The Honorable John C. Watkins
The Honorable Richard J. Holland
Co-Chairmen, Stranded Costs and Related Issues Task Force
SJR 91 Joint Subcommittee Examining the Restructuring of the Electric Utility Industry

Dear Senator Watkins and Senator Holland:

RE: Comments on stranded costs.

The Virginia State Legislative Committee of the American Association of Retired Persons appreciates this opportunity to submit comments on stranded costs. This is a crucial issue to examine in the move to restructure the electric utility industry in Virginia. AARP views this issue from a residential consumer perspective.

DEFINITION OF STRANDED COSTS:

Costs incurred because the value of generating utility investments (e.g. investments in nuclear power plants or in purchased power contracts) that were made and are recoverable under regulation cannot be recovered from the sale of the power from such investments in a competitive market.

Regardless of the definition of stranded costs arrived at by the task force, sub-committee, and General Assembly, the following policies should be incorporated in any legislation:

Residential ratepayers should not have to pay for any stranded costs as long as they do not benefit from retail competition.

Stranded costs should be shared fairly and equitably among stockholders and all classes of consumers contributing to the need for plant capacity.

Regulators, in calculating stranded costs, should consider the following mitigating factors: previously compensated risk, investments made due to poor management discretion, strategic investments, and new revenue opportunities.

Compensation for the remaining legitimate stranded investments should be accomplished in a competitively neutral manner, with all stakeholders (including shareholders) sharing responsibility for compensating incumbent utilities for these costs.

Any recovery mechanism to recover stranded costs should be nondiscriminatory and nonbypassable. In addressing the stranded cost issue, regulators should recognize the unique position of public power.

We suggest that the Commission open an investigation of each utility's stranded costs. Once the costs are determined we advocate that any prudent, nonmitigatible stranded costs should be split 50/50 between shareholders and all consumer classes and should be recovered on a per kilowatt hour basis.

Thank you for the opportunity to offer these comments.

Sincerely,

William L. Lukhard, Vice-Chairman
AARP State Legislative Committee

Jack R. Hundley, Coordinator
Capital City Task Force, AARP State Legislative Committee

Mary H. Madge
Capital City Task Force, AARP State Legislative Committee

Donald F. Sullivan
AARP State Legislative Committee