Consumer Advisory Board
REPORT OF THE CONSUMER ADVISORY BOARD
TO THE LEGISLATIVE TRANSITION TASK FORCE
OF THE VIRGINIA ELECTRIC UTILITY RESTRUCTURING ACT
DECEMBER, 2000
I. INTRODUCTION
The Virginia Electric Utility Restructuring Act, at subsection C of § 56-595, establishes a Consumer Advisory Board. The Board is directed to assist the Task Force in its work under § 56-595, and on other issues as may be directed by the Task Force. The seventeen-member Board is required to be appointed from all classes of consumers and with geographical representation. William Lukhard chairs the Board and Otis Brown serves as vice chairman. Delegate Kenneth Plum served as liaison between the Task Force and the Consumer Advisory Board.
The Board was requested by the Task Force at its August 16, 1999, meeting to examine and make recommendations regarding programs for low-income energy assistance, energy efficiency, and renewable energy. This report sets forth the Board’s recommendations on each of these three issues.
In 1999, the Consumer Advisory Board met five times. It received testimony on low-income energy assistance, energy efficiency and renewable energy programs in Virginia and other states. Advocates for these programs stressed the need for protection of the environment through renewable energy programs, reduction of energy usage through programs encouraging energy efficiency, and providing assistance to low-income consumers in meeting their energy needs.
Following the receipt of this information, the members of the Board attempted to determine whether they were in agreement regarding any recommendations that could be presented to the Task Force prior to the 2000 Session. After much discussion, the consensus of the Consumer Advisory Board was to advise the Task Force that the members of the Board still had concerns regarding the issues under study, and to ask that the Board be permitted to continue its study in 2000. The Board specifically asked for authorization to expand the scope of its study of low-income energy assistance programs beyond electricity to address all sources of energy. The Task Force recommended a resolution to that effect, which was passed by the 2000 Session as Senate Joint Resolution 154. With regard to the other issues, the Task Force encouraged the Consumer Advisory Board to continue its efforts to develop recommendations addressing renewable energy and energy efficiency programs.
In 2000, the Board held seven meetings. In addition, it appointed a subcommittee, chaired by Vice Chairman Otis Brown, to develop recommendations on renewable energy and energy efficiency. The subcommittee met twice, presented its recommendations to the Board on November 16, and the Board agreed to the subcommittee’s recommendations.
In all of its deliberations the Board remained cognizant of several broad parameters affecting its current recommendations. The Commonwealth is in a transition period and the issues deliberated and recommendations implemented do need to be monitored. Further study during this transition period seems appropriate. The major thrust of deregulation is to establish a competitive market, but one in which residential and small business consumers will benefit. Electric service today is a necessity, not a luxury, used predominantly in meeting basic needs such as lighting, heating, hot water, cooking, and refrigeration. The Board also recognizes that the General Assembly would be reluctant to enact legislation generating revenue through mechanisms that would increase the cost of electricity, and that current information indicates a potential lack of general fund revenues to fund new programs during the remainder of the 2000-2002 biennium.
II. LOW-INCOME ENERGY ASSISTANCE
A. Consumer Advisory Board Study
Senate Joint Resolution 154 (2000) directed the Board to examine low-income energy assistance for all sources of energy. Specifically, the Board was directed to address whether Virginia should (i) establish a state policy with respect to the availability of affordable electricity and other sources of energy to all Virginians; (ii) create a new program assisting low-income households with a basic level of electric utility service; (iii) expand existing programs, or establish new programs, assisting low-income households with seasonal energy needs regardless of the energy source; (iv) consolidate existing public programs providing energy assistance for low-income households; (v) coordinate efforts of private, voluntary energy assistance programs with public programs and other private programs; (vi) provide incentives to encourage voluntary contributions to energy assistance programs, including the feasibility of tax credits as an incentive for energy consumers and suppliers to fund needed energy assistance programs for low-income households; (vii) address the likelihood of continued declines in federal funding for LIHEAP and the Weatherization Assistance Program; and (viii) use other funding sources, such as penalties or fees assessed on competitive energy providers, to pay for energy assistance programs for low-income households.
The Board received a great deal of information on each of these issues in the course of its work this year. The Board first examined existing low-income energy assistance programs in Virginia. While an exact total of current expenditures to help low-income Virginians meet their energy needs is unknown, staff has estimated that the total of expenditures by federal, state, and privately-funded programs in 1999 was approximately $38 million.
The largest program assisting low-income Virginians is the federal Low-Income Home Energy Assistance Program (LIHEAP). This provides crisis assistance (such as paying a cutoff notice or providing space heaters), bill payment assistance, and, when funds are available, cooling assistance to low-income families. Individuals are eligible if they have a total household income at or below 130 percent of the federal poverty guideline. The program is funded by the federal government, is administered by the Department of Social Services, and has provided over $29 million in assistance to Virginia’s low-income families in the past year.
Other federal programs include the Weatherization Assistance Program (WAP) and the Emergency Food and Shelter National Board Program. Weatherization services include insulation, air and duct sealing, appliance base load reduction, installation of energy-efficient lighting, and other services to reduce a household’s energy burden. The WAP is primarily federally-funded, and is administered by the Department of Housing and Community Development. The program accomplishes the weatherizing of approximately 2,100 homes per year. WAP funding for last year totaled over $6.6 million.
The Emergency Food and Shelter Program provides a variety of assistance to families in crisis, including energy assistance. The most common energy crisis assistance provided is assistance with utility bill payments, limited to one month’s past due bill. Funding is provided through Federal Emergency Management Agency appropriations. In 1999, $359,437 was provided to Virginia for energy assistance under the program.
Virginia’s investor-owned utility companies also operate programs providing assistance to low-income consumers. The programs are funded by voluntary contributions of the utility’s customers, stockholders, employees and business partners. Sometimes, funds are matched by utilities. Utilities may also contribute the administrative and marketing services needed to implement the program. Many localities and charitable groups also have programs that provide energy assistance to those in need. Voluntary contribution programs in Virginia provided $2 million in assistance in the past year.
Determining the adequacy of this amount of assistance is difficult and the results of any attempt to do so are incomplete. Hurdles in obtaining the type of information necessary to quantify any shortfall in energy assistance programs for low-income households include: (i) lack of data on people who are turned away or do not apply, (ii) lack of data on household energy burdens, (iii) lack of consistent criteria for program eligibility, (iv) lack of a definition of "need" for energy assistance, and (v) the question of whether to direct assistance at usage of electricity or all energy sources. A number of approaches to measuring unmet need may be considered, including responses to a survey of low-income energy assistance providers, Weatherization Assistance Program waiting lists, LIHEAP Crisis Assistance programs requests, households receiving LIHEAP Fuel Assistance Program benefits, amount of LIHEAP fuel assistance benefit per household, and the effect of LIHEAP fuel assistance benefits on energy burden. However, many of these program administrators do not keep sufficient records of this data, and the absence of guidelines establishing a uniform policy as to determining at what point an appropriate degree of assistance has been given makes it difficult to ascertain the extent of unmet need. The Board also heard anecdotal evidence from a number of advocacy groups that there are needs for low-income energy assistance that are not being met, but actual amounts cannot be identified.
Most of the states that have passed legislation to restructure the electric utility industry have included provisions for low-income utility assistance programs as a part of their restructuring legislation. These states have adopted a variety of approaches to providing assistance to low-income residents with their electricity and gas payments. Types of "long-term" energy assistance programs, as compared to crisis assistance programs, include: (i) low-income rate discount programs, (ii) percentage of income payment plans (PIPPs), (iii) payment restructuring programs, (iv) arrearage forgiveness programs, (v) bill assistance programs, and (vi) weatherization assistance programs. Many state assistance programs pre-dated electric industry restructuring. Consequently, the rationale for addressing low-income programs through restructuring legislation may simply be to retain the status quo, though perhaps with funding provided through a systems benefit charge rather than the rate structure.
While the actions taken by other states to finance low-income assistance programs in conjunction with electric industry restructuring may be of interest to the Commonwealth’s policymakers, staff cautioned the Board that (i) no two states have adopted identical approaches; (ii) provisions of restructuring laws that address low income issues tend to continue approaches implemented prior to restructuring; and (iii) the variety of factors, such as the cost of electric power, which energy sources are included, and the stage of a state's implementation of its restructuring, combine to reduce the probative value of comparisons among other states and to Virginia. Most of the states that have restructured thus far have tended to be those with high electricity rates. The existence of high rates may explain why they had previously adopted rate assistance programs for low-income households. This issue may benefit from a study of the correlation between electricity rates and benefit programs in states prior to restructuring.
A major reason stated for providing low-income energy assistance is an anticipated lack of competitive choice for low-income customers. Higher rates, negative policy changes regarding consumer protection (termination protection, credit policies, collection practices, payment practices and understandable billing), and redlining of low-income neighborhoods and demographic groups have all been cited as reasons for needing programs to assist low-income consumers with their energy burden. To address some of these concerns, low-income program advocates have pushed for consumer education programs and aggregation policies, as well as for programs to reduce the cost of electricity for low-income households.
Items (iv) and (v) of SJR 154 direct the Board to examine the consolidation of existing public programs and coordination among public and private programs. The Board was advised that electric utility industry restructuring is leading to the centralization of administration of low-income assistance programs in several states. Advocates for low-income persons in several states have taken advantage of the upheaval of gas and electric industry restructuring to push for statewide independent administration of utility low-income bill assistance programs, citing a variety of factors favoring centralization. They allege that utilities have a self-interest in maintaining maximum billings and maximum usage, and, in some cases, existing organizations (such as LIHEAP or WAP offices) are in place that can provide statewide coverage and are closer to the customers to be served. With a centralized office to administer low-income programs, funds could be collected statewide from all customers, and then targeted to the areas with greatest need, rather than using utility-specific funding and service territories. In some cases, statewide administration of utility programs is mandated or fostered by industry restructuring legislation. LIHEAP officers have been urged to examine the linkage between public and private programs, and assess whether these current linkages provide opportunities for program integration, minimized conflict among programs, and the potential increase in the delivery of direct dollars of benefits resulting from program linkages.
Item (vi) of SJR 154 directs the Board to look at incentives for voluntary contributions to low-income programs, including tax credits. The Department of Taxation presented the Board with an overview of tax credits and the decisions required in structuring a new credit. The desired activity must be defined accurately, so that the credit may be implemented in the exact way it was intended. Policy decisions must be made regarding refundability versus carrying forward, and whether an aggregate cap on credits is necessary. Finally, tax credits should be structured so that if a deduction or credit for the same contribution is taken on the federal return, it cannot be taken again at the state level, since the federal deduction or credit will apply at the state level already.
SJR 154 also directs the Consumer Advisory Board to look at the use of fees and penalties as funding sources for low-income programs. A number of programs in Virginia are funded through license fees or civil penalties. The Board examined fees and penalties created by the Restructuring Act. Competitive service providers and aggregators are both required to be licensed under the act, and pay a license fee, but the Restructuring Act does not fix any penalty amounts, and the SCC only has the authority given in Title 12.1 to impose and collect fines for violations. To use civil penalties to fund low-income programs, the Restructuring Act would have to be amended to give the Commission the authority to assess civil penalties, and direct those funds away from the General Fund toward a specific fund for low-income programs.
B. Consumer Advisory Board Recommendations
1. A state policy on the availability of affordable energy to all Virginians. The Board considered whether to include language in the Code of Virginia affirmatively stating the Commonwealth’s policy toward low-income programs. Since blanket policy statements placed in the Code without programs supporting them do not generally hold much import, the Board decided to discuss its recommendations for low-income programs first, and then draft language stating the policy reflected by those programs. The Board proposed the following language: "The General Assembly declares that it is the policy of this Commonwealth to support the efforts of public agencies, private utility service providers, and charitable and community groups seeking to assist low-income Virginians in meeting their seasonal residential energy needs. To this end the Department of Social Services is designated as the state agency responsible for coordinating state efforts in this regard."
2. Centralization of administration. The Board agreed that administration of low-income programs should to be centralized. The Board recommends the establishment of an office within the Department of Social Services to be responsible for statewide coordination of all state and federally-funded energy assistance programs, as well as any non-state programs that wish to participate. Currently, any coordination among state-administered programs and private or local programs is voluntary. This measure would require DSS to coordinate the benefits provided among public providers, track recipients of assistance, and collect and analyze data regarding the need for assistance. The administration of the Weatherization Assistance Program would remain with DHCD, but DSS would coordinate information and any additional funding with DHCD for this program. DSS would also administer funding for low-income energy assistance, and report to the Governor and General Assembly on the effectiveness of current programs in the Commonwealth. Administrators of private, voluntary programs would have the option of turning over their administrative duties and funds to DSS.
3. Expansion of existing low-income programs and addressing declines in LIHEAP funding. The Board agreed that state funding was needed to supplement current programs in Virginia. It recommended establishing a dedicated special fund as a repository for funds from various sources to enhance existing, largely federal, sources of funds for low-income energy assistance efforts. To generate moneys for this fund, the Board recommended the following: (i) creating an income tax refund check-off; (ii) creating a special incentive for donations by business firms to the fund, through an expansion of the Neighborhood Assistance Act. Businesses contributing to the special fund could be eligible for a tax credit of 45 percent of their gift. The cap on the total amount of tax credits under the Act would increase from $8,000,000 to $9,000,000, with the $1,000,000 increase being earmarked for contributions of money to the special fund. Over $2.2 million would be generated in contributions if the full $1 million in credits were taken.
4. Incentives to encourage voluntary contributions to energy assistance programs, including tax credits. Currently, a tax deduction may be taken on an individual’s federal tax return for contributions to qualified voluntary utility programs, and the deduction is carried through to the state tax return. However, the deduction is only available to taxpayers who itemize their returns. The possibility of a tax credit for these contributions was discussed, but if individuals who itemize can already take a deduction from gross income, a credit on the amount of tax liability for those who do not itemize would create a disparity in benefit among taxpayers. The Board decided to recommend the creation of a tax deduction for individuals who do not itemize their returns, providing an incentive to individuals to contribute or increase contributions to private, voluntary energy assistance programs.
C. Policy Considerations Not Recommended
1. Fees and penalties as funding sources. The Board considered amending the Restructuring Act to authorize the SCC to assess civil penalties for violations of the Act and direct their payment into a Special Fund to assist low-income energy assistance programs, but decided not to recommend using these penalties as funding sources for low-income programs. The Board concluded that these sources would only produce small amounts of funds, would not be a reliable source of revenue, and administrative costs would be relatively high compared to the funds generated.
2. Consumption tax as a funding source. The Board also considered designating a portion of the revenue from the consumption tax on electricity and natural gas to support low-income programs, but, recognizing the impact on state and local revenues, the Board decided not to recommend any such measure at this time.
3. Low-Income Usage Reduction Program. The Association of Energy Conservation Professionals proposed a program to supplement the Weatherization Assistance Program beginning January 1, 2001 and continuing for a minimum of five years or longer through the transition years of competitive retail choice as determined by the Legislative Transition Task Force. The Program is to be funded with a Residential Meters/Account Assessment Charge in the amount of 15 cents per month, to be incorporated into the existing base customer service charge. The Board examined this proposal but no motion was made to recommend that the proposal move forward at this time.
4. Creation of a new program assisting with basic electric service. The Board did not address one element of SJR 154, determining whether Virginia should create a new program assisting with basic level of electric service for low-income consumers. The consensus was that deciding this issue was premature, since deregulation has not yet begun, and that the Board may wish to examine it further as restructuring progresses.
III. ENERGY EFFICIENCY AND RENEWABLE ENERGY PROGRAMS
A. Consumer Advisory Board Study
The issues of energy efficiency and renewable energy programs were examined by the Consumer, Environment and Education Task Force under the joint subcommittee that studied electric utility restructuring. The Restructuring Act acknowledged that these issues needed further analysis as Virginia began the process of restructuring its electric utility industry. Consequently, the Restructuring Act directs the Task Force to study these issues. As previously noted, the Task Force delegated to the Consumer Advisory Board the task of developing recommendations on these issues.
In the course of its two years of studying these two issues, the Consumer Advisory Board received the testimony of numerous interested parties. Dick Williams of the State Corporation Commission presented the Board with a history of energy efficiency programs in Virginia. The two major types of energy efficiency initiatives, conservation and load management, are collectively referred to as Demand-Side Management (DSM). The mid-1990s showed a great increase in DSM programs, including financing for energy efficiency measures, standby generation, curtailable service, water heater wrap programs, low income weatherization, field testing for new technologies, promotion of high efficiency heating and cooling systems, and a number of other programs. However, DSM programs have seen a sharp decline in recent years. The restructuring of the electric industry with an emphasis on cost minimization has led to this decline, since the long-term benefits of DSM programs are not seen for a number of years. The advent of new, efficient, low-cost gas-fired turbines has also led to a reduced interest in pursuing DSM programs, because allocating resources to building this form of generation provides more of a cost benefit than spending resources on long-term DSM projects. Thus, utilities are not allocating resources to encourage energy efficiency programs for use by residential and small business consumers.
Steve Walz of the Department of Mines, Minerals and Energy presented an update on renewable energy programs in Virginia. The Virginia Alliance for Solar Electricity (VASE) program includes a $2.4 million grant from the federal government to help support the early manufacturing costs for new thin-film solar-photovoltaic panel technology. This is matched in part by the Solar Manufacturing Incentive Grant (SMIG), which encourages manufacturers of solar photovoltaic panels to locate in Virginia. The Restructuring Act provides for net energy metering, to support development of distributed solar, small hydroelectric, and wind electrical generating systems in Virginia. DMME is also working with Virginia Tech and PV4VA to participate in the U.S. DOE Million Solar Roofs program, and federal funds have also been used to install solar lighting and radio transmission systems in six of Virginia’s state parks. Virginia is involved in the Southeastern Regional Biomass program encouraging the use of animal wastes and biofuels, and a number of state universities have research programs to help in renewable energy development.
Dr. Michael Von Spakovsky of Virginia Tech presented the Board with a detailed description of the issues involved in energy efficiency and renewables, and their relationship to restructuring. He explained that a flexible utility system is needed that encourages both long- and short-term research and development and remains open to new technologies, improvements in energy efficiency, and changing consumer needs. The rules governing the electricity industry should encourage the emergence of new, innovative firms and restrict the market power of established ones wherever that power tends to inhibit competition. Competition requires that consumers have relevant information so that they can make informed decisions. When the competitive market seems unlikely to meet society’s environmental goals, minimum environmental standards should be imposed to ensure that environmental goals do not take a back seat to a competitive energy market. Finally, policymakers will need to help remove hidden biases toward conventional technologies in order for renewable energy and energy-efficiency firms to be able to establish their own markets.
A number of small power producers spoke to the Board about the future of renewable energy sources in a restructured market. Currently, the federal Public Utility Regulatory Policy Act (PURPA) requires utilities to purchase certain power generated from qualifying independent power producers, but there is a great deal of support at the federal level for repealing PURPA. This could inhibit the use of renewable energy sources because utilities concerned about profits will use cheaper, less environmentally-friendly sources of energy. Emerging technologies supported by the state should include energy derived from the sun, the wind, the earth’s heat, falling water, biomass, waste-to energy, and fuel cells. This support for renewables is needed to offset the competitive advantage of current subsidies for nuclear and fossil fuels generation.
Sixteen of the 20 states with restructuring legislation have established funding for energy efficiency programs, weatherization programs, or both, through a "systems benefit charge" or similar mechanism. Restructuring legislation enacted in many other states has attempted to encourage the use of renewable energy sources by (i) instituting wires charges to fund renewable energy initiatives, such as research and development of renewables technologies, incentives for implementing renewables, and consumer education; (ii) adopting a renewable portfolio standard requiring suppliers to purchase or generate a specified percentage of electricity from renewable sources; and (iii) requiring a disclosure of information regarding the type, emissions, price volatility, or other aspects about generation sources. Several speakers stressed that the advent of restructuring was an appropriate time to bolster existing programs, or implement new programs, because the lifting of rate regulations will draw the curtain on existing efforts in these areas that have been fostered by the General Assembly and rate regulators.
Much of the debate over programs to encourage the development of renewable energy sources and improvements in energy efficiency involved their costs. Board members generally endorsed the goals such programs seek to advance. However, many members felt constrained by the question of whether utility customers should bear the costs through their bills, or whether all taxpayers should bear these costs through the general fund. The goal of preserving Virginia’s status as a state with inexpensive electricity was consistently recognized. The Board developed a number of recommendations that were appropriate for immediate action. A number of other potential recommendations under consideration were deferred because Virginia is still in the very early stages of the restructuring process. The Consumer Advisory Board plans to assist the Task Force, as it desires, in further consideration of these issues during the move to competition in Virginia as well as monitoring actions taken in other states on these issues.
B. Consumer Advisory Board Recommendations
1. Defining of "Renewable Energy." The Restructuring Act directs the SCC to establish standards for marketing information to be furnished by providers of competitive sources, including fuel mix and emissions data. The Act may foster the purchase of electricity generated from renewable sources by designating certain sources as "renewable," and allowing suppliers of energy generated from these sources to market their power as "renewable." After initial discussion, the Board defined "renewable energy" to include solar, wind, hydro, geothermal, biomass, waste-to-energy, and nuclear. The Board then reexamined its actions and recommends the Restructuring Act be amended to include the following: "Renewable energy sources are those which are derived from the sun or other natural processes. They are also replenishable by those sources over relatively short time periods. They include sunlight, wind, falling water, sustainable biomass, wave motion, tides, and geothermal energy. They do not include coal, oil, natural gas or nuclear power."
2. Defining "Green Power." Many competitive service providers market their energy as "Green Power," meaning the generation of such power is less harmful to the environment than traditional, fossil fuel sources of energy. Since the SCC is directed by the Restructuring Act to develop marketing standards, the Board recommends that the SCC be required to establish guidelines for competitive service providers marketing their energy as "green." Non-qualifying electricity providers will be barred from using the "Green Power" label, subject to the enforcement provisions of the Act.
3. Investment Incentives. Incentives to make investments in renewable energy can be provided in the forms of loans, grants, and tax credits or deductions. They provide financial incentives to electricity consumers to invest in projects and equipment that use renewable energy sources to generate electricity (such as photovoltaic panels) or avoid the purchase of electricity (such as passive solar water heating). The Board recommends the enactment of a tax credit for the purchase and installation of equipment that (i) generates electricity from solar energy or (ii) uses solar energy to heat or cool a structure or provide hot water. The amount of the credit would be 15 percent of the cost of purchasing and installing eligible equipment, capped at $ 1,000 per year. The credit is nonrefundable, and any unused tax credit may be carried over for the next five succeeding taxable years or until the full credit is utilized, whichever occurs sooner. The equipment must provide a minimum of 10 percent of the building’s energy needs, and must be approved by the Department of Mines, Minerals, and Energy. The parameters of the credit are intended to target the incentive to residential and small business consumers of electricity.
4. Consumer education about energy efficiency. In the context of restructuring, many groups have expressed concern that electricity prices for residential and small commercial consumers may rise, and that utilities may reduce their efforts to educate consumers about energy efficiency. This proposal would provide for a state-sponsored education program concurrent with restructuring to help consumers understand ways in which they can reduce their energy burden. The Board recommended designating the Department of Mines, Minerals and Energy to develop consumer education programs about energy efficiency, including (i) usage-reduction techniques, (ii) energy-efficient equipment available, and (iii) weatherization services. DMME would report its preliminary recommendations for development of this plan July 1, 2001, and then work to implement the program beginning in 2002. DMME has indicated that they have identified a funding source for development of the plan, and would not need an appropriation at this time.
C. Policy Considerations Not Recommended
1. Renewable Portfolio Standard. A renewable energy portfolio standard (RPS) requires that any company selling electricity in a competitive market include some amount of renewable energy as part of its portfolio of generating sources. The portfolio standard is designed to be competitively neutral, in that it imposes an equal obligation on any company selling electricity in the state. The standard helps to diversify the state’s energy supply by creating initial market demand to help make environmentally-benign energy industries viable. However, utilities’ costs in complying with the RPS may be passed on to consumers. The standard takes some of the purchasing decisions away from the market, when the Restructuring Act is premised on the elimination of government mandates controlling the generation of power. The Board voted not to recommend adopting a portfolio standard at this time.
2. Production Incentives. Incentives can be provided to reward the production of power from renewable sources. By providing incentives based on the amount of renewable power added to the power grid, the cost of such power to consumers can be made more competitive. Incentives may be granted to electric utilities and small generators. The Board considered a tax credit for electricity generators who produce power from renewable sources. This proposal would have provided an incentive similar to the coal tax credit, but for those sources designated as "renewable." Concern about the potential cost of this credit to taxpayers in Virginia led the Board not to recommend it at this time.
3. Government Purchase Programs. Government purchase programs fall into two categories: State construction requirements and direct purchases of renewable energy. State construction policies aim to provide additional energy savings during the life of a building through initial investments in renewable energy and energy conservation applications. The purchase of energy from renewable sources is intended to increase both the market demand for and awareness of alternative energy sources. Buildings may include schools, universities, community colleges, state office buildings, and public housing. The Board felt that the state’s policy toward its own energy use was the prerogative of state government, and outside the purview of the Board, and voted not to recommend any government purchase programs.
4. Office of Energy Management. The Board’s Subcommittee on Energy Efficiency and Renewable Energy worked to develop recommendations addressing the issues surrounding energy efficiency and renewables as they relate to the overall concept of deregulation of electricity. A preliminary recommendation was that an office be established to serve as an overall program coordinator for all energy-related programs and activities. The Subcommittee declined to recommend location and structure of the office until further study and evaluation could be completed. The office would be responsible for, among other things, assisting in stimulating, encouraging, and promoting energy efficiency, demand-side management, and renewable energy sources; encouraging the development of uniform state polices, programs and services for energy efficiency, demand management and renewable energy sources; receiving information from the public, providers of service and other interested parties on the state of the overall energy management within the Commonwealth; coordinating with federal energy efficiency and renewables programs; and reporting to the Governor and the General Assembly on the conditions of energy management and any pertinent recommendations regarding policies, programs, and services. A citizen board should be established to advise the office, its size and composition to be determined at a later date. The Subcommittee will continue to develop this recommendation. A more detailed plan of action will be submitted to the Consumer Advisory Board after more thorough study and consultation with appropriate state officials and interested parties.
5. Public Benefits Fund. Both the Southern Environmental Law Center and MDV-SEIA proposed the establishment of a public benefits fund, under which all consumers of electricity would pay a non-bypassable wires charge at a rate of one-half mill ($0.0005) per kWh. The proceeds from the charge would be distributed as follows: (i) 40 percent for low-income energy efficiency (weatherization), (i) 30 percent for renewable energy programs and projects, and (iii) 30 percent for energy efficiency programs and projects. The proposals submitted by the two organizations are very similar, with the only substantive differences relating to the definitions of "emerging renewable energy resources" and "renewable energy system." The Board did not endorse these measures in 1999, and took no action on them in 2000. If, during the transition to competition, the Board finds that there are additional needs not being met, the Board may reconsider these proposals at that time.
IV. CONCLUSION
The Consumer Advisory Board extends its appreciation to the Task Force for the opportunity to represent Virginia’s consumers in monitoring the implementation of electric utility restructuring. The recommendations included in this report are intended to protect the interests of consumers during the transition to a deregulated market, including assisting low-income consumers in meeting their energy needs, educating consumers about energy efficiency, and implementing protections for the environment.
Though the Board acknowledges that its authority is limited to those issues that the Task Force refers to it, the Board wishes to revisit an issue of concern to its members. Last year, the Board brought before the Task Force the issue of aggregation for small consumers. The Board's chairman has previously reported to the Task Force on this issue, and that study of the issue was endorsed by the full Consumer Advisory Board. The Board wishes to renew its recommendation that, during the term of the pilot programs, a parallel investigation be undertaken of how the development of aggregation in Virginia and other states is, or is not, facilitating market power for the consumer and small business classes of electricity users. This investigation should include analysis of progress during the pilot program as well as coordination with interested parties and experts from deregulation of other industries. Further justification for the need to begin this investigation now is provided in Attachment A. The Board strongly recommends that the Legislative Transition Task Force or the Consumer Advisory Board conduct the study.
The Board stands willing to continue to assist the Task Force, as it may direct, in its work in ensuring the successful implementation of restructuring.
Respectfully submitted,
William Lukhard, Chairman
Otis Brown, Vice Chairman
James Copp
Beth Doughty
Oswald Gasser
Robert Goldsmith
Jack Greenhalgh
Ann Hedgpeth
Jack Hundley
The Rev. J. Fletcher Lowe
Linda Sharpe-Anderson
Donald F. Sullivan
Jimmie G. Trent
Steve Walker
Bradley J. Wike
Quentin E. Wilhelmi
CONSUMER ADVISORY BOARD
REPORT TO THE LEGISLATIVE TRANSITION TASK FORCE
ATTACHMENT A
Experience in other states in restructuring of the electricity industry is showing that benefits being realized are primarily for industrial and large commercial customers. The Consumer Advisory Board is concerned that residential customers and small businesses may not benefit from the current approach to the restructuring process. Depending more on national generation and transmission capacity than regional capacity, it is very possible residential and small business users will experience rate increases when the capped, regulated rates of the transition period end. In those states with more advanced deregulation programs, a tiny percentage of consumers and small business have elected new providers. Competition itself has not pulled prices down for this class of users. In fact, a significant portion of the small number electing a new provider are paying more to select a provider with "green" power. In some areas, a consumer’s revolt is emerging. The backlash from early problems in restructuring has resulted in 29 states notifying FERC of their desire to be exempt from the restructuring process. The Governor of California has threatened to reverse the deregulation process in that state.
Restructuring legislation attempts to provide a mechanism to give these classes of users negotiating power through aggregation. We understand the intent of aggregation is for these competitors to come forward and gather up large numbers of consumers and small businesses and to negotiate on a basis competitive to large commercial or industrial users. Aggregation in other states has not emerged to a level that increases the market power of these users. If the wholesale pricing structure, billing policies and other program parameters established by the incumbent utilities stifle viable aggregators, it may be years before we recognize it isn’t working. By drawing on the expertise of those involved in the process and learning from other state efforts, it may be possible to foresee this result and take corrective action earlier.
Additional study is needed to identify if changes are needed in the next few years to make the aggregation process more effective. During the pilot program and the initial period of competition following that program, the Consumer Advisory Board proposes that it be authorized to accumulate and evaluate testimony from the SCC, the incumbent utilities, a variety of prospective aggregators as well as from experts on how these issues have been handled in the deregulation of telecommunications. An on-going monitoring of results to date in other states would be conducted. That would include hearing from aggregators working in those states, as well as those that elected not to work in those states.
The highly structured transition period and pilot programs are limited in scope and geography. They operate under capped rates and are encumbered by stranded cost recovery. It will take time to address these issues and to process any resulting recommendations to the SCC and the Task Force. If legislation is to be proposed, that will add additional significant time. If legislative action may be necessary before the end of the pilot programs, studies to identify these actions should begin now.