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Regulators Forum: Restructuring Rollback

State-policy turmoil reshapes utility markets.

Fortnightly Magazine - November 2007

of plant generation has been approved for construction but not yet built. The common stock of Dominion Resources, Virginia Power’s parent, has doubled in value. Some risk!

This legislation affects our largest companies, Virginia Power and Appalachian Power (owned by AEP). It has limited immediate applicability to the smaller Virginia companies, Delmarva and Potomac Edison, which were permitted to divest their generation assets and are bound by special agreements.

The risk to our largest companies is not economic or market, but likely political. As the full impact of the legislation on customer rates is felt over several years, the question is whether these statutory provisions will remain in place.

Fortnightly: Will time-of-use metering help stabilize energy prices? Is Virginia adopting the advanced-metering policies advocated in EPAct?

Morrison: Our commission issued orders in 2006 addressing Sections 1251,1252, and 1254 of the Act. We declined to adopt advanced metering policies, noting that our utilities already made time-of-use metering available to certain customer classes, but there was minimal customer interest in such metering. I’m not optimistic significant rate stability can be achieved through smart metering because of the overwhelming influence of other factors on energy prices.

Fortnightly: Will Virginia consider implementing rate decoupling?

Morrison: Depending somewhat on what you mean by “rate decoupling,” I expect this to be a policy question that must be addressed legislatively. The commission has no pending proposals from utilities to take such action, and it’s unclear the commission now possesses authority to impose any plan of rate decoupling.

Fortnightly: Are novel rate structures being presented to you for consideration?

Morrison: We have nothing I would consider novel or innovative as far as rate design goes. We are seeing and will continue to see “single-issue” rate filings, such as annual filings to recover, dollar for dollar, environmental and reliability costs through surcharges without regard to earnings levels. I suppose this would seem rather novel in most states.

Fortnightly: What will change for the commission in its regulation of utilities as the result of the so-called re-regulation legislation?

Morrison: Our electric utilities will become frequent filers, having regular overall rate reviews each biennium, annual fuel cases, opportunities for annual rate adders for recovery of environmental and reliability related expenses, rate adders for generation additions, rate adders for renewable energy additions, and so on.

Participants in our cases, other than the utility applicants, will have much less time to investigate applications, retain consultants and conduct discovery because the legislation imposes drastically shortened time limits for commission consideration of filings. The statute strictly prescribes the manner in which a utility’s allowed return is set. The end result is this commission will be extraordinarily restricted in its ability to provide due process and balance fairly the interests of utilities with those of customers so rates and charges are just and reasonable. What an excellent time to retire from the SCC! (Editor’s note: Morrison announced he will step down from the commission when his current term ends in January 2008. Morrison served as SCC chairman six times since his election in 1989.)

Fortnightly: Part of that