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Virginia Administrative Code
Title 20. Public Utilities and Telecommunications
Agency 5. State Corporation Commission
Chapter 306. Standards for Integrated Resource Planning and Investments in Conservation and Demand Management for Natural Gas

20VAC5-306-10. Procedural History.

On October 24, 1992, Congress enacted the Energy Policy Act of 1992 ("EPACT" or "the Act"), P.L. 102-486, 106 Stat. 2776 et seq. (1992). Section 115 of that Act amended the Public Utility Regulatory Policies Act of 1978 ("PURPA"), 15 USC § 3202, to add provisions requiring state regulatory commissions to consider standards governing integrated resource planning ("IRP") and investments in conservation and demand management for natural gas utilities. Specifically, the Act requires state commissions to consider whether:

.........each gas utility shall employ an integrated resource plan, in order to provide adequate and reliable service to its gas customers at the lowest system cost. All plans or filings of a State regulated gas utility before a State regulatory authority to meet the requirements of this paragraph shall (A) be updated on a regular basis, (B) provide the opportunity for public participation and comment, (C) provide for methods of validating predicted performance, and (D) contain a requirement that the plan be implemented after approval of the State regulatory authority. Subsection (c) shall not apply to this paragraph to the extent that it could be construed to require the State regulatory authority to extend the record of a State proceeding in submitting reports to the Federal Government.

15 USC § 3203(b)(3).

With respect to conservation and demand management ("DSM") for natural gas utilities, EPACT provides that

.........the rates charged by any State regulated gas utility shall be such that the utility's prudent investments in, and expenditures for, energy conservation and load shifting programs and for other demand-side management measures which are consistent with the findings and purposes of the Energy Policy Act of 1992 are at least as profitable (taking into account the income lost due to reduced sales resulting from such programs) as prudent investments in, and expenditures for, the acquisition or construction of supplies and facilities. This objective requires that (A) regulators link the utility's net revenues, at least in part, to the utility's performance in implementing cost-effective programs promoted by this section; and (B) regulators ensure that, for purposes of recovering fixed costs, including its authorized return, the utility's performance is not affected by reductions in its retail sales volumes.

15 USC § 3203(b)(4). Further, if a state adopts either of these standards, it must:

(1) consider the impact that implementation of such standard would have on small businesses engaged in the design, sale, supply, installation, or servicing of energy conservation, energy efficiency, or other demand-side management measures; and

(2) implement such standard so as to assure that utility actions would not provide such utilities with unfair competitive advantages over such small businesses.

15 USC § 3203(d)(1),(2).

Section 115 defines "integrated resource planning" for gas utilities to mean

......... planning by the use of any standard, regulation, practice, or policy to undertake a systematic comparison between demand-side management measures and the supply of gas by a gas utility to minimize life-cycle costs of adequate and reliable utility services to gas consumers. Integrated resource planning shall take into account necessary features for system operation such as diversity, reliability, dispatchability, and other factors of risk and shall treat demand and supply to gas consumers on a consistent and integrated basis.

15 USC § 3202(9). "Demand-side management" as used in § 115 includes "energy conservation, energy efficiency, and load management techniques." 15 USC § 3202(10).

EPACT does not require the Commission to implement its standards, but if we do not implement them, we must nonetheless hold a hearing and state why we are rejecting the standards. Further, the Act requires us to complete our consideration of these standards not later than two years after the date of EPACT's enactment, i.e., by October 24, 1994. 15 USC § 3203(a).

EPACT provides separate integrated resource planning and investments in conservation and demand management standards for electric and gas utilities. See P.L. 102-486, 106 Stat. 2795, 2910, 16 USC § 2621(d). The standards for electric utilities, set out in § 111 of the Act, while similar in some respects to the standards for natural gas utilities, differ by allowing consideration of a broader scope of resource options for electric utilities. In addition, § 111 requires a regulatory body to complete its consideration of the relevant standards for electric utilities within three years of the Act's enactment, rather than two years, as required by § 115 for gas utilities. 16 USC § 2622(b)(2). The discrete statutory standards and time frames for consideration lead us to conclude that Congress intended the consideration of IRP and conservation and demand management standards for gas and electric utilities to proceed separately rather than as a single proceeding.

This interpretation of the Act is consistent with the legislative history for § 115. The Joint Explanatory Statement of the Committee of Conference accompanying House Conference Report No. 102-1018 for EPACT demonstrates that the conferees intended that IRP as addressed in § 115 be considered only for local distribution companies serving ultimate consumers of natural gas. The Statement further notes that IRP for natural gas utilities should examine and compare demand-side options with the general option of additional gas supplies. It expressly excludes an examination of the sources, conditions, or other characteristics of upstream gas supply as part of IRP for gas utilities.1

In its April 27, 1994 Order, the Commission directed its Division of Economics and Finance to give notice to the public of the captioned proceeding and set the matter for hearing for September 7, 1994. The same Order established a procedural schedule for interested parties, intervenors, and the Commission Staff, inviting them to address by testimony or comment, the standards, the issues identified in the Order, as well as issues of concern to the parties regarding the standards for natural gas utilities.

In response to the Commission's April 27 Order, Northern Virginia Electric Cooperative ("NOVEC"), the City of Richmond ("the City"), and Southwestern Virginia Gas Company ("Southwestern") each filed Comments. In its Comments, NOVEC noted its interest in the proceeding insofar as the adoption of standards affected gas utilities generally and impacted the service provided by NOVEC, an electric cooperative. Southwestern's filed comments supported the position taken by Roanoke Gas Company ("Roanoke") in Roanoke's prefiled testimony.

The City urged the Commission to adopt IRP and conservation and demand management standards which (i) prevent destructive competition between gas and electric utilities; (ii) encourage fuel substitution practices that reduce the cost of service for both gas and electric ratepayers; (iii) develop a comprehensive energy plan integrating gas and electric IRP; (iv) consider the cost of complying with existing state and federal environmental statutes and regulations; (v) encourage local distribution companies to conduct joint surveys and studies regarding the technical information necessary to evaluate demand-side alternatives at a reasonable cost; (vi) encourage a pilot DSM bidding program; and (vii) discourage policies that would reduce regional supply alternatives.

On the appointed day, the matter came for hearing before the Commission. Counsel appearing were Kristen Brown, Esquire, and John Epps, Esquire, for Commonwealth Gas Services, Inc. ("Commonwealth"); Donald Fickenscher, Esquire, for Virginia Natural Gas, Inc. ("VNG"); Donald R. Hayes, Esquire, for Washington Gas Light Company ("WGL"); James H. Jeffries, Esquire, and Charles H. Carrathers, III, Esquire, for United Cities Gas Company ("United"); Richard D. Gary, Esquire, for Virginia Electric and Power Company ("Virginia Power"); John D. Sharer, Esquire, for the Virginia Industrial Gas Users' Association ("VIGUA"); Edward L. Flippen, Esquire, for NOVEC; and Sherry H. Bridewell, Esquire, for the Commission's Staff. No intervenors appeared.

At the request of the participants, direct and rebuttal testimony were presented together. Witnesses for the Staff, Commonwealth, and WGL took the stand and were subject to cross-examination. By agreement of counsel, the testimonies of Jeffrey L. Huston on behalf of VNG, Richard K. Wrench for United, Robert W. Glenn, Jr. for Roanoke, Mary C. Doswell for Virginia Power, and Dr. Alan Rosenberg and Robert Cooper for VIGUA were received into the record without cross-examination. At the conclusion of the proceeding, the matter was taken under advisement.

1H.R. REP. No. 1018, 102d Cong., 2nd Sess. (1992) reprinted in U.S.C.C.A.N. 2472, 2474-75.

Statutory Authority

Chapter 3 (§ 12.1-12 et seq.) of Title 12.1, Chapter 10 (§ 56-232 et seq.) and Chapter 10.1 (§ 56-265.1 et seq.) of Title 10.1 of the Code of Virginia and 15 USCA § 3202.

Historical Notes

Derived from Case No. PUE940030 §I, eff. October 14, 1994.

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