DEREGULATION UPDATE

Virginia

Overview
In April 16, 1998 Gov. Jim Gilmore (R) signed House Bill 1172 to deregulate Virginiafs electric utility industry. The law calls for competition to begin in January 2002 and for full competition by January 2004. It also requires that an independent system operator (ISO) and a regional power exchange (RPX) be established by January 1, 2001 to manage operation of the competitive wholesale market. The General Assembly will meet in the 1999 Session to develop further details.

SCC Ensures Smooth Transition
In an effort to ensure a smooth transition to a competitive electricity environment, the State Corporation Commission (SCC) is requiring Virginiafs electric utilities to implement programs that will:

• Educate consumers;
• Ensure that each distributor provides access to its retail distribution system to each customer in its service territory;
• Promote electric energy efficiency and conservation, protection of the environment, and research and development;
• Provide minimum standards of training for employees who operate and maintain the ISO or RPX; and
• Educate, retrain, or provide outplacement services for employees of electric utilities whose employment will be directly affected by the implementation of competition.

Required Pilot Programs
The SCC ordered the statefs IOUs, Virginia Power and American Electric Power, to begin working on the implementation of at least one retail wheeling pilot program in their service territories. The SCC directed the two IOUs to conduct workshops to solicit input from customers and environmental groups regarding the proper structure and characteristics of such pilots. Other electric companies and electric cooperatives are encouraged to do the same. Detailed plans are to be filed with the commission by Aug. 1, 1998.

Natural Gas Choice
The SCC is considering a request by Washington Gas to begin a two-year pilot "customer choice" program. If approved, the program would allow up

to 20 percent of Washington Gas customers in Northern Virginia the opportunity to choose their natural gas provider.

Under the proposed pilot program, customers who participate would purchase their gas supply from other energy suppliers while obtaining delivery of the gas through the local system of pipes owned by Washington Gas. The company predicts approximately 29,000 residential customers and 2,000 commercial customers will be participating during the first year. Customers could enroll at any time and would be accepted on a first-come, first-served basis.

Dealing with Stranded Costs
Details on the handling of stranded costs will be developed during the 1999 legislative session. Utilities just and reasonable stranded costs will be recoverable. The General Assembly and the SCC will determine and implement appropriate consumer safeguards related to stranded costs.

Because Virginiafs restructuring law called for an accelerated transition period, the recovery of utilities stranded costs may cause rates to be higher than would otherwise be the case.

Virginia Power, which serves nearly 2 million customers, says it has invested approximately $3 billion in power plants and energy contracts that would be unprofitable in a competitive marketplace.