Good morning, Mr. Chairman and members of the Task Force. I am Robert Goldsmith, President of the Virginia Council Against Poverty--the association of Virginia's Community Action Agencies. I appreciate the opportunity to appear before you today to discuss the concerns that VACAP has with regard to electric utility deregulation. Our concerns are on behalf of the more than 800,000 low income residents of Virginia--a number of them elderly or disabled, but a good many more of them hard-working families trying to raise their children and improve their quality of life. These are the Commonwealth's most vulnerable users of electricity. They will be the consumers who are most negatively impacted by the deregulation of Virginia's electric utility industry.
Low-income consumers are the customers that nobody will want. They have higher transaction costs. They are a bad credit risk since they can't always pay their bills on time and sometimes not at all. They live in older, less insulated houses, and use older, less energy-efficient appliances. In a deregulated environment which is governed by competition for the bottom line, these customers who are more expensive to serve will find themselves relegated to being served by a "supplier of last resort," who will need to charge higher rates in order to recoup the higher cost of serving the poor. Provisions must be made to ensure that these customers enjoy a continuous supply of reliable, affordable electricity. This concept involves two issues--continuous supply (i.e., lifeline service) and affordability.
Lifeline Service and Affordability
There exists within the deregulated telecommunications industry a mandate of "lifeline service"--the concept that telephone service is a necessity, not a luxury, and that some basic level of service must be maintained. Additional regulations currently being considered by the SCC will made maintaining local phone service even easier for everyone. No mandate for "lifeline service" exists in the electric utility industry. What uninterruptable electric service exists is maintained through a "gentleman's agreement" with utilities not to shut off residential power for nonpayment during the winter. Yet having uninterruptable electric service is much more important than having a telephone. Legislation mandating lifeline service must be passed.
With regard to affordability, I've already stated that in a deregulated environment, the poor, who are the most risky customers to serve, will suffer with higher rates from suppliers of last resort who are mandated to provide universal service. Currently, these "risky" customers, who the utilities spend more to serve, pay the same rates that everyone else does. How is that so? At present, the cost of providing service is averaged across the entire customer base, and the utilities' request for rate increases are based upon that average cost. In other words, in the regulated environment, you and I and everyone in this room subsidize the rates of these more expensive customers. In the deregulated environment, a mechanism must be developed to assume this responsibility. We propose a consumer benefits charge to accomplish this.
Consumer Benefits Charge
Virginia Power, the Commonwealth's largest electric utility, in its presentation to the Stranded Cost Task Force on July 30, offered statutory language in support of a "consumer benefits charge." This would be a nonbypassable wires charge that all consumers, regardless of class, would pay. The charge should be calculated on a per-kilowatt hour basis so that no class of consumer would pay a disproportionate share of the charge. This charge would establish and support a fund out of which would be provided such consumer benefits as the subsidies for low-income consumers that I just talked about, weatherization and other energy conservation efforts, environmental issues, and consumer education. VACAP supports the legislating of this "consumer benefits charge" and the creation of a mechanism to distribute it as needed. Such a "consumer benefits charge" must be a part of any responsible legislation designed to move forward the restructuring of the Commonwealth's electric utility industry.
Default Provider
VACAP has concerns around the issue of who will be the default provider. The arbitrary assumption that the incumbent utility will be the default provider gives the incumbent a competitive advantage, and delays effective competition. Those who argue in favor of the incumbent as default provider say that if consumers didn't want to stay with the incumbent utility, they would actively choose. However, our contention is that within the set of "people who choose not to choose" there are actually 3 subsets. The first is made up of people who think their current electric company is wonderful--so why would they want to switch.
The second group are those people who simply won't want to be bothered--the issue doesn't mean enough to them to make switching worthwhile. They're like the people who get aggravated at the long-distance telemarketers who call every evening at dinnertime--"Those '#%@^&!!' telephone companies--I wouldn't switch if they paid me!").
But it's the third subset of people who will choose not to choose that concerns VACAP. These are the people who simply don't understand what deregulation is all about. They're confused by all the hype, and the direct mailings, and the telemarketers, every one promising more than the last. They can't sift through all the advertising and promotions to figure out what changes are being made by deregulation and whether or not changing electric suppliers is of benefit to them. In other words, they "choose not to choose" because they don't understand why they should choose and how to do it--so they choose to do nothing.
Consumer Education
Who are the people in this third subset? They are the most vulnerable of our friends and neighbors. They are the low-income, the less educated, the elderly, the handicapped. There must be a publicly-sponsored consumer education campaign, specifically targeted at these vulnerable populations. This education must not be left up to the utilities to carry out. It must be mandated by law, administered by an office of state government, and contracted to organizations throughout the Commonwealth that have expertise in providing outreach, information, and services to the targeted populations. The "consumer benefits charges" I discussed earlier would fund this consumer education. VACAP's recommendation is that a state agency administer this program, that they be directed to hire a marketing firm to produce a generic brochure and informational materials, and that they be directed to contract with experienced non-profits who provide advocacy and outreach to Virginia consumers and to specific populations of consumers that are recognized to be more vulnerable. The mandating of such a consumer education campaign, adequately funded and administered, would go far toward alleviating VACAP's concerns over the default provider issue. It is noteworthy that this is also an area of agreement with Virginia Power--they also are advocating for a state-sponsored, third party consumer education initiative.
Other Issues
As far as other issues dealing with the structure of a restructured electric industry:
As I stated at the beginning of my remarks, the Virginia Council Against Poverty is concerned about the impact of deregulation on poor consumers. Our major concern is that the bottom line price of electricity be affordable for everyone, but especially for those who are economically disadvantaged. We would like to see that bottom line price somewhere below the current regulated market price of electricity.
While we continue to follow all the meetings of the Subcommittee and the various Task Forces, such issues as stranded costs, divestiture, market power and the like are not within our area of expertise. While we recognize that all these more technical issues have an impact on the bottom line, we have little to add to the discussions around how these issues should be handled.
I hope that my comments today have provided you with some ideas of how to mitigate the negative impact of electric utility deregulation on poor Virginians. I appreciate the invitation to address the Task Force and would be pleased to answer any questions.