Virginia Citizens Consumer Council
October 6, 1998
Delegate Plum and members of the Taskforce, I am Jean Ann Fox, Vice President of the Virginia Citizens Consumer Council. We appreciate this opportunity to address consumer protection and environmental issues in electric restructuring.
Effective competition is the keystone to consumer protection. A fully competitive market disciplines price and quality. While rules against fraud, deception, and misleading advertising and marketing practices are essential, such rules are not sufficient. If a fully competitive market cannot be instantly created, which is unrealistic in the extreme, this General Assembly must put in place an effective regulatory system. Electricity is too vital to the health, safety, and welfare of every citizen of the Commonwealth for us to put our trust in the grand experiment of electric restructuring.
Virginia lawmakers must set in place the legal and regulatory framework to mitigate market power and produce an effectively competitive generation market prior to deregulation, ensure reliability and an adequate safe supply of electricity, and ensure universal service, including bill-paying assistance for low-income households. Net stranded costs must be mitigated, accurately valued, and shared by stockholders. In addition to addressing these threshold issues, the General Assembly must lay the ground rules for protecting consumers now and in a competitive electric market in the future.
Overall goals must be effective competition, universal service, and consumer protection. Restructuring does not mean no rules. A competitive market requires rules as well. If competition is effective, it rations goods to those who can pay the piper. That is why some of you drive Honda Accords and Jeep Cherokees and some of us drive old junkers. Consumer advocates and thoughtful citizens support universal service funds to counteract the natural results of a competitive market where some consumers are not served.
Another natural consequence of competition is the almost irresistible temptation to use deception, fraud, and misleading tactics to gain an unfair advantage over competitors. Because electric service has been a monopoly utility, Virginia law has exempted public service companies from the consumer protection laws that apply to the competitive marketplace. If we decide to make electricity a competitive commodity, a full-blown set of consumer protections must be put in place at the beginning, not after abuses have poisoned the well. Consumer protection is a prerequisite to competition.
Residential customers must be protected whether restructuring is a success or a failure in reducing the price of electricity. If restructuring does in fact lower the price, residential customers must receive a benefit. That is why VCCC urges that all classes of customers have access to the competitive retail market at the same time. If there are efficiency gains to be had, residential customers must participate.
One method for making sure residential rates benefit from efficiency gains is to index residential rate reductions to large customer rate reductions. This is "cap the gap," a provision in the Connecticut restructuring law. Rates for residential customers are reduced if the gap between large customer and residential customers grow wider than at the time of restructuring.
If restructuring fails to provide lower rates for residential customers, protections must be put in place to protect consumers against higher rates and from rate shocks such as occurred in June when the combination of weather, power outages, and market failures led to price spikes. As we have said all along, restructuring should benefit residential customers. If the market does not drive rates below the regulated rate, rates charged to small customers should be capped. The SCC's authority to cap rates should last until there is a finding that the electric market is effectively competitive and the SCC finds that competitive rates are the same or lower than rates set by traditional rate of return regulation. Rates should be capped at least as long as stranded costs are being collected from customers.
In additional to protection against higher rates, the General Assembly should ensure consumer protection. The cornerstone of consumer protection is consumer sovereignty. The ability of consumers to exercise informed choices in the marketplace is essential to the efficient functioning of a market. If electric generation is to be effectively competitive, then we must set up conditions and protections to make consumer sovereignty a reality.
The SCC should license and certify all sellers, with minimum standards for reliable delivery of electricity covering normal operating performance, outage and repair and business office performance, and bonding and penalties for failure to deliver or to meet marketing and reliability standards. All service providers should be required to serve all customers in their chosen service area. All companies should demonstrate their technical, financial and managerial capabilities to provide the services for which they request certification.
Fair Marketing and Sales Practices:
Competition will be accompanied by deceptive advertising, unfair and abusive trade practices. This happened when the long distance market became competitive and companies began "slamming" customers with unauthorized switches of providers. The newest abuse is "cramming" unauthorized fees and charges onto local telephone bills. Several local telephone companies were accused of packing customer bills with unauthorized extras, such as Call Waiting and Call Forwarding. Confusion about service offerings made it easy to overcharge customers. By anticipating the likely results of restructuring electric service, Virginia can prevent harm to consumers.
The National Association of Attorneys General issued a consumer alert last November to warn about "power scams" that may zap U. S. consumers. The president of NAAG warned that the impending deregulation of electric power may trigger an even greater wave of abuses than those that accompanied long-distance telephone deregulation. The Attorneys General warned that con artists will try to take advantage of this new opportunity with misleading promotions, deceptive advertising and outright fraud.
The California Attorney General filed suit earlier this year against an electric service provider engaged in a "pyramid" scheme to sell electricity. The company collected hundreds of dollars from consumers without having any electricity to deliver. Other abuses include companies that market "green" power which meet no requirements for that environmentally-friendly label.
All entities in the electric market should be subject to the same consumer protection laws as other competitive businesses. This can be accomplished either by removing the public service company exemption in the Virginia Consumer Protection Act or incorporating VCPA parallel language in the utility code section and in legislation to restructure the industry. Enforcement should be by the State Corporation Commission, the Attorney General, the Office of Consumer Affairs/VDACS, and private right of action. The SCC should be authorized to adopt regulations to provide greater specificity in prohibiting unfair and deceptive trade practices.
Information about electric restructuring, especially bills and contracts, must be written in plain English. Consumers need access to electric suppliers' complaint history. Standard disclosures should include notice of fuel price volatility, prices, contract terms, emissions, fuel mix, and consumers' right to cancel contracts.
Billing Practices:
The SCC's twenty-year old order on customer service rules should be replaced by a set of standardized requirements. Legislation should require the SCC to adopt and enforce rules for the customer relationship with utilities and non-utility electric service providers.
Privacy protection for information about billing, payment history and consumption patterns. This data is an extremely valuable commodity to marketers. Consumers must have control of any personally-identifiable information. Additional information about a customer for marketing purposes should not be released to any electric supplier unless a customer signs a release. No customer information should be provided to a third party without specific written permission of the customer.
Non-discrimination:
To ensure that all classes of customers benefit from restructuring, discriminatory policies must be prevented and policies adopted that promote:
Dispute Resolution:
Legislation should require and Commission rules implement standards for complaint intake, investigation, resolution and redress mechanisms for each electric provider, including a toll-free telephone contact number. In addition, the SCC must have the authority and funding for centralized consumer complaint appeal process. A cooling-off period is needed to permit consumers to cancel contracts to purchase electric service. Customers need quick resolution of disputes and the right to withhold payment while disputes are being settled.
All electric suppliers must be required to have toll-free telephone service, to notify customers of its dispute procedures, and to report customer service problems to the SCC. The Commission recently proposed a regulation to prohibit local telephone companies from disconnecting local telephone service for failure to pay long distance and other charges. Parallel protection will be necessary for electric service.
Recourse:
Consumers must have a private right of action to enforce consumer protection laws involving electric purchases, as provided by the Virginia Consumer Protection Act for other competitive retailers. Other enforcement tools include cease and desist
The two largest electric companies will be conducting retail pilot projects under supervision of the State Corporation Commission during 1999. It is unclear exactly what authority the SCC will have over power marketers that enter the state to participate in these pilot projects. Licensing and bonding standards are not in place. The Virginia Consumer Protection Act may apply to non-public service companies but does not apply to Virginia Power or Appalachian. There is currently no cooling-off period for canceling electric supply contracts. This Taskforce with help from the Commission staff should determine what consumer protections will apply during the pilots and what authority the Commission will have to supervise transaction. Even if comprehensive restructuring legislation is premature at the 1999 session, we may need a consumer protection bill to apply to pilots. VCCC would be glad to work with you on specifics.
Jean Ann Fox
114 Coachman Drive
Yorktown, VA 23693
757-867-7523