The Honorable Clifton A. Woodrum, Vice Chairman
The Honorable Richard J. Holland
The Honorable Thomas K. Norment
The Honorable Jerrauld C. Jones
The Honorable John C. Watkins
The Honorable Harry J. Parrish
The Honorable Kenneth W. Stolle
The Honorable Eric I. Cantor
The Honorable Kenneth R. Plum
The Honorable Terry G. Kilgore

Dear Senators and Delegates:

Attached is a draft of electric restructuring legislation prepared by our Staff that is designed to implement the shift to retail competition envisioned in House Bill 1172 (Chapter 633, 1998 Acts of Assembly). First, you will find a summary of the legislation that describes how the proposal would work. Also, as requested by the Subcommittee, the draft includes brief explanations after each section, and there is also a cross reference to the headings in the drafting group outline. Our Staff is available to answer any questions you may have and to assist in your efforts.

In presenting this legislation to the Subcommittee we note several points. First, our Staff has spent a great deal of time preparing the enclosed draft to seek to ensure that effective competition will have a chance to develop quickly and broadly while still providing protection for consumers. The statute seeks to achieve a number of goals, including the following:

• To allow customer choice to begin in an orderly fashion by 2004;
• To protect consumers until competition can control the price, adequacy and quality of service;
• To provide for fair and full competition;
• To not simply allow, but to encourage and promote, competition for the retail sale of electricity;
• To encourage new entrants to provide electric service in Virginia;
• To encourage and promote the efficient use of non-competitive services such as transmission and distribution and to protect the public and promote competition through their use;
• To determine stranded costs and benefits so that incumbent utilities and customers are treated fairly; and
• To provide for customer education.

A number of the provisions of this draft statute are interconnected, and a change in one section may require changes in others. Also, while the proposal is comprehensive, it does not address any special treatment for localities or cooperatives, although section numbers have been allocated for these provisions. Our Staff would, of course, be glad to discuss these matters with you.

We cannot overemphasize that if competition is to have an opportunity to work in Virginia and benefit her citizens, tools must be available to promote true competition and protect the public, especially with respect to the market power issue. We believe the attached draft meets this requirement.

Second, we are presenting this draft to assist the Subcommittee and the General Assembly should it decide to move forward this year with implementing legislation. While we believe the attached draft provides the tools necessary to protect the public and promote competition to the extent practicable, we continue to have serious concerns about the wisdom of moving forward now. As we expressed during the last legislative session, enacting date certain legislation at this time may not be in Virginia's best interest. Virginia's rates are reasonable, and our citizens do not need to incur the certainty of transition costs for the hope of unquantified savings.

We do not suggest that the Commonwealth do nothing, but rather that we proceed cautiously. In March of this year, the Commission directed Virginia utilities to work with others toward the development of one or more independent system operators (ISO). We continue to monitor that progress and currently have before us a request to establish rules related to ISO formation. Our order also directed that the Commonwealth's two largest utilities submit pilot programs for retail competition. Although the utilities took several extra months to file their plans, these proposals are now being evaluated. There may be much to learn from these pilots before Virginia commits to full scale retail competition.

In addition, the experience in other states to date, specifically, for example, California, demonstrates that the promise of competition for most customers, particularly residential and small commercial, far exceeds what is actually delivered in terms of savings, once all costs are factored in. Since our rates are low compared to the vast majority of the states that are moving to retail competition, we can afford to learn from their successes and failures.

Finally, of course, we recognize that the responsibility and decision to move to retail competition by a date certain rests with the General Assembly. Please be assured that should the Assembly enact legislation this year, we will perform our tasks fully and fairly, implementing the letter and the spirit of the law in whatever manner the Assembly directs.

Sincerely,

Clinton Miller

Theodore V. Morrison, Jr.

Hullihen Williams Moore

Attachments

cc: Arlen K. Bolstad, Esq.