TO: Joint Subcommittee SJR 91

FROM: Ralph L. "Bill" Axselle, Jr., Co-counsel
Reginald N. Jones, Co-counsel
Alliance for Lower Electric Rates Today

DATE: December 1, 1998

The Alliance for Lower Electric Rates Today (ALERT) suggests that legislation implementing retail competition in the 1999 session include provisions consistent with those outlined below.

§ 56-576 Short Title:

§ 56-577 Definitions:

§ 56-578 Applicability:

• This legislation shall be applicable to all utilities except (i) municipally owned or operated electric utilities (unless they opt to market out of their territory) and (ii) to generation solely for self­consumption.

§ 56-579 Schedule for Transition to Retail Competition:

• January 1, 2001: Participation in ISOs, and RPXs (if any), completed.
• Based upon criteria established by the SCC consistent with this legislation, each incumbent electric utility shall file a restructuring plan for the service territory of that utility. The SCC shall adopt a plan for the implementation of customer choice within the service territory of each incumbent electric utility.

• January 1, 2002: Customer choice available to at least one-third of the load in each customer class, under provisions the SCC determines to be appropriate. Customers with multiple accounts/loads may, at their discretion and direction, aggregate and/or assign their eligible loads within and across customer classes, so as to maximize customers' competitive options.
• SCC may accelerate January 1, 2002 timetable if determined appropriate.
• SCC may delay January 1, 2002 timetable if determined necessary based on considerations of reliability and implementing an orderly transition to full consumer choice.
• January 1, 2003: Retail competition available to 100% of consumers in all classes

§ 56-580 Nondiscriminatory Access To Transmission And Distribution:

• Informational unbundling of generation, transmission and distribution commencing January 1, 2000 and actual unbundling of generation, transmission and distribution upon commencement of retail competition (January 1, 2002).
• Generation subject to competition.
• Transmission subject to FERC oversight. (No need for state legislation)
• Distribution subject to SCC oversight, calculated under traditional cost of service principles.
• Nondiscriminatory access to transmission and distribution systems for all, at rates that are just, reasonable and nondiscriminatory.
• Merchant plants and on­site generation shall be given non-discriminatory access to transmission and distribution facilities.

§ 56-581 Independent System Operators:

• Participation in an ISO desirable to operate the transmission system and to dispatch must-run units to ensure reliability.
• ISO to have sole responsibility for dispatch of must-run units; to be dispatched only to extent necessary for reliability and integrity of system; pricing of must-run units will be determined by the ISO under the jurisdiction of the FERC.

• Independent governance of ISO, with appropriate stakeholder input and/or representation.

• Any action to exercise the right of eminent domain regarding transmission facilities will continue to be subject to SCC approval.

• SCC to have authority to approve and impose conditions on the transfer of ownership or operational control of transmission facilities from a Virginia utility to an ISO. The SCC will have the jurisdiction to approve and regulate a Virginia utility's participation in an ISO to the extent not preempted by federal law.

§ 56-582 Regional Power Exchanges:

• Virginia electricity consumers may purchase through any RPX or, at their option, direct from a generator/supplier through a bilateral contract.
• All consumers should be allowed to aggregate their purchases from any supplier (i.e., (i) purchases internal to the consumer, including purchases for multiple accounts for the same consumer, and (ii) purchases external to the consumer, with other consumers) from any supplier.
• Cooperatives and municipal power suppliers may also purchase from RPX.

§ 56-583 Transmission and Distribution of Electric Energy:

• SCC to have continued siting authority over new transmission facilities.

• Preservation of current law regarding exclusive distribution territories.

§ 56-584 Regulation of Rates Subject to the Commission's Jurisdiction (Standard Electric Service):

• The SCC shall determine the elements of standard electric service to be available to all retail customers and the rate for such services.
• This standard electric service will commence January 1, 2002 (or as such date as modified by the SCC per 56-579), when customer choice commences.
• This standard electric service arrangement shall continue until the SCC determines there is significant degree of competition in a particular situation and that the elimination of basic electric service is not contrary to the public interests.

§ 56-585 Licensure and Regulation of Suppliers of Retail Electric:

• SCC to have appropriate regulatory authority over all retail suppliers, aggregators (except that intra-consumer aggregation shall not be subject to such authority), marketers and brokers. SCC oversight to include but not limited to the following:
• Establishment of reasonable rules and regulations regarding the obtaining, retaining and renewing of appropriate licenses issued by SCC, e.g., demonstration of technical expertise and financial strength; code of conduct, etc.

• Retail suppliers required to obtain appropriate approvals from SCC, demonstrate appropriate financial responsibility/practical capabilities and comply with requirements of Commission necessary for the protection of the public, e.g., disclosure and notice requirements; termination practices; unfair and discriminatory sales and service practices, etc.

§ 56-586 Supplier of Last Resort and Default Provider:

• Supplier of last resort is the utility which will retain the obligation to serve customers who are unable to obtain a generation supplier or who have returned to such services because they terminated, or were terminated by, their supplier.

• The default provider is the entity that will provide electric service to individuals that do not exercise their choice of a generation supplier.

• SCC shall establish criteria for determination of and method for selection of the entities to be the supplier of last result and default provider. The SCC may then make such determinations consistent with such criteria, as it determines appropriate.

§ 56-587 Voluntary Aggregation Permitted:

• Any and all customers may voluntarily aggregate their electrical energy and demand for the purpose of negotiating the purchase of electric energy and capacity from any supplier (internal to consumer or external with other consumers-intra-consumer aggregation would not need licensure or approval).

§ 56-588 Metering and Billing Services:

• Metering and Billing Services for all loads (aggregated or individual) equal to or exceeding 20 kW demand factor or 50 kWh usage shall be subject to competition.

• Metering and billing for other loads shall not be subject to competition, unless and until the SCC shall have established criteria and standards for competition for all metering and billing and shall have determined that such competition is appropriate.

§ 56-589 Consumer Protections and Consumer Services:

• SCC to adopt and enforce a code of conduct for all retail suppliers, aggregators (with the exception of intra-consumer aggregation), marketers and brokers, including a code of conduct for retail supply affiliates of the incumbent utilities.

• The SCC should have authority over consumer issues and the General Assembly should expand the Consumer Protection Act, as required, to address the unique concerns presented by the transition to a competitive electric industry.

• Outreach efforts to educate consumers on what services will be competitive, how to choose or change suppliers, and where they can get answers to questions and complaints will be conducted by the State Corporation Commission working in collaboration with independent non-profit or public groups. Such efforts will be geared to all consumers generally, with special emphasis on the low-income, the less educated, and the handicapped populations.

§ 56-590(New) Consumer Protections Against Market Power; Promotion of Competition:

• The SCC may require each utility to file a plan for its future activities as it relates to market power.
• The SCC may take any and all actions it determines appropriate to address market power that exists or may exist in the future.
• If the SCC determines a utility has or may acquire market power, the SCC shall impose conditions and limitation as determined appropriate by the SCC, to the extent necessary to protect consumers and promote competition.
• If the SCC determines a utility may have market power due to that utility's control of electric generating capacity, the SCC may require that utility to take such action as determined by the SCC as necessary to protect consumers and promote competition, while affording that utility to earn a fair rate of return.
• If the SCC determines that market power exists due to transmission constraints and that modifications in such transmission systems would be beneficial to consumers and to promote competition, the SCC may require a utility to expand the capacity of its transmission system and to take any actions the SCC determines appropriate to protect consumers and to promote competition.
• To facilitate the development of an open and fully competitive electric market in the Commonwealth by providing for more generation facilities and because the cost of any merchant plant will not be reflected in a utility's rate base, there shall be no need to obtain a certificate of necessity from the SCC.

§ 56-590(Old) Public Purpose Programs:

§ 56-590.1 Environment:

• There shall be no legislative or regulatory promotion of the use of renewable energy as part of electric restructuring.

• There should be no new state emission standards or renewable standards as part of electric restructuring.
• Disclosure by supplier of their energy sources shall not be mandated.
• Any supplier claiming to supply renewable energy or "green power" shall make such disclosures consistent with standards of established by the SCC.
• False or misleading representations regarding renewable energy or "green power" shall be prohibited and subject to sanctions by SCC.

§ 56-590.2 Energy efficiency:

• Any energy conservation promotion program or public benefits program for energy efficiency should not be established as part of electric restructuring.

§ 56-590.3 Utility Workers Protection:

• It is inappropriate to provide benefits to a utility or its workers as part of the electric restructuring program; similar protections have not been provided to other industries undergoing change in the marketplace or regulatory framework.

§ 56-591 Transition Costs and Benefits (Stranded Costs/Stranded Benefits):

• The SCC shall determine the amount, if any, of just and reasonable net stranded costs from generation-related assets of each utility in Virginia. The SCC shall determine what portion/amount of such just and reasonable net stranded costs shall be recoverable by the utility from its customers. The SCC shall net stranded benefits against stranded costs to determine net stranded costs (if any).
• The SCC shall determine the appropriate standards and methodologies to produce just and reasonable rates and charges to allow a utility to recover just and reasonable net stranded costs.
• The SCC may order divestiture of specific generation assets if necessary to determine stranded costs.

• The SCC shall determine the method and timing of payments of such just and reasonable net stranded costs to the utility by its customers.
• The SCC shall employ the method and timing of any payment of just and reasonable net stranded costs that maximizes competition for all retail electric customers.
• If stranded benefits exceed stranded costs, the SCC shall not order the payment of net stranded benefits by utilities, but shall take net stranded benefits into consideration when establishing standard electric service rates under § 56-584.
• The SCC shall require periodic true-up of stranded costs.
• The utility shall have the burden of proof in determining and seeking recovery of just and reasonable net stranded costs.
• No exit fee shall be imposed on those who elect to self-generate.

§ 56-592 Nonbypassable Wires Charges:

• The SCC may use nonbypassable wires charges as a means of payment of stranded costs from generation-related assets of a utility in Virginia.
• The SCC may impose a nonbypassable wires charge related to consumer education programs determined appropriate by the SCC under § 56-589.
• The SCC may not impose nonbypassable wires charges for any other purpose.

§ 56-593 Functional Separation; Divestiture:

• There shall be a functional separation of generation, transmission and distribution capabilities of a utility by January 1, 2001.

• There shall be codes of conduct for affiliate transactions, with such codes being adopted and enforced by the SCC.

• All utilities to be subject to all anti-trust requirements.

• Attorney General to make recommendations for modifications, if any, in the Commonwealth's anti-trust laws in light of restructuring.
• Nothing in legislation or resulting regulatory action shall create any state action immunity for any utility from any anti-trust requirements.
• SCC shall have the authority to order divestiture (i) to prevent or remove market power under § 56-590(new) and (ii) if necessary to determine stranded costs under § 56-591.

§ 56-594 Legislative Transition Task Force Established:

• Create a Legislative Transition Task Force to oversee the implementation of the new industry structure (as envisioned in SB688) that would work collaboratively with the SCC, annually report to the Governor and General Assembly on the progress of the transition and offer recommendations as may be appropriate for legislative and administrative consideration.
• Define the SCC's role to include (1) monitoring, facilitating and overseeing the development and evolution of the competitive market, (2) taking any actions that may be necessary to remedy any market power abuses, (3) providing technical expertise, input and guidance to the Legislative Transition Task Force, and (4) bringing stakeholders together as necessary to facilitate the resolution of technical issues that arise as restructuring is implemented, many of which may be regional in scope.