                                 CODE OF VIRGINIA

OPTIONAL PERFORMANCE-BASED REGULATION OF CERTAIN UTILITIES (§ 56-235.6)

A. Notwithstanding any provision of law to the contrary, the Commission may
approve a performance-based ratemaking methodology for any public utility
engaged in the business of furnishing gas service (for the purposes of this
section a &#8220;gas utility&#8221;) or electricity service (for the purposes of
this section an &#8220;electric utility&#8221;), upon application of the gas
utility or electric utility, and after such notice and opportunity for hearing
as the Commission may prescribe. For the purposes of this section,
&#8220;performance-based ratemaking methodology&#8221; shall mean a method of
establishing rates and charges that are in the public interest, and that departs
in whole or in part from the cost-of-service methodology set forth in &#xA7;
56-235.2.

B. The Commission shall approve such performance-based ratemaking methodology if
it finds that it: (i) preserves adequate service to all classes of customers
(including transportation-only customers if for a gas utility); (ii) does not
unreasonably prejudice or disadvantage any class of gas utility or electric
utility customers; (iii) provides incentives for improved performance by the gas
utility or electric utility in the conduct of its public duties; (iv) results in
rates that are not excessive; and (v) is in the public interest.
Performance-based forms of regulation may include, but not be limited to, fixed
or capped base rates, the use of revenue indexing, price indexing, ranges of
authorized return, gas cost indexing for gas utilities, and innovative
utilization of utility-related assets and activities (such as a gas
utility&#8217;s off-system sales of excess gas supplies and release of upstream
pipeline capacity, performance of billing services for other gas or electricity
suppliers, and reduction or elimination of regulatory requirements) in ways that
benefit both the utility and its customers and may include a mechanism for
automatic annual adjustments to revenues or prices to reflect changes in any
index adopted for the implementation of such performance-based form of
regulation. In making the findings required by this subsection, the Commission
shall include, but not be limited to, in its considerations: (i) any proposed
measures, including investments in infrastructure, that are reasonably estimated
to preserve or improve system reliability, safety, supply diversity, and gas
utility transportation options; and (ii) other customer benefits that are
reasonably estimated to accrue from the gas or electric utility&#8217;s
proposal.

C. Each gas utility or electric utility shall have the option to apply for
implementation of a performance-based form of regulation. If the Commission
approves the application with modifications, the gas utility or electric utility
may, at its option, withdraw its application and continue to be regulated under
the form of regulation that existed immediately prior to the filing of the
application. The Commission may, after notice and opportunity for hearing,
alter, amend or revoke, or authorize a gas utility or electric utility to
discontinue, a performance-based form of regulation previously implemented under
this section if it finds that (i) service to one or more classes of customers
has deteriorated, or will deteriorate, to the point that the public interest
will not be served by continuation of the performance-based form of regulation;
(ii) any class of gas utility customer or electric utility customer is being
unreasonably prejudiced or disadvantaged by the performance-based form of
regulation; (iii) the performance-based form of regulation does not, or will
not, provide reasonable incentives for improved performance by a gas utility or
electric utility in the conduct of its public duties (which determination may
include, but not be limited to, consideration of whether rates are inadequate to
recover a gas utility&#8217;s or electric utility&#8217;s cost of service); (iv)
the performance-based form of regulation is resulting in rates that are
excessive compared to a gas utility&#8217;s or electric utility&#8217;s cost of
service and any benefits that accrue from the performance-based plan; (v) the
terms ordered by the Commission in connection with approval of a gas
utility&#8217;s or electric utility&#8217;s implementation of a
performance-based form of regulation have been violated; or (vi) the
performance-based form of regulation is no longer in the public interest. Any
request by a gas utility or electric utility to discontinue its implementation
of a performance-based form of regulation may include application pursuant to
this chapter for approval of new rates under the standards of &#xA7; 56-235.2
for a gas utility or pursuant to &#xA7; 56-585.1 for an investor-owned incumbent
electric utility.

D. The Commission shall use the annual review process established in &#xA7;
56-234.2 to monitor each performance-based form of regulation approved under
this section and to make any annual prospective adjustments to revenues or
prices necessary to reflect increases or decreases in any index adopted for the
implementation of such performance-based form of regulation.

HISTORY: 1996, c. 350; 2006, c. 574; 2007, cc. 888, 933.