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About The Author:

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:

Brown, Olson & Gould, PC
2 Delta Drive
Suite 301
Concord, NH 03301
(603) 225-9716









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STATELINE by Robert Olson

January 2000

West Virginia Public Service Commission Proposes Restructuring Plan

by Robert Olson  --   Brown, Olson and Wilson, P.C.
(originally published by PMA OnLine Magazine: 2000/02)

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.

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.

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.

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.

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.

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.

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.

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:

Brown, Olson & Gould, PC
2 Delta Drive, Suite 301
Concord, NH 03301 | (603) 225-9716

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