Owners and managers of multi-family residential apartment and commercial office buildings - while representing both themselves and tenants - are also consumers of electric power. While our members' interests in consumer, environmental and educational issues may differ somewhat from the typical occupant of a single-family or townhouse home, these differences normally relate more to electrical power volume and workload factors than to the major consumer issues such as market power, stranded costs, reliability of service, fail-safe protection needs (universal service), protection against fraud and unfair practices by marketers, consumer education, etc.

The apartment and office building industries, while regulated on matters of public health and safety, have been a highly competitive industry. Any building owner/manager desiring to maintain or increase the marketability of their properties must assure prospective and existing tenants that rents and amenities are competitive with other available properties. In short, this means that the owner/manager must provide tenants safe, reliable and low-cost electricity service. As agents of our tenants, with respect to utility services, building owners/managers have a contractual obligation to protect the interests of their tenants as well as their own interests.

With regard to the primary interests of our Virginia owner/manager members - from the standpoint of consumer protection - AOBA believes that any effective program for restructuring and deregulating electric utility services in the Commonwealth must first deal with the issue of market power. Failure to resolve this issue at the outset ultimately will prevent effective electric utility competition for the state. We believe that the history of federal deregulation in the telecommunications, aviation, and commercial truck transportation - to name just a few of the more prominent deregulation industries - demonstrates that deregulation of a service without effective competition is a certain guarantee that consumers of that deregulated service over the long run will not benefit from that deregulation and most likely will be adversely affected.

At our presentation before the Joint Subcommittee on October 17, 1997, we emphasized that there were four (4) key elements necessary to effective electric utility competition: maintenance of service reliability, competition in the supply of firm generating capacity, appropriate resolution of stranded costs issues, and assurance of the ability to aggregate service requirements.

Some of the major recommendations we made at that time as essentials of electric utility restructuring were:

• Competition for the Supply of Peak Capacity. If Virginia is to establish a retail market for electric generation services which meets the needs of the majority of electric customers in the state, competition must be ensured in the market for firm electricity supply during periods of electrical system peak demand, as well as competition in the pricing of energy during non-peak hours. Competition in energy pricing alone is not sufficient.
• Divestiture of Generation. A substantial divestiture of utility generation assets through a competitive bidding process, with a requirement that no entity may purchase more than 25% of the generation assets currently held by the State's investor-owned utilities must be mandated.
• Minimum Generating Capacity Reserve Requirements. All marketers of firm power services who sell such services within the State must maintain at least minimum levels of generation capacity reserves. This is necessary to protect against unacceptable degradation of service and/or the possibility of dramatic increases in the costs of reliable service. Moreover, the legislature should empower the State Corporation Commission (SCC) to establish and enforce such minimum capacity reserve standards.
• Market-Based Stranded Cost Determinations. "Stranded Cost" determinations for existing generation assets should be premised on market-based transactions. Stranded costs determinations for generation assets not sold through an open bidding process should be developed on a plant-by-plant or unit-by-unit basis through evidentiary proceedings before the SCC. In addition, procedures for the identification and recovery of stranded costs must provide for the potential that some generation assets may have value in excess of their depreciated booked costs (i.e. stranded benefits).
• Disintegration of Existing Utility Operations. Electric industry restructuring legislation should require full separation (i.e., disintegration) of generation from transmission and distribution functions within five years. In addition, the resulting Transmission and Distribution (T&D) utility operations should become common carriers of electric power without the encumbrance of ties to an affiliated power supplier who seeks to market generation services within the same service territory.
• Redefinition of Customer. A redefinition of "utility customer" should be established to ensure the ability of consumers to aggregate generation requirements across meters and accounts and without the restrictions regarding property ownership or service location.
• Establishment of a Truly Independent Transmission System Operator. The SCC should be granted authority to monitor the activities of any independent transmission system operator (ISO) to insure open and non-discriminatory access to in-state transmission facilities and an arm-length relationship between the ISO and utilities.

The above-listed recommendations were not intended to be a comprehensive listing but rather only the minimal requirements needed to assure effective competition (i.e. consumer protection) under deregulation of electricity in Virginia. Nothing that we have seen or heard during the ensuing time period would cause us to dilute or rescind any of those initial recommendations.

There are, however, a number of other issues which are important in the context of consumer protection from the standpoint of AOBA's multi-family residential and commercial office building owners and managers, as well as in the interest of their tenants. Among those issues are the following:

1. Licensing and Regulation of Retail Electric Energy Suppliers. In our judgment, consumer protection in this area mandates that power marketers be licensed and subject to (a) standards of conduct, and (b) in the case of marketers of firm generation services, minimum capacity requirements. In addition, standards of conduct should be promulgated to govern the relationships between electric energy suppliers and their affiliates so as to facilitate effective competition.

2. Unbundling of Separate Services on the Utility Bill. All services other than transmission and distribution should be unbundled and made competitive services. This also would require that consumer-based information now held by the existing energy service providers be made available to all competitors on an actual cost basis.