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<title>Virginia Passes Restructuring Legislation Permitting Recovery of Stranded Costs
Through Capped Rates and Wires Charges</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="68%" valign="top"><img src="../images/statelin.gif" alt="STATELINE by Robert Olson" border="0" WIDTH="375" HEIGHT="75"><p><b><u>
<br>
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<p><b><u>March 1999</u><br>
</b><font size="6"><b>Virginia Passes Restructuring Legislation Permitting
Recovery Of Stranded Costs Through Capped Rates And Wire Charges<br>
</b></font><strong>by Robert Olson -- Brown, Olson and Wilson, P.C.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
03/99</em>)</font></p>
<p><font face="Arial">The Virginia legislature recently passed
restructuring legislation which caps rates from 2001 to 2007 for utilities and other
suppliers of electricity. The rate cap, which includes a wires charge, permits recovery of
stranded costs. While the Virginia legislation does not require divestiture, it does
require functional separation of generation, transmission, and distribution. The
legislation also establishes standards for licensing of suppliers, default service
providers, and marketing practices. Other provisions of the legislation include net
metering, contributions by generators to expansion of transmission capacity, expedited and
standardized permitting processes for small generators, and standards for construction
permits for new generating facilities. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Rates will be capped for bundled service, and as it
becomes available to consumers, unbundled service using, essentially, the utilities’
rates on the effective date of the legislation. The rate caps will remain in effect from
2001 to 2007, although the State Corporation Commission (SCC) may adjust these rates based
on utilities’ fuel costs, revenues, financial distress beyond the utilities’
control, and cost of wholesale power. After January 1, 2004, utilities may petition for
termination of capped rates. The legislation also establishes a wires charge to be charged
to customers of all electricity suppliers. The wires charge is the difference between the
SCC’s projected market price for generation and the capped rate for unbundled
generation service, plus just and reasonable transition costs of the utility/distributor.
The collective charges cannot exceed the capped rate for unbundled service. The results
may be similar rates among competitive suppliers for the rate cap period. Suppliers may
pay the wires charge to the utility on an accelerated or deferred basis, and may contract
with customers to finance customers’ wires charges. Stranded costs of utilities are
recoverable through either capped rates or wires charges. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Utilities are not required to divest generating
assets, but must functionally separate generation, transmission, and distribution by 2002.
Sale of generating assets during the capped rate period may be required to be approved by
the SCC. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The legislation also requires utilities providing
transmission service to join or establish a regional transmission entity, which will
manage and control transmission assets. The legislation further provides that the SCC may
condition licensing of suppliers upon "reasonable and nondiscriminatory
requirements" which may include requiring the prospective supplier to: demonstrate
financial responsibility, post a bond, pay a license fee, pay all state and local taxes,
demonstrate technical capabilities, demonstrate access to generation, and demonstrate
adherence to minimum market conduct standards. The SCC may adopt other rules and
regulations for licensing suppliers. A Legislative Transition Task Force is established
under the law and consists of ten legislators who will monitor restructuring, examine a
host of issues, and annually report to the Governor and legislature with recommendations.
Among the issues the Task Force is to examine are renewable energy programs and energy
efficiency programs.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The SCC designates providers of default service for
retail customers who do not choose a competitive supplier or are unable to obtain service
from the competitive supplier. Factors taken into account in this designation include the
prospective suppliers’ cost, experience, safety, reliability, corporate structure,
and access to generation. The SCC will determine the rate for default service, and may
establish different rates for different classes of customers. After July 1, 2004, the SCC
may determine whether default service should be eliminated as unnecessary given a finding
that sufficient competitive markets exist. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The SCC must establish regulations relating to
marketing practices of all competitive suppliers. The regulations are to address both
competitive strategies, such as "slamming" (unauthorized switching of
suppliers), unauthorized charges, and solicitation, and consumer information. Information
provided to consumers is to include an itemization of regulated and unregulated services
charges, all wires charges, and fuel mix and emissions data. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The legislation places limitations on the facilities
and customers who may take advantage of net metering. Only residential customers with less
than ten kilowatts of capacity and nonresidential customers with less than twenty-five
kilowatts of capacity are eligible. In addition, the facilities must be either solar,
wind, or hydro powered facilities. The customer may only receive compensation for excess
energy supplied if a power purchase agreement is executed. Net metering is available on a
first-come, first-served basis within each distribution company’s service territory
until the total capacity of eligible customers reaches 0.1 percent of the distribution
company’s peak load capacity for the previous year.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The SCC may require transmission companies to expand
transmission capacity to promote the development of competition, and may require
generators to bear a share of the cost attributable to each of them. In addition, the SCC
may develop an expedited permitting process for small generators of fifty megawatts or
less. The legislation also requires the SCC to consider developing a standardized
permitting process and interconnection arrangements for generators of less then 500
kilowatts which have approval from a nationally recognized testing laboratory. The SCC may
permit the construction and operation of generating facilities if it finds the facilities
have no material adverse effect upon service provided by public utilities and are not
contrary to the public interest. The SCC must consider the environmental impact of the
facility when issuing a permit and may impose conditions to minimize environmental
impacts.</font></p>
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<blockquote>
<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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