The following is a summary of the positions of stakeholders and other interested parties concerning key issues involving the structure of a restructured market, and the transition to such a market. This summary has been developed from information contained in the staff matrix-recently revised (and posted on 9/9) per information received from the parties subsequent to the matrix's release at the August 12 meeting-and from written comments received from stakeholders and interested parties at the August 12 meeting.

The summary will be presented to the task force on Friday, September 11. It should be viewed as a working document which will serve as a foundation (along with the matrix) of the task force report to the joint subcommittee at its September 23 meeting in Roanoke. We welcome your comments, ideas and suggestions.

1. If the Virginia General Assembly enacts comprehensive electric utility restructuring legislation, which services should be made competitive? [Matrix pp. 13, 15].

• The greater majority of respondents said that generation should be made competitive, and that transmission and distribution should remain regulated services (the former by FERC, the latter by the SCC).

• AARP said that the SCC should have the authority to determine which, if any, services should be made competitive once it determines that effective competition exists for these services.

• Some respondents, including AEP-Virginia, AOBA, CNG and Washington Gas, said that metering and billing and other ancillary distribution services could be considered for competition following transition to retail competition.

2. When should retail competition begin? [Staff Matrix pp. 1, 2].

• The AARP believes that no service should be made competitive until the SCC determines that there exists in the market effective competition for that service.

• However, all of the investor-owned utilities supported the timetable established by House Bill 1172 (1998) which begins the transition in 2002 and concludes it in 2004 (following the establishment of ISOs and RPXs in 2001).

• ALERT and the Virginia Committee for Fair Utility Rates favor more aggressive timetables: ALERT wants full retail competition for all classes by 7/1/2001; The Committee would like retail choice for industrial customers not later than 1/1/2002.

3. Should the SCC have authority to delay the commencement of retail competition? [Staff matrix, pg. 3].

• The parties were nearly unanimous in declaring that the SCC should have such authority. But many, including ALERT, Virginia Power, Allegheny and MEPAV suggested that such authority be limited to specific circumstances, mainly the lack of readiness for competition at particular legislative milestones.

4. Should the commencement of retail competition be made contingent upon the implementation of an ISO/RPX? [Staff Matrix, pg. 2]

• Nearly all of the parties said yes. Allegheny, the Virginia Committee for Fair Utility Rates and CNG said no.

5. Should pilot programs accompany the transition to retail competition? [Staff matrix, page 5.]

• Virtually no one objected to pilot programs, with one exception-CNG-which believes that Virginia should simply make use of pilot program information developed in other states. However, Allegheny and Virginia Power believe it's unnecessary to include them in any comprehensive restructuring plan since the SCC has already requested that Virginia's investor-owned utilities submit pilot programs by November 2.

• AOBA, on the other hand, believes that large-scale pilot programs should be key components in any phased restructuring plan. Washington Gas also believes pilot programs should be formally included in any restructuring plan.

6. Should retail competition be phased in? [Staff Matrix pg. 2].

• Nearly all respondents agreed that retail competition should be phased in; they were far from unanimous about how that should be accomplished. AARP and ALERT, for example, believe that equal percentages of each customer class should be phased into retail competition over a specified phase-in period.

• Virginia Power and the Virginia Committee for Fair Utility Rates recommended that industrials customers go first by 2002. The Virginia Council Against Poverty took the opposite view: residential and small business first, then the other classes.

• The Co-ops and The Southern Environmental Law Center believe that all customers and customer classes should begin retail competition together.

7. Should unbundling of utilities' current rates accompany retail competition? [Staff Matrix pg. 4.]

• Virtually everyone agreed that unbundling (i.e., separating each utility's rates into their component parts) is essential. However, the parties drew sharp distinctions between informational unbundling and competitive unbundling. AEP-Virginia and Allegheny support preliminary cost of service studies or rate analysis as the basis for informational unbundling.

8. Should mandatory baseline rates cases precede retail competition? [staff matrix, pg. 3]

• Allegheny and the Co-ops suggested that rate unbundling would serve the same purpose; thus, baseline rate cases would be unnecessary.

• Virginia Power believes that pre-transition rate cases should be filed under existing statutes.

• AOBA says the SCC should have discretion to require baseline cases, but that rate cases for unbundling purposes should be mandatory.

• Washington Gas suggests that rate cases should be used to establish base rates and to unbundle rates.

9. Should preliminary rate freezes be utilized in mitigation of stranded costs? [staff matrix, pg. 3]

• All of the electric utilities favor or support rate freezes, with AEP Virginia and Allegheny favoring frozen retail rates during a 4-5 year transition period. The Co-ops said they are not opposed, but believe that a preliminary review of stranded costs must precede any rate freezes.

• CNG and AOBA oppose such rate freezes, with CNG voicing opinion that such freezes stifle competition.

10. Should all retail electric energy suppliers in a restructured market be licensed? [staff matrix, pg. 14]

• Stakeholders and interested parties were unanimous in their opinion that all such supplier should be licensed and subject to regulatory oversight (most suggested the SCC for that role). Virtually all agreed that they should be bonded, or required to provide proof of financial responsibility, and required to meet certain market standards of conduct.

• The Co-ops, AOBA, and AARP suggested that all suppliers should also furnish proof of adequate generation reserves.

11. Should municipal power suppliers be exempted from retail competition? [staff matrix, pg. 1]

• The majority agreed that municipals could be exempted, but only if they refrained from offering electricity to customers outside their distribution territories. Most agreed that municipals should be permitted to "opt in" to retail competition on a reciprocal basis, i.e., if the municipals permit other suppliers to sell generation service to municipal customers.

12. Who should provide default, supplier-of-last-resort, and emergency service in a restructured market? [staff matrix, pp. 14, 21]

• Nearly all of the parties (except CNG, SELC and AARP) agreed that incumbent utilities or incumbent local distribution providers (e.g., co-ops and municipal power suppliers) should provide all of these services during the transition to retail competition.

• CNG, SELC and AARP believe that default provider service should be competitively bid at the outset. VCAP and Washington Gas supports making these services competitive following the completion of the transition period.

12. Should voluntary customer aggregation be permitted? [Staff matrix, pg. 15]

• The parties were unanimous in their support for aggregation.

• AOBA emphasized that aggregation should be permitted without any restrictions on utility service, customer class, etc.

• AARP believes that the SCC should assist customer aggregation, while VCAP suggested that the development of nonprofit or public aggregators for residential and other small consumer groups should be encouraged.

13. What are the respective roles of the SCC and FERC in the transmission and distribution of electricity in a restructured market? [staff matrix, pp. 5, 8]

• The parties agree that FERC will have authority over transmission (including transmission rates) and the SCC will have authority over distribution. Virginia Power believes that this separation of regulatory jurisdiction should be stated in any Virginia restructuring bill.

• The Co-ops suggests that the SCC have seats on ISO boards of advisory committees.

• MEPAV suggests that FERC's 7-factor test for distinguishing between transmission and distribution facilities be incorporated into any Virginia restructuring legislation.

14. What role should the General Assembly and the SCC play in the development of independent system operators serving Virginia? [staff matrix, pg. 7]

• The respondents are unanimous in their agreement that ISOs are needed to coordinate the transmission system and to ensure its reliability.

• The parties disagree about whether Virginia restructuring legislation should condition utilities' participation in ISOs meeting Virginia-specific criteria. Related to this issue are the collateral issues of appropriate ISO size (matrix, pg. 8), ISO board composition (matrix, pg. 7), and ISO identification and dispatch of must-run units (matrix, pg. 8).

• Virginia Power, Allegheny, and AEP Virginia believe that the SCC can bring its influence to bear in ISO development through ISO approval processes before FERC.

• Others, including ALERT, AOBA, and SELC support the development of a public interest standard, or giving the SCC authority to approve each utility's participation in an ISO. The Virginia Committee for Fair Utility Rates supports the SCC's development of advisory standards to guide utilities in developing or joining an ISO.

15. Should the SCC have any oversight of electric utilities' participation in ISOs following ISO implementation? [staff matrix, pg. 8]

• Virginia Power, Allegheny and CNG believe that any post-implementation concerns should be addressed by the SCC to FERC.

• ALERT and The Virginia Committee for Fair Rates, however, believe that the SCC should continue to have oversight and enforcement authority over utilities' ISO involvement-ALERT, for example, believes that any change in structure or operation of an ISO could trigger an SCC review to determine whether continued participation by Virginia utilities is appropriate.

16. Should incumbent investor-owned utilities, electric cooperatives and municipal power suppliers retain their role of distributors during and following any transition to retail competition? [matrix, pg. 12]

• The parties were nearly unanimous in declaring that distribution should remain a regulated service, and that incumbents should continue to furnish it through their current distribution system. AOBA suggested that it could be considered for competition at some time in the future.

17. What role should regional power exchanges, or RPXs play in Virginia's utility restructuring. [matrix, pp. 9, 10]

• The parties did not advocate that the establishment of RPXs be addressed in legislation. Virginia Power, AEP-Virginia and Allegheny responses suggest that the mix of the marketplace and FERC oversight will be sufficiently protective of the public interest.

• ALERT believes that any Virginia utility's involvement should be subject to SCC approval.

• The parties all agreed that (i) bilateral contracts should be permitted between suppliers and customers, (ii) not all sales need be made through RPXs, and (iii) Co-ops and Municipal power suppliers should be permitted to participate in RPXs.

18. Should incumbents be required to divest themselves of their generation, or functionally separate generation from distribution in order to mitigate potential market power in a competitive retail market? [staff matrix, pg. 18]

• The electric utilities and cooperatives oppose mandatory divestiture, while either supporting or not opposing functional separation. MEPAV believes that functional separation may require SCC or FERC oversight to prevent cost-shifting.

• ALERT and VCAP said that the SCC should have the authority to mandate divestiture if necessary to eliminate market power.

• CNG and AOBA said that incumbent utilities should be given incentives to divest.

19. How should the General Assembly and the SCC address potential market power arising from transmission constraints, e.g., market power associated with must-run units? [staff matrix, pp. 6, 11,

• ALERT and the investor-owned utilities believe, in general, that market forces (the construction of merchant plants, in particular) will ultimately resolve market power associated with transmission constraints. AEP advocated transmission line construction in its service territory as a means of alleviating some existing constraints.

• However, the Co-ops contend that must-run generation in transmission-constrained areas should be regulated and priced by the SCC on a cost-of-service basis until any such constraint is eliminated. AEP-Virginia, Allegheny, and CNG concur.

• Virginia Power believes that pricing of must-run units should be addressed by FERC, which can establish a rate based on cost and a reasonable return.