Allegheny Power
AP's Deregulation And Customer Choice Plan Will Benefit Consumers
SJR-91 Joint Subcommittee Meeting
August 18, 1998

AP supports competition and the goal of allowing customers to have their choice of electricity suppliers. We strongly believe that competition in generation will result in long-term benefits to all consumers. It is broadly recognized that competitive forces are far superior to regulation in keeping prices down while expanding service options to customers. The benefits of competition should be available to the residents of Virginia sooner rather than later.

AP is presently conducting a retail pilot program in Pennsylvania in preparation for full customer choice in that state and our customers there are already enjoying real savings associated with choice.

AP's plan to implement retail choice in Virginia will ensure that all consumers have the opportunity to benefit, while being protected from any potential downside, during the transition to customer choice.

AP's plan includes a five-year transition period during which all customers are permitted to shop for alternative electricity suppliers, non-shopping customers are protected, and incumbent utilities are allowed to recover their transition costs.

During the transition period, utilities will freeze retail generation rates at current levels for customers who do not seek alternative electric suppliers, thus preserving for retail customers the existing benefits of the state's already low electricity rates.

All consumers who exercise choice would pay a non-bypassable competitive transition charge (CTC) to the local distribution company.

Customers who do not or cannot exercise choice would pay a rate equal to the sum of the local utility's unbundled generation, transmission and distribution rates.

Customer choice should be phased-in over several years. This is advisable due to the logistics of switching large numbers of customers to alternate suppliers and answering customer questions on a timely basis. A phase-in that allows all classes of customers to exercise choice over a finite period of time will allow for a manageable and nondisruptive transition period.

Customers should be provided with an enrollment period of several months' duration prior to the time that they will begin to take service from alternative energy suppliers. Time will be needed to carry out customer education efforts and allow interested marketers to qualify and effectively participate in the state. Providing sufficient time to accommodate the needs of both customers and suppliers will serve to minimize potential confusion at the outset of the process

All retail customers should have access to their utility's distribution services at regulated rates in much the same manner as they do today. Distribution utilities will retain the obligation to connect all customers to the electric system and will have the obligation to deliver power from the customer's generation supplier of choice. Distribution utilities will also continue to provide metering and billing services to all customers as part of that distribution service, at least in the first years of customer choice.

All customers should have the option of remaining with their incumbent utility at regulated rates for the duration of the transition period. At the end of the transition period, customers should have the option of choosing, either directly or by default, their incumbent distribution utility to supply them with power at market-based rates in the future.

In a competitive market where choice is available to all customers, customers will only choose to stay with the local utility if it continues to provide them with service (including price, terms and conditions) that is equal or superior to the service that they will be able to get from other competitive suppliers.

Customers that choose to shop during the transition period should be permitted to return to the incumbent utility at market-based rates.

Customers will be free to choose from a broad variety of suppliers, including suppliers offering so-called "green power". Giving customers the opportunity to choose from a variety of suppliers may in fact encourage the development of renewable energy resources.

Customer choice is relatively complex and customer understanding is the key to successful implementation. A comprehensive customer education program must be established. A customer education program should make customers aware of the opportunity to choose, help them understand how to choose an electric generation supplier, and help them to make an informed choice to maximize their value.

A universal service fund should be established to ensure that low-income customers are able to pay for essential electric services. In order to protect the customer who is not able (rather than not willing) to pay, the state should require that all energy users support an assistance program, with minimum eligibility requirements, funded by a universal service charge on all electricity service provided in the state.

False and deceptive advertising should be prohibited and existing state laws governing commercial practices should be sufficient to control and punish such activities. The SCC and the Attorney General's Office have the responsibility and authority to monitor commercial practices and take appropriate steps to sanction illegal behavior.

Public oversight over the entry of new energy suppliers into Virginia will be needed, and registration requirements for suppliers should be developed. These requirements should not be overly burdensome on suppliers, but should serve to ensure that appropriate consumer safeguards are maintained, including reasonable risk protections, bonding and credit requirements.

The SCC should require suppliers to post bonds to protect the cash flow of the local distribution companies (or responsible control entity) in the event that a supplier's obligations to a customer exceed the power they actually deliver. This will help to ensure the reliability of the electric supply to the customer and protect the financial integrity of the local distribution company.