STATE OF VERMONT PUBLIC SERVICE BOARD Docket No. 5854 Investigation into the ) Restructuring of the Electric ) Utility Industry in Vermont ) Order entered: 12/31/96 THE POWER TO CHOOSE: A PLAN TO PROVIDE CUSTOMER CHOICE OF ELECTRICITY SUPPLIERS REPORT AND ORDER Richard H. Cowart, Chair Suzanne D. Rude, Board Member David C. Coen, Board Member Docket No. 5854 Page 2 TABLE OF CONTENTS I. Introduction. 6 II. Overview of Proposed Plan. 10 III. Procedural History. 16 A. Summary of Changes in the Final Report. 17 IV. Providing Retail Access to VermontUs Consumers. 22 A. Customer Choice.. 22 B. Timing of Customer Choice.. 23 C. Meeting CustomersU Information Needs. 24 D. Required Transition Service Offerings. 26 E. Provider of Last Resort.. 26 F. Retail Aggregation. 27 G. Rate Assurances for Small-Volume Customers.. 28 V. Character of Industry and Corporate Structure in Vermont.. 30 A. Separation of Competitive and Monopoly Functions, and Problems of Vertical Market Power. 30 1. Corporate Structures. 33 a. Divestiture (Corporate Unbundling). 33 b. Functional Separation (Operational Unbundling). 34 c. Non-Structural Separation.. 34 2. Corporate Structures: Considerations and Conclusions. 34 3. Safeguards Against Discriminatory Practices. 37 a. Enforcement Authority. 40 B. Distribution Utility Companies and Services. 40 1. The Electric Utility Exclusive Franchise. 40 2. On-Going Obligations of the Distribution Utilities.. 41 3. Regulation of Discos.. 42 4. Other Disco Issues. 43 C. Transmission Services and Companies. 43 1. Transmission Pricing and Planning. 44 2. Transmission System Operation and Reliability.. 44 3. Statewide Transmission Company. 45 D. Retail Service Companies and Generation Service Providers.. 47 1. Certification of Retailcos. 48 2. Regulation of Competitive Affiliates and Oversight of Retail and Generation Markets. 49 VI. Providing for the Equitable Treatment of Stranded Costs. 51 A. Magnitude of Stranded Costs. 52 B. Definition and Categories of Stranded Costs. 54 1. Definition. 54 2. Categories of Stranded Costs. 55 C. Standard for Stranded Cost Recovery.. 56 1. Legal Precedent. 56 a. Contractual Claims. 56 b. Takings Clause. 59 c. Board Precedent. 66 2. Balancing of Interests. 70 3. The Obligation to Mitigate. 73 a. Limitations on Mitigation. 74 b. Mitigation and Performance-Based Regulation. 75 4. Specification of Standard. 76 D. Process and Proceedings for Measuring and Recovering Stranded Costs. 77 1. Staged Transition. 77 2. Step 1 (1997): Estimation and Mitigation Proceedings.. 78 3. Step 2 (1998-2001): Adjusting Stranded Cost Estimates.. 80 4. Step 3 (2001 or Before): Stranded Cost Reconciliation Proceeding.. 81 5. Negotiated Settlements. 82 E. The Mechanisms for Stranded Cost Recovery. 83 1. Competition Transition Charge. 83 2. Carrying Costs.. 85 3. Accelerated Payments or Buyouts by Customers. 85 4. Recovery Mechanism Design. 86 5. Creative Options for Financing Recovery Charges.. 86 F. Treatment of Stranded Nuclear Costs. 87 VII. Recognizing the Unique Attributes of Public Power. 89 A. Non-Profit Retail Service Access. 90 B. Retail Service Provision by Municipal and Cooperative Utilities. 91 C. Standard for Stranded Cost Recovery.. 93 VIII. Assuring Consumer Protection and Addressing Low-Income Issues. 95 A. Consumer Protection. 95 1. Regulatory Authority for Consumer Protection.. 95 2. Public Advocacy, Consumer Complaints, and Regulatory Oversight. 96 3. Service Quality Standards and Monitoring. 97 4. Privacy and Customer Information.. 97 5. "Consumer Bill of Rights". 97 B. Low-Income Protections and Assurances. 98 1. Vermont Home Energy Assistance Program.. 99 2. Disconnection Policies.. 100 IX. Delivering Energy Efficiency To Vermont Consumers.. 102 A. Goals. 102 B. Strategies for Acquiring Energy Efficiency Resources. 103 1. Distribution Utility Programs. 103 2. Codes and Standards. 104 3. Market-Driven Programs and Market Transformation. 105 4. Statewide Benefits Programs.. 105 C. Funding for Statewide Benefits Programs. 106 D. Spending for Statewide Benefits Programs. 106 E. Delivery and Evaluation of Statewide Benefits Programs. 107 F. Transition Issues. 108 X. Promoting Renewable Energy. 110 A. Goals. 110 B. Portfolio Requirement with Tradeable Credits. 111 C. Wires Charge for Research and Development of Renewables. 113 D. Commerce Clause and Federal Preemption. 114 XI. Promoting Environmental Quality. 116 A. Applying Existing Air Pollution Law.. 117 B. Pending Air Pollution Programs. 118 C. The Board's Proposed Five-Part Program.. 118 1. Information Disclosure for Electric Sales.. 120 Docket No. 5854 Page 4 2. An Emissions Portfolio Standard. 121 a. The Standard. 122 3. Support for Federal Legislation. 123 a. Environmental Comparability. 124 b. Cap and Trade. 125 c. General Environmental Mandate. 126 d. Other Environmental Impacts. 126 XII. Ensuring Effective Regional and National Markets.. 128 A. Establishing Effective Regional Markets and Institutions. 128 1. Creating an Independent System Operator. ..