Mr. Chairman, Members of the Legislative Transition Task Force ("LTTF"), I appreciate this opportunity to appear before you to present comments on behalf of the Virginia Retail Merchants Association ("VRMA") and its member consumers. My comments here address the issues related to introducing competition for metering, billing, and other electric services, and focus on the findings and recommendations found in the Report of the State Corporation Commission ("Commission Report" or "Report") provided to you on September 1 of this year.
The Virginia Retail Merchants Association is a statewide trade association comprised of retail companies and other businesses operating within the Commonwealth of Virginia. These companies include small sole proprietorships and large national chain stores. The VRMA supports reasonable and proper laws protecting the interests of its members.
When the Virginia Electric Utility Restructuring Act1was passed earlier this year, the State Corporation Commission ("Commission") was charged with preparing a report to the General Assembly evaluating the advantages and disadvantages of competition for metering, billing, and other services which have not been made subject to competition, and making recommendations as to when, and for whom, such other services should be made subject to competition.2 The Commission is to be commended for its efforts in producing the document before you. These efforts reflect a serious commitment to "getting competition right" in Virginia. The Report identifies the critical roles that metering and billing practices will play in achieving that goal. We agree with the Report that the policy decision whether to provide for competition in metering and billing cannot be delayed, and that delay beyond this legislative session will undermine the basic policy decision to introduce competition into the provision of retail electric services in the Commonwealth.
If there is one message I hope you will take from my presentation today, it is that there is a genuine sense of urgency to the issue of whether to permit metering and billing products and services to be provided by parties other than your local monopoly utility.
The Report provides compelling reasons for the General Assembly to support and encourage the development of competitive metering and billing opportunities. Notably, the Report finds that "competition in metering and billing services can bring more benefits to consumers than the provision of these services by a monopoly; and, conversely, that the continued provision of these services by a monopoly can impede the development of electricity competition that the General Assembly has mandated."3 We agree. Metering and billing alternatives are inextricably linked to the development of effective competition for electric supply, which is the cornerstone of the Restructuring Act. Any delay in the development and implementation of metering and billing alternatives will adversely affect the development of an effectively competitive retail electricity market in the Commonwealth.
For commercial customers such as Heilig-Meyers, there are many benefits associated with the ability to access new metering products and services that are appearing on the market. The principal benefits to consumers arise in two particular areas: the use of metering data, and the ability to save money. These new products and services are only supported if there is a non-proprietary, open-architecture that will allow competitive service providers, and customers, to coordinate each of our locations into a comprehensive energy plan.
We can, and will, use hourly data from these new technologies as part of the overall management of our businesses. Access to hourly metering data and pricing allows the customer to play an active role in energy management. We can monitor all of our stores in real time from one location, accurately calculate our bills, analyze energy and cost patterns, track responses to our energy management actions, and take other cost-saving measures that are simply unavailable under the status quo. Under the old way of doing things, we might not know until we receive a bill from the utility that we are having a problem with one of our HVAC units. A recent study prepared for the National Association of Regulatory Utility Commissioners (NARUC Study)4 on metering issues summarizes some of the important customer uses of meter data:
Table 1. Customer Uses of Meter Data5
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Meter Data Type |
Business Uses |
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Hourly Meter Data by Account |
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Near-Real-Time Site Load |
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|
Sub Metering of Processes |
|
|
Sub Metering of Equipment |
|
In order for both the customer and the energy service provider to benefit in a competitive electricity market, the metering interval must correspond to the same time interval on which the wholesale financial settlement process is based. Otherwise, an estimated hourly load profile for the customer will be used to assign wholesale energy and associated cost responsibility to the supplier and to the customer. These load profiles have nothing to do with the customer’s actual usage of electricity during a given hour, and may contain errors that needlessly increase costs and risks to both the customer and the provider. The effect is to undermine effective competition.
Load profiles provide no incentives for the supplier to go to the trouble and expense of frequent meter readings, or to offer variable pricing options, because this additional information would not affect the supplier's wholesale cost of serving the customer. Similarly, load profiles offer no incentive to the customer to change consumption patterns, because customer is charged according to an average consumption pattern for a given hour, rather than the customer’s individual usage of electricity. In fact, there may be a perverse incentive to increase use during expensive peak periods, because the customer will be charged according to the profile, not actual usage.
The NARUC Study identified the following limitations of load profiling relative to hourly metering, which are summarized in Table 1 below.6
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Table 1. Comparison of Hourly AMR Metering to Profiling |
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|
|
Hourly |
Dynamic |
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1. Customer Energy Accounting – Account for time-varying energy usage. |
||
|
a. Electronic Billing |
Yes |
No |
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b. Other Billing – Support other innovative billing options. |
Yes |
Proxy only |
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2. Customer Information |
||
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a. Price Signals – Accommodate varying price, hourly or Time of Use ("TOU"). |
Yes |
Partial |
|
b. Rate Options – Provide data capture to support alternate rates. |
Yes |
Partial |
|
c. Bill Information – Support customer inquiries. |
Yes |
Partial |
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3. System Operation – Support communication to automate system operations. |
||
|
a. Meter Reading – Automated / network |
Yes |
No |
|
b. Outage Management – Detection and notification |
Yes |
No |
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c. Distribution Automation - Remote connect / disconnect |
Yes |
No |
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4. Equity and Accountability |
||
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a. Theft detection – Detect theft at the customer site. |
Daily |
Monthly |
|
b. Line losses - Allocate portion of unaccounted-for energy ("UFE") to line losses accurately. |
Yes |
No |
|
c. System Gaming – Assure reported hourly sales = deliveries. |
Yes |
No |
We fully expect that new electricity suppliers will offer pricing plans and other innovations that allow us to be active participants in this new, competitive market. Metering and billing options will become important points of negotiation with energy service providers ("ESPs").
As the Report suggests, these pricing plans and similar innovations will not be available without the ability to participate in the hourly energy markets. The cost of generation, and therefore the cost of electricity consumption, varies hourly. Both the competitive service provider and the customer will need to identify more precisely the linkage between electricity consumption and price. This link between price and consumption is provided through access to hourly metering data. A customer benefits if his or her electricity supplier offers a pricing plan that allows the customer to access these variations in the price of electricity and to schedule usage accordingly. A competitive electricity supplier benefits from the availability of recent actual consumption data that enables the supplier to schedule wholesale power deliveries more accurately, thereby reducing the risk of incurring the penalties that result from contracting for the delivery of too much or too little electricity. These errors and penalties drive up a supplier’s risks and costs, which are passed on to the customer in the form of higher prices. More importantly for competition, and for Virginians, these risks and costs do not create an attractive market for competitive suppliers, who will devote their energies and resources to other states where they can compete on a more level playing field.
Metering and billing alternatives will enable customers and new suppliers to establish relationships. Billing, in particular, is the primary means for suppliers to communicate directly with their customers. If your local utility continues its monopoly control of the billing function, this will inhibit suppliers from establishing relationships with their customers, and will therefore act as an anti-competitive barrier to entry. This issue is particularly important during the transition to full competition, when suppliers will face high costs of entry to establish new customer relationships.
For commercial customers in particular, new billing and payment options will provide some of the principal benefits from electric restructuring. Customers will be able to request billing formats and information content that serves their needs, not those of the utility. "One supplier/one bill" means that customers will be able to consolidate all of their locations into one bill, regardless of who provides the wires service. In addition, there will be opportunities to combine more than just power bills; conceivably, all utility services could be consolidated into one bill in the future.
One aspect of the Restructuring Act that VRMA believes will bring true benefits to its members is the opportunity to bid out the competitive source of electricity for all of its stores in Virginia, regardless of location or the provider of the wires service. Heilig-Meyers, for example, has 27 stores in Virginia Power’s service territory and 13 stores in AEP’s service territory. We have approximately 45 individual electric meters associated with those stores. Each of these meters is considered a separate account by our utility providers. While the Restructuring Act provides that electric supply will be competitive, we want to be able to have a competitive supplier treat all of our stores as one customer. With one provider providing generation, metering, and billing services, we can consolidate billing information, while integrating our usage information into a comprehensive energy plan. Since Heilig-Meyers has stores throughout the United States, we should be able to use our national buying power to take advantage of these scale economies.
With combined billing and the ability to access hourly metering data from each of these stores, we will consolidate information, eliminate unnecessary, duplicative costs, and provide savings that should far outweigh the cost to rewire our stores or install new metering technologies. In addition, we can significantly reduce the costs associated with the number of bills we must analyze and process each month. Heilig-Meyers, for example, has 850 stores and 5 distribution centers nationwide. We have one staff person whose time is devoted exclusively to processing utility bills. Consolidating these loads and bills into a single, customer-friendly format will save time and money, and will reduce the confusion that accompanies efforts to keep track of such massive amounts of information.
Permitting the incumbent utility to retain its monopoly grip on billing is anti-competitive, and serves no legitimate public purpose. This not only deprives a competitor of the ability to communicate directly with the customer through billing communications, but also creates the opportunity for the incumbent utility to learn its competitors’ pricing structures. Since the monopoly would have access to all of its competitors’ billing figures for each of its customers, this information could, in the wrong hands, be used to determine a competitive profile for each competitor.
Customer confusion, particularly with smaller, less sophisticated customers is also likely. Having made the choice to switch suppliers, a customer will expect to receive a bill from the new supplier, not from the old supplier. At a minimum, VRMA believes that the customer, not the incumbent utility, should decide whether to receive a bill from the customer’s supplier of choice.
Finally, and aside from the anti-competitive implications, consider the potential overload to the incumbent utility if it is required to process all billing functions for each competitive service provider. If a distribution company must handle all billing in a non-discriminatory manner, it will have to configure its billing systems to accommodate all of the specific, unique offerings from each competitive service provider, regardless of whether its billing systems are designed to accommodate the request. Massive infrastructure consisting of new systems and technology may need to be developed to handle this additional and varied data, so as to permit the monopoly billing agent to compute the bill in sufficient detail as necessary to support the supplier’s energy contract with the customer. Do we want these massive systems to be developed, only to have them become the stranded costs of the future?
The Commission Report concludes that as the agency charged with implementing the General Assembly's mandate of retail competition in electricity, the Commission must be able to (1) respond to changing factors in the competition analysis and (2) ensure consistency between its decisions regarding Automated Meter Reading technology and its decisions on the appropriateness and timing of metering and billing competition.7 We agree that these two factors underscore the need for Commission authority, starting in the year 2000, to determine the timing and type of metering and billing competition. We would go farther than the Commission in its recommendation, however, by saying that this Task Force, and the General Assembly as a whole, should find that competition for metering and billing is inextricably linked to the development of an effectively competitive retail generation market in Virginia, and that the Commission should be directed to implement competition for these products and services as soon as practicable, consistent with the public interest. This will allow the Commission to focus on the complex and varied issues that are particularly suited to its expertise, such as identifying services that are to be included in competitive metering and billing; the choices that should be made available to the consumer in implementing competitive metering and billing; necessary safety and consumer protection regulations; necessary proceedings on order to implement competitive metering and billing; and the appropriate implementation timetable.
We have made the policy decision to implement an effectively competitive retail market for electricity here in Virginia. The Commission has recommended that it be given the authority to implement competition for metering and billing, if it is determined that competition in one or more metering or billing services is necessary to the success of that competition. If, as the Commission suggests, deferring legislative action could adversely affect competition in the markets for those services and the retail electricity market, we will have done the citizens of the Commonwealth a disservice if we do not provide the Commission with the necessary tools. The Virginia Retail Merchants Association therefore respectfully requests that you give the Commission the authority to implement competitive metering and billing, consistent with the public interest.
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