NGI The Weekly Gas Market Report
Legislation has been introduced in the Virginia General Assemblythat would establish a framework for gas restructuring in thestate, authorizing, but not mandating, utilities to implementstatewide customer choice programs.
Columbia Gas of Virginia, the first LDC in the state toimplement a gas supply choice program, is a main proponent of twocompanion bills, SB1105 and HB2722, which are being sponsored byState Sen. Charles Colgan (D-Manassas) and Del. Eric Cantor(R-Henrico).
“Columbia of Virginia thought it was important for the VirginiaGeneral Assembly to express their public policy and generalinterest in the subject,” said Laura Bateman, vice president ofpublic affairs for the utility.
She said different parties have different views on whetherlegislation actually is required for LDCs to move toward customerchoice and increased competition. “We just thought if there was anyuncertainty, it would be better to have legislation and a blueprintshowing how to proceed. It gives more of a clear path for [thestate corporation commission to implement customer choice].”
The most important aspect of the bill, according to Bateman, isthat it does not mandate that LDCs unbundle or exit the merchantfunction. Gas companies that want to continue supplying gas tocustomers as they have in the past can continue to do so.
The legislation would require competing residential and smallcommercial suppliers to be licensed by the state. It also wouldprovide that suppliers are not subject to state and local grossreceipts taxes, but it would allow localities to impose a consumerutility tax on gas provided by gas suppliers so there would be noloss of revenue.
“We’ve been working very closely with the Virginia CorporationCommission on language [contained in the bill] and they aresupportive.,” she said. “We have talked to other Virginia gascompanies, the attorney general’s office and just innumerableparties. We really have tried to make this a collaborativeprocess,” said Bateman. “We certainly invited [gas marketers] intothe process and have heard from a couple that are marketing in ourpilot program.”
Representatives of two major energy marketing firms lauded thelegislative effort to install competition in the state’s gasindustry for the first time. “Columbia should be commended for itsefforts,” said Enron’s Kathleen Magruder, director of governmentaffairs. “They have a proven track record of moving this industryin the direction of competition and customer choice.” Magruder saidshe was eager to fine tune the details with the other stakeholdersin the coming weeks.
Statoil Energy’s Martha Duggan, said while she was pleased theGeneral Assembly is moving toward competition, more than just finetuning will be required. “The bill as currently drafted won’t meet[the goal of creating competition] for at least two reasons,” shesaid. “First, the utilities are guaranteed recovery of 100% of notonly stranded costs (and we would argue that there may not be any)but also, 100% recovery of costs incurred to support its merchantfunction! Because utilities will stay in the merchant function(competing with alternative suppliers) this means that the captiveratepayers will fund the utility’s competing with suppliers.”
A second problem is in the taxation area, according to Duggan.The bill as drafted would allow localities to assess a consumerutility tax on both customers of the utility and customers ofalternative suppliers. “This could mean, although I hope it is anunintended consequence, that the locality might assess its tax oncustomers who chose an alternative supplier twice-once for thedistribution service provided by the utility, and once on thecommodity provided by the alternative supplier, in effect doubletaxing. This is a clear disincentive to choice. It also would addto the costs of alternative suppliers who will bear theadministrative burden of dealing with numerous localities.” Shesaid to the extent that the creation of competitive marketsnecessitates a tax change, Statoil would rather see a state grossreceipts tax or sales tax levied on all commodity sales. “Thatwould create more of a level playing field between utilities andalternative suppliers.”
A VCC spokesman said state regulators probably would stay out ofthe legislative battle this bill and the one on electricrestructuring, SB1269, are likely to cause. “We’ve worked with themon some of the language,” he said. “But the commission usuallydoesn’t take positions on bills. We usually try to get them in atechinically proper direction, and the public policy decision as towhere Virginia goes is up to the general assembly. If they wanteverybody on a level playing field they will have gas and electric[legislation] going at the same time, and I’m sure a lot of the[competitive] issues are going to be addressed.” The generalassembly adjourns at the end of February. Before that time, it hasto pass or reject more than 3,000 bills, including gas and electricrestructuring. It’s a daunting task, but the “assembly always seemsto get it done,” said Duggan. Rocco Canonica
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