SB 1269

Legislative Transition Task Force of the Virginia Electric Utility Restructuring Act

September 28, 1999, Richmond

The fourth meeting of the task force featured discussion of the State Corporation Commission's (SCC) report on competition for electricity metering and billing. Other issues addressed included reliability concerns about electricity transmission, distribution, and generation systems and the status of implementation of the Electric Utility Restructuring Act.

Implementation of the Restructuring Act

The SCC is responsible for completing the multitude of steps needed for the successful implementation of the Electric Utility Restructuring Act. The commission is developing interim rules for electricity and gas retail access pilot programs and has scheduled hearings on the pilot programs proposed by Virginia Power and AEP-Virginia. A workshop on the act's net energy metering provision is being co-hosted by the SCC, which is also drafting revisions to its rate case rules. The revisions are required by the restructuring act, including provisions calling for rate cases to set the capped rates for those utilities not bound by a rate case settlement extending beyond January 1, 2002.

Competition for Metering and Billing

The restructuring act mandates the development of competitive markets for the generation of electricity, while other components of electrical service remain regulated. However, the act requires the SCC to evaluate the advantages and disadvantages of competition for metering, billing and other services. In the first of its annual reports to the General Assembly under this provision, the SCC concludes that opening electric metering and billing services to competition will stimulate the development of the competitive retail electricity market in Virginia by promoting diverse pricing and billing options.

Virginia's electricity customers currently receive all of their metering and billing services from their local electric utilities. These utilities own, install, maintain, and read their customers' electric meters. Most meters are read manually once every month at the customer's residence or business. Utilities offer their customers few, if any, billing options. Some electric utilities are already outsourcing metering and billing services to non-utility entities.

A majority of the states that have passed electricity competition laws have either required metering and billing to be competitive or directed their respective commissions to decide the question. Competitive billing may allow suppliers to distinguish their services through such means as "value-added" services. Competitive metering may also encourage entry in to the market of companies offering to price their power based on the time of day it is consumed.

SCC Recommendation

The report recommends that the SCC be given the authority to decide on the timing and type of metering and billing competition. Under the SCC's proposal, the General Assembly would direct the commission during the 2000 Session to make the necessary decisions regarding implementation of competition in metering, billing, or both, based on criteria adopted by the legislature. The criteria would require the commission to consider such issues as economic and physical feasibility, safety, accuracy, and consumer preparedness.

The SCC's Solicitor General suggested that the report's recommendation reflects a middle course between those who are urging that a date be set for competition in metering and billing services and those who are asking that consideration of legislation authorizing competition be postponed until the 2001 Session. Technological developments affecting safety, reliability and other concerns can change rapidly, and fixing a date for competition will leave the SCC and the market unable to respond quickly. On the other hand, postponing action for another year might forestall entry by marketers that are seeking to avoid uncertainty. The implementation of competition in a historically monopolistic industry was acknowledged to be a difficult task. The Solicitor General also acknowledged that competition for metering and billing does not need to occur simultaneously, but will be addressed separately as the process advances.

Reactions

The task force heard a wide range of reactions to the SCC's metering and billing report. The Alliance for Lower Electric Rates Today (ALERT), for example, strongly endorsed the SCC recommendations. Authorizing the SCC to determine if, when, and how to have competition for metering, billing, and ancillary services is preferable to adopting statutory language that prohibits, or that allows, competition for these services. Delaying action on this issue until the 2001 Session ensures a competitive advantage for incumbent utilities.

The spokesman for Virginia's electric cooperatives agreed that giving the commission the authority to decide questions regarding the implementation of competitive metering and billing is preferable to having the General Assembly make all of the decisions. The SCC should have the power to examine the issue on a utility-by-utility basis and be able to exempt classes of utilities in appropriate cases. It was noted that Maryland's restructuring law exempts electric cooperatives from the deadlines for implementation of competitive metering and billing, and Delaware's law goes further by providing that electric cooperatives shall continue to conduct metering and billing functions within their service territories.

Virginia Power's spokesman stressed that metering and billing are two different issues, presenting different technological and business challenges. Both services should eventually be competitive. and opening them to competition may produce additional benefits for consumers. But before these functions become competitive, Virginia Power believes that two issues need to be addressed: timing and the means used to open these two functions to choice.

A high level of consumer confidence is vital to the development of a truly competitive marketplace for the supply of electricity. The introduction of competition for generation will present significant challenges for consumers. Adding competition for either competitive metering or billing at or near the same time could lead to customer confusion, thereby damaging public confidence in the entire restructuring process. Delaware, Maryland, Massachusetts, New Jersey, Nevada, and Pennsylvania have delayed the start of competitive metering until customers have had a chance to get used to choice in supply.

The task force was asked to consider carefully the means through which the billing and metering markets are opened to competition in the Commonwealth. Substituting choice for monopoly in the provision of any service related to electricity is a major policy decision, which should be made by the policy-making arm of government–the General Assembly. Virginia Power proposed that in the 2000 session the General Assembly should adopt legislation stating that it is the policy of the Commonwealth that both metering and billing be opened to competition, to the extent practicable and when customers are ready. The legislation would direct the SCC to form working groups, on both metering and billing, to examine the timing of the opening of competition in these services, and the methods needed to implement competitive markets. Based on their findings, the SCC would be required to submit reports on competitive metering and billing to the General Assembly.

AEP-Virginia, on the other hand, believes metering and billing services should be competitive, and sooner rather than later. While the SCC's report was described as a well-done first step, other issues—especially regarding metering—need to be addressed. Legislation should be based on the premise that metering and billing will be competitive and on the schedule already approved by the General Assembly for competition. The utility endorsed a directive from the 2000 Session of the General Assembly providing for implementation of competition for these services on the basis of acceptable, yet-to-be developed criteria.

Other interested parties agreed or disagreed, to varying degrees, with the SCC recommendations. For example:

• Allegheny Power agreed with the SCC's recommendation that the commission should have the authority to implement competition for metering and billing, with the proviso that implementation can be phased in and need not be required for all areas at the same time as customer choice for generation services.
• The Virginia Retail Merchants Association agreed that a policy decision cannot be delayed, because power marketers will only go into those states with competitive metering and billing, and other states are moving faster than Virginia on this issue.
• The SCC's conclusions were also supported by Enron Corp., which urged the General Assembly to authorize competitive metering and billing services.
• A representative the AARP cautioned the task force against a rush to competition. He supported the SCC's authorizing metering and billing competition, provided that the commission can ensure that five conditions can be met: competition (i) will not harm any class of consumer; (ii) will decrease the cost of providing service to residential and small commercial customers; (iii) is a service for which effective competition is certain to develop; (iv) will advance the competitive position of the Commonwealth relative to surrounding states; and (v) will not jeopardize the safety and reliability of electric service.

System Reliability

The SCC briefed the task force regarding factors that affect reliability in the electric industry. Today, responsibility for reliability rests with utilities, which have an obligation to provide adequate service at just and reasonable rates. Other entities with roles in maintaining reliability include control area operators, regional reliability councils (of which Virginia is a member of three), the voluntary North American Reliability Council (NERC), the Federal Energy Regulatory Commission (FERC), and state regulatory commissions.

Under competition, utilities may have less overall responsibility for maintaining reliability. Though regulated utilities will continue to construct and maintain distribution facilities, regional transmission entities (RTEs) will probably assume much of the transmission reliability obligations, while the adequacy of generation capacity will largely be determined by market forces.

The roles of control area operators and regional reliability councils are not expected to change to a great extent. The NERC is working on plans that would transform it from a voluntary system of reliability management into a mandatory organization with the backing and support of governments. FERC's role in assuring reliability could increase as RTEs assume responsibilities for assessments of transmission adequacy and system security. The FERC's policies and approved tariffs will influence RTE activity. The role of state commissions will diminish as reliance on market forces for generation increases. There is little practical experience for predicting how reliability may be impacted after generation adequacy becomes a function of market forces.

The restructuring act alters the commission's ongoing reliability oversight role. The SCC will continue to monitor reliability developments and will report significant reliability-related developments to the task force. To date, the commission has not identified the need for any legislative changes to address reliability issues.

Representatives of interested parties commented on system reliability, with their remarks largely reflecting the concerns of their constituencies:

• The Virginia Retail Merchants Association warned that system constraints will cause problems as demand increases, and generation decisions will be driven more by market decisions than by reliability concerns.
• A principal transmission-related reliability issue is that transmission systems will increasingly be asked to handle large bulk-power transactions that they were not originally designed to accommodate, a situation exacerbated by the fact that the addition of new transmission lines is difficult, expensive, and time-consuming.
• A NERC reliability assessment concludes that although electric supply and transmission systems in the United States and Canada are adequate for the next three to five years, the systems will be increasingly challenged to accommodate the demands of the evolving competitive electricity markets. In the long term, electric supply adequacy could deteriorate if development of additional generating and transmission capacity does not keep pace with growing customer demand.
• The VRMA urged Virginia to become an attractive place for new investment in generation, as new transmission investments become increasingly difficult, costly, and time-consuming.
• Because the issue of statutory protections for utility workers is closely tied to the issue of safety and reliability of the electrical system, the Commonwealth should ensure that all workers who build and maintain generation, transmission and distribution systems in Virginia are qualified and certified to do the work.
• The adoption of industry-wide maintenance plans and inspection standards should include financial penalties for noncompliance that are high enough to discourage any financial gains by cutting service quality.

Renewable Energy Statutes

The Commonwealth provides several incentives for the use and manufacture of renewable energy technologies. These include the Solar Photovoltaic Manufacturing Incentive Grant Program, VHDA loans for the installation of solar and other alternative energy sources, and authorization for local property tax exemptions for solar energy equipment and energy generating equipment used to convert from oil or natural gas to renewable sources. The restructuring act fosters renewables through the net energy metering provisions and generation disclosure provisions. Virginia's income tax credit for renewable energy source expenditures remains in the Code, though it is not available for expenditures made after 1987.

Senator Watkins observed that the Commonwealth was not providing many incentives for the use of renewables and asked for a report on incentives offered by other states. He also noted the importance of distributed generation in a deregulated environment.

Next Meeting

The task force will hold its next meeting on November 9 in Richmond. At that time the group will start to review suggested amendments to the restructuring act, both technical and substantive. Interested parties are urged to submit their suggested legislative amendments to the task force at or before its next meeting.

The Honorable Thomas K. Norment, Jr., Chairman
Legislative Services contact: Franklin D. Munyan

THE RECORD

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