RD361 - Report to the Commission on Electric Utility Regulation of the Virginia General Assembly - November 1, 2008


Executive Summary:
In 2007, the General Assembly adopted comprehensive legislation amending the Virginia Electric Utility Restructuring Act, and related provisions of Title 56 of the Code of Virginia, to re-regulate the rates of the Commonwealth’s electric utilities and establish goals for the generation of electricity from renewable sources. Enactment clause 6 of Chapters 888 and 933 of the 2007 Acts of the General Assembly (Senate Bill 1416 and House Bill 3068, (hereinafter “the Act”)), directs the Office of the Attorney General, in consultation with the State Corporation Commission (“SCC” or “Commission”), to submit reports to the Commission on Electric Utility Regulation (formerly the Commission on Electric Utility Restructuring) on or before November 1, 2007, and again on or before November 1, 2008, that identify and recommend appropriate corrective legislation to address any issues that may impede the implementation of the provisions of the Act.

This second Report reflects this Office’s review and analysis of the Act and concerns expressed to us by the SCC. There remain provisions of the Act that will be implemented for the first time in future proceedings before the Commission. However, adjudication of several cases that were pending when the 2007 Report was submitted offers experience with actual implementation that assists in the identification of issues in need of legislative correction. The primary recommendation of this second Report arises from issues brought into focus in two Commission proceedings concluded earlier this year. This year’s Report also identifies again those issues addressed in the 2007 Report that continue to have the potential to impede the implementation of the provisions of the Act. One issue addressed last year concerned potential ramifications for one utility of the elimination of default service upon the expiration of capped rates on December 31, 2008. A recent Commission order has confirmed the previously stated concern and this issue is highlighted again in this year’s Report.

The suggestions herein are not intended to foreclose interpretation of the statutory provisions. Accordingly, this Report does not attempt to identify and analyze every provision of the Act susceptible to differing interpretations. (*1) Rather it presents modest proposals for clarification and simplification.
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(*1) As anticipated, various legal arguments have already been advanced over competing interpretations of certain provisions of the Act, and the SCC has resolved such issues in the course of its proceedings. In Appalachian Power’s 2007 fuel factor application, Case No PUE-2007-00067, there was legal argument that the 2007 amendments to § 56-249.6 D 1 did not require that utilities retain 25% of margins from “off-system sales” until the commencement of the biennial review cases in 2011. The Commission ruled that the change became effective with fuel factor cases filed after July 1, 2007. In Dominion Virginia Power’s application for approval of its proposed coal generation facility in Southwest Virginia, Case No. PUE-2007-00066, the Commission had to interpret the enhanced rate of return provision of § 56-585.1 A 6. The statute authorizes a return on equity incentive of 2.00% for a “carbon capture compatible, clean-coal powered” generation facility and a 1.00% incentive for a “conventional coal or combined-cycle combustion turbine” facility. On its face, the statute left a gap for a clean coal facility that is not carbon capture compatible, which arguably would result in no incentive return. The Commission applied the statute to mean that “clean-coal” and “conventional coal” are not mutually exclusive, and awarded a 1.00% return on equity incentive. In both cases the Attorney General’s Division of Consumer Counsel supported the interpretation of the statutes adopted by the SCC.