January 18, 1999
Allegheny Power Proposed Amendments
To Proposed Virginia Deregulation Bill
SJR Subcommittee January 13, 1999 Version

1. Amendments to §56-580, page 3, lines 22-25.

§56-580. Nondiscriminatory access to transmission and distribution system.

All distributors shall have the obligation to connect any retail customer located within its service territory to those facilities of the distributor that are used for delivery of retail electric energy, subject to existing Commission rules and regulations and approved tariff provisions relating to connection of service.

Explanatory Note: The proposed amendment clarifies that the obligation to connect is restricted to connection under the terms and conditions of established rules which protect the public, existing ratepayers, and utility shareholders against connecting under unsafe conditions and conditions which impose an undue cost burden on others.

2. Amendments to §56-593, page 13, line 18 and at the end of line 24:

§56-593. Divestiture, functional separation, deregulation of generation, and other corporate relationships.

The Commission shall not order any incumbent electric utility, nor shall it require any such utility to divest itself of any generation, transmission or distribution assets pursuant to any provision of this chapter.

B.1. The Commission shall, however, direct the functional separation of generation, retail transmission and distribution of all incumbent electric utilities in connection with the provisions of this chapter to be competed by January 1, 2002. Except as otherwise regulated pursuant to this chapter, any assets used in connection with the generation of electricity shall, upon the commencement of customer choice, no longer be considered utility assets subject to the regulation of the Commission under any provisions of law not contained in this chapter.

Explanatory Note: The proposed changes to this subsection clarify that, upon the start of customer choice in 1/1/02, generation assets are no longer regulated utility assets subject to Commission regulation under other provisions of existing law, including §56-1, relating to corporations acting as public service companies generally; §56-88, Utility Transfers Act, relating to transfer of utility assets; §56- 232, relating to regulation of heat, light power, and other utility companies, generally; and 56-234.3, relating to certification of need for new generation facilities.

3. Amendments to § 56-593.C, page 14, lines 3-12:

The Commission shall promulgate rules and regulates regulations to carry out the provisions of this section, which rules and regulations shall include provisions:

Prohibiting cost-shifting or cross-subsidies between functionally separate units;

Prohibiting functionally separate units from engaging in anticompetitive behavior or self-dealing;

Prohibiting affiliated entities from engaging in discriminatory behavior towards nonaffiliiated units; and

Establishing codes of conduct detailing permissible relations between functionally separate units.

An appropriate code of conduct between the incumbent electric utility and any affiliate providing electricity supply and related competitive services in the Commonwealth; and

Access on a non-discriminatory basis by electric suppliers and customers to transmission and distribution systems owned by or controlled by the incumbent electric utility.

Explanatory Note: This amendment is intended to clarify the intent of the Subcommittee that cross-subsidies and discriminatory behavior by incumbent utilities be prevented in a competitive marketplace. Concerns over discriminatory behavior towards nonaffiliated entities can be addressed through the codes of conduct and by the nondiscriminatory access provisions proposed above. The current language could result in codes of conduct and other restrictions involving activities between unregulated affiliates anywhere in the country. Existing state law gives the Commission the power to address cost-shifting between a regulated utility in Virginia and its affiliates through its jurisdiction over the regulated utility, not the affiliate.

4. Amendments to §56-593.D, page 14, lines 23-27 and page 15, lines 1-12:

Neither a covered entity (defined in SCC draft proposal) nor an affiliate thereof may be a party to a covered transaction (defined in SCC draft proposal) without the prior approval of the Commission. Any such person proposing to be a party to such transaction shall file an application with the Commission. The Commission shall approve or disapprove such transaction within sixty days after the filing of a completed application; however, the sixty day period may be extended by Commission order for a period not to exceed an additional 120 days. The application shall be deemed approved if the commission fails to act within such initial or extended period. The Commission shall approve such application if it finds, after notice and opportunity for hearing, that the transaction will comply with the requirements of subsection E, and may, as a part of its approval, establish such conditions or limitations on such transaction as it finds necessary to ensure compliance with subsection E.

A transaction described in subsection D of this section shall not:

Substantially lessen competition among the actual or prospective providers of noncompetitive electric service or of a service which is, or is likely to become, a competitive electric service; or

Jeopardize or impair the safety or reliability of electric service in the Commonwealth, or the provision of any noncompetitive electric service at just and reasonable rates.

Explanatory Note: This subsection is deleted in its entirety.

Under the current language, any transactions affecting the control of an affiliate which provides products, services, or other forms of service essential to the provision of electric service or involving the assets, or products and services produced by such assets are subject to review in Virginia, even where there is no effect on the services provided to the Virginia public service company.

Current Virginia law provides for review of agreements with affiliates relating to the provision of utility services in Virginia and transfer of Virginia utility assets, under Title 6 of the Code of Virginia, Chapters 4 and 5. The proposed language would extend Commission authority to transactions affecting the control or transfer of assets of affiliates of a public service company regardless of where they are located. Transactions potentially subject to review include parent-to-affiliate or affiliate-to-affiliate transactions not involving the regulated public service company. Present law has served Virginia well. The Commonwealth has the power to review agreements between the Virginia public service company and its affiliates to guard against cross-subsidization and ensure the costs associated with the transaction are fairly allocated. Current law also subjects transfers of utility assets in Virginia to state review. Any concerns regarding the ability of a generation supplier and/or default supplier to provide generation services can be addressed by the Commission through supplier licensure requirements. No further control is necessary.

5. Amendments to §56-593.F, page 15, lines 13-21:

Nothing in this chapter shall be deemed to abrogate or modify the Commission's authority under Chapter 5 (56-88 et seq.) of this title. However, any person subject to the requirements of subsection D that is also subject to the requirements of Chapter 5 (§ 56-88 et seq.) of Title 56 may, in the discretion of the Commission, be exempted from compliance with some or all of the requirements of said Chapter 5 of Title 56.

Explanatory Note: This subsection is deleted in its entirety.

The current language expressly retains Commission authority over deregulated functions. This amendment, in conjunction with amendments to §56-593.B would remove generation from Commission regulation. The second sentence refers to potentially duplicative approvals required under the "covered transactions" provisions of Subsection D and under the Utility Transfers Act. We propose elsewhere that the "covered transactions" provisions be deleted in their entirety.

6. Amendments to §56-593.1, page 15, lines 22-27:

§ 56-593.1 Application of antitrust laws.

Nothing in this chapter shall be construed to exempt or immunize from punishment or prosecution, conduct violative of federal antitrust laws, or the antitrust laws of this Commonwealth.

Explanatory Note: This subsection is deleted in its entirety.

The current language would eliminate the state-action shield for utilities in the Commonwealth providing regulated services such as transmission and distribution. Incumbent utilities will continue to be required to provide regulated, noncompetitive service under this chapter and cannot be obligated to provide these services while being subject to anti-trust laws. Once generation is deregulated, suppliers of such services will automatically be subject to application of antitrust laws. (This amendment is consistent with and corresponds to §56.593.B, line 24)

7. Amendments to § 56-579.1.C, page 17, lines 11-17.

C. 1. The Commission may, by order, annually extend any capped rate authorized under this section beyond January 1, 2005, in any incumbent utility's service territory if the Commission determines that effective competition for the sale of electric generation services does not exist within such service territory.

2. The Commission shall report any capped rate extension orders made pursuant to this section and the reasons therefor, to the Legislative transition Task Force within 30 days of any such order.

Explanatory Note: This subsection is deleted in its entirety.

As currently stated, the Commission can extend a rate cap indefinitely, without relationship to costs or market conditions. This is inconsistent with the default service provisions contained in 56-586 A., which allow for the SCC to establish default service providers after the commencement of full customer choice. It is also recognized that there is no need for a rate cap once default service is in place. Legislative drafting group discussions indicated general agreement that the end of the rate cap period, which is scheduled to end 1/1/05, should match up with the beginning of default service. This amendment is consistent with this understanding.