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<title>Delaware PSC Staff Issues Draft Report on Restructuring</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="69%" valign="top"><img src="../images/statelin.gif" alt="STATELINE by Robert Olson" border="0" WIDTH="375" HEIGHT="75"><p> </p>
<p><b><u><br>
September 1997</u><br>
</b><big><big><big><strong><font face="Arial">Delaware PSC Staff Issues
Draft Report On Restructuring<br>
</font></strong></big></big></big><strong>by Robert Olson -- Brown, Olson and Wilson, P.C.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
05/98</em>)</font></p>
<p><font face="Arial">Recently, the staff of the Delaware Public Service Commission
issued a draft report regarding restructuring of the electricity industry and the
introduction of retail competition in the state. The staff solicited comments from
stakeholders and other interested parties to prepare a final report for presentation to
the PSC, which has been directed to submit a final report and recommendations to the state
legislature in January 1998. </font></p>
<p><font face="Arial">In the draft reports the staff recommends that retail access for
generation services be phased in from April 1999 to April 2003, in annual increments of
25% of each electric utility’s generation load. Each customer class should be
provided retail access at the same rate and in the same proportion throughout the
transition period. By the beginning of the fourth year, 100% of utility customers should
be provided with retail access. However, the staff believes that the "transition
period" (i.e., the period during which the PSC will regulate certain aspects of the
newly competitive generation market) may need to continue past 2003 until it can be
demonstrated that sufficient competition exists in the generation market. </font></p>
<p><font face="Arial">Under the staff’s recommendations, the state’s utilities
would file proposed unbundled rates and services with the PSC by April 1, 1998.
Transmission and distribution services would remain regulated for the foreseeable future,
and unbundled rates for distribution services will initially be set on a cost of service
basis. All rates should be "unbundled in a way that is revenue neutral". To
serve smaller customers who may not wish to or may not be able to effectively shop for
power, the staff recommends that the PSC establish a "default supplier" to
ensure that power customers are provided with generation services. During the transition
period, the state’s existing electric utilities would be required to act as the
default suppliers of electricity. After the end of the transition period, default
suppliers should be selected using a competitive bidding process. Each default supplier
would be required to offer customers standard offer generation services at a price that
approximates the market price for retail generation services, subject to maximum price
caps throughout the transition period.</font></p>
<p><font face="Arial">With respect to the recovery of utility stranded costs, the staff
proposes that each of the state’s utilities file with the PSC an estimate of its
potential stranded costs by July 1, 1998, accounting for generation assets with book costs
below market value as well as those with book costs above market value. Utilities should
have the option, but should not be required, to divest their generation assets, provided
that their generation assets and services are functionally and financially separated from
their transmission and distribution assets. Utilities that are able to demonstrate a
significant amount of non-mitigatable stranded costs should be given the opportunity to
recover an appropriate portion of those costs through a non-bypassable "market
transition charge". The market transition charge would be assessed on all
distribution customers from April 1, 1999 through April 1, 2003. By April 2003, the PSC
would compare actual stranded costs incurred to revenues collected through the market
transition charge, and reconcile the difference if it exceeds 25% of the original
estimate. This reconciliation may result in the assessment of a market transition charge,
or the allocation of appropriate customer credits, for an extended period after April 1,
2003. The draft staff report does not contain any specific provisions regarding utility
power purchase contracts with qualifying facilities or other independent power producers.</font></p>
<p><font face="Arial">In addition, the staff recommends that a non-bypassable "system
benefits charge" be established and collected to finance energy efficiency
investments. These revenues would be disbursed to qualified vendors of such energy
efficiency services through a competitive bidding process. </font></p>
<p><font face="Arial">The staff further recommends that a renewable resource portfolio be
established to promote the development of renewable resources for electricity generation.
"Renewable resources" would likely include wind, biomass, geothermal and
small-scale hydroelectric projects. By 2010, each retail generation supplier would be
required to meet the renewable resource portfolio standard, which could be satisfied
through the trading of renewable resource credits.</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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