The Apartment & Office Building Association, having reviewed the comments and draft legislation submitted by other parties, offers three observations for Task Force consideration.

First, although most parties seem to have focused primarily on issues of stranded costs and stranded cost recovery, the comments of Virginia Power more broadly address "transition costs." AOBA supports utility recovery of prudently incurred "transition costs," but the appropriate scope of those costs needs to be more closely examined. Legislators must be careful not to give utilities a "blank check" for the recovery of unspecified, or poorly specified, categories of cost. For this reason, the SCC should be given the responsibility of determining the appropriate scope, as well as the appropriate magnitude, of transition charges.

Second, several parties make reference to "non-bypassable wires charges." Although "non-bypassable wires charges" may sound like a straightforward and equitable means of structuring a cost recovery mechanism, experience in other jurisdictions has found the application of such charges to be highly problematic where persons or organizations cease to be users of the incumbent utility's distribution services. As a result, such "non-bypassable" charges have become bypassable where customers either elect to disconnect from the system and obtain power through either self-generation or physically bypass the system to obtain power from a third party. A legislative resolution of this problem may be to authorize utility recovery of stranded costs and/or transition costs from all utility customers as of a specified date prior to the initiation of retail competition.

Third, AOBA submits that the "price cap" concepts suggested by several parties can be highly inequitable and may distort market pricing of services. Price caps for an arbitrary number of years provide no assurance of a matching of costs and benefits for consumers and greatly increase the potential for Windfall Profits for utilities that may have stranded benefits that should be returned to consumers. In addition, any attempt to use "guaranteed frozen rates" must address both (1) who will underwrite such guarantees and (2) the risks that such guarantees may impose on the underwriting parties (i.e., most likely either utility shareholders or utility ratepayers). In a competitive market, a utility cannot be provided a fuel cost adjustment. Yet, if fuel costs should change dramatically, a utility lacking the ability to adjust rates may experience substantial financial harm. And that, in turn, may jeopardize the reliability of utility services. On the other hand, if ratepayers are required to bear the risk of unexpected cost fluctuations, then representations of "guaranteed frozen rates" may, from a consumer perspective, be false or misleading.

In this context, AOBA submits that with the opening of retail competition, a full segregation of generation from distribution services is preferred with default service provided through competitive procurement mechanisms. This reduces the need for arbitrary price caps or rate freezes and avoids unintended market distortions.

Finally, with one exception, AOBA supports the position presented in the Comments of the Office of the Attorney General, Division of Consumer Counsel (AG). The one exception relates the AG’s statement that "No costs or benefits can be stranded until retail customers actually leave their current electricity provider in favor of another provider of electricity." On this point, AOBA suggests that stranded costs and benefits may result at the point where a customer is provided the option of purchasing services from an unregulated provider regardless of whether the customer actually elects to use the services of an unregulated provider. Certainly, if a utility is permitted to discount its charges to retain a customers, stranded costs or stranded benefits may exist even though the customer may elect to continue to purchase competitive services from the incumbent utility. For example, a utility may use stranded benefits to undercut price offerings of competitive suppliers.

AOBA also supports much of the comments of ALERT, but it does not support ALERT’s position regarding the use of either a "price cap" or a "price cap formula." Whether the accurate and reliable data for measuring elements of ALERT’s proposed formula (e.g., the percentage change in the price of electricity for customer class i for period t or measurements of appropriate productivity offsets) is questionable. Moreover, such rate caps if employed should only apply to charges for generation and transmission related services (including charges for stranded cost recovery, where applicable).

AOBA also wishes to expand on ALERT’s position regarding Commission Finding of Effective Competition. Findings of effective competition must be on-going, and recovery of stranded costs must be suspended if (1) at any point during the recovery of stranded costs the State Corporation Commission finds that effective competition no longer exists and (2) the incumbent utility has re-established sufficient market power to directly influence market price for any customer or class of customers. The fact that competition may be found to exist at a given point in time does not guarantee that it will continue to prevail unfettered for all time or for all classes of users.