The task force on Stranded Costs and Related Issues held five public meetings during the 1998 interim, hearing from stakeholders representing the investor owned utilities(Virginia Power, AEP-Virginia, and Allegheny) electric cooperatives, potential suppliers of electricity (Washington Gas and CNG), and consumers (ALERT, Virginia Committee for Fair Utility Rates, AARP, and the VCCC), along with the staff of the State Corporation Commission and the Office of the Attorney General's Consumer Counsel. The task force requested and received statutory language describing each stakeholders position on the definition of and appropriate recovery mechanism for stranded costs and benefits in a competitive retail electric market.

This staff summary is intended to provide an overview of the various positions and in particular identify stakeholder areas of consensus and disagreement. Stakeholder positions are subject to change, and any analysis of the proposals must carefully consider the impact and effect of numerous other restructuring issues, especially those issues referred for consideration to other task forces.

During the course of the study, the co-chairmen directed staff to prepare a matrix comparing the legislative proposals submitted to the task force. This summary was developed using the matrix and the legislative proposals submitted to the task force, and is intended to compare methods of identifying and recovering stranded costs and stranded benefits. It is acknowledged that the General Assembly must approve the policy regarding the recovery of stranded costs, and these proposals allow for such recovery. These proposals assume that the General Assembly makes the policy decision to allow for such recovery.

I. WHAT elements are included in the definition of stranded costs? (Staff matrix pages 3-5).

1. Elements.

Essentially all of the proposals allow recovery of those elements relating to potential losses originating from the continuing generation-related fixed costs the electric utilities incurred over the years in fulfilling their obligations to provide reliable service to their customers. These elements most commonly included:

*generation asset devaluation-net losses in the economic value of an incumbent utility's investments and costs attributable to the electric utility's existing generation plants and facilities resulting from deregulation of generation.

*purchased power contracts- NUG contracts and, for cooperatives, their wholesale power contracts.

*regulatory assets-previously deferred, generation-related costs or obligations that have been incurred by a regulated electric utility in providing electricity prior to the deregulation of generation.

32. Stranded benefits. (Staff Matrix page 12, 13).

Proposals that recognize and allow for the return of stranded benefits to ratepayers to be calculated by the SCC include those submitted by SCC staff, the Office of Attorney General's Consumer Counsel, ALERT, the Virginia Committee for Fair Utility Rates, AARP, and VCCC. Virginia Power's proposal allows for the return of excess payments resulting from purchase power contracts.

Virginia Power, AEP-Virginia and Allegheny state that capping or freezing retail rates during the transition period will capture provide a fair and balanced treatment of any stranded costs and any stranded benefits. The electric cooperatives state that by virtue of the cooperative structure, any benefits "stranded" by restructuring eventually will accrue to the cooperative member-consumers.

23. Transition costs.

Additionally, Virginia Power, AEP-Virginia, Allegheny and the electric cooperatives propose collecting from ratepayers transitional costs, defined as those costs associated with (i) implementing competition, (ii) employee and public benefits surcharges programs, (iii) the costs associated with consumer education, and(iv) the cost of establishing and operating an independent system operator (ISO) or regional power exchange (RPX).

II. WHO determines stranded costs or stranded benefits? (Staff Matrix page 1)

1. Role of the SCC.

All stakeholders agree that the State Corporation Commission should play a significant role in the determination of addressing stranded costs and stranded benefits, including the determinations establishment of frozen or capped rates which may occur through unbundling and nonbypassable wires charges. Several proposals, including the SCC staff, the Office of Attorney General's Consumer Counsel, ALERT, and the Virginia Committee for Fair Utility Rates, specifically enumerate factors that the SCC would use in calculating and determining stranded costs and stranded benefits.

III. WHEN does the collection or payment of stranded costs or stranded benefits begin and end? (Staff Matrix page 6, 11)

1. "Transition period".

Virginia Power, AEP-Virginia, and Allegheny propose initiating the recovery of stranded costs by a specified "date certain" and for a definitive time transition period. These transition periods range from 3 to 5 years. The electric cooperatives suggest that the period for recovery of stranded costs and transition costs be determined for each cooperative by the SCC.

Washington Gas and AARP propose that the collection or payment of stranded benefits not extend past a ten year period. Virginia Power, AEP-Virginia and Allegheny propose that when the transition period ends, customers pay a competitive generation rate and a nonbypassable wires charge for any remaining transition costs over the duration of the programs or service. Virginia Power would also continue to collect, also through a nonbypassable wires charge, for costs associated with power purchase contracts over the remaining terms of the contracts and nuclear decommissioning over the remaining terms of the NRC licenses.

2. "Effective competition.

The Office of Attorney General's Consumer Counsel, ALERT, the Virginia Committee for Fair Utility Rates, and the VCCC propose that stranded cost recovery not begin until an SCC finding of an effective, competitive marketplace. (NOTE: ALERT would not allow recovery to commence until the SCC finds there is a competitive marketplace, but the SCC would begin monitoring, measuring, and adjusting from the time that alternative sellers begin providing service.)

3. WHEN does the collection or payment of stranded benefits end? (Staff Matrix page 11)

Washington Gas and AARP propose that the collection or payment of stranded benefits not extend past a ten year period. Virginia Power, AEP-Virginia and Allegheny propose that when the transition period ends, customers pay a competitive generation rate and a nonbypassable wires charge for transition costs over the duration of the benefit program or service. Virginia Power would also continue to collect, also through a nonbypassable wires charge, for costs associated with power purchase contracts over the remaining terms of the contracts and nuclear decommissioning over the remaining terms of the NRC licenses.

IV. HOW are stranded costs or benefits collected or paid?

1. For those retail customers who, for whatever reason, do not want to shop. (Staff Matrix page 7)

Frozen or capped rates for nonshopping generation customers are proposed by the SCC staff, Virginia Power, AEP-Virginia, Allegheny, Washington Gas, and ALERT.

2. For those who want to shop. (Staff Matrix pages 9-10)

Virginia Power, Allegheny, the electric cooperatives , and CNG propose that those retail customers who switch pay a competitive transition charge or a nonbypassable wires charge during the transition period only. AEP-Virginia proposes a competitive transition charge for those retail customers who switch during the transition period only and a nonbypassable wires charge, which may also extend beyond the transition period. Electric cooperatives have not limited the competitive transition charge or nonbypassable wires charge to customers who switch. The electric cooperatives propose that all distribution customers share in stranded cost recovery through a competitive transition charge.

3. For those retail customers who choose to self-generate. (Staff Matrix pages 9-10)

Virginia Power and the electric cooperatives propose imposing a disconnection charge on retail customers who would avoid their share of stranded costs through a switch to local or on-site generation. Washington Gas and ALERT propose that no such exit fees be permitted.

4. Treatment of cooperatives (Staff Matrix pages 18-19).

The electric cooperatives propose that, due to the fundamental difference in the structure of electric cooperatives and investor-owned utilities, any stranded cost recovery legislation address the electric cooperatives separately, by amending those sections of the Code of Virginia applicable to cooperatives. ALERT's proposal is not applicable to co-ops, while the SCC staff, Consumer Counsel, Virginia Power and AEP-Virginia submitted stranded cost proposals that are applicable to all electric utilities.

5. Mitigation. (Staff Matrix pages 14-16)

Essentially all of the proposals require the SCC to examine mitigation efforts when determining stranded costs. Virginia Power's proposal would result in the utility and the ratepayers sharing equally in any reduced costs related to purchase power contracts.

6. "True-up mechanisms". (Staff Matrix pages 19-21)

Essentially all Many of the proposals require the SCC to perform periodic reviews and reconciliation of stranded costs. AEP-Virginia proposes that stranded costs will be dealt with during the transition period under a rate cap or rate freeze. As such, no true-up or reconciliation procedure would be required for stranded costs. According to AEP-Virginia, the frozen rate applicable during the transition period may be subject to limited adjustments during that transition period for such items as major environmental costs, and that costs included for recovery in the transition cost component (through a nonbypassable wires charge) would need to be subject to SCC review.

Virginia Power does not propose a true-up during the period of frozen or capped rates. However, Virginia Power does propose an annual true-up of the collection of above-market NUG costs and nuclear decommissioning fees, via nonbypassable wires charges, that would return any over collection to the customers.

7. Standard or burden of proof. (Staff Matrix pages 16-18)

The staff of the SCC, Washington Gas, ALERT, and the Virginia Committee for Fair Utility Rates place the burden of proof on the entity seeking to recover stranded costs. The Office of Attorney General's Consumer Counsel, CNG, and AARP require stranded costs to be verifiable and nonmitigable. Virginia Power's position is that any potential stranded cost that is being recovered in current regulated rates has already been justified and therefore is recoverable under a competitive structure.