Chairman Norment. Members of the task force.
My office serves as the Commission's liaison with the General Assembly, the news media and the general public. When the General Assembly -- through passage of the Virginia Electric Industry Restructuring Act -- directed the Commission to prepare a consumer education plan for delivery to this task force on December 1, the Commission charged my division with the responsibility of preparing that plan.
If you have had an opportunity to read the plan, I hope it became immediately apparent that the Commission is excited about the opportunity to help prepare Virginians for the transition to a competitive retail energy supply market. If your busy schedules have not allowed you to read the report in detail, than I hope my enthusiastic summary of the plan impresses upon you how critical education will be to the Commission's overall directive defined by the Act.
While at the same time…
The objective of the proposed plan is to provide Virginians with relevant and easy to understand information. More importantly, the information should not create an actual or perceived advantage of one competitive supplier over another. The goal is to continually challenge and encourage Virginians to engage in the process of shopping for a competitive energy supplier.
You know by your direct involvement that this is all about a restructured utility industry, a new method of regulation, and a new SCC responsibility.
For nearly 70 years, the Commission did everything for the consumer. All Virginians needed to know was -- This is your company! This is the service you get! This is the rate you pay!
The new responsibility (if given the okay to educate as outlined by this plan) will be to provide Virginians with information that gives them the confidence to choose their own energy supply company, negotiate their own terms of service, and shop for the rate that is best for them.
And, the decisions are not as easy as "flicking a light switch." Virginians will be making complex decisions about a commodity for which they have never had to shop and have little knowledge of how to do so.
When the Commission did it all, it had the benefit of economists, accountants, engineers and attorneys on staff to get it right. Staff is now channeling its attention on helping the Commission get the transition right. The proposed education program allows the Commission to share its knowledge and expertise directly with Virginians.
By providing objective, credible information on how Virginia's new competitive market will operate, residential and small business consumers have a greater opportunity to become full participants in that market and allow them to enjoy the anticipated benefits from these changes.
There have been three stages at which the Commission has gathered advice on a proper consumer education effort for Virginia. The first stage occurred during the 1998 working meetings of the Consumer, Environment and Education Task Force of the Joint Subcommittee Studying Restructuring of the Electric Utility Industry. Commission staff participated in those meetings. Nearly all of the various interested parties involved in the work of the task force strongly recommended that the Commission administer any consumer education program designed to prepare Virginians for retail electric competition.
The second stage occurred during the formation of limited education plans for the proposed customer choice electric pilots of Virginia Power and American Electric Power-Virginia, and the anticipated pilot programs of two Virginia electric cooperatives – Rappahannock Electric Cooperative and Mecklenberg Electric Cooperative. During the development of those pilot-specific education plans, the Commission worked with the companies and the cooperatives because any education program started at the pilot level would have a relation to an eventual statewide plan. To help get started in the right direction, the Commission hosted a workshop at which more than two dozen interest groups offered ideas and suggestions on how best to communicate with and reach out to consumers.
The third stage involved the creation of an informal working group to aid the Commission in the preparation of this plan. It was at this stage that the Commission began involving representatives of the natural gas industry and competitive energy service providers. In addition, other state agencies deemed critical to a statewide effort were brought into the process. The Commission also sought advice and marketing expertise from a public relations firm.
Prior to final printing of the plan, the informal working group and your Consumer Advisory Board received a preliminary draft for review and comment. That review can best be described by using the "two thumbs up" signal made famous by the movie review team of "Siskel and Ebert." All were able to indicate general support for the scope and structure of the proposed plan. But, like any good critic, there were comments offered for improvement. These suggestions were constructive, considered by the Commission, and have enhanced the plan you have before you today.
It is not the Commission’s intent, however, to suggest that the proposed education program has been agreed to or unanimously accepted by all parties. You (General Assembly) directed the Commission to prepare an education program, and the Commission assumes full responsibility for its content.
The plan is based on the basic principle that consumers currently have little experience assessing competing energy service offers and weighing their costs, risks and benefits. Without education, many consumers -- facing seemingly indistinguishable options -- will fail to make affirmative choices or will make ill-considered choices, retarding the development of an efficient, competitive market. At the time consumers are invited to make a choice, they should not be hesitant to do so. Instead, they should be ready, willing and able to actively shop.
An objective and independent education program can increase the chance that a consumer’s choice (including the choice to stay with the default service provider) is a considered decision rather than one that occurs out of ignorance.
In short, consumer information and education must:
Since the Commission is already charged by the General Assembly with establishing the rules for structural change in the energy industry (both electric and gas), it is also in a good position to assist consumers in shopping for energy service and informing them of their rights and obligations as customers. The program must work hand-in-hand with the Commission’s rules for retail access to ensure that the market develops in a manner that facilitates competition while ensuring service reliability and consumer protection. For example, the Commission might, as a condition of licensing, require competitive service providers to provide accurate, understandable customer solicitation and marketing materials; clear pricing terms and conditions; and explicit dispute resolution procedures. Though these rules will be separate and distinct from the education program, there is an important interrelationship between the two that should be reflected in the education program.
Although this plan is specific to a retail electric market as directed by the Act, it has been designed to be energy neutral and could easily emphasize customer choice and the mechanics of choice for both electric and natural gas supply. Companies are positioning themselves to cross-sell electricity to natural gas customers and natural gas to electricity customers. The education program, if allowed to address electricity and gas, could offer the convenience of "one stop" educating.
While that is for future consideration, the Commission believes the program being proposed, in which the Commission serves as the program administrator as advised by interested stakeholders, will most efficiently and effectively achieve the legislative directive of the Act.
The Commission does not propose to manage or implement its information/education program in a vacuum. The Commission will create an education advisory committee to receive input and suggestions from those with a direct interest in the education effort. The committee will be comprised of dedicated members willing to contribute their expertise to the Commission's effort. These consumer education experts will include representatives from electric utilities, natural gas utilities, energy service providers, the Attorney General’s Division of Consumer Counsel, consumer organizations, and community-based organizations.
These entities, especially the utility companies, have already established networks to "reach out" to the communities they currently serve. The Commission can draw valuable advice from their knowledge and experience. The advisory relationship also enhances the opportunity to use these same networks to carry the statewide "Virginia Energy Choice" message.
And, the proposed plan must ensure that consumers receive consistent education information from all sources as appropriate. This involves coordinating the education program with the Commission's rules governing the marketing practices of public service companies, licensed suppliers, and other providers described by the Act. This was of particular concern to the Consumer Advisory Board ---- making sure consumers can distinguish between information that is educational and information that is promotional.
Enlisting the involvement of community-based organizations, with which consumers already have established relationships, will be an important means of educating consumers. These relationships will be especially important when taking the education effort beyond mass media exposure to capture hard-to-reach audiences – primarily the elderly, the hearing impaired, non-English speaking, and low income consumers.
The "Virginia Energy Choice" consumer education plan covers five years from 2001 through 2005. The timing of plan elements are keyed to dates connected with the development of retail access throughout Virginia. The plan builds upon the limited education efforts of pilot retail programs planned or already in place.
The "Virginia Energy Choice" theme and logo will be used on preliminary awareness materials advising eligible customers that information about a pilot program is coming. A toll-free number and a web site for Virginia Energy Choice will be operational shortly after the Commission issues final orders on the pilot programs.
One position has already been added to my office to accomplish some of this work and another position is authorized to start July 1. That will be the person chiefly responsible for managing the proposed education program. If given the okay to proceed with this plan, requests for proposals from firms capable of delivering the research, public relations and marketing components of the program must hit the street soon enough to begin Phase One at the start of 2001.
This plan should be viewed as a living document, rather than one set in stone. Adjustments to the plan will occur as necessary to ensure that funds are being spent in the most cost-effective manner. And, the plan must be prepared to adjust to the Act's flexible implementation schedule allowing retail choice to occur earlier or later than currently anticipated.
The education plan will be continually evaluated during its five-year run. During this period, the SCC also will be assessing whether effective competition is developing in Virginia. Both reviews will guide decisions about the level of education that may be required beyond the plan to sustain customer understanding and knowledge of rights and obligations in a competitive energy supply market.
The Commission has made every effort to determine, through review of similar efforts in a dozen other states, the most cost-effective means of educating the public about the coming competitive energy supply market and has developed this plan accordingly. However, the Commission believes that it will be important to continuously monitor the effectiveness of each outreach method to ensure success in Virginia. If methods are found not to be cost-effective, the program and budget will be modified to get the most out of each dollar.
While proposed budget items and related budget figures are shown in the report, they should be considered tentative so that the Commission has the flexibility to respond to actual program results. Assigning cost figures to individual line items is a useful way to arrive at a total estimate; but the individual line items should remain flexible, at least until Virginia is closer in time to actual implementation.
In simplest terms, it is the Commission's best estimate of how much the program may cost. In total, the figures are reasonable for illustrative purposes only. They are subject to change as the effectiveness of each component is determined through continuous program monitoring.
The total estimated cost of the five-year "Virginia Energy Choice" education plan for Virginia is $30.115 million. The average estimated annual cost is $6.023 million.
Based on Virginia’s 1998 estimated population of 6.8 million, the annual cost to each Virginian is 89 cents. In the years of the plan requiring the greatest amount of spending (2002 and 2004), the per capita cost is only slightly more than $1.00.
Education programs being implemented in other states that are introducing retail competition for energy services have ranged from 55-cents to $1.45 per resident. That puts Virginia in the middle of that range.
Raising the awareness level of all Virginians requires mass media marketing and advertising. These components of the plan comprise nearly 70 percent of the projected cost. Most Virginians are expected to be receptive to information through the mass media, although some may disregard it or require additional information. Therefore, alternative means of communicating directly with those Virginians are being suggested.
The plan proposes to involve a diverse variety of consumer groups and community-based organizations to achieve direct contact with as many people as possible. These are the organizations in which consumers have an embedded trust or an established familiarity. Many are volunteer organizations with limited financial resources. Small-scale grants are proposed to help encourage and facilitate the delivery of energy choice information by these groups.
So, how does the Commission propose to pay for all of this? Four possible funding mechanisms have been identified in the plan for your consideration. One is being recommended by the Commission.
As you know, the Commission currently receives its funding for its utilities-related regulatory responsibilities through the Special Revenue Tax assessed on public service companies. Virginia tax law allows the Commission to collect the Special Revenue Tax "…for the supervision and administration of all laws relative to such public service companies, whenever the same shall be deemed necessary by the Commission." Since the Restructuring Act instructs the Commission to develop a consumer education program, the Commission believes that the Special Revenue Tax may be used to recover funding for consumer education.
The Commission believes that the Special Revenue Tax is a funding option that is equitable to utilities; it is one that the Commission has existing authority to administer; and it will allow the Commission to direct the consumer education program and monitor consumer education cost recovery versus actual expenditures.