July 23, 1998

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: Proposed legislative language for stranded costs.
The Virginia State Legislative Committee of the American Association of Retired Persons appreciates this opportunity to submit legislative language relative to 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.

STRANDED COST RECOVERY

1. Stranded costs defined. For the purposes of this section, the term stranded costs means a utilitys legitimate, verifiable, prudent, and non-mitigatible costs made unrecoverable as a result of the restructuring of the electric industry required by this chapter and determined by the Commission as provided in this subsection.

2. Calculation. For each electric utility, the Commission shall determine the sum of the following to the extent they qualify as stranded costs pursuant to subsection 1:

A. The costs of a utilitys regulatory assets related to generjation;

B. The difference between net plant investment associated with a utilitys generation assets and the market value of the generation assets; and

C. The difference between future contract payments and the market value of a utilitys purchased power contracts.

When determining the market value of generation assets and purchased power contracts, the Commission shall rely to the greatest extent possible on market information, including, but not limited to, market valuations that become known as generation assets and the rights to power under contracts with qualifying facilities are sold.

Pursuant to the calculation outlined in subsections 2. A-C, the Commission shall allow the utility to recover no more than 50 percent of the utilitys legitimate, verifiable, prudent, and non-mitigatible stranded costs.

3. Exception. To the extent that a utility demonstrates to the Commission that sharing the recovery of stranded costs between shareholders and customers will threaten the continued existence of the company, the Commission may allow the utility to recover more than 50 percent of its legitimate, verifiable, prudent, and non-mitigatible stranded costs.

4. Mitigation. An electric utility shall pursue all reasonable means to reduce its potential stranded costs and to receive the highest possible value for generation assets and contracts, including the exploration of all reasonable and lawful opportunities to reduce the cost to ratepayers of contracts with qualifying facilities.

5. Stranded costs recoverable. When retail access begins, the Commission shall provide a transmission and distribution utility a reasonable opportunity to recover 50 percent of the utilitys stranded costs through the rates of the transmission and distribution utility, as provided in this section. The Commission may reduce or increase the amount of stranded costs that the Commission allows a utility based on the efforts of the utility to mitigate its stranded costs.

6. Determination of stranded costs charges. Before retail access begins, the Commission shall estimate the stranded costs for each electric utility in the State. The Commission shall use these estimates as the basis for a stranded costs charge to be charged by each transmission and distribution utility when retail access begins. In 2002 and every 3 years thereafter until the utility is no longer recovering adjustable stranded costs, the Commission shall correct any substantial inaccuracies in the stranded costs estimates associated with adjustable stranded costs and adjust the stranded costs charges to reflect any such correction. The Commission may correct adjustable stranded costs estimates and adjust the stranded costs charges on their own initiative or upon petition.

7. Recovery of stranded costs. The Commission shall set an amount of recoverable stranded costs after calculating the net aggregate value of all divested assets that had proceeds exceeding book costs against the aggregate value of all other stranded electricity generation assets. The Commission may not shift cost recovery among customer classes in a manner inconsistent with existing law.

8. Timeframe for recovery. Each utility shall have no more than ten years to recover its stranded costs as permitted by the Commission.

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
Captial City Task Force, AARP State Legislative Committee