SD28 - Report of the Joint Subcommittee Studying Restructuring of the Electric Utility Industry

Executive Summary:

Senate Joint Resolution 118 of 1996 (Appendix A) established a joint subcommittee to study the potential for electric utility industry restructuring within the Commonwealth. Virginia thus joined more than 40 other states and the District of Columbia in asking whether deregulating the retail electricity market is appropriate and in the public interest. Responding to intense nationwide interest in this issue, legislators and public utility regulators are addressing an important question: whether electricity customers should be permitted to choose electric companies with the same ease telephone customers select their long distance carriers.

Those favoring a deregulated retail market believe that electricity customers are best served by an open market that includes the traditional players (such as investor-owned utilities and electric cooperatives) plus a cadre of new entrants that include independent power producers and power marketers. Competition proponents assert that conventional delivery through franchised service territories is expensive and inefficient. However, others contend that in Virginia, electric service is reliable and moderately priced. What is not broken, they say, does not require repair.

A handful of states, including New Hampshire, Pennsylvania and California, have enacted retail competition legislation establishing pilot and other experimental programs permitting retail customer choice. The key question before this joint subcommittee was whether Virginia should join these states in laying the statutory groundwork for business, residential and industrial customer choice in a deregulated retail electricity market.

The following General Assembly members served on the joint subcommittee: Senators Reasor of Bluefield, Holland of Windsor, and Norment of Williamsburg, appointed by the Senate Committee on Privileges and Elections; and Delegates Woodrum of Roanoke, Plum of Reston, J.C. Jones of Norfolk and Watkins of Midlothian appointed by the Speaker of the House. Senator Reasor chaired the joint subcommittee, and Delegate Woodrum served as its vice-chairman.

The joint subcommittee convened four meetings between the 1996 and 1997 Sessions of the General Assembly, three at the Capitol in Richmond and one in Charlottesville. It devoted its meetings to learning about restructuring by providing a forum for electricity market stakeholders. To that end, representatives of investor-owned utilities, electrical cooperatives, independent power producers, and municipal power system operators, together with representatives of business, industrial, and residential electric power customers; natural gas distribution companies; and environmental and consumer groups all appeared before the joint subcommittee to share their views on retail competition and other facets of electric industry restructuring.

Members of the Virginia State Corporation Commission's (SCC) staff also appeared before the joint subcommittee to summarize their conclusions and recommendations to the SCC's commissioners concerning electric utility restructuring. The report followed an extensive study of restructuring by the staff of the Energy Regulation and Economics & Finance sections within the SCC's Public Utilities division. The report observed that retail competition has gained the most momentum in California and in Northeastern states where electric rates are highest. Virginia's electricity market is stable, reliable and moderately priced, the report further noted and then concluded that Virginia's electricity customers would benefit most from a go-slow approach to restructuring with the SCC monitoring and analyzing retail competition programs in other states.

One meeting was held in Charlottesville in conjunction with an SCC-sponsored forum on restructuring. In addition to learning about recent SCC orders related to restructuring, the joint subcommittee also received testimony about the entry of regulated electric utilities into unregulated business activities. Owners and operators of heating, air conditioning and ventilation (HVAC) companies appeared before the joint subcommittee to protest the anticipated entry of a Virginia electric utility (through an affiliated company) into the heating and cooling equipment service contract and warranty repair market. The Air Conditioning Contractors of America (ACCA) and other HVAC industry representatives believe the utility's market power, coupled with direct access to a sizable customer base (generated by its regulated activities), poses an anti-competitive threat to HVAC companies, most of which are small businesses.

The SJR 118 joint subcommittee held its final meeting immediately prior to the 1997 Session to discuss draft legislation continuing the study in 1997. The joint subcommittee approved and the 1997 Session enacted Senate Joint Resolution 259 (Appendix B), which (i) continues the joint subcommittee's examination of retail competition and (ii) requests the Virginia State Corporation Commission staff to provide to the joint subcommittee by November 7, 1997, its draft of a working restructuring model, which may include experiments and pilot programs. The resolution also directs the joint subcommittee to consider the effects of electric utility restructuring on small business and residential consumers, and on the environment.

The joint subcommittee also met during the 1997 Session to (i) review proposed amendments to Senate Joint Resolution 259 and (ii) anticipating SJR 259's passage, to establish a special task force to examine restructuring's potential impact on state and local tax revenues.