56-585.1 - Generation, distribution, and transmission rates after capped rates terminate or expire.
§ 56-585.1. Generation, distribution, and transmission rates after cappedrates terminate or expire.
A. During the first six months of 2009, the Commission shall, after noticeand opportunity for hearing, initiate proceedings to review the rates, termsand conditions for the provision of generation, distribution and transmissionservices of each investor-owned incumbent electric utility. Such proceedingsshall be governed by the provisions of Chapter 10 (§ 56-232 et seq.) of thistitle, except as modified herein. In such proceedings the Commission shalldetermine fair rates of return on common equity applicable to the generationand distribution services of the utility. In so doing, the Commission may useany methodology to determine such return it finds consistent with the publicinterest, but such return shall not be set lower than the average of thereturns on common equity reported to the Securities and Exchange Commissionfor the three most recent annual periods for which such data are available bynot less than a majority, selected by the Commission as specified insubdivision 2 b, of other investor-owned electric utilities in the peer groupof the utility, nor shall the Commission set such return more than 300 basispoints higher than such average. The peer group of the utility shall bedetermined in the manner prescribed in subdivision 2 b. The Commission mayincrease or decrease such combined rate of return by up to 100 basis pointsbased on the generating plant performance, customer service, and operatingefficiency of a utility, as compared to nationally recognized standardsdetermined by the Commission to be appropriate for such purposes. In such aproceeding, the Commission shall determine the rates that the utility maycharge until such rates are adjusted. If the Commission finds that theutility's combined rate of return on common equity is more than 50 basispoints below the combined rate of return as so determined, it shall beauthorized to order increases to the utility's rates necessary to provide theopportunity to fully recover the costs of providing the utility's servicesand to earn not less than such combined rate of return. If the Commissionfinds that the utility's combined rate of return on common equity is morethan 50 basis points above the combined rate of return as so determined, itshall be authorized either (i) to order reductions to the utility's rates itfinds appropriate, provided that the Commission may not order such ratereduction unless it finds that the resulting rates will provide the utilitywith the opportunity to fully recover its costs of providing its services andto earn not less than the fair rates of return on common equity applicable tothe generation and distribution services; or (ii) direct that 60 percent ofthe amount of the utility's earnings that were more than 50 basis pointsabove the fair combined rate of return for calendar year 2008 be credited tocustomers' bills, in which event such credits shall be amortized over aperiod of six to 12 months, as determined at the discretion of theCommission, following the effective date of the Commission's order and beallocated among customer classes such that the relationship between thespecific customer class rates of return to the overall target rate of returnwill have the same relationship as the last approved allocation of revenuesused to design base rates. Commencing in 2011, the Commission, after noticeand opportunity for hearing, shall conduct biennial reviews of the rates,terms and conditions for the provision of generation, distribution andtransmission services by each investor-owned incumbent electric utility,subject to the following provisions:
1. Rates, terms and conditions for each service shall be reviewed separatelyon an unbundled basis, and such reviews shall be conducted in a single,combined proceeding. The first such review shall utilize the two successive12-month test periods ending December 31, 2010. However, the Commission may,in its discretion, elect to stagger its biennial reviews of utilities byutilizing the two successive 12-month test periods ending December 31, 2010,for a Phase I Utility, and utilizing the two successive 12-month test periodsending December 31, 2011, for a Phase II Utility, with subsequent proceedingsutilizing the two successive 12-month test periods ending December 31immediately preceding the year in which such proceeding is conducted. Forpurposes of this section, a Phase I Utility is an investor-owned incumbentelectric utility that was, as of July 1, 1999, not bound by a rate casesettlement adopted by the Commission that extended in its application beyondJanuary 1, 2002, and a Phase II Utility is an investor-owned incumbentelectric utility that was bound by such a settlement.
2. Subject to the provisions of subdivision 6, fair rates of return on commonequity applicable separately to the generation and distribution services ofsuch utility, and for the two such services combined, shall be determined bythe Commission during each such biennial review, as follows:
a. The Commission may use any methodology to determine such return it findsconsistent with the public interest, but such return shall not be set lowerthan the average of the returns on common equity reported to the Securitiesand Exchange Commission for the three most recent annual periods for whichsuch data are available by not less than a majority, selected by theCommission as specified in subdivision 2 b, of other investor-owned electricutilities in the peer group of the utility subject to such biennial review,nor shall the Commission set such return more than 300 basis points higherthan such average.
b. In selecting such majority of peer group investor-owned electricutilities, the Commission shall first remove from such group the twoutilities within such group that have the lowest reported returns of thegroup, as well as the two utilities within such group that have the highestreported returns of the group, and the Commission shall then select amajority of the utilities remaining in such peer group. In its final orderregarding such biennial review, the Commission shall identify the utilitiesin such peer group it selected for the calculation of such limitation. Forpurposes of this subdivision, an investor-owned electric utility shall bedeemed part of such peer group if (i) its principal operations are conductedin the southeastern United States east of the Mississippi River in either thestates of West Virginia or Kentucky or in those states south of Virginia,excluding the state of Tennessee, (ii) it is a vertically-integrated electricutility providing generation, transmission and distribution services whosefacilities and operations are subject to state public utility regulation inthe state where its principal operations are conducted, (iii) it had along-term bond rating assigned by Moody's Investors Service of at least Baaat the end of the most recent test period subject to such biennial review,and (iv) it is not an affiliate of the utility subject to such biennialreview.
c. The Commission may increase or decrease such combined rate of return by upto 100 basis points based on the generating plant performance, customerservice, and operating efficiency of a utility, as compared to nationallyrecognized standards determined by the Commission to be appropriate for suchpurposes, such action being referred to in this section as a PerformanceIncentive. If the Commission adopts such Performance Incentive, it shallremain in effect without change until the next biennial review for suchutility is concluded and shall not be modified pursuant to any provision ofthe remainder of this subsection.
d. In any Current Proceeding, the Commission shall determine whether theCurrent Return has increased, on a percentage basis, above the Initial Returnby more than the increase, expressed as a percentage, in the United StatesAverage Consumer Price Index for all items, all urban consumers (CPI-U), aspublished by the Bureau of Labor Statistics of the United States Departmentof Labor, since the date on which the Commission determined the InitialReturn. If so, the Commission may conduct an additional analysis of whetherit is in the public interest to utilize such Current Return for the CurrentProceeding then pending. A finding of whether the Current Return justifiessuch additional analysis shall be made without regard to any PerformanceIncentive adopted by the Commission, or any enhanced rate of return on commonequity awarded pursuant to the provisions of subdivision 6. Such additionalanalysis shall include, but not be limited to, a consideration of overalleconomic conditions, the level of interest rates and cost of capital withrespect to business and industry, in general, as well as electric utilities,the current level of inflation and the utility's cost of goods and services,the effect on the utility's ability to provide adequate service and toattract capital if less than the Current Return were utilized for the CurrentProceeding then pending, and such other factors as the Commission may deemrelevant. If, as a result of such analysis, the Commission finds that use ofthe Current Return for the Current Proceeding then pending would not be inthe public interest, then the lower limit imposed by subdivision 2 a on thereturn to be determined by the Commission for such utility shall becalculated, for that Current Proceeding only, by increasing the InitialReturn by a percentage at least equal to the increase, expressed as apercentage, in the United States Average Consumer Price Index for all items,all urban consumers (CPI-U), as published by the Bureau of Labor Statisticsof the United States Department of Labor, since the date on which theCommission determined the Initial Return. For purposes of this subdivision:
"Current Proceeding" means any proceeding conducted under any provisions ofthis subsection that require or authorize the Commission to determine a faircombined rate of return on common equity for a utility and that will beconcluded after the date on which the Commission determined the InitialReturn for such utility.
"Current Return" means the minimum fair combined rate of return on commonequity required for any Current Proceeding by the limitation regarding autility's peer group specified in subdivision 2 a.
"Initial Return" means the fair combined rate of return on common equitydetermined for such utility by the Commission on the first occasion afterJuly 1, 2009, under any provision of this subsection pursuant to theprovisions of subdivision 2 a.
e. In addition to other considerations, in setting the return on equitywithin the range allowed by this section, the Commission shall strive tomaintain costs of retail electric energy that are cost competitive with costsof retail electric energy provided by the other peer group investor-ownedelectric utilities.
f. The determination of such returns, including the determination of whetherto adopt a Performance Incentive and the amount thereof, shall be made by theCommission on a stand-alone basis, and specifically without regard to anyreturn on common equity or other matters determined with regard to facilitiesdescribed in subdivision 6.
g. If the combined rate of return on common equity earned by both thegeneration and distribution services is no more than 50 basis points above orbelow the return as so determined, such combined return shall not beconsidered either excessive or insufficient, respectively.
h. Any amount of a utility's earnings directed by the Commission to becredited to customers' bills pursuant to this section shall not be consideredfor the purpose of determining the utility's earnings in any subsequentbiennial review.
3. Each such utility shall make a biennial filing by March 31 of every otheryear, beginning in 2011, consisting of the schedules contained in theCommission's rules governing utility rate increase applications (20 VAC5-200-30); however, if the Commission elects to stagger the dates of thebiennial reviews of utilities as provided in subdivision 1, then Phase Iutilities shall commence biennial filings in 2011 and Phase II utilitiesshall commence biennial filings in 2012. Such filing shall encompass the twosuccessive 12-month test periods ending December 31 immediately preceding theyear in which such proceeding is conducted, and in every such case the filingfor each year shall be identified separately and shall be segregated from anyother year encompassed by the filing. If the Commission determines that ratesshould be revised or credits be applied to customers' bills pursuant tosubdivision 8 or 9, any rate adjustment clauses previously implementedpursuant to subdivision 4 or 5 or those related to facilities utilizingsimple-cycle combustion turbines described in subdivision 6, shall becombined with the utility's costs, revenues and investments until the amountsthat are the subject of such rate adjustment clauses are fully recovered. TheCommission shall combine such clauses with the utility's costs, revenues andinvestments only after it makes its initial determination with regard tonecessary rate revisions or credits to customers' bills, and the amountsthereof, but after such clauses are combined as herein specified, they shallthereafter be considered part of the utility's costs, revenues, andinvestments for the purposes of future biennial review proceedings.
4. The following costs incurred by the utility shall be deemed reasonable andprudent: (i) costs for transmission services provided to the utility by theregional transmission entity of which the utility is a member, as determinedunder applicable rates, terms and conditions approved by the Federal EnergyRegulatory Commission and (ii) costs charged to the utility that areassociated with demand response programs approved by the Federal EnergyRegulatory Commission and administered by the regional transmission entity ofwhich the utility is a member. Upon petition of a utility at any time afterthe expiration or termination of capped rates, but not more than once in any12-month period, the Commission shall approve a rate adjustment clause underwhich such costs, including, without limitation, costs for transmissionservice, charges for new and existing transmission facilities, administrativecharges, and ancillary service charges designed to recover transmissioncosts, shall be recovered on a timely and current basis from customers.Retail rates to recover these costs shall be designed using the appropriatebilling determinants in the retail rate schedules.
5. A utility may at any time, after the expiration or termination of cappedrates, but not more than once in any 12-month period, petition the Commissionfor approval of one or more rate adjustment clauses for the timely andcurrent recovery from customers of the following costs:
a. Incremental costs described in clause (vi) of subsection B of § 56-582incurred between July 1, 2004, and the expiration or termination of cappedrates, if such utility is, as of July 1, 2007, deferring such costsconsistent with an order of the Commission entered under clause (vi) ofsubsection B of § 56-582. The Commission shall approve such a petitionallowing the recovery of such costs that comply with the requirements ofclause (vi) of subsection B of § 56-582;
b. Projected and actual costs for the utility to design and operate fair andeffective peak-shaving programs. The Commission shall approve such a petitionif it finds that the program is in the public interest; provided that theCommission shall allow the recovery of such costs as it finds are reasonable;
c. Projected and actual costs for the utility to design, implement, andoperate energy efficiency programs, including a margin to be recovered onoperating expenses, which margin for the purposes of this section shall beequal to the general rate of return on common equity determined as describedin subdivision A 2 of this section. The Commission shall only approve such apetition if it finds that the program is in the public interest. As part ofsuch cost recovery, the Commission, if requested by the utility, shall allowfor the recovery of revenue reductions related to energy efficiency programs.The Commission shall only allow such recovery to the extent that theCommission determines such revenue has not been recovered through marginsfrom incremental off-system sales as defined in § 56-249.6 that are directlyattributable to energy efficiency programs.
None of the costs of new energy efficiency programs of an electric utility,including recovery of revenue reductions, shall be assigned to any customerthat has a verifiable history of having used more than 10 megawatts of demandfrom a single meter of delivery. Nor shall any of the costs of new energyefficiency programs of an electric utility, including recovery of revenuereductions, be incurred by any large general service customer as definedherein that has notified the utility of non-participation in such energyefficiency program or programs. A large general service customer is acustomer that has a verifiable history of having used more than 500 kilowattsof demand from a single meter of delivery. Non-participation in energyefficiency programs shall be allowed by the Commission if the large generalservice customer has, at the customer's own expense, implemented energyefficiency programs that have produced or will produce measured and verifiedresults consistent with industry standards and other regulatory criteriastated in this section. The Commission shall, no later than November 15,2009, promulgate rules and regulations to accommodate the process under whichsuch large general service customers shall file notice for such an exemptionand (i) establish the administrative procedures by which eligible customerswill notify the utility and (ii) define the standard criteria that must besatisfied by an applicant in order to notify the utility. In promulgatingsuch rules and regulations, the Commission may also specify the timing as towhen a utility shall accept and act on such notice, taking into considerationthe utility's integrated resource planning process as well as itsadministration of energy efficiency programs that are approved for costrecovery by the Commission. The notice of non-participation by a largegeneral service customer, to be given by March 1 of a given year, shall befor the duration of the service life of the customer's energy efficiencyprogram. The Commission on its own motion may initiate steps necessary toverify such non-participants' achievement of energy efficiency if theCommission has a body of evidence that the non-participant has knowinglymisrepresented its energy efficiency achievement. A utility shall not chargesuch large general service customer, as defined by the Commission, for thecosts of installing energy efficiency equipment beyond what is required toprovide electric service and meter such service on the customer's premises ifthe customer provides, at the customer's expense, equivalent energyefficiency equipment. In all relevant proceedings pursuant to this section,the Commission shall take into consideration the goals of economicdevelopment, energy efficiency and environmental protection in theCommonwealth;
d. Projected and actual costs of participation in a renewable energyportfolio standard program pursuant to § 56-585.2 that are not recoverableunder subdivision 6. The Commission shall approve such a petition allowingthe recovery of such costs as are provided for in a program approved pursuantto § 56-585.2; and
e. Projected and actual costs of projects that the Commission finds to benecessary to comply with state or federal environmental laws or regulationsapplicable to generation facilities used to serve the utility's native loadobligations. The Commission shall approve such a petition if it finds thatsuch costs are necessary to comply with such environmental laws orregulations. If the Commission determines it would be just, reasonable, andin the public interest, the Commission may include the enhanced rate ofreturn on common equity prescribed in subdivision 6 in a rate adjustmentclause approved hereunder for a project whose purpose is to reduce the needfor construction of new generation facilities by enabling the continuedoperation of existing generation facilities. In the event the Commissionincludes such enhanced return in such rate adjustment clause, the projectthat is the subject of such clause shall be treated as a facility describedin subdivision 6 for the purposes of this section.
The Commission shall have the authority to determine the duration oramortization period for any adjustment clause approved under this subdivision.
6. To ensure a reliable and adequate supply of electricity, to meet theutility's projected native load obligations and to promote economicdevelopment, a utility may at any time, after the expiration or terminationof capped rates, petition the Commission for approval of a rate adjustmentclause for recovery on a timely and current basis from customers of the costsof (i) a coal-fueled generation facility that utilizes Virginia coal and islocated in the coalfield region of the Commonwealth, as described in §15.2-6002, regardless of whether such facility is located within or withoutthe utility's service territory, (ii) one or more other generationfacilities, or (iii) one or more major unit modifications of generationfacilities; however, such a petition concerning facilities described inclause (ii) that utilize nuclear power, facilities described in clause (ii)that are coal-fueled and will be built by a Phase I utility, or facilitiesdescribed in clause (i) may also be filed before the expiration ortermination of capped rates. A utility that constructs any such facilityshall have the right to recover the costs of the facility, as accrued againstincome, through its rates, including projected construction work in progress,and any associated allowance for funds used during construction, planning,development and construction costs, life-cycle costs, and costs ofinfrastructure associated therewith, plus, as an incentive to undertake suchprojects, an enhanced rate of return on common equity calculated as specifiedbelow. The costs of the facility, other than return on projected constructionwork in progress and allowance for funds used during construction, shall notbe recovered prior to the date the facility begins commercial operation. Suchenhanced rate of return on common equity shall be applied to allowance forfunds used during construction and to construction work in progress duringthe construction phase of the facility and shall thereafter be applied to theentire facility during the first portion of the service life of the facility.The first portion of the service life shall be as specified in the tablebelow; however, the Commission shall determine the duration of the firstportion of the service life of any facility, within the range specified inthe table below, which determination shall be consistent with the publicinterest and shall reflect the Commission's determinations regarding howcritical the facility may be in meeting the energy needs of the citizens ofthe Commonwealth and the risks involved in the development of the facility.After the first portion of the service life of the facility is concluded, theutility's general rate of return shall be applied to such facility for theremainder of its service life. As used herein, the service life of thefacility shall be deemed to begin on the date the facility begins commercialoperation, and such service life shall be deemed equal in years to the lifeof that facility as used to calculate the utility's depreciation expense.Such enhanced rate of return on common equity shall be calculated by addingthe basis points specified in the table below to the utility's general rateof return, and such enhanced rate of return shall apply only to the facilitythat is the subject of such rate adjustment clause. No change shall be madeto any Performance Incentive previously adopted by the Commission inimplementing any rate of return under this subdivision. Allowance for fundsused during construction shall be calculated for any such facility utilizingthe utility's actual capital structure and overall cost of capital, includingan enhanced rate of return on common equity as determined pursuant to thissubdivision, until such construction work in progress is included in rates.The construction of any facility described in clause (i) is in the publicinterest, and in determining whether to approve such facility, the Commissionshall liberally construe the provisions of this title. The basis points to beadded to the utility's general rate of return to calculate the enhanced rateof return on common equity, and the first portion of that facility's servicelife to which such enhanced rate of return shall be applied, shall vary bytype of facility, as specified in the following table:
Type of Generation Facility Basis Points First Portion of
Service Life
Nuclear-powered 200 Between 12 and 25 years
Carbon capture compatible,
clean-coal powered 200 Between 10 and 20 years
Renewable powered 200 Between 5 and 15 years
Conventional coal or combined-
cycle combustion turbine 100 Between 10 and 20 years
Generation facilities described in clause (ii) that utilize simple-cyclecombustion turbines shall not receive an enhanced rate of return on commonequity as described herein, but instead shall receive the utility's generalrate of return during the construction phase of the facility and, thereafter,for the entire service life of the facility.
For purposes of this subdivision, "general rate of return" means the faircombined rate of return on common equity as it is determined by theCommission from time to time for such utility pursuant to subdivision 2. Inany proceeding under this subdivision conducted prior to the conclusion ofthe first biennial review for such utility, the Commission shall determine ageneral rate of return for such utility in the same manner as it would in abiennial review proceeding.
Notwithstanding any other provision of this subdivision, if the Commissionfinds during the biennial review conducted for a Phase II utility in 2018that such utility has not filed applications for all necessary federal andstate regulatory approvals to construct one or more nuclear-powered orcoal-fueled generation facilities that would add a total capacity of at least1500 megawatts to the amount of the utility's generating resources as suchresources existed on July 1, 2007, or that, if all such approvals have beenreceived, that the utility has not made reasonable and good faith efforts toconstruct one or more such facilities that will provide such additional totalcapacity within a reasonable time after obtaining such approvals, then theCommission, if it finds it in the public interest, may reduce on aprospective basis any enhanced rate of return on common equity previouslyapplied to any such facility to no less than the general rate of return forsuch utility and may apply no less than the utility's general rate of returnto any such facility for which the utility seeks approval in the future underthis subdivision.
7. Any petition filed pursuant to subdivision 4, 5, or 6 shall be consideredby the Commission on a stand-alone basis without regard to the other costs,revenues, investments, or earnings of the utility. Any costs incurred by autility prior to the filing of such petition, or during the considerationthereof by the Commission, that are proposed for recovery in such petitionand that are related to clause (a) of subdivision 5, or that are related tofacilities and projects described in clause (i) of subdivision 6, shall bedeferred on the books and records of the utility until the Commission's finalorder in the matter, or until the implementation of any applicable approvedrate adjustment clauses, whichever is later. Any costs prudently incurred onor after July 1, 2007, by a utility prior to the filing of such petition, orduring the consideration thereof by the Commission, that are proposed forrecovery in such petition and that are related to facilities and projectsdescribed in clause (ii) of subdivision 6 that utilize nuclear power, orcoal-fueled facilities and projects described in clause (ii) of subdivision 6if such coal-fueled facilities will be built by a Phase I Utility, shall bedeferred on the books and records of the utility until the Commission's finalorder in the matter, or until the implementation of any applicable approvedrate adjustment clauses, whichever is later. Any costs prudently incurredafter the expiration or termination of capped rates related to other mattersdescribed in subdivisions 4, 5 or 6 shall be deferred beginning only upon theexpiration or termination of capped rates, provided, however, that noprovision of this act shall affect the rights of any parties with respect tothe rulings of the Federal Energy Regulatory Commission in PJMInterconnection LLC and Virginia Electric and Power Company, 109 F.E.R.C. P61,012 (2004). The Commission's final order regarding any petition filedpursuant to subdivision 4, 5 or 6 shall be entered not more than threemonths, eight months, and nine months, respectively, after the date of filingof such petition. If such petition is approved, the order shall direct thatthe applicable rate adjustment clause be applied to customers' bills not morethan 60 days after the date of the order, or upon the expiration ortermination of capped rates, whichever is later.
8. If the Commission determines as a result of such biennial review that:
(i) The utility has, during the test period or periods under review,considered as a whole, earned more than 50 basis points below a fair combinedrate of return on both its generation and distribution services, asdetermined in subdivision 2, without regard to any return on common equity orother matters determined with respect to facilities described in subdivision6, the Commission shall order increases to the utility's rates necessary toprovide the opportunity to fully recover the costs of providing the utility'sservices and to earn not less than such fair combined rate of return, usingthe most recently ended 12-month test period as the basis for determining theamount of the rate increase necessary. However, the Commission may not ordersuch rate increase unless it finds that the resulting rates will provide theutility with the opportunity to fully recover its costs of providing itsservices and to earn not less than a fair combined rate of return on both itsgeneration and distribution services, as determined in subdivision 2, withoutregard to any return on common equity or other matters determined withrespect to facilities described in subdivision 6, using the most recentlyended 12-month test period as the basis for determining the permissibility ofany rate increase under the standards of this sentence, and the amountthereof;
(ii) The utility has, during the test period or test periods under review,considered as a whole, earned more than 50 basis points above a fair combinedrate of return on both its generation and distribution services, asdetermined in subdivision 2, without regard to any return on common equity orother matters determined with respect to facilities described in subdivision6, the Commission shall, subject to the provisions of subdivision 9, directthat 60 percent of the amount of such earnings that were more than 50 basispoints above such fair combined rate of return for the test period or periodsunder review, considered as a whole, shall be credited to customers' bills.Any such credits shall be amortized over a period of six to 12 months, asdetermined at the discretion of the Commission, following the effective dateof the Commission's order, and shall be allocated among customer classes suchthat the relationship between the specific customer class rates of return tothe overall target rate of return will have the same relationship as the lastapproved allocation of revenues used to design base rates; or
(iii) Such biennial review is the second consecutive biennial review in whichthe utility has, during the test period or test periods under review,considered as a whole, earned more than 50 basis points above a fair combinedrate of return on both its generation and distribution services, asdetermined in subdivision 2, without regard to any return on common equity orother matter determined with respect to facilities described in subdivision6, the Commission shall, subject to the provisions of subdivision 9 and inaddition to the actions authorized in clause (ii) of this subdivision, alsoorder reductions to the utility's rates it finds appropriate. However, theCommission may not order such rate reduction unless it finds that theresulting rates will provide the utility with the opportunity to fullyrecover its costs of providing its services and to earn not less than a faircombined rate of return on both its generation and distribution services, asdetermined in subdivision 2, without regard to any return on common equity orother matters determined with respect to facilities described in subdivision6, using the most recently ended 12-month test period as the basis fordetermining the permissibility of any rate reduction under the standards ofthis sentence, and the amount thereof.
The Commission's final order regarding such biennial review shall be enterednot more than nine months after the end of the test period, and any revisionsin rates or credits so ordered shall take effect not more than 60 days afterthe date of the order.
9. If, as a result of a biennial review required under this subsection andconducted with respect to any test period or periods under review endinglater than December 31, 2010 (or, if the Commission has elected to staggerits biennial reviews of utilities as provided in subdivision 1, under reviewending later than December 31, 2010, for a Phase I Utility, or December 31,2011, for a Phase II Utility), the Commission finds, with respect to suchtest period or periods considered as a whole, that (i) any utility has,during the test period or periods under review, considered as a whole, earnedmore than 50 basis points above a fair combined rate of return on both itsgeneration and distribution services, as determined in subdivision 2, withoutregard to any return on common equity or other matters determined withrespect to facilities described in subdivision 6, and (ii) the totalaggregate regulated rates of such utility at the end of the mostrecently-ended 12-month test period exceeded the annual increases in theUnited States Average Consumer Price Index for all items, all urban consumers(CPI-U), as published by the Bureau of Labor Statistics of the United StatesDepartment of Labor, compounded annually, when compared to the totalaggregate regulated rates of such utility as determined pursuant to thebiennial review conducted for the base period, the Commission shall, unlessit finds that such action is not in the public interest or that theprovisions of clauses (ii) and (iii) of subdivision 8 are more consistentwith the public interest, direct that any or all earnings for such testperiod or periods under review, considered as a whole that were more than 50basis points above such fair combined rate of return shall be credited tocustomers' bills, in lieu of the provisions of clauses (ii) and (iii) ofsubdivision 8. Any such credits shall be amortized and allocated amongcustomer classes in the manner provided by clause (ii) of subdivision 8. Forpurposes of this subdivision:
"Base period" means (i) the test period ending December 31, 2010 (or, ifthe Commission has elected to stagger its biennial reviews of utilities asprovided in subdivision 1, the test period ending December 31, 2010, for aPhase I Utility, or December 31, 2011, for a Phase II Utility), or (ii) themost recent test period with respect to which credits have been applied tocustomers' bills under the provisions of this subdivision, whichever is later.
"Total aggregate regulated rates" shall include: (i) fuel tariffs approvedpursuant to § 56-249.6, except for any increases in fuel tariffs deferred bythe Commission for recovery in periods after December 31, 2010, pursuant tothe provisions of clause (ii) of subsection C of § 56-249.6; (ii) rateadjustment clauses implemented pursuant to subdivision 4 or 5; (iii)revisions to the utility's rates pursuant to clause (i) of subdivision 8;(iv) revisions to the utility's rates pursuant to the Commission's rulesgoverning utility rate increase applications (20 VAC 5-200-30), as permittedby subsection B, occurring after July 1, 2009; and (v) base rates in effectas of July 1, 2009.
10. For purposes of this section, the Commission shall regulate the rates,terms and conditions of any utility subject to this section on a stand-alonebasis utilizing the actual end-of-test period capital structure and cost ofcapital of such utility, unless the Commission finds that the debt to equityratio of such capital structure is unreasonable for such utility, in whichcase the Commission may utilize a debt to equity ratio that it finds to bereasonable for such utility in determining any rate adjustment pursuant toclauses (i) and (iii) of subdivision 8, and without regard to the cost ofcapital, capital structure, revenues, expenses or investments of any otherentity with which such utility may be affiliated. In particular, and withoutlimitation, the Commission shall determine the federal and state income taxcosts for any such utility that is part of a publicly traded, consolidatedgroup as follows: (i) such utility's apportioned state income tax costs shallbe calculated according to the applicable statutory rate, as if the utilityhad not filed a consolidated return with its affiliates, and (ii) suchutility's federal income tax costs shall be calculated according to theapplicable federal income tax rate and shall exclude any consolidated taxliability or benefit adjustments originating from any taxable income or lossof its affiliates.
B. Nothing in this section shall preclude an investor-owned incumbentelectric utility from applying for an increase in rates pursuant to § 56-245or the Commission's rules governing utility rate increase applications (20VAC 5-200-30); however, in any such filing, a fair rate of return on commonequity shall be determined pursuant to subdivision 2. Nothing in this sectionshall preclude such utility's recovery of fuel and purchased power costs asprovided in § 56-249.6.
C. Except as otherwise provided in this section, the Commission shallexercise authority over the rates, terms and conditions of investor-ownedincumbent electric utilities for the provision of generation, transmissionand distribution services to retail customers in the Commonwealth pursuant tothe provisions of Chapter 10 (§ 56-232 et seq.) of this title, includingspecifically § 56-235.2.
D. Nothing in this section shall preclude the Commission from determining,during any proceeding authorized or required by this section, thereasonableness or prudence of any cost incurred or projected to be incurred,by a utility in connection with the subject of the proceeding. Adetermination of the Commission regarding the reasonableness or prudence ofany such cost shall be consistent with the Commission's authority todetermine the reasonableness or prudence of costs in proceedings pursuant tothe provisions of Chapter 10 (§ 56-232 et seq.) of this title.
E. The Commission shall promulgate such rules and regulations as may benecessary to implement the provisions of this section.
(2007, cc. 888, 933; 2008, c. 476; 2009, c. 824.)