooperatives

The trade group representing Virginia’s electric cooperatives presented proposed legislation that would remove State Corporation Commission (SCC) oversight of the rates, terms and conditions of electric distribution service. Similar legislation was introduced in the 2001 Session as HB 1940. The Corporations, Insurance and Banking Committee referred the bill to the task force for study.

Cooperatives’ Proposal

Under the co-ops’ proposal, a referendum on self-regulation would be scheduled by a board of directors of a cooperative when the board adopts a resolution recommending it or upon receipt of a petition signed by one percent of cooperative members. A referendum would be held at an annual or special meeting, and passage of the proposal would require approval by two-thirds of the votes cast at the meeting. A similar procedure would be available for cooperatives to re-institute SCC regulation of rates, terms and conditions of service.

Upon passage of a referendum for self-regulation, the SCC would not regulate the cooperatives’ rates, terms and conditions of electric distribution service. However, cooperatives would continue to be subject to the capped rate, wires charges, and default service provisions of the Restructuring Act.

Under the self-regulation proposal, charges for service would be set by the cooperative’s board, subject to requirements that they be nondiscriminatory, reasonable and just. The SCC would be empowered to determine, upon receipt of complaints by 25 percent of a customer class, whether the rates, terms and conditions of service are nondiscriminatory, just and reasonable. If the commission finds that they are not nondiscriminatory, just and reasonable, the cooperative is required to develop new rates, charges, fees and rules and regulations as necessary to correct any defect. The SCC may also attempt to mediate meritorious complaints.


A representative of Central Virginia Electric Cooperative asserted that member regulation is needed to avoid the substantial expenses of staff, consultants, and lawyers that are now borne by member-customers. He also argued that member regulation would allow cooperatives to avoid costs of making up revenues lost in redesigned rates, interest on refunds, processing refunds, and providing members notice of final approved rates. The length of time involved in resolving rate cases, which has run to over 400 days, was also identified as a justification for member regulation.

The Shenandoah Valley Electric Cooperative spokesman observed that over half of the states allow cooperatives to be self-regulated. He praised 1998 legislation that allowed telephone cooperatives to be self-regulated.

Several groups advised the task force of their reservations about the member regulation proposal. Members of the Virginia Coalition for Fair Competition cautioned that approval of the measure may prevent the SCC from gathering sufficient information to determine whether cooperatives are cross-subsidizing affiliates that compete in new lines of business. They also expressed concern that the limited exemption from SCC regulation sought by the proposed legislation would, if successful, be followed by attempts to end all oversight. A spokesman for Bear Island Paper Company, which consumes 29 percent of Rappahannock Electric Cooperative’s electricity, objected to the proposal’s lack of proportional representation for large consumers in self-regulation votes. Other concerns included the continuation of cooperatives’ monopolies in service territories and lack of clarity regarding procedures involving the SCC.

A member of the SCC’s Office of General Counsel staff expressed concerns about the workability of the several provisions of the proposal. He observed that while under Virginia law a quorum of members requires attendance of 2.5 percent of a co-op’s members, Delaware’s member-regulation law requires that 50 percent of a co-op’s members vote in a referendum. Other questions involve the issue of whether member-regulated cooperatives would continue to be “public service companies” with exclusive service territories, the power of eminent domain, inspections of records by the SCC, and the obligation to serve customers in their territories.

Siting Electricity Generation Facilities

Senate Joint Resolution 467 requested the task force to study procedures applicable to the construction of new electricity generation facilities in the Commonwealth and recommend amendments to the Commonwealth’s procedures as are appropriate to facilitate the approval of construction of sufficient electricity generation capacity to provide a competitive market for electricity in the Commonwealth as soon as practical, without lessening necessary environmental considerations.

Deregulation of the electric utility industry has spurred a proliferation of proposed new power plants. Twenty-eight new power plants have either received or requested air permits in the past two years. Five air permits have been issued; applications for 14 plants are being processed; and applications for nine plants are in initial stages. The chair of the State Advisory Board on Air Pollution (SAB) estimated that between 40 and 50 percent of the proposed plants would be constructed.

The SAB was asked by the Air Pollution Control Board to report on the cumulative environmental impacts of the recent proliferation of applications for new power plants. A Cumulative Effects Work Group of the SAB focused on nitrogen oxide (NOx) emissions and regional ozone modeling. The work group split into two subgroups due to disagreements over the breadth and scope of evaluating complex cumulative effect issues.

Much of the concern focused on the need for cumulative modeling of generation facilities. Currently, individual air quality modeling is done for major individual plants that emit more than 250 tons annually. An air quality assessment of the cumulative effect of multiple minor sources is not required. Much of the concern with the effect of proposed plants on air quality is directed at NOx, which is a major precursor or ingredient in ozone, from the combustion of natural gas. All but two of the proposed power plants expect to use natural gas as their major fuel source.

Separate reports were prepared by the industry and economic development subgroup and the environment and health subgroup. The two subgroups presented their reports to the Air Pollution Control Board on November 7, 2001. The task force was provided summaries of each group’s report.

Industry/Economic Development Subgroup

The industry and economic development subgroup concluded that the Department of Environmental Quality (DEQ) has performed additional modeling beyond what is required for synthetic minor sources, which are sources where emissions are limited by stipulation to levels below the threshold for designation as major sources. Cumulative impact modeling based on the addition of eight of the new power plants shows that they will have no appreciable impact. DEQ does not have the staff to support multi-source modeling for synthetic minor sources. The cost to outsource multi-source modeling is at least $500,000. The DEQ’s statewide air quality monitoring over the past 10 years shows no clear trends in ozone and NOx data. Forthcoming changes in allowed emission levels under the Phase II acid rain reductions, NOx SIP call, and regional haze rules will require reductions in ozone precursors. Emissions from automobiles and trucks are underrepresented in measuring cumulative impacts. Finally, power plant siting decisions are based on the proximity to natural gas lines, electricity transmission lines, and water sources rather than on whether sites are in air quality attainment areas.

The industry and economic development subgroup offered five recommendations:

1. Periodic re-assessments of regional ozone impacts should be conducted no more than twice per year, as resources permit.

2. Public perception and awareness of cumulative impacts should be improved by highlighting DEQ efforts in multi-source modeling and providing projections for emissions.

3. The Commonwealth should participate in multi-state initiatives addressing cumulative impacts.

4. Contributions of mobile sources should be properly evaluated when cumulative impacts are examined.

5. DEQ should continue to research and evaluate cumulative impacts with a clearly defined mission.

Environment/Health Subgroup

The environment and health subgroup asserts that much of the permitting activity is clustered in three “hotspots” in the Central Piedmont, South Central Virginia and Northern Virginia. The subgroups concluded that Virginia must ensure a balance between environment and health concerns and needs for clean energy and industrial growth. Kentucky, Tennessee, Georgia and states in the Pacific Northwest have slowed their energy development programs to allow time for cumulative effect analyses. The scope, magnitude and rate of proliferation of power plant permit applications warrants a timely, broad cumulative effects modeling analysis in order for DEQ and the SCC to make fully informed decisions. The report states that there has not been a comprehensive review of the adequacy of Virginia’s prevention of serious degradation (PSD) program and that the National Park Service has conducted over twice as many new source permit reviews for the Shenandoah National Park than for any other park.

Recommendations of the environment and health subgroup to the Air Pollution Control Board include:

1. Continuing the Cumulative Effects Work Group using the mission statement proposed by this subgroup;

2. Expanding and accelerating DEQ modeling activities to include, among other things, regional ozone modeling and “worst case” cumulative effects analysis;

3. Considering additional DEQ and SCC staffing needs;

4. Adding information on trends to DEQ’s annual monitoring reports;

5. Forming a separate work group to address mobile sources; and

6. Installing and operating additional ozone and particulate monitors.

Responses to SAB Sumary

Dominion Virginia Power, in its response to the SAB’s summary, emphasized that an expansion of Virginia’s power generation capacity is the best insurance against the problems that California faced last year and that DEQ’s cumulative assessment of multiple sources, which showed a contribution to NOx levels that fell “within noise level,” did not include the effect of more stringent regulations that have already been promulgated. A statewide cap on NOx levels has been established, which cannot be exceeded regardless of the number of new plants that come on line.

A representative of the Piedmont Environmental Council (PEC) underscored that Virginia is seeing applications for approximately 30 plants that would double the state’s generation capacity. He contended that technologies are available to permit cumulative effect modeling, and that large gaps exist in the air quality monitoring system for the Central Piedmont and South Central regions of the state. While a statewide cap on NOx emissions will be implemented under the NOx SIP Call, the PEC is concerned that generators in Virginia may purchase emissions credits from sources in other states, thereby allowing the total amount of NOx emitted in Virginia to exceed the state’s cap. The Dominion Virginia Power representative acknowledged that while cross-border trading in emissions credits would be allowed, economic development in other states limits the practical possibility that generators in other states would trade their emissions credits to Virginia firms.

A spokesman for Virginia’s independent power producers discounted concerns that a flood of new power plants would harm Virginia’s air quality. He estimated that probably six to eight of the proposed plants for which applications are pending would be built. In addition, the new planned plants are required to use best available pollution control technologies, which makes them cleaner than older plants.

House Bill 2759

During the 2001 Session, the Corporations, Insurance and Banking Committee asked the task force to study the issues raised by HB 2759. The bill would require the SCC to consider the impact of NOx emissions, if any, from any proposed electric facility when approving construction of electric facilities, to evaluate the cumulative impact of nitrogen oxide emissions of the proposed facility and existing facilities in the geographic area of the proposed facility, and to require that any report of the environmental impact of the proposed facility be available to the public prior to any public hearing held in the approval process. The bill would also prohibit the commission from approving the construction of any facility where emissions from the operation of such facility result in a violation of national ambient air quality standards. The director of air program coordination at DEQ reported that HB 2759 would not require the SCC to do anything that is not currently being done by DEQ.

Other Environmental Considerations

SJR 467 directs the task force to recommend any appropriate improvements to the generation facility permitting process without lessening necessary environmental considerations. The president of the PEC pointed out that the facilities under consideration could have large impacts on the environment through factors other than NOx emissions, including their consumption of water. In addition, a few of the plants are planning to burn coal, which can have a much greater environmental impact than natural-gas-fired plants. He urged the task force not to leave the state and the SCC without the ability to examine the plants on a cumulative basis and asserted that the SCC has a role in weighing the environmental issues against economic considerations. Allowing power plants to be built in rural areas, or greenfields, may result in improper spot zoning. He praised those firms that are building power plants in existing industrial areas, or brownfields, and those that are using dry cooling technologies to reduce water usage. The effect of the planned facilities on conservation areas and historic sites was also raised.

The Honorable Thomas K. Norment, Chairman
Legislative Services contact: Franklin D. Munyan


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