I am pleased to offer a few general comments on behalf of ALERT regarding your charge to "determine whether, and on what basis, incumbent electric utilities should be permitted to discount capped generation rates...." In a nutshell, we do not believe incumbent utilities should be allowed to grant such discounts.
At first blush, it might appear that the industrial, commercial and residential consumer members of ALERT would favor having incumbent utilities be able to discount their rates because, theoretically, some of them could be the short-term beneficiaries of such discounts. In fact, we believe permitting such discounts will be anti-competitive and not in the best long-term interest of all Virginia consumers.
You will recall our earlier correspondence to you in which we asked that any proposal before you be judged by the standard of "Will this proposal facilitate effective competition for Virginians?" This proposal does not. While it may theoretically benefit some few consumers, it will have the practical effect of thwarting effective competition for everyone.
We want potential competitors to know they can compete in Virginia without incumbent utilities having any advantages. Incumbent utilities know... and the potential competitors know... the basic rules of competition in Virginia. Capped rates are part of the basic relationship between incumbent utilities and existing consumers; they are also the backdrop against which potential competitors will be competing. Those capped rates provide certain benefits to both incumbent utilities and to consumers.
If incumbent utilities can discount off those capped rates at their sole option on a case-by-case, consumer-by-consumer basis based on what it determines appropriate in the face of competition, it will give them a tremendous competitive advantage over potential competitors. It would give the incumbent utility all the benefits of the capped rates, while allowing it to discount in the face of competition as it solely chooses. If the incumbent utility has such ability, a potential competitor may never be able to be the lowest-cost provider. You would likely have the situation whereby competitors would find that the incumbent utility would always discount whenever it was really necessary to meet competition... thus giving the potential competitors no real chance of ever prevailing in a competitive environment. We fear the practical results of such discounting would be such an anti-competitive environment that Virginia would be avoided by potential competitors.
There is also the problem that if discounting is permitted, customer X may receive the benefits of that discounting while customer Y may not... even though the customers are similarly situated and even though they are direct competitors. Allowing the discounting on a case-by-case, consumer-by-consumer basis will place certain consumers at a competitive advantage and others at a competitive disadvantage.
Even if you were to allow discounting only on a "standard offer" basis to all within a certain category or class, we fear there may be much of the same anti-competitive influence. That is a subject we would want to explore more fully before commenting.
We do recognize that unregulated affiliates of incumbent utilities will not be bound by the capped generation rates. The question in that instance is how the State Corporation Commission and the Federal Energy Regulatory Commission look at the relationships between the incumbent utility and an unregulated affiliate. The contracts and sales between that affiliate and its related incumbent utility must be under the scrutiny and review of those regulators. As you know, the Commission will be examining this issue as it determines the "Codes of Conduct" between regulated entities and unregulated affiliates. In fact, they have already begun to examine this issue as to what an unregulated affiliate can do in the pilot project of the related incumbent utility... whether it can participate in such pilot project... and, if such participation is permitted, under what circumstances?
Bottom line, the issue regarding the activities of the unregulated affiliate is best addressed by FERC and by the Commission as part of the "Codes of Conduct" issue.
In summary, without seeing a more definitive proposal, we are of the opinion at this time that discounted generation capped rates are not in the best interest of Virginia consumers in the long run.