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Regulators Forum: Restructuring Rollback

State-policy turmoil reshapes utility markets.

Fortnightly Magazine - November 2007

2007-2008 budget and already has convened stakeholders—representing utilities, suppliers, consumer advocates, our Consumer Advisory Council, other state agencies, and environmental groups—to advise us in developing this campaign.

I believe strongly in educating the consumers about what is going on around them with electricity prices and providing them with the knowledge they need about what they can do in their own homes to control costs now. Knowledge is the key to helping consumers transition to market-based pricing for electricity. A comprehensive consumer-education program will go a long way toward preventing surprises in rates for our consumers while informing them how to reduce demand.

Also, the commission’s final default-service rulemaking and policy statement are designed to represent an even-handed approach to acquiring reasonably priced supply in a manner that balances the interest of all stakeholders, while meeting the requirements of the 1996 electric competition law.

The law in Pennsylvania requires electric distribution companies, or a commission-approved alternative supplier, to provide default electric-generation service to customers who have not selected an alternative electric-generation supplier. According to the law, the default-service prices for electric generation service are required to reflect “prevailing market prices.”

The default-service regulations are among the most important rulemakings for the commission since the restructuring of the electric industry. The final rulemaking addressed competitive safeguards; program terms and conditions of service; procurement and implementation plans; standards for transferring customer accounts; rate design including the “price to compare”; and recovery of costs.

The policy statement contains guidelines for default service providers in the areas of procurement, rate design, and cost recovery. The commission recognized that some elements of the default service rules should be addressed in a policy statement rather than a rulemaking. The reason is changes in markets and technology may result in an approach that is too narrowly tailored or too unresponsive to serve the state’s interests.

As the commonwealth transitions to paying market prices for electric generation for the first time in many years, we will all play an important role in shaping the state’s energy future. Pennsylvania will continue to move forward in implementing a comprehensive energy strategy while everyone will play a significant role in reducing demand, and in the end, saving money.

Virginia: Restructuring Rollback

Fortnightly: Is the regulatory compact changing in Virginia to accommodate increased market risk?

Morrison: Is it ever! At its 2007 session the Virginia Legislature enacted sweeping changes to the Virginia Electric Restructuring Act, adopting a highly prescriptive form of rate-base, rate-of-return regulation. Abruptly abandoning further efforts at retail competition, the new law returns the monopoly franchise territories to electric utilities (see sidebar, “Virginia Re-Regulates”).

As a practical matter, increased market risk was never a reality in Virginia. Virtually no kilowatt-hours ever were displaced from incumbent utilities because of competitive suppliers. The electric utilities that successfully proposed the new legislation nevertheless asserted market risk and the need to better attract investment capital necessitated reducing risks and high returns guaranteed by a formula. However, since 1999, when rates were first “capped,” some 3,850 MW of generation has been constructed in Virginia, and another 3,865 MW