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<title>January 2000: West Virginia Public Service Commission Proposes Restructuring Plan</title>
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<p align="left"><strong><small><font face="Arial">About The Author:</font></small></strong></p>
<p align="left"><font face="Arial" style="font-size: 9pt">Robert A. Olson is a partner in the law firm of
Brown, Olson & Gould, P.C. which maintains a nationwide practice in energy law,
public utility law and related commercial transactions.</font></p>
<p><small><font face="Arial"><font style="font-size: 9pt">He can be reached at:</font><br>
<br>
<b><font color="#0000FF">Brown, Olson & Gould, PC</font></b><br>
2 Delta Drive<br>
Suite 301<br>
Concord, NH 03301<br>
<a href="mailto:[email protected]">[email protected]</a><br>
(603) 225-9716<br>
<a href="mailto:[email protected]"></a></font></small></p>
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<td width="81%" valign="top"><img src="../images/statelin.gif" alt="STATELINE by Robert Olson" border="0" WIDTH="375" HEIGHT="75"><p><b><u><br>
January 2000</u><font face="Arial"><big><big><big><br>
West Virginia Public Service Commission Proposes Restructuring Plan</big></big></big></font></b><strong><br>
by Robert Olson -- Brown, Olson and Wilson, P.C.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
2000/02</em>)</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">On December 20, 1999, the West
Virginia Public Service Commission (WVPSC) issued an order by which it
proposes a plan to restructure its electricity industry (the Plan). The
Plan modified a plan stipulated to by a number of parties to the
proceeding, which was recommended to the WVPSC on December 13, 1999. The
Plan provides for functional separation of generation assets from
transmission and distribution assets for incumbent electric utilities (IEUs)
participating in the plan. The Plan also regulates default service rates.
Default service will be provided initially by the IEUs. Competitive
suppliers must be licensed by the Commission. The licensing requirements
and advertising guidelines are outlined in the Plan. The Plan also
addresses nondiscriminatory access to transmission and distribution
systems, requires participation in regional transmission organizations,
establishes a code of conduct for IEUs and their affiliates, and is
conditioned upon maintenance of tax revenues.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Under the Plan, competition is to
begin on January 1, 2001, although the Commission may delay competition
until administrative requirements and rules are in place. After the start
date, IEUs, with the exception of non-profit utilities, can not provide
competitive electric service, but are required to provide default service
for customers not selecting a competitive supplier. IEUs are to
functionally separate generation from transmission and distribution upon
the start date, and are to sell, transfer, or assign their generating
assets to a separate corporate entity as soon as possible after the start
date, but no later than January 1, 2005. If the divestiture of generating
assets is to an affiliate and imposes a future obligation upon the IEU,
then the sale will be subject to the approval of the WVPSC. The Plan
provides that it shall not abrogate or modify rights and obligations of
parties under WVPSC-approved power purchase agreements.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">On or after the sixth year following
the start of competition, the WVPSC may select a default service provider
other than the IEU. A bidding process, governed by rules of the WVPSC,
will be developed and used to select such default service providers.
Thirteen years after the start of competition, the WVPSC is to determine
how customers who have not elected a competitive supplier are to be
served. For the first four years of default service, rates will be capped
at the rates established prior to the start of competition. Default
service rates for new large commercial and industrial customers and
substantial new load for existing large commercial and industrial
customers will not be regulated as of the fifth year after the start of
competition. The Plan further modifies the default service rate annually
until year eight for large commercial and industrial customers and year
eleven for all other customers, when the rate will be set at the market
rate. Each IEU is directed to establish a rate stabilization deferral
account, which will be used to offset the price of retail energy after the
tenth year for default service customers. The Plan also sets limits upon
customers’ right to return to default service after selecting a
competitive supplier of electricity.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The Plan requires that the WVPSC
establish rules for the licensing of competitive suppliers. The rules,
according to the Plan, will require that applicants seeking to obtain,
retain, or renew licenses must: be authorized to conduct business in West
Virginia, demonstrate financial responsibility, post a bond or other
guarantee, pay a license fee, pay all taxes and fees, demonstrate
technical capabilities, demonstrate access to generation and generation
reserves, adhere to minimum market conduct standards, and abide by other
reasonable and nondiscriminatory requirements the WVPSC may specify. The
WVPSC will also establish rules governing the marketing of electric
service under the Plan. Among the consumer protections to be afforded are
truth-in-advertising rules relative to verification of the source, amount,
and proportion of power advertised to be included in the generation
technology or fuel source offered by a supplier. The Plan also permits the
WVPSC to require publication of information relative to emissions and fuel
mix.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The Plan provides that each IEU must
provide transmission service to competitive suppliers under their
pro-forma tariff, and provide nondiscriminatory access to distribution
service. Under the Plan, each distribution company must provide
competitive suppliers with distribution service that is comparable in
quality and price to any similarly situated customer, to an affiliate, or
to itself. The Plan sets forth the distribution charges for customers of
the IEU Allegheny Power from January 1, 2001 through December 31, 2010.
The Plan also provides that customers who self-generate power are not
subject to distribution charges. IEUs subject to the Plan are directed to
use their best efforts to join or establish a regional transmission
organization (RTO) or functional equivalent no later than January 1, 2003.
If IEUs join or establish different RTOs, then they are directed to
minimize and seek to eliminate rate pancaking, or the addition of multiple
transmission fees.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">In addition, the WVPSC will
establish a code pertaining to conduct between IEUs and their affiliates.
The Plan provides that these rules must contain prohibitions against
discriminating against non-affiliates in the areas of processing customer
requests for retail power supply, which tariffed products and services are
offered, and disclosure of customer load and usage information and other
market information. The code of conduct must also prohibit tying of IEU
products to affiliate services and affiliate subsidies. Employees may
transfer between IEUs and affiliates, but may not transfer back for a
reasonable period of time, subject to the WVPSC’s determination. The
code of conduct will also prohibit joint advertising, or advertising which
would falsely or unfairly imply or state that the affiliate supplier is
inherently superior to a competitor based upon the affiliation with the
IEU. Under the Plan, the WVPSC would have authority to review contractual
relationships between an IEU and its affiliate.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The WVPSC has scheduled hearings on
the Plan for January 6 and 11, 2000, after which it will determine whether
to submit the Plan to the Legislature. The Plan is conditioned upon the
preservation of tax revenues for the state and local governments. In light
of this, the WVPSC is to issue a report on the potential tax consequences
of the Plan, along with recommendations for statutory changes, if any are
needed, to satisfy this condition.</font></p>
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<p align="left"><font face="Arial">
<small>Robert A. Olson is a partner in the law firm of Brown, Olson &
Gould P.C.
which maintains a nationwide practice in energy law, public utility law and related
commercial transactions. He can be reached at:</small></font><p align="center">
<font face="Arial"><small><font color="#0000FF"><b>Brown, Olson & Gould, PC</b></font><br>
2 Delta Drive, Suite 301<br>
Concord, NH 03301 <br>
<br>
<a href="mailto:[email protected]">[email protected]</a> | (603) 225-9716<a href="mailto:[email protected]"></a></small></font>
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