RD21 - Annual Executive Summary on the Activity and Work of the Commission on Electric Utility Restructuring


    Executive Summary:
    COMMISSION ON ELECTRIC UTILITY RESTRUCTURING
    January 11, 2006

    The Commission on Electric Utility Restructuring (Restructuring Commission) is established pursuant to Chapter 31 (§ 30-201 et seq.) of Title 30 of the Code of Virginia. The powers and duties of the Restructuring Commission include:

    • Monitoring the work of the State Corporation Commission (SCC) in implementing the Virginia Electric Utility Restructuring Act (Restructuring Act), Chapter 23 (§ 56-576 et seq.) of Title 56, receiving such reports as the SCC may be required to make pursuant thereto, including reviews, analyses, and impact on consumers of electric utility restructuring programs in other states;
    • Monitoring, after the commencement of customer choice and with the assistance of the State Corporation Commission and the Office of Attorney General, the incumbent electric utilities, suppliers, and retail customers, whether the recovery of stranded costs, as provided in § 56-584, has resulted or is likely to result in the overrecovery or underrecovery of just and reasonable net stranded costs; and
    • Examining (i) utility worker protection during the transition to retail competition, (ii) generation, transmission and distribution systems reliability concerns, and (iii) energy assistance programs for low-income households.

    Retail electric competition is being introduced in the Commonwealth pursuant to the provisions of the Restructuring Act, which provides the statutory framework for Virginia's transition from traditional regulation of electric utility generation to a market-based system in which competitive market forces will be relied upon to determine generation rates and ensure adequate capacity. The distribution and transmission components of electric service will continue to be regulated by state and federal regulators, respectively.

    The Restructuring Commission is chaired by Senator Thomas K. Norment, Jr. The other members are Senator Kenneth W. Stolle, Senator John C. Watkins, Senator Richard L. Saslaw, Delegate Harry J. Parrish, Delegate Robert Tata, Delegate Terry G. Kilgore, Delegate James M. Scott, Delegate Allen W. Dudley, and Delegate Kenneth R. Plum.

    Since its establishment (as the Legislative Transition Task Force) in 1999, the Restructuring Commission has monitored developments relating to the implementation of the Restructuring Act. The Restructuring Commission met on January 9, 2006, at which time it received:

    • The SCC's report on the development of a competitive retail market for electric generation within the Commonwealth;
    • The Office of the Attorney General's report on electric utilities' recovery of stranded costs;
    • The Virginia Center for Coal and Energy Research's report, prepared at the Restructuring Commission's request, on issues relating to the increased use of renewable energy sources to meet Virginia's future energy needs; and
    • Dominion Generation's report on the savings to its Virginia customers resulting from the 2004 legislation freezing Dominion's fuel factor until mid-2007, which report also addressed the savings from capped rates.

    Copies of these reports and presentations are available at the Restructuring Commission web site at: http://dls.state.va.us/GROUPS/elecutil/MEET2006.HTM#1st.

    The Restructuring Commission considered four proposed items of legislation pertaining to the Commonwealth's electric utilities. As in previous years, the Restructuring Commission asserted that it would resist the passage of any electricity-related bill that it had not been provided the opportunity to analyze.

    1. Renewable Portfolio Standard

    Diana Dascalu, Esq., and Dr. Pat Delaqui of the Chesapeake Climate Action Network presented Senator Mary Margaret Whipple's proposal for the adoption of a renewable portfolio standard (RPS) in Virginia. An RPS is a legislative mechanism requiring that a minimum specific percentage of energy provided to consumers come from renewable sources. Under the proposal offered by Senator Whipple, 20% of the electric energy sold by a supplier to retail customers in Virginia must be generated from renewable energy sources by the 2015/2016 reporting year. The 20% requirement would be met by energy from four classes of sources (small systems, large systems with new technology, large systems with existing technology, and energy efficiency), each of which have specific targets. The requirement is phased in over a 10-year period. A supplier would comply with the requirement by self-generating the renewable energy or purchasing sufficient renewable energy credits. The failure to obtain sufficient credits or other wise meet the requirements could subject a supplier to alternative compliance payments. A distributor's costs of compliance with these requirements will be recoverable though the utility's fuel factor adjustments.

    The Restructuring Commission observed that the RPS proposal raises several significant policy issues. The members agreed to a motion that the proposal be advanced to the General Assembly without any recommendation by the Restructuring Commission.

    2. Renewable Energy Production Tax Credit

    Senator Watkins presented his proposal for the enactment of an individual and corporate income tax credit for producing electricity from renewable resources. A tax credit would be allowed for electricity that is produced in the 10-year period beginning on the date that a qualified facility for producing electricity from renewable resources is placed in service. The credit amount would equal 0.85 cents for each kilowatt hour of electricity produced from renewable resources that is sold by the taxpayer to an unrelated person.

    The members agreed to a motion that the proposal be advanced to the General Assembly without any recommendation by the Restructuring Commission.

    3. Incentives for Renewable and Alternative Energy Purchases and Production

    Senator Whipple, who was unable to attend the meeting, asked the Restructuring Commission to consider her proposal for a series of grants and tax incentives for the use and production of renewable energy and energy-efficient products. The four elements of the proposal include (i) grants of 0.85 cents for each kilowatt hour of electricity produced by a corporation from certain renewable energy resources; (ii) grants to individuals and corporations equal to 15% of the cost incurred in installing photovoltaic property, solar water heating property, or wind-powered electrical generators, which are limited to $2,000 for each system of photovoltaic property, $1,000 for each system of solar water heating property, and $1,000 for each system of wind-powered electrical generators; (iii) a sales and use tax exemption for certain energy efficient products that have been awarded the energy star certification mark based on requirements developed by the U.S. Environmental Protection Agency and the U.S. Department of Energy; and (iv) a refund of one-half of the sales and use tax paid on motor vehicles using clean fuel sources as a source of propulsion. Refunds of the sales and use tax on motor vehicles using clean fuel sources as a source of propulsion are limited to a maximum of $500 in tax paid per item.

    Delegate Parrish noted that the proposal, which is similar to legislation that Senator Whipple introduced in 2001 and 2002, contains elements that the House Finance Committee has been trying to eliminate. A majority of the members adopted his motion that the Restructuring Commission refrain from recommending that this proposal be advanced. Delegate Scott did not concur with the Restructuring Commission's decision not to endorse the proposal.

    4. Boundaries of Municipal Electric Utilities

    Thomas Dick, representing Virginia's municipal electric utilities and speaking on behalf of Delegate William Barlow, presented a proposal to amend the Restructuring Act to clarify that if the service territories of an investor-owned utility and a municipal electric utility are adjusted by mutual agreement, the adjustment would not automatically result in the municipal electric utility being subject to the provisions of the Restructuring Act. The proposal arose from circumstances involving the City of Franklin and Dominion Power. It was noted that the interested parties are continuing to review the proposal.

    The members agreed to a motion that the proposal be advanced to the General Assembly without any recommendation by the Restructuring Commission.

    The chairman noted that there may be a related issue to come before the General Assembly in the 2006 Session relating to the Town of Elkton, and that a review of the issue may require the Restructuring Commission to meet again during the 2006 Session.

    Michel King of Old Mill Power Company advised the chairman that he would like the Restructuring Commission to consider amending the net metering provisions of the Restructuring Act. He was advised to share his suggestions with other interested parties and, if the Restructuring Commission reconvenes during the 2006 Session, he may be heard at that time.

    Other Activities

    The SCC observed that current wholesale market prices for electricity are very high as a result of a combination of factors, including high natural gas prices and a wholesale regulatory scheme that allows the price of the last unit of power dispatched to meet load obligations, which typically is natural gas-fired, to set the market price. As a result, consumers in other states that have deregulated, particularly where incumbent utilities have divested their generation units, and that have ended transition periods insulating consumers from market-based prices, are facing higher electricity prices. This situation is reported to have led to the closure of the Eastalco aluminum smelter in Maryland, where the shift to market-based rates would result in a $72 million annual increase in electricity costs.

    The chairman expressed concern with allegations made by SCC spokesperson Howard Spinner that PJM Interconnection LLC, the regional transmission entity of which Virginia's investor-owned utilities are members, has not been responding to requests for information in a timely manner, and expects an explanation from PJM.

    In reaction to concerns expressed by the SCC and others regarding the effects of exposing ratepayers to market-based rates after the end of the capped rate period, the chairman asked the SCC to consider establishing a system of periodically providing the members of the Restructuring Commission with information regarding the experiences of other states that have deregulated their electric utilities.

    In addition, the chairman indicated that the Restructuring Commission is considering a one- or two-year study of the consequences of the scheduled end of Virginia's capped rate period on December 31, 2010. After that date, consumers who have not selected a provider may receive default service, which is to be priced based on market rates for electricity. Part of the study will entail monitoring the experiences of other states.

    The Restructuring Commission does not intend to submit a further report of its findings and recommendations for publication.