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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


March 1999
Virginia Passes Restructuring Legislation Permitting Recovery Of Stranded Costs Through Capped Rates And Wire Charges
by Robert Olson  --   Brown, Olson and Wilson, P.C.
(originally published by PMA OnLine Magazine: 03/99)

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.

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.

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.

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.

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.

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.

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.

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.

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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