Assembly did more than just road package

Virginia Business
June 2007

The transportation compromise dominated headlines during this year's General Assembly - and rightfully so.
The legislature will pump more than $1 billion annually into the state's aging transportation system. While not a total fix, this added revenue will help keep commuters and commerce moving throughout the state. The bill also gives Virginia's economic hot spots, Northern Virginia and Hampton Roads, the opportunity to raise an additional $400 million and $200 million for transportation each year through regional taxes and fees.

But in addition to funding transportation, legislators passed other bills that will affect state businesses, including the reregulation of electric utilities, uniformity in classifying idle machinery and tools, and a boost to Virginia wineries and breweries.

Reregulation of electric utilities
Electric rates in Virginia are going to rise. But Virginia lawmakers say the reregulation of electric utilities should avoid the spikes in rates seen by other states that have undergone deregulation.

The law will change how the State Corporation Commission sets utility rates, which are currently capped. Every two years, the SCC will determine the fair rates of return for investor-owned power utilities using a formula based on the average rates of similar utilities in the Southeast.

The bill also allows utilities to increase their profit if they build power plants. However, rate increases cannot be higher than the rise of the consumer price index (CPI). Any revenue collected above the CPI will be returned to the customers.

Gov. Timothy M. Kaine added amendments to the bills: giving the SCC more power to keep electricity costs competitive with other Southeastern states, doubling the efficiency goal for power companies and adding flexibility for industrial and commercial consumers to choose electricity suppliers.

Deregulation of electric utilities was originally created to keep electricity rates low while more competitors emerged into the market place. That never happened, however, and deregulation threatened to cause rates to skyrocket when rate caps ended in 2010.

The legislation means the current deregulated system will end next year. Even before the legislation becomes effective, rates will likely rise. This year, public utilities are allowed to ask the SCC for a rate increase to cover increased fuel costs. Appalachian Power had asked for a 25 percent increase, but an SCC examiner recommended a 3.9 percent increase. Dominion Virginia Power has asked for a 3.9 percent increase, and the SCC will hold a public hearing on that request on June 19.

Classifying idle machinery and tools
The General Assembly passed compromise legislation this year that created a uniform rule for local governments to consider when machinery and tools are idle and therefore not subject to the state's machinery and tools tax. Last year, Kaine vetoed legislation that would have reduced the time required - from one year to three months - for machinery and tools to be considered idle. Local government leaders feared they would lose too much revenue under the provision.

Kaine formed a group of local government leaders and manufacturers to craft a compromise, which easily passed the General Assembly this year. The legislation allows manufacturers to avoid paying the machinery and tools tax on equipment that has not been used for one year and will not be used for a year after tax day, but also gives them a way to avoid the two-year rule.

A manufacturer can tell a locality by April 1 if it plans to idle its machinery during the next year, and it will be exempt from the tax during the next year. The notice was added to allow localities to plan for the loss in revenue.

A boost for Virginia wineries
It should be easier to find Virginia's homegrown wines and beers at stores and restaurants. The General Assembly passed a bill that creates a nonprofit wholesale company to distribute wine to restaurants and bars for the state's small wineries and breweries. The bill followed a devastating blow to the state industry last year. A federal judge ruled in the 2005 that the state's self distribution rights for Virginia wineries were unconstitutional.

The new law creates the nonprofit organization within the state's Department of Agriculture and Consumer Services, which will be allowed to distribute up to 3,000 cases of wine for each winery per year.