§ 56-576. Short title.
§ 56-577. Definitions.
§ 56-578. Commencement of customer choice.
§ 56-579. Basic electric service.
§ 56-580. Protection of customers from market power;
promotion of competition.
§ 56-581. Nondiscriminatory distribution service.
§ 56-582. Independent system operator.
§ 56-583. Power exchange.
§ 56-584. Licensing of alternative suppliers.
§ 56-585. Customer protection rules.
§ 56-586. Customer education.
§ 56-587. Monitoring of competitive developments.
§ 56-588. Determination and treatment of certain costs and benefits from past utility activities.
§ 56-589. [To Be Inserted]
§ 56-590. [To Be Inserted]
§ 56-591. Mergers, acquisitions, consolidations and changes in control.
§ 56-592. Commission rules and regulations.
§ 56-593. Commission authority to order filings.
§ 56-594. Enforcement.
§ 56-595. Information collection.
§ 56-596. Assessments.
§ 56-576. Short title.
This Chapter may be cited as the "Electric Industry Restructuring Act."
§ 56-577. Definitions.
The following terms, whenever used or referred to in this Chapter, shall have the following meanings, unless a different meaning clearly appears from the context:
"Affiliate" means a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.
"Aggregator" means a person, acting as an agent or intermediary, that purchases or arranges for the purchase of a competitive electric service for sale to, or on behalf of, two or more retail customers located within the Commonwealth.
"Alternative supplier" means (a) any person that offers to sell or sells a competitive electric service to retail customers located within the Commonwealth; and (b) an aggregator or broker; provided that selling, aggregating or brokering a competitive electric service to an affiliate for the affiliate's own consumption shall not make a person an alternative supplier.
"Basic electric service" means that group of essential electric services which the Commission determines, pursuant to § 56-579, should be available to retail customers within the Commonwealth who do not obtain one or more competitive electric services from an alternative supplier.
"Broker" means a person that acts as an agent or intermediary in the sale and purchase of a competitive electric service for sale to one or more retail customers located within the Commonwealth, but which does not take title to electric energy.
"Commission" means the State Corporation Commission.
"Competitive electric service" means (a) the service of selling electricity at retail to one or more retail customers located within the Commonwealth, whether such service is provided directly or by an aggregator or broker; and (b) any other electric service, as determined by the Commission after notice and opportunity for hearing, for which retail competition will promote the public interest.
"Control" of -
a. a person, means the direct or indirect possession of the power to direct, cause direction of or substantially influence the management and policies of such person, whether through the ownership of stock, securities or interests, assets or other indicia of control, by contract or otherwise, unless that power is the result of an official position with, or corporate office held in, that person. Control shall be presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, ten percent (10%) or more of the aggregate number of the issued and outstanding voting securities or other voting rights of the person. This presumption may be rebutted by a showing that control does not exist in fact. The Commission may determine, after notice and opportunity for hearing, that control exists in fact notwithstanding the absence of a presumption to that effect.b. an asset, means the direct or indirect possession of the power to direct, cause direction of or substantially influence the management or utilization of such asset, whether by ownership, contract or otherwise, unless that power is the result of an official position with, or corporate office held in, a person with control of the asset.
"Covered entity" means a provider of noncompetitive electric service or basic electric service within the Commonwealth.
"Covered transaction" means an acquisition, merger, or consolidation of, or other transaction involving, stock, securities, voting interests or assets, by which one or more persons obtains control of (a) a covered entity, (b) an affiliate thereof which furnishes products, services or other forms of support essential to the provision of electric service in the Commonwealth by a covered entity, or (c) assets, or the products or services produced by or with such assets, which are or may be essential to the provision of electric service by a covered entity in the Commonwealth.
"Customer choice" means the right of a person to purchase competitive electric services from an alternative supplier.
"Distribution service" means the service of physically delivering electricity from the transmission system to the retail customer.
"Distribution utility" means a person that owns, controls or operates physical facilities which the Commission determines are necessary to provide distribution service within the Commonwealth.
"Incumbent electric utility" means (a) each electric utility in the Commonwealth that, prior to the effective date of this Chapter, supplied electric energy to retail customers located in an exclusive service territory established by the Commission pursuant to Chapter 10.1 of this title; and (b) successors and assigns of such electric utility, to the extent the Commission determines to be necessary to advance the purposes of this Chapter.
"Independent system operator" means a person that may receive or has received, by transfer pursuant to this Chapter, any ownership or control of, or any responsibility to operate, all or part of the transmission systems in the Commonwealth.
"Market power" means the ability to impose on customers a significant and nontransitory price increase on a product or service in a market above the price level which would prevail in a competitive market.
"Noncompetitive electric service" means any electric service, other than the wholesale sale of electricity, provided within the Commonwealth which (a) has not been determined by the General Assembly or the Commission to be a competitive electric service; or (b) has been determined by the Commission to be a noncompetitive electric service under subsection E of § 56-578.
"Person" means any individual, corporation, partnership, association, company, business, trust, joint venture, or other private legal entity.
"Power exchange" means a market, formed pursuant to this Chapter, for the trading or exchange of electric power.
"Public service company" means an alternative supplier, provider of basic electric service, provider of a noncompetitive electric service, distribution utility, incumbent electric utility, independent system operator, and a person having any ownership or control of, or responsibility to operate, all or part of a transmission system within the Commonwealth. A public service company under this Chapter shall also be considered to be a "public service company," or "public utility" for purposes of all other provisions of Title 56, except as may be specifically provided in this Chapter.
"Transmission service" means the service of physically transferring electric energy, or providing the capability to perform such transfer, over one or more transmission systems.
"Transmission system" means the facilities, as determined by the Commission taking into account the lawful requirements of the Federal Energy Regulatory Commission, that electrically connect generating units to the physical facilities which the Commission determines are necessary to provide distribution service.
§ 56-577. Definitions.
[Cross reference: SB 688 § 56-577]
§ 56-578. Commencement of customer choice.
A. No later than January 1, 2004, every person may purchase competitive electric services from one or more alternative suppliers. Competitive electric services shall not be subject to regulation as to rates and service by the Commission under the provisions of Chapter 10 of Title 56 (§ 56-232 et seq.).
B. After notice and opportunity for hearing, the Commission shall promulgate a plan for the implementation of customer choice within the service territory of each incumbent electric utility. Such plan shall account for any special factors associated with such service territory which the Commission determines are relevant to the orderly implementation of customer choice.
C. A person that does not choose an alternative supplier to provide one or more competitive electric services determined by the Commission to be components of basic electric service shall receive such services from one or more providers of basic electric service, pursuant to procedures established by the Commission under § 56-579.
D. The Commission shall establish one or more programs, to commence no later than January 1, 2002, providing for the purchase by customers of competitive electric services from alternative suppliers; except to the extent that the Commission finds, after notice and opportunity for hearing, that such programs:
1. will impede the orderly and timely implementation of customer choice for all customers by January 1, 2004, or2. will adversely affect
(a) customers not participating in such programs;(b) safety or reliability of electric service in the Commonwealth; or
(c) the ability of an incumbent electric utility to carry out responsibilities assigned by the Commission for the purpose of implementing this Chapter.
E. If the Commission determines, after notice and opportunity for hearing, that the treatment of a particular electric service as a competitive electric service, for a particular customer class, within a particular geographic area or throughout the Commonwealth, will not promote the public interest because it will have a serious adverse effect on the safety, reliability or price of electric service, the Commission shall -
1. designate such service as a noncompetitive service with respect to such customer class or geographic area, or throughout the Commonwealth, but only to the extent necessary to prevent such adverse effect; and2. select one or more entities best able to provide such service on a safe, reliable basis at reasonable cost, subject to regulation by the Commission under Chapter 10 of Title 56 (§§ 56-232 et seq.).
F. A Commission determination made under subsection E of this section with respect to retail sale of electricity shall be subject to the following procedures:
1. A determination to take effect on January 1, 2004 shall be reported by the Commission to the Senate Commerce and Labor and the House Corporations, Insurance and Banking Committees no later than November 1, 2003; any determination to take effect after that date shall be reported to such Committees within thirty days after such determination.2. The Commission shall, within two years after each such determination, and no less frequently than once every two years thereafter until such determination is reversed, reconsider such determination and report the result of each such reconsideration to said Committees within thirty days of such reconsideration.
§ 56-578. Commencement of customer choice.
[Cross reference: SB 688 § 56-579]This section establishes the dates by which customers may purchase electric services from competing suppliers (referred to as "alternative suppliers"). These dates are consistent with those set forth in HB 1172. The section also establishes the services for which customers can shop (referred to as "competitive electric services").
Schedule: January 1, 2004 is the date by which all retail customers may purchase "competitive electric services" from alternative suppliers. Section 56-578(A). The Commission must begin the transition to customer choice by January 1, 2002. Section 56-578(D). During this transition, the Commission must establish programs which allow customer choice, except to the extent customer choice at this earlier date will (1) impede the orderly and timely implementation of customer choice for all customers by January 1, 2004, or (2) adversely affect nonparticipating customers, safety or reliability, or the incumbent utility's ability to carry out any Commission-assigned responsibilities. Id. This two-year transition period allows the Commission and market participants time to work out any logistical difficulties before January 1, 2004.
Products and services: Section 56-578(A) makes customer choice available for competitive electric services. This category includes the retail sale of electricity, plus any other service designated by the Commission as suitable for competition. (Examples might be metering and billing, as well as services still to be developed by the marketplace.) Consistent with the General Assembly's goal of "deregulation of generation facilities" (see HB 1172, Section 1.2), competitive electric services would not be subject to traditional Commission regulation under Chapter 10 of Title 56.
This provision recognizes the uncertainty and controversy around the appropriateness of competition for various services. While HB 1172 provides that retail sales of electricity should be subjected to competition, it does not speak to other services such as metering and billing. States have come to varying conclusions on the appropriateness of competition for these services. The technology associated with these services, and the readiness and capability of various customer groups to take advantage of competition for these services, is changing rapidly. This provision therefore avoids either a mandate for, or prohibition against, competition for these various services, and instead assigns to the Commission the responsibility to determine if and when competition would be appropriate.
In the limited situations where competition for particular services would have "a serious adverse effect on the safety, reliability or price of electric service," the Commission could designate the service as a "noncompetitive electric service," designate a provider of the service and regulate the rates under its traditional ratemaking authority. See Section 56-578(E). Consistent with HB 1172's goal of instituting competition as soon as is feasible, the Commission's authority is subject to certain limitations.
First, the Commission would have to limit this designation to those customer classes or geographic areas vulnerable to the "serious adverse effect." Id.Service territory plans: To account for differences among service territories, the Commission would promulgate a plan for the implementation of competition within each one. Section 56-580(B).Second, the Commission would have to inform the General Assembly of any decision designating a service as noncompetitive (by November 1, 2003 if the designation is effective as of January 1, 2004; otherwise, no later than 30 days after the designation). Section 56-580(F). With this information, the General Assembly can override the Commission's judgment. This approach allows the Commission to make timely, expert judgments based on facts the General Assembly might not have anticipated, while ensuring that the General Assembly has the final say on what services should be subject to competition, at what time.
Third, the Commission would have to reconsider any noncompetitive electric service designations every two years. Id.
§ 56-579. Basic electric service.
A. The Commission shall, after notice and opportunity for hearing, determine the elements of basic electric service and establish one or more programs making basic electric service available to retail customers that do not obtain from an alternative supplier one or more competitive electric services determined by the Commission to be components of basic electric service. Basic electric service shall be available beginning no later than the date all customers may purchase one or more competitive electric services, as provided in § 56-578. For purposes of this Chapter, basic electric service shall be considered neither a competitive electric service nor a noncompetitive electric service.
B. The Commission shall select the providers of basic electric service. In making such selections, the Commission --
1. shall take into account the characteristics and qualifications of prospective providers, including cost, experience, safety, reliability, corporate structure, access to electricity resources necessary to serve customers requiring basic electric service, and other factors deemed relevant by the Commission;2. may select one or more providers to provide one or more components of basic electric service, in one or more regions of the Commonwealth, to one or more classes of customers; and
3. may require an incumbent electric utility or distribution utility to provide one or more components of basic electric service, or to form an affiliate to do so, in one or more regions of the Commonwealth, at rates which afford the entity a reasonable opportunity to earn a fair rate of return; provided that the Commission may not require an incumbent electric utility or distribution utility, or affiliate thereof, to provide basic electric service outside the territory in which such utility provides service.
C. The Commission shall, after notice and opportunity for hearing, determine the rates, terms and conditions for basic electric service, and shall establish such requirements for providers and customers as it finds necessary to promote the reliable and economic provision of such service and to prevent the inefficient use of such service. The Commission may use any rate method that promotes the public interest, and may establish different rates, terms and conditions for different classes of customers.
D. If the Commission determines, after notice and opportunity for hearing, that there is a sufficient degree of competition such that the elimination of basic electric service for particular customers, particular classes of customers or particular geographic areas of the Commonwealth will not be contrary to the public interest, the Commission may modify or eliminate basic electric service for such customers, classes or areas after reasonable notice to customers; provided that the Commission shall re-establish basic electric service if and when the public interest requires.
§ 56-579. Basic Electric Service
[Cross reference: SB 688 § 56-586]In general: Section 56-579(A) directs the Commission to make basic electric service available, on the date that competition begins, to customers who (1) opt not to exercise their right to select an alternative supplier of a competitive electric service or (2) are unable to find an alternative supplier willing to serve them. The Commission will determine the essential electric services that should be available to those customers. The Commission will establish the rates, terms and conditions of basic electric service. Section 56-579(C). These rates, terms and conditions can vary for different classes of customers. Id.
Providers: To assure provision of basic electric service at the highest quality, the Commission would select the providers of basic electric service taking into account cost, experience, safety, reliability, corporate structure, access to electricity resources and other factors. Section 56-579(B)(1). Applying the previously selected criteria, the Commission could select one or more companies to provide one or more components of basic electric service in one or more regions. Section 56-579(B)(2).
If necessary, the Commission also may require the incumbent utility or its affiliate to provide one or more components of basic electric service within its service territory, at a rate fairly compensatory to the utility. Section 56-579(B)(3).
Corporate structure for providers of basic electric service: Section 56-579(A) provides that "basic electric service shall be considered neither a competitive electric service nor a noncompetitive electric service." This sentence gives the Commission flexibility in determining the appropriate corporate structure for the provider of basic electric service. A later requirement, Section 56-584(C), requires that competitive and noncompetitive services be placed in separate affiliates. (See the discussion of this provision under Section 56-584 below.) Because Section 56-579(A) states that basic electric service is neither a competitive nor a noncompetitive electric service, this requirement of separate affiliates does not apply to basic electric service. Therefore it is possible for a company providing a noncompetitive electric service, like distribution service, to provide basic electric service also. The Commission would have discretion, however, to require the provider of basic electric service to form a special affiliate for that purpose. Section 56-584 (D).
Not necessarily a permanent program: Basic electric service would not necessarily be a permanent program. If there is sufficient competition so that the elimination of basic service is not adverse to the public interest, the Commission may eliminate it. Section 56-579(D). The Commission must reinstate the program if necessary.
§ 56-580. Protection of customers from market power; promotion of competition.
A. If at any time the Commission determines, after notice and opportunity for hearing, that a public service company has acquired or maintained, or will be likely to acquire or maintain, market power in the market for one or more electric services, the Commission shall institute conditions or limitations, applied to such public service company (or any affiliate thereof, to the extent such affiliate has assisted or is likely to assist such public service company in acquiring or maintaining such market power), on the prices charged for such electric service, or on the ownership or operation of, or sales or purchases from, assets or lines of business relating to any electric service provided by the public service company or by the affiliate, but only to the extent necessary to protect customers and promote competition within the Commonwealth.
B. If the Commission determines, after notice and opportunity for hearing, that a person has or will have, as a result of such person's control of electric generating capacity or energy, market power over the direct or indirect sale of electric generating capacity or energy to buyers located within the Commonwealth, the Commission may, to the extent not preempted by federal law, require such person to file with the Federal Energy Regulatory Commission such applications and tariffs as are necessary to make such generation capacity or energy (or both) available to alternative suppliers under such rates, duration, terms and conditions as necessary to protect customers and promote competition within the Commonwealth and to afford the person a reasonable opportunity to earn a fair rate of return from such activities.
C. If the Commission determines that increases in the capacity of the transmission systems in the Commonwealth, or modifications in how such systems are planned, operated, maintained, used, financed or priced, will promote the efficient development of competition in the sale of electricity, the Commission may, to the extent not preempted by federal law, require one or more persons having any ownership or control of, or responsibility to operate, all or part of such transmission systems to --
1. expand the capacity of transmission systems;2. file applications and tariffs with the Federal Energy Regulatory Commission which (a) make transmission systems capacity available to retail sellers or buyers of electricity under terms and conditions described by the Commission, and (b) require owners of generation capacity located in the Commonwealth to bear an appropriate share of the cost of transmission facilities, to the extent such cost is attributable to such generation capacity;
3. enter into a contract with, or provide information to, an independent system operator; or
4. take such other actions as the Commission determines to be necessary to carry out the purposes of this section.
§ 56-580. Protection of customers from market power; promotion of competition
[Cross reference: SB 688 has no direct counterpart]The electric industry in the Commonwealth has been served historically by a monopoly. Effective competition will not develop overnight. Rather, at the outset, some companies might have harmful "market power," defined in the statute as the power "to impose on customers a significant and nontransitory price increase above the price level which would prevail in a competitive market." Market power can distort markets, discourage new competitors and deprive customers of adequate choices at reasonable prices.
Market power and its adverse effects can appear in different forms. Section 56-580 therefore gives the Commission several distinct types of tools to prevent market power or remedy its effects.
Section 56-580(A): Limits on ownership or operation. The Commission may impose "conditions or limitations ... on the ownership or operation of, or sales or purchases from, assets or lines of business relating to any electric service." This provision allows the Commission to address situations where a company has market power because it controls too large a share of the assets or business activities in the market.
Section 56-580(A): Noncompetitive prices. As noted above, market power can result in price increases above the levels "which would prevail in a competitive market." Section 56-580(A) therefore allows the Commission to prevent those with market power (that is, the ability to raise prices above competitive levels) from exercising this power, by limiting their prices. Absent this authority, the Commission's only means of protecting consumers might be to preclude competition (by designating the service to be a "noncompetitive electric service" under Section 56-578(E)), or by imposing ownership or operation limits on the company having market power (Section 56-580(A)). The pricing authority, along with the other authorities, provides flexibility to address unknown events.
Section 56-580(B): Generation. A special type of market power occurs where a person with control over "electric generating capacity or energy" has market power over the "direct or indirect sale of electric generating capacity or energy to buyers located within the Commonwealth." This provision is a reference to the discussions of "load pockets" in Virginia. For this special form of market power, Section 56-580(B) offers a special solution: the Commission may require the person to make generation capacity and energy available to alternative suppliers on terms that protect consumers, while affording the person a reasonable rate of return, to the extent these Commission actions are not preempted by federal law.
Section 56-580(C): Transmission expansion. The transmission system links generating facilities to local distribution facilities. Transmission facilities are usually "natural monopolies." They are not economically duplicable, and access to them is essential to competition. If transmission constraints block the development of competition, the Commission will have two types of tools. First, the Commission can require transmission system owners or operators to expand transmission facilities. Second, the Commission can require the transmission system owners or operators to file tariffs with the Federal Energy Regulatory Commission, to the extent these Commission actions are not preempted by federal law. (Under federal law, FERC has exclusive authority to establish the terms of transmission service.)
§ 56-581. Nondiscriminatory distribution service.
A distribution utility shall provide distribution service within its service territory on a basis which is not unduly discriminatory to alternative suppliers, providers of basic electric service, or customers, as the Commission may determine. The Commission shall establish rates, terms and conditions for distribution service under Chapter 10 of Title 56 (§§ 56-232 et seq.).
§ 56-581. Nondiscriminatory distribution service.
[Cross reference: SB 688 §§ 56-580, 56-583, 56-584]Distribution facilities link transmission systems to consumers. Like transmission highways, distribution facilities are not economically duplicable, and access to them is essential to retail competition. This provision therefore requires a distribution utility to provide distribution service within its service territory "on a basis which is not unduly discriminatory to alternative suppliers, providers of basic electric service, or customers," and authorizes the Commission to establish the terms of service, using its traditional ratemaking authority under Chapter 10 of Title 56.
§ 56-582. Independent system operator.
A. The Commission shall consider the degree to which the ownership or control of, or responsibility to operate, all or part of the transmission systems in the Commonwealth should be transferred to an independent system operator, and may authorize or require such transfer pursuant to this section.
B. A person may not transfer to any person any ownership or control of, or any responsibility to operate, any portion of any transmission system located in the Commonwealth without obtaining the prior approval of the Commission under subsection C of this section.
C. The Commission may, after notice and opportunity for hearing, allow or require a person having any ownership or control of, or any responsibility to operate, a transmission system in the Commonwealth, or any portion thereof, to transfer all or part of such control, ownership or responsibility to an independent system operator, upon such terms and conditions that the Commission determines will --
1. promotea. practices for the reliable planning, operating, maintaining, and upgrading of the transmission systems and any necessary additions thereto, and2. be consistent with lawful requirements of the Federal Energy Regulatory Commission; andb. policies for the pricing and access for service over such systems, which are safe, reliable, efficient, not unduly discriminatory and consistent with the orderly development of effective competition in the Commonwealth;
3. be effectuated on terms that fairly compensate the transferor.
D. Any person subject to the requirements of this section that is also subject to the requirements of Chapter 5 of Title 56 §§ 56-88 et seq. 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.
E. An independent system operator referred to in this section shall not be a provider of, or an affiliate of a provider of, basic electric service, competitive electric service or noncompetitive electric service unless the Commission finds, after notice and opportunity for hearing, that the provision of any such service by the independent system operator or an affiliate thereof will promote the efficient provision of any electric service and will not lead to undue discrimination against any customer.
§ 56-582. Independent system operator.
[Cross reference: SB 688 § 56-581]Competition can develop only if transmission service is available on a nondiscriminatory basis. Transmission service is most likely to be nondiscriminatory if provided by a person which is neutral. This neutrality is not present today, because the owners and operators of transmission facilities are utilities who also hope to be providers of competitive electric services.
One way to achieve neutrality in transmission service is for those who own or operate transmission to transfer this ownership or operation to an "independent system operator." Section 56-582 therefore authorizes the Commission to require a transfer if it would promote policies and practices (relating to reliability, planning, operations, maintenance, upgrading, pricing and access) which are "not unduly discriminatory and consistent with the orderly development of effective competition in the Commonwealth." Section 56-582(C)(1). The transfer would have to be consistent with FERC requirements, and "be effectuated on terms that fairly compensate the transferor." Section 56-582(C)(2), (3).
In addition to ordering transfers to an independent system operator, the Commission can approve transfers if and when proposed by present owners of transmission. Id. Conversely, Section 56-582(B) makes clear that an owner or operator of transmission cannot transfer ownership or operational responsibility without obtaining Commission permission.
The purpose of an "independent system operator" is to assure neutrality among the competitors who need transmission access to sell their competitive products. One way to achieve neutrality, therefore, is to prohibit the independent system operator from participating in competitive markets. There may be circumstances, however, where the entity needs to buy or sell other electric services. Because entry by the independent system operator into the competitive markets may affect its neutrality, Section 56-582(D) requires Commission permission. The subsection provides that the independent system operator may be a provider of, or an affiliate of a provider of, basic electric service, competitive electric service or noncompetitive electric service if the Commission finds that these other activities "will promote the efficient provision of any electric service and will not lead to undue discrimination against any customer."
§ 56-583. Power exchange.
The Commission may authorize or require, after notice and opportunity for hearing, that one or more public service companies create or join a power exchange, upon a finding that such power exchange will--
A. be administered in a manner which is (1) not unduly discriminatory, and (2) designed to prevent the exercise of market power;B. promote the orderly development of effective competition in one or more markets for competitive electric services; and
C. comply with any lawful requirements of the Federal Energy Regulatory Commission.
A Commission action authorizing or requiring the creation or joining of a power exchange shall not preclude alternative suppliers from contracting directly with retail customers, except to the extent that the Commission finds such contracting would impede the orderly development of any such power exchange or would adversely affect customers not participating in such direct contracting.
§ 56-583. Power exchange.
[Cross reference: SB 688 § 56-582]An orderly market for generation services is essential to successful retail competition. One way to achieve an orderly market is to form a "power exchange," defined as a market for the trading or exchange of electric power. It is not possible to know whether an orderly market will develop on its own. The legislation therefore empowers the Commission to authorize or require that a public service company join a power exchange. The Commission must find that the power exchange is administered in a manner that is not unduly discriminatory and is designed to prevent the exercise of market power.
The power exchange need not be the exclusive method of trade. The legislation therefore provides that if the Commission does authorize or require a power exchange, the Commission "shall not preclude alternative suppliers from contracting directly with retail customers, except to the extent that the Commission finds such contracting would impede the orderly development of any such power exchange or will adversely affect customers not participating in such direct contracting."
§ 56-584. Licensing of alternative suppliers.
A. No person may become an alternative supplier without first obtaining a license from the Commission.
B. The Commission shall establish procedures and regulations for granting, modifying, suspending and revoking licenses for the provision of competitive electric services. Such licenses may be granted notwithstanding the provisions of § 56-265.4. Such procedures and regulations shall require that the recipient of such license --
1. have and maintain sufficient experience and technical capability as the Commission deems necessary to preserve the safety and reliability of electric service in the Commonwealth;2. be and remain financially viable;
3. operate consistently with any regulations respecting customer service and customer protection;
4. notify the Commission sixty days prior to any change in control of such licensee or its assets; and
5. act consistently with the orderly development of effective competition in the Commonwealth.
C. A provider of a noncompetitive electric service in the Commonwealth may not apply for, receive or hold a license to provide a competitive electric service. The Commission may grant such a license to an affiliate of a provider of a noncompetitive electric service in the Commonwealth, if the Commission finds that such affiliate satisfies the requirements promulgated under subsection B of this section, and that--
1. the provider of the noncompetitive electric service has complied with all applicable rules governing the provision of such service, including rules requiring the nondiscriminatory provision of such service; and2. the provider of the noncompetitive electric service and the prospective licensee have adopted a code of conduct and other conditions which the Commission has determined are necessary to prevent the relationship between the prospective licensee and such affiliate from impeding the orderly development of effective competition in one or more markets for competitive electric services.
D. A provider of basic electric service (except a person that is a provider of a noncompetitive electric service) may receive a license to provide a competitive electric service only if the Commission finds that the applicant satisfies the requirements promulgated under subsection B of this section; provided that if the Commission finds it necessary to promote the public interest, the Commission may (1) grant such license only to an affiliate of such provider and (2) require, as a condition of such license, that such affiliate and such provider adopt a code of conduct and such other conditions as are necessary to prevent the relationship between such affiliate and such provider from impeding the provision of basic electric service on a basis which is efficient and not unduly discriminatory, and the orderly development of effective competition in one or more markets for competitive electric services.
§ 56-584. Licensing of alternative suppliers.
[Cross reference: SB 688 § 56-585]To protect consumers against unqualified and unreliable alternative suppliers, the statute requires anyone who sells, or offers to sell, a competitive electric service to have a license. Section 56-584(A). The statute further directs the Commission to establish a licensing process which assures that licensees are financially viable, have the requisite expertise to provide safe and reliable service, comply with regulations and do not behave anticompetitively. Section 56-584(B).
Exception: A person who sells, aggregates or brokers competitive electric services only to an affiliate for the affiliates own consumption does not fall within the definition of an alternative supplier and does not need a license.
Separation of noncompetitive electric services, competitive electric services and basic electric services: Because of the dangers of mixing competitive and noncompetitive activities, the statute requires that a seller of noncompetitive service must place any competitive activities in a separate affiliate and adopt a code of conduct precluding anticompetitive favoritism. Section 56-584(C). Before granting a license to sell a competitive service, the Commission must determine that the affiliate relationship will not impede the development of competition.
The separation requirement does not apply to out-of-state providers of services that would be noncompetitive electric services if they were provided in the Commonwealth. For example, if distribution service is a noncompetitive electric service in Virginia, a person who provides distribution service only outside of Virginia need not form an affiliate to provide competitive electric services in Virginia.
As explained above (see the discussion of Basic Electric Service, Section 56-579), a provider of basic electric service is not required by statute to form an affiliate to obtain a license to provide a competitive electric service (as long as the provider is not also a seller of a noncompetitive electric service). The Commission may, however, if deemed necessary, require the basic service provider to form an affiliate and adopt a code of conduct.
§ 56-585. Customer protection rules.
The Commission shall, after notice and opportunity for hearing, establish customer protection rules applicable to public service companies. Such rules shall govern and encompass billing practices, disclosure to customers of product and service information, deceptive advertising, customer service, initiation and termination of electric service, and any other subject which the Commission determines should be addressed to facilitate the orderly development of competition and the avoidance of harm to customers. The Commission may establish different rules for different classes of sellers and customers.
§ 56-585. Customer protection rules.
[Cross reference: SB 688 § 56-589]The Commission will have the authority to establish rules, applicable to sellers and customers, to protect consumers from harm. The rules must address, at a minimum, advertising, disclosures, and the initiation and termination of electric service.
§ 56-586. Customer education.
The Commission shall, in a timely manner, develop and have carried out an educational program for customers to:
A. inform customers of changes in the provision of electric service, including but not limited to, the availability of alternative suppliers;B. inform customers of any requirements relating to disclosures, explanations or sales information for alternative suppliers; and
C. inform customers of such other matters related to competition in the electric industry as the Commission finds to be in the public interest.
§ 56-586. Customer education.
[Cross reference: SB 688 § 56-589]Consumers have never needed to know much about electric services because there was only one electric service provider (the regulated utility), and usually only one product (the service provided by that utility). Consumers will have a lot to learn about what to purchase and how to compare alternative suppliers. The legislation requires the Commission to develop a program to educate customers.
§ 56-587. Monitoring of competitive developments.
Beginning January 1, 2003, the Commission shall report every two years to the Senate Commerce and Labor and the House Corporations, Insurance and Banking Committees on the competitiveness of markets for competitive electric services. Such report shall address the effects on the development of effective competition of any relationships between public service companies and their affiliates; technological developments; mergers and acquisitions; the ownership, operation, pricing and availability of generating units, transmission facilities and distribution facilities; and any other factors the Commission deems relevant.
§ 56-587. Monitoring of competitive developments.
[Cross reference: SB 688 § 56-594]The Commission must monitor the development of competition and submit a report to the appropriate committees of the General Assembly every two years, beginning January 1, 2003.
§ 56588. Determination and treatment of certain costs and benefits from past utility activities.
A. The Commission shall, after notice and opportunity for hearing, determine for each incumbent electric utility and its customers the just and reasonable treatment of the net costs and benefits associated with all assets and obligations used to provide regulated service within the service territory of such incumbent electric utility up to the date on which all customers may purchase one or more competitive electric services, as provided in § 56-578. The Commission may adjust such determination from time to time in order to protect the interests of the incumbent electric utility and its customers.
B. In making the determination required by subsection A of this section, the Commission shall take into account
1. the incumbent electric utility's efforts to minimize the costs associated with the assets or obligations;2. the market value of the resources associated with such costs, and the incumbent electric utility's efforts to maximize and realize such market value;
3. whether the Commission directed the utility to incur any specific costs associated with the assets and obligations; and
4. other factors the Commission determines to be necessary to promote the public interest and to protect the interests of customers and the incumbent electric utility.
C. The determination made by the Commission under this section for each incumbent electric utility shall apply to persons who purchase transmission or distribution service (1) within the territory which was served by such utility as of the date on which all customers may purchase one or more competitive electric services, as provided in § 56-578, and (2) after the date on which all customers may purchase one or more competitive electric services, as provided in § 56-578.
§ 56588. Determination and treatment of certain costs and benefits from past utility activities
[Cross reference: SB 688 §§ 56-591, 56-592]Today's utility rates include the costs incurred by the utility to carry out the utility's historic obligation to serve customers. In a competitive market, the assets associated with these costs will have value. That value may be lower than the costs, or it may be higher. The net figure will be negative ("net costs") or positive ("net benefits").
The provision requires the Commission to determine the just and reasonable treatment of these costs and benefits. This treatment must address, for each incumbent electric utility, "all assets and obligations used to provide regulated service within the service territory of such incumbent electric utility up to the date on which all customers may purchase one or more competitive electric services, as provided in § 56-578." Section 56-588(A).
The just and reasonable treatment would take into account (1) the incumbent electric utility's efforts to minimize the costs associated with the assets or obligations; (2) the market value of the resources associated with such costs, and the incumbent electric utility's efforts to maximize and realize such market value; (3) whether the Commission directed the utility to incur any specific costs associated with the assets and obligations; and (4) other factors the Commission determines to be necessary to promote the public interest and to protect the interests of customers and the incumbent electric utility. Section 56-588(B).
The Commission would apply its determination of net costs and benefits to "persons who purchase transmission or distribution service (1) within the territory which was served by such utility as of the date on which all customers may purchase one or more competitive electric services, as provided in § 56-578, and (2) after the date on which all customers may purchase one or more competitive electric services, as provided in § 56-578."
§ 56-589. [To be inserted]
§ 56-590. [To be inserted]
§ 56-591. Mergers, acquisitions, consolidations and changes in control.
A. Neither a covered entity nor an affiliate thereof may be a party to a covered transaction 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 B of this section, and may, as a part of its approval, establish such conditions or limitations on such transaction as it finds necessary to ensure compliance with said subsection B.
B. A transaction described in subsection A of this section shall not -
1. substantially lessen competition among the actual or prospective providers of basic electric service or of a service which is, or is likely to become, a competitive electric service; or2. jeopardize or impair the safety or reliability of electric service in the Commonwealth, or the provision of any noncompetitive electric service or basic electric service at just and reasonable rates.
C. Any person subject to the requirements of this section that is also subject to the requirements of Chapter 5 of Title 56 (§§ 56-88 et seq.) 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.
§ 56-591. Mergers, acquisitions, consolidations and changes in control.
[Cross reference: SB 688 has no direct counterpart.]Mergers can be efficient, but they also can reduce competition. Under Chapter 5 of Title 56, Section 56-88, the Commission historically has had authority to review mergers. New Section 56-591, in conjunction with various definitions, updates the Commission's merger authority so that it applies to the types of transactions that raise special concerns once customer choice is under way.
Transactions and entities subject to review: Once customer choice is under way, consumers will be particularly dependent on providers of basic electric service and noncompetitive electric service. (The "Definitions" section of the statute refers to these providers as "covered entities.") Section 56-591(A) therefore requires prior Commission approval of transactions which result in a change in control over (a) a covered entity, (b) "an affiliate thereof which furnishes products, services or other forms of support essential to the provision of electric service in the Commonwealth by a covered entity, or (c) assets, or the products or services produced by or with such assets, which are or may be essential to the provision of electric service by a covered entity in the Commonwealth." (The "Definitions" section of the statute refers to these transactions as "covered transactions.")
Since this provision addresses changes in "control" which will affect the provision of electric service in Virginia, it defines control as the power to determine the management or policies of a person or the management or utilization of assets. Control may be acquired by ownership, contract or otherwise. The statute further states that control may be presumed from 10% ownership. See Section 56-577.
Criteria for approval: The Commission must approve the transaction (or do nothing, in which case the transaction is deemed to have been approved) if it will not (1) "substantially lessen competition among the actual or prospective providers of basic electric service or of a service which is, or is likely to become, a competitive electric service;" or (2) "jeopardize or impair the safety or reliability of electric service in the Commonwealth, or the provision of any noncompetitive electric service or basic electric service at just and reasonable rates." The Commission may establish conditions on the transaction to ensure the transaction does not have these effects. Section 56-591(B).
Commission deadlines: The Commission must act on a proposed transaction within 60 days after the filing of a completed application; except that the Commission can extend this period by an additional 120 days. If the Commission does not act by the deadline the transaction is deemed approved. Section 56-591(A).
Exemption from existing statute: If a person would be subject to both the pre-existing merger statute and new Section 56-591, the Commission may grant an exemption from the application of the pre-existing statute. Section 56-591(C).
§ 56-592. Commission rules and regulations.
The Commission shall have the authority to promulgate all rules and regulations as necessary to implement this Chapter.
§ 56-593. Commission authority to order filings.
To the extent not preempted by federal law, the Commission may require, after notice and opportunity for hearing, any public service company to make any filings with federal or state agencies, or both, that the Commission determines are necessary to achieve the goals of this Chapter.
§ 56-594. Enforcement.
The Commission shall have the power to enforce the provisions of this Chapter, and its rules, regulations or orders adopted in pursuance thereof, including the power to penalize for and enjoin the violation or attempted violation thereof, and to issue mandatory injunctions requiring such actions as may be in the public interest to remedy any such violation or attempted violation. Any person committing any such violation or attempted violation, or failing or refusing to obey any order or injunction of the Commission issued under this Chapter, may be fined by the Commission such sum, not exceeding $10,000, as the Commission may deem proper, and each day's continuance of such condition shall constitute a separate offense.
§ 56-595. Information collection.
The Commission is authorized to collect such information from all public service companies as it finds necessary to perform its duties under this Chapter, provided that the Commission shall afford appropriate treatment to information which it finds to be confidential.
§ 56-596. Assessments.
The Commission may assess against public service companies, their customers or applicants for licenses under this Chapter the costs reasonably incurred by the Commission to create and assure compliance with the procedures, programs, plans and regulations required or permitted by this Chapter.
The Commission will have the authority to issue determinations and promulgate rules and regulations (Section 56-592); order filings with state and federal agencies (Section 56-593); collect information (Section 56-595); and assess against public service companies, their customers and license applicants the costs reasonably incurred by the Commission in carrying out its duties (Section 56-596). The Commission will have the power, by such means as issuing injunctions and imposing fines of up to $10,000.00 per day, to enforce compliance with the statute and related Commission rules, regulations and orders (Section 56-594).