In the event that restructuring legislation is going to be introduced in the Virginia legislature, MEPAV believes that Senate Bill 688 in most respects represents a reasonable statutory basis for electric industry restructuring legislation. However, we believe that, at a minimum, the following changes are needed.
Section 56-577: Change the definition of "incumbent electric utility" to provide:"Incumbent electric utility" means each electric utility in the Commonwealth that, prior to July 1, 1999, supplied electric energy to retail customers located in an exclusive service territory established by the Commission or by a municipality.Section 56-578: Change the section to provide as follows:[Explanation: This proposed change is needed to ensure that all existing municipal electric systems are treated as incumbent electric utilities under chapter 23.]
§ 56-578. Applicability; municipalities.Section 56-581: Modify subsection A to provide:A. This chapter shall apply to all electric utilities authorized to conduct business in the Commonwealth.
B. Nothwithstanding subsection A of this section, this chapter shall not apply to an electric utility owned or operated by a municipality unless (i) that municipality elects to have this chapter apply to that utility or (ii) that utility sells, offers to sell or seeks to sell electric energy through a regional power exchange or to a supplier or distributor of electric energy. Any electric utility owned or operated by a municipality, whether or not subject to this chapter, may purchase electric energy through a regional power exchange or through a contract with a generator or supplier, subject to the rules and procedures adopted by the independent system operator serving that electric utility and the relevant regional power exchange, as provided in §§ 56-581 and 56-582. Notwithstanding any other provision of this chapter, an electric utility owned or operated by a municipality that becomes subject to this chapter shall not be subject to the jurisdiction of the Commission except for the requirements of § 56-585, but such utility shall meet the substantive standards set forth in this chapter.
[Explanation: This provision is needed so that provisions of chapter 23 providing for Commission jurisdiction over such matters as rates, terms and conditions of distribution service do not apply to municipal electric systems, but that these would continue to be regulated by municipal governments. Municipal governments would be responsible for ensuring that the substantive standards set forth in this chapter are met. Municipal electric systems would, however, be subject to Commission licensing requirements (and to taxes and fees) with respect to sales outside their service territory.]
§ 58-581. Independent system operator.Section 56-581: Change subsection B.1 to provide:A. By July 1, 2000, all incumbent
electric utilitiesutility transmitters shall establish, subject to approval by the Federal Energy Regulatory Commission and, to the extent not prohibited by federal law, by the Commission, one or more independent system operators to coordinate and control the operation of the interconnected electric energy transmission grid system throughout, or in specified portions of, the Commonwealth, provided that all of the Commonwealth shall be served by an independent system operator.[Explanation: This change is to clarify that only those utilities providing electric transmission are required to establish independent system operators, and that electric generation and distribution are not functions of independent system operators.]
B. It shall be the duty and responsibility of each independent system operator to:Section 56-581: Change subsection D to provide:1. Manage and control the transmission of electric energy throughout the Commonwealth, or in a specified portion of, the Commonwealth, which functions shall include operation, maintenance, planning and expansion;
* * * [Explanation: This provision ensures that management and control includes the functions of operation, maintenance, planning and expansion. These functions are essential if independent system operators are to be effective in eliminating and preventing market power.]
D. No generator, supplier, transmitter or distributor of electric energy shall have an ownership interest in, or controlling influence over, any independent system operator established under or authorized by this section.Section 56-582: Change subsection F to provide:[Explanation: This provision adds language contained in section 2(a)(7) of the Public Utility Holding Company Act of 1935 (15 U.S.C. § 79b(a)(7)) that recognizes that ability to exercise control may occur without ownership. This change is needed to ensure that market power is eliminated or prevented.]
§ 56-582. Regional power exchangeSection 56-585: Change the section to provide:
* * * F. No generator, supplier, transmitter or distributor of electric energy shall have an ownership interest in, or controlling influence over, any regional power exchange established under or authorized by this section.
[Explanation: See the explanation for the proposed change to § 56-581.D. The same reason that applies to independent system operators also applies to power exchanges.]
§ 56-585. Licensure of suppliers of retail electric energy; license suspension or revocation; penalties.Section 56-588: Delete subsection B so the subsection would provide as follows:A. As a condition of doing business in the Commonwealth, each person seeking to sell, offering to sell, or selling electric energy to (i) large retail customers after July 1, 2001, and (ii) any class of retail customer in the Commonwealth after January 1, 2004, shall obtain a license from the Commission to do so. The license shall authorize that person to act as a supplier until the license is otherwise terminated, suspended or revoked. Upon request, each incumbent electric utility authorized to conduct business in the Commonwealth as of the date of that request shall be issued an initial license under this section without the need for any further showing. Unless renewed by the Commission, a supplier's license shall expire after a period of five years from the date on which it was issued. A person that generates electric energy exclusively for its own consumption or the consumption of an affiliate shall not be required to obtain a license. This § 56-585 shall apply to an electric utility owned or operated by a municipality only with respect to service provided outside its service territory and shall not apply with respect to service within its service territory.
B. As a condition of obtaining, retaining and renewing any license issued pursuant to this section, a person shall (i) satisfy such reasonable and nondiscriminatory requirements as may be specified by the Commission, including requirements that such person shall demonstrate, in a manner satisfactory to the Commission, financial responsibility, (ii) post a bond as deemed adequate by the Commission to ensure that financial responsibility, (iii) pay an annual license fee to be determined by the Commission, (iv) pay all taxes and fees lawfully imposed by the Commonwealth or by any municipality or other political subdivision of the Commonwealth, and (v) pay its share of the costs imposed pursuant to § 56-586 to provide a supplier to a retail customer for which customer choice has been implemented if no supplier offers to sell electric energy to that customer.
C. The Commission may adopt reasonable rules and regulations governing the requirements for obtaining, retaining, and renewing a license to supply electric energy to retail customers, and may, as appropriate, refuse to issue a license to, or suspend, revoke, or refuse to renew the license of, any person that does not meet those requirements. In addition to being subject to any other applicable sanctions provided in Titles 12.1 and 13.1 or elsewhere in this title, any person that supplies electric energy to retail customers without a license to do so, or while its license to do so is suspended or revoked, shall be guilty of a Class 1 misdemeanor. Each day during which a person violates this section shall constitute a separate violation.
[Explanation: These changes are to ensure that the licensing of a municipal electric system is limited to service outside its service territory and to recognize that service within its service territory will continue to be regulated by municipal governments. The addition of the year 2004 is to correct a printing error in the bill.]
§ 56-588. Metering, billing and other related distribution services.Section 56-593: Revise the section to provide:
* * * B.
Subject to the right of a retail customer to elect to receive a separate bill from its supplier of electric energy, eEach distributor, on and after July 1, 2004, shall be responsible for billing retail customers for all services related to the supply, transmission and distribution of electric energy.
* * * [Explanation: This change retains the current functions of incumbent electric utilities with regard to metering, billing and other related distribution services. As explained in MEPAV's June 26, 1998 Narrative Outline presented to the SJR91 Subcommittee Task Force on Structure and Transition, the only area that offers significant potential competition at this time is the generation market (assuming market power problems are resolved) and, because of issues related to suppliers of last resort and safety, a precipitous opening up of other activities to competition is not advisable and will result in costly duplication of facilities and potentially higher costs to consumers.]
§56-593. Functional separation.Add a new Section 56-594 to provide:
A. The Commission shall not order a regulated electric utility, nor shall it require a nonregulated electric utility to divest itself of any generation, transmission or distribution assets pursuant to any provision of this chapter.
B.1.A. The Commission shall, however,direct the functional separation of generation, retail transmission and distribution of all regulated and nonregulated electric utilities in connection with the provisions of this chapter to be completed by December 31, 2003.
2.B. By July 1, 2001, each regulated electric utility shall submit to the Commission a plan for such functional separation which may be accomplished through the creation of affiliates or through such other means as may be acceptable to the Commission to ensure a competitive market for generation, retail transmission and distribution of electric energy within the Commonwealth.[Explanation: The proposed language eliminates the prohibition on divestiture contained in Senate Bill 688. This change is intended to permit the Commission to use divestiture as one of the tools available to it to eliminate or mitigate market power, as provided in the next section]
§56-594. Market power; Commission authority to remedy.Renumber Section 56-594 as Section 56-595.A. The Commission shall have the authority, to the extent not prohibited by federal law, on its own motion or upon application and after notice and opportunity for hearing, to take all actions it determines necessary to prevent any participant in electricity markets or submarkets, or any affiliate thereof, from creating or maintaining a situation inconsistent with robust, fair and effective competition in any retail electricity market or submarket and to prevent and remedy market manipulation and other market abuses. In carrying out its responsibilities under this section to ensure competitive retail electricity markets and submarkets, the Commission's authority shall include the authority to order:
- divestiture, spin-off or other form of disposal of assets and functions;
- shared access to assets or services on a nondiscriminatory basis at rates that are just, reasonable and not unduly discriminatory;
- public disclosure of information, including transparent pricing information;
- construction of transmission facilities; and
- such other actions as the Commission deems reasonably necessary to mitigate or remedy the exercise of market power or market abuses.
B. The Commission shall act on an expedited basis when carrying out all responsibilities under this section, and shall have authority to order temporary relief, in order to preserve the integrity of the retail electricity market, to preserve the status quo or to prevent irreparable harm pending issuance of a final order, provided that such temporary relief shall not include the remedies identified in subsection A.1 above.
C. The Commission may delay any of the dates set forth in §§56-579.A.3, 56-579.A.4, 56-584.B.2, 56-584.C, 56-585, 56-587, 56-588, 56-589, 56-591, 56-592, and 56-593 upon a determination that market power has not been eliminated or mitigated sufficiently to permit retail customers in the Commonwealth to benefit from customer choice.
[Explanation: This additional provision is intended to provide the Commission the authority to eliminate or mitigate market power using a variety of tools, including divestiture as identified in Section A. Section B permits the Commission to act (except in ordering divestiture) on an expedited basis, when necessary to preserve the integrity of the market, to preserve the status quo, or to prevent irreparable harm. Section C enables the Commission to defer the implementation of retail competition if it determines that market power has not been eliminated or sufficiently mitigated to enable retail customers to benefit from customer choice. As reflected in the matrix, market power is a key concern of virtually all commenters. While the formation of an ISO and PX should help to mitigate some market power concerns, they will not be sufficient because, among other things, of significant transmission constraints and highly concentrated generation ownership.]