Energy Legal Blog

Virginia General Assembly Accedes to Governor-Amended Re-Regulation Bill; Executive Order to Cut Commonwealth’s Energy Demand

On April 4, the Virginia General Assembly voted overwhelmingly to approve amendments to a measure that would "re-regulate" the state's (never de-regulated) retail electric industry, ending the prospect of customer choice for all but very large customers and lifting existing retail price caps two years earlier than scheduled.   The re-regulation bill originated in the General Assembly, but was later amended by Governor Tim Kaine (D), who revised the legislation's rate-setting provisions and doubled the state's voluntary renewable energy use and demand reduction (below 2006 consumption) objectives from 5% to 10% by the year 2022.  The legislation will take effect automatically, without Governor Kaine's signature, on July 1, 2007.

Under the version of the legislation adopted, the Virginia State Corporation Commission will review utility rates every two years and will set a utility's basic rate of return at levels equal to the average rates of return for similar utilities in the Southeast, irrespective of the relative risks it confronts or the quality of electric service the utility provides.  On top of that, the utilities will still be permitted to earn a bonus rate-of-return for developing new baseload generating capacity, but in an attempt to placate environmentalists who had decried the original legislation as not doing enough to encourage the development of renewable resources, the law will give priority to nuclear, "clean coal" plants (i.e., those with carbon capture technology), and renewable projects.  In addition, the existing retail price caps, set to expire on December 31, 2010, will now expire at the end of 2008.  The bill has been called a "hybrid" form of rate regulation, because it allows a few of the largest industrial customers to retain the "choice" option, but would end that opportunity for the majority of retail customers.

With the passage of this legislation, Virginia became the first state to re-regulate its electric industry before any real de-regulation was implemented.  Debate has been ongoing in several other states, with critics calling for the rejection of competition in electric markets.  Illinois, Maryland, and Michigan, to name a few, have also faced growing dissatisfaction in their states with the results of competitive electric markets.

In contrast to the legislation’s weak provision asking utilities to volunteer 10% demand reductions, Governor Kaine more recently issued Executive Order 48 that directs the Commonwealth’s executive branch to reduce the annual cost of energy purchases from non-renewable sources by at least 20% by fiscal year 2010.  Given that Virginia utilities have among the nation’s least developed demand reduction programs and funding, this directive could engender considerable business opportunities for independent vendors of demand-reduction programs and technologies.