Good morning, Mr. Chairman and members of the task force.
I am David Koogler, project manager of Customer Choice for Virginia Power. In this position, I am responsible for coordinating many aspects of our company's efforts to implement Customer Choice, including its pilot program. All of us at Virginia Power look forward to working with you as you oversee the restructuring of the Commonwealth's electric utility industry.
Today I'd like to give you an update on our company's proposed retail customer choice pilot. We view it as the first step in a "seamless transition" to implement full retail competition between January 1, 2002 and January 1, 2004, as envisioned in the Virginia Electric Utility Restructuring Act.
And we've designed the program to accomplish several objectives that will help us as we move toward giving all of our customers the opportunity to choose their electric supplier in the future.
In essence, the pilot will serve as a laboratory of learning for all suppliers, incumbents, regulators, and customers.
We expect alternative suppliers to begin delivering electricity to customers around June 1, 2000. The pilot will end on January 1, 2002, when we begin to implement full retail competition, as called for in Senate Bill 1269.
Our pilot consists of two separate but related plans. Together, they'll provide choice for approximately 24,000 customers, drawn from all classes.
The larger of the two plans will initially offer choice to residential and small commercial customers in the greater Richmond area. The second part of the pilot program will offer choice to a limited number of large commercial and industrial users. This plan will be open to eligible participants anywhere in our Virginia service territory.
For our residential and small commercial plan, the targeted area - the Geographic Area of Choice, as we call it - has about 321,000 eligible customers. This includes the city of Richmond, the town of Ashland, and the counties of Henrico, Chesterfield and Hanover. This area includes urban, suburban, and rural neighborhoods, and is generally representative of our entire Virginia service territory. The pilot's design will allow about 7.4 percent of these customers to participate and have the opportunity to buy electricity from a competitive service provider.
Five thousand openings in the program will be reserved for residential aggregation. This means that entities such as a neighborhood association, church or civic group will be able to organize consumers into buying groups to shop for a competitive service provider.
The geographic area covered by the residential and small commercial pilot may be expanded into other parts of our service area in the second year.
Participation in the pilot will be strictly voluntary. Interested customers will respond to a solicitation from Virginia Power. If the pilot is initially oversubscribed, we will conduct a lottery to select the participants. We have proposed numerous consumer protection measures for our program, including:
Virginia Power did not propose that metering and billing be competitive under the pilot. We believe that such competition is impractical and premature at this time. Competitive metering and billing, of course, will be the subject of future recommendations to be made by the Commission to this task force.
Here are some of the critical future dates for our pilot. Many of these are assumed at this point, but we had to set some dates to facilitate internal planning.
Last November we filed our original pilot proposal with the Commission. At that time, some major questions remained unanswered about our ability to implement a meaningful pilot. These questions centered on important policy issues such as stranded costs, utility taxation, consumer education and protection, and supplier conduct. We noted in our filing with the Commission that we thought these issues needed to be addressed by the General Assembly before either a pilot - or full retail competition - could proceed successfully.
The General Assembly's passage of Senate Bills 1269 and 1286 during the 1999 session cleared up what we considered to be "unresolved issues". Virginia Power now believes that it has the necessary legislative guidance to conduct a viable pilot program that will meet our stated objectives. Based on the language and intent of SB 1269, Virginia Power in April supplemented its original filing. We presented a methodology for calculating the wires charge needed for recovery of stranded costs during the pilot that is consistent with the legislation.
Virginia Power has been involved in extensive preparations, both externally and internally, for the pilot. We have engaged in a very constructive dialogue with the Commission staff. Since presenting our pilot proposal last November, we have worked closely with the Commission Staff, AEP, Allegheny Power, the electric cooperatives and others. Together we have established collaborative workgroups that are addressing the details of implementing customer choice from a statewide perspective.
We were part of a task force established by the Commission - and led by its staff - to develop interim rules for retail electric and natural gas pilots. Along with other utilities and the staff, we are participating in the Consumer Education Working Group, which is now developing a statewide consumer education plan. Finally, the company is part of the Virginia Electronic Data Transfer workgroup. This group is developing the standards for the electronic transfer of data needed during retail competition.
Internally, Virginia Power, in May, initiated an extensive pilot implementation team. It includes representatives from 18 functional areas of the company. To date, over 100 staff members are actively involved in this project, some full-time and some part-time. Nine subgroups have been formed to work on the details in such areas as the volunteering process, customer billing, and employee and consumer education.
While a properly designed pilot will provide the opportunity to gain valuable information and experience on competition, it will not answer all the questions about full retail choice. For example, we agree with the Commission staff that pilots cannot be expected to provide meaningful data on issues such as market pricing, long-term reliability and market power in a fully competitive environment.
But Virginia Power is convinced that much will be learned from pilots. We expect our program to produce useful information on topics as varied as:
This experience will pay dividends later for all of us as we begin to implement full retail customer choice in the Commonwealth.
Thank you for the opportunity to provide this update and we look forward to continuing to work with you in the future.