Re: Virginia Committee's Comments on Draft Electric Restructuring Bill
On behalf of the Virginia Committee for Fair Utility Rates, we submit the following comments on the draft electric restructuring bill:
(1) In § 56-591 (stranded cost), we request that the last sentence of paragraph A be revised to change "shall" to "may" and to delete the word "nonbypassable" so that the sentence would read "Such stranded cost may be recovered via a wires charge ...." While legislation should permit utilities to propose, and permit the Commission to approve, wires charges, we do not believe that wires charges should be the only means to recover stranded cost. In fact, the writing off of stranded costs, such as Virginia Power's current agreement in the rate case settlement to write off $220 million dollars of regulatory assets from earnings during the rate freeze, and other expected write offs of regulatory assets and other stranded cost during the rate caps provided for by the draft legislation, are additional means that might be restricted by the word "shall."
Furthermore, as previously argued to the Drafting Committee, the word "nonbypassable" is troublesome and should be deleted. It could be used to discriminate against alternative energy sources, including natural gas heating and cooling, self-generation, solar panels, as well as other sources of energy. In addition, it could be used to base wires charges upon historic levels of electricity usage, as opposed to future electricity usage, which is improper and discriminatory. Electric utilities have always been subject to competition from customers' use of alternative energy sources, as well as customers' use of conservation measures. The electric restructuring legislation should not be used as a means to insulate electric utilities from those historic forms of competition and also thereby take away energy options currently possessed by customers. Rather, we would propose that the legislation explicitly provide that the wires charge is to be based upon future electricity usage.
In any case, even if the word "nonbypassable" is not deleted, the legislation should specifically provide that "customers that elect self-generation shall pay a wires charge based upon future usage of electricity."
(2) Paragraph B of § 56-591 (stranded cost) appears to provide for a flexible recovery period to be set by the Commission, which "shall continue .... until the Commission determines that such utility has recovered all stranded cost." That sentence appears to provide a guarantee of cost recovery which has never been provided in the past. Rather, the legislation should continue current policy, as reflected in HB1172 and in decades of regulatory precedent, of providing "an opportunity" for cost recovery. We request that the second sentence of paragraph B be modified to state that "the Commission shall determine for each incumbent electric utility the recovery period necessary to provide such utility an opportunity to recover just and reasonable net stranded cost."
(3) For the same reasons as discussed above, we request that the word "nonbypassable" be deleted from paragraphs D and E of § 56-591 (stranded cost).
(4) With respect to § 56-579.1 (rate caps), the Drafting Committee should note that the Commission has already established, pursuant to Virginia Power's rate case settlement, rates through March 1, 2002. Thus, paragraph A, which provides for capped rates established by the Commission, effective January 1, 2001, would conflict with the existing rate case settlement approved by the Commission. Furthermore, the provision could be used by a utility to argue that the Commission is without authority to establish capped rates for Virginia Power different from existing rates. There is no factual record before the General Assembly to establish that the existing rates are just and reasonable for any period beyond March 1, 2002. In other words, the current draft could strip the Commission of any power to initiate, or approve if requested by the utility or others, a "going in" rate change and any appropriate or necessary adjustments.
At a minimum, we request that the effective date be stated as "January 1, 2001, or the first date after the expiration of any current alternative regulatory plan approved by the Commission."
(5) In § 56-592 (nonbypassable wires charges), for the same reasons discussed above, we request that the word "nonbypassable" be stricken. Further, in paragraph A, we request that the words "per kWh-based" be deleted so that it reads "the Commission shall develop appropriate mechanisms maximizing and promoting competition pursuant to this chapter, for assessing charges." To mandate that the charges be solely kWh charges, as opposed to kW charges, for customers with meters that register both kW and kWh usage, penalizes unfairly high load factor, i.e., energy intensive, customers and benefits low load factor customers that use electricity in less efficient ways. Rather, the Commission should have the discretion to follow appropriate cost allocation and rate design methodologies. Traditionally, these methodologies generally have recognized that investment costs are capital costs that are appropriately allocated based upon demand usage and appropriately collected through kW (i.e., demand) charges. Of course, for customers with only kWh meters, such costs are typically collected through kWh charges. Nonetheless, they typically are allocated to each customer class based upon kW, i.e., demand, usage. It would be improper for the General Assembly to eliminate the Commission's traditional discretion to adopt allocation and rate design methodologies. Rather, the Commission should be allowed to continue to exercise its discretion to follow appropriate cost allocation and rate design methods for designing any wires charges.
We appreciate your bringing these comments to the Drafting Committee's attention.
Louis R. Monacell
804.697.6120