June 30, 1998
The Honorable Clifton A. Woodrum
The Honorable Thomas K. Norment, Jr.
Co-Chairman, Structure and Transition Task Force
SJR 91 Joint Subcommittee Examining the Restructuring of the Electric Utility Industry
Dear Delegate Woodrum and Senator Norment:
Re: Comments on restructuring plan
The Virginia State Legislative Committee of the American Association of Retired Persons (AARP) appreciates this opportunity to submit an outline for a restructuring plan. Per your request, we have followed the outline in Senate Bill 688. Where we have not commented on a particular code section or suggested issue under a section, AARP does not have policy on that issue. There are a number of other issues which we would like to comment on, like stranded cost and consumer protections, but we will hold our comments for a different task force. We would be happy to answer any questions you may have and look forward to working with you.
Article 1- General Provisions
Section 56-579. Application; municipalities.
AARP maintains that the municipalities should determine whether they want to participate in a competitive electric marketplace. However, if they do decide to participate, they should be required to allow their customers to have a choice of electric supplier.
Article 2- Phased Transition to Retail Competition
Section 56-579. Schedule for transition to retail competition; Commission authority.
AARP maintains that the SCC should maintain oversight over the electric utility industry in total until there is effective competition for service. We encourage the General Assembly to continue monitoring the electric utility industry during the transition period during the transition period to effective competition. Once there is effective competition, the regulations on the incumbent utility for that service area can be eased. We also believe that the SCC should have the flexible authority to change the time schedule should it be necessary to ensure that competition is developing and that all consumers benefit from competition.
AARP also supports the concept of phased-in access to competition, with an equal percentage of the load for each customer class gaining access simultaneously. We oppose the concept of phasing-in by customer class, with industrial customers going first and residential customers going last.
AARP supports the idea of baseline rate cases, particularly to ensure that joint and common costs are shared fairly between the customer classes. We do no necessarily support the idea of rate freezes in mitigation of stranded costs. A rate freeze will not mitigate stranded costs, it will just pay for it. We suggest that the Commission open an investigation of each utility's stranded costs. Once the costs are determined we advocate that any prudent non-mitigatible stranded costs should be split 50/50 between shareholders and all customer classes.
Preliminary wholesale competition is crucial to this process. The Commission should study wholesale competition to determine whether all customer classes have benefited equally. Wholesale competition will be a good example to examine in overseeing the move to retail competition.
Unbundling is another crucial element in moving to a competitive marketplace. If there is no unbundling, there will be little to no ability for competition to work.
Finally, we do support the development of pilot programs to start the move to electric competition. However, we caution that the lessons to be learned from a pilot program are limited due to the nature of pilot programs being small in scale and scope.
Section 56-580. Nondiscriminatory access to transmission and distribution systems.
AARP views this as a crucial issue in ensuring the development of competition. We suggest that the best way to ensure nondiscriminatory access to transmission and distribution systems is to require the incumbent utilities to divest their transmission and distribution systems so that competition can develop on a level playing field.
Section 56-581. Independent System Operator
AARP policy states that independent system operators must be truly independent of any incumbent or competitor. We also maintain that a residential consumer representative should be on the governing board of any ISO.
Article 3- Regulation and distribution of electric energy.
Section 56-583. Transmission and distribution of electric energy.
As stated in section 56-580, AARP maintains that the incumbent utilities should be required to divest their transmission and distribution systems so that competition can develop on a level playing field. We do not believe that the incumbent monopoly companies and the new entrants should be rate regulated in the same manner, since, at the outset, one has one hundred percent market share and one has none.
Section 56-584. Regulation of rates subject to the Commission's jurisdiction.
The SCC should determine which services should continue to be subject to rate regulation and which are subject to competition. The definition of competition should look at market share of the incumbent and should ensure that all customer classes have a choice of providers and that a significant number of consumers are receiving service from a competitor. Deregulation should not begin until effective competition is assured.
AARP further maintains that only those services that are subject to competition should be allowed to move to alternative regulation. Monopoly services should continue to be regulated via rate base/rate of return regulation.
Section 56~585. Licensure of suppliers of retail electric energy; license suspension or revocation penalties.
All providers and suppliers of service should be licensed to do business in the Commonwealth and should be required to meet minimum market standards of conduct. It is critical that all companies requesting licensure from the Commonwealth supply information demonstrating that they have the technical and financial capabilities of providing the services for which they are applying.
Section 56-586. Suppliers of last resort (and default suppliers).
It is crucial for the SCC to designate a supplier of last resort in each service area. This supplier will be available to any customer who is unable to obtain competitive service or who does not have a new supplier. The supplier of last resort also should provide power in any situation where a customer's chosen supplier does not provide the needed power. The SCC should examine the possibility of putting the supplier of last resort obligation out for competitive biding so that the customers of this supplier will see some benefit from a competitive market.
Section 56-587. Voluntary aggregation permitted.
AARP maintains that voluntary aggregation should not simply be permitted it should be actively encouraged by the SCC. The SCC should take a role in assisting customers to aggregate so that they can benefit from competition.
Section 56-588. Metering, billing and other related distribution services.
It is not clear to us whether these and other services will become competitive if the market is opened up to competition. Therefore, the SCC should proceed very cautiously in determining whether these services are or should be open to competition. Any service determined to be offered on a competitive basis, we maintain there must be clear guidelines to promote competition and to preserve regulations where competition does not become effective. Education service to residential consumers should be delivered by an independent entity.
Article. 4- Additional Provisions
Section 56-592. Nonbypassable wire charges.
AARP maintains that any such charge must truly be nonbypassable. Therefore, those customers who pull their power from the transmission, and not the distribution system, should be required to pay their fair share of these charges. We also maintain that these charges should be assessed on a cents per kilowatt hour basis.
Section 56-593. Divestiture not required; functional separation (and other corporate relationships).
AARP does not support functional separation. Rather, the Association supports divestiture of the transmission and distribution systems by the incumbent utility. Divestiture is the best way to ensure that market power by the incumbent cannot be used to lessen competition. AARP also is concerned about the impact of horizontal market power. The SCC should encourage the sale of generation capacity from one supplier to many suppliers.
Market Power:
As stated above, our suggestion with regard to mitigating market power is divestiture. Divestiture will ensure that the incumbent utility has no more of an interest in the distribution and transmission system that does any other supplier. This will level the field so that competition can develop.
We appreciate the opportunity to submit these comments.
Sincerely,
William L. Lukhard, Vice-Chairman
AARP State Legislative Committee
Jack R. Hundley, Coordinator
Capital City Task Force, AARP State Legislative Committee
Mary H. Madge
Capital City Task Force, AARP State Legislative Committee