Introduction

The Consumer Energy Council of America Research Foundation (CECA/RF) greatly appreciates the opportunity to address the issue of potential consumer impacts of electric utility restructuring in the Commonwealth of Virginia. In particular, with consumer education being one of our primary missions, I am pleased to be able to emphasize the importance of consumer education and disclosure in creating a context which competition can work.

As the oldest public interest organization in the nation focusing on the energy and public utility sectors, we have spent a great deal of time formulating recommendations to structure the electricity market so that all consumers, large and small, can benefit from the historic changes taking place.

In 1995, policy makers on Capitol Hill and in the states urged CECA/RF to establish the Electric Utility Restructuring Forum, comprised of the leading representatives of stakeholder groups in the country, to examine the implications of the various restructuring policy proposals on small business and residential consumers. After two years of intensive deliberations, we issued our highly acclaimed report, "Restructuring the Electric Utility Industry: A Consumer Perspective," which has served as a model for restructuring efforts at both the state and federal levels.

Copies of this report are being made available for your review. Again, the recommendations found in the report are the result of true consensus between a diversity of stakeholders.

Consumer Impacts of Retail Competition

It is my understanding that many witnesses are scheduled to speak on the potential consumer benefits and pitfalls of retail competition. Let me therefore be brief in my remarks concerning this question.

CECA/RF strongly believes that competition is inevitable in the retail electricity market across the United States. And CECA/RF believes that if done right - meaning that if there is true competition established between a number of suppliers interested and capable of serving the residential and small business segments of the market - retail competition can bring benefits to small end-users. All things being equal, it is the position of CECA/RF that competitive markets are superior to regulated markets for dispensing goods and services.

However, electricity is not like any other commodity. There are many public policy issues that are unique to the restructuring of this industry which must be considered very carefully.

Particular care must be paid to the impact of restructuring efforts on low-income citizens. The attached Executive Summary contains strong recommendations, as found in Section E. Public Benefits, that would serve to protect the interests of low-income consumers, including recommendations to ensure that electricity remains accessible, affordable and that there is a funding mechanism in place to provide assistance for low-income consumers.

Consumer Education and Disclosure

Information is power. For retail competition to work to the benefit of small business and residential consumers, CECA/RF strongly believes that there needs to be a comprehensive consumer education effort using public funds.

Markets function best when participants receive credible and comprehensible information. Customer choice and competition, in fact, is predicated on two basic assumptions: 1) Consumers are informed of the new system and their choices; and 2) Consumers feel confident enough with the new system, given the information at hand, that their decision to switch or stay with their supplier results in a beneficial outcome.

At present, the vast majority of consumers in Virginia and across the nation have heard little if anything at all about the changes being proposed. A poll conducted last year by International Communications Research (ICR) revealed that over two-thirds of Americans are unaware of plans to restructure the natural gas and electricity markets. A survey conducted in Virginia would probably have a very similar result.

Moreover, while most Americans support the idea that the market is better at setting prices than regulators, there seems to be a serious disconnect when it comes to the impact of restructuring efforts of individual consumers. To put it bluntly, a good number of consumers are skeptical about the benefits of restructuring. And most customers have not even seen an unbundled, three-page electric utility bill yet which, even though their final rate will be lower, is certain to be confusing. It is clear that consumers have a good deal to learn.

There is no better use of public money than to conduct a consumer education campaign to create a context for consumers to make a choice - to stay or switch - that counts. Moreover, a consumer education campaign should be implemented sooner rather than later in the restructuring process.

In Massachusetts and California, two states that have implemented retail competition, consumer education was at best an afterthought. While a significant sum of money was spent by the states, most observers now think they made a big mistake in not implementing a consumer education campaign sooner and with more stakeholder involvement. California, for example, spent $98 million in a crash course attempt to educate consumers over a highly unrealistic time frame of only a few months. That $98 million created more confusion than clarity. In both states, there are now active efforts to repeal the implementing legislation.

In contrast to the approach of Massachusetts and California, I would point your attention to two examples of states - Missouri and Connecticut - that have taken pro-active approaches to consumer education but differ slightly in how they are organizing their campaigns.

In Missouri, CECA/RF has established a partnership with Missouri Gas Energy and other public and private entities to implement a comprehensive consumer education campaign called Missouri SmartChoice. Even before legislation or regulatory action has been taken, and without using public funds yet, the program is designed to gain a better understanding of the issues involved in Missouri, to listen to people's concerns and to answer the multitude of questions that arise. To accomplish these objectives, Missouri SmartChoice has various components to reach out to small business and residential consumers, including: a kickoff event, public meetings, issuing reports and findings, a web site, toll-free 800 numbers, a video, radio advertising, print advertising, a brochure, bill inserts, and training for the employees of our partners.

In conjunction with Public Act 98-28, "An Act Concerning Electric Restructuring," the State of Connecticut has committed to conducting a public education campaign about retail access utilizing public funds. The Connecticut Department of Public Utility Control (DPUC) recently issued a request for proposals to assist the state in the development and implementation of such a campaign. Having carefully reviewed the program's objectives, proposed methodology and timetable found in this document, I would recommend that Connecticut's efforts serve as a model for your own efforts in Virginia.

When considering how to implement a successful consumer education campaign, CECA/RF recommends that the following principles be utilized:

1) The campaign is done in an incremental fashion and over time;

2) The campaign is balanced, incorporating both pros and cons, and transparent;

3) The campaign is designed to be inclusive of the views of all major stakeholders;

4) The campaign is responsive, meaning that the campaign is capable of responding to inquires for information and to answer questions;

5) The campaign is focused on small business and residential consumers.

A consumer education campaign is at the core of building competitive markets. After all, for competition to work, consumers must be aware of their choices and be willing to switch suppliers if a better deal is offered.

In addition to supporting a strong consumer education effort, CECA/RF is on record as supporting disclosure requirements and a standardized, uniform label on the bill. As we now know from the experience with marketing activities following telephone deregulation, comparability is an essential ingredient in order for consumers to make informed decisions. Focus groups with participants in various retail access pilot projects reveal consumer frustration with complicated promotional pricing schemes, murky environmental claims, and the "impossibility of comparing apples to oranges."

Specifically, as part of any restructuring legislation, CECA/RF recommends the following: 1) A requirement that all retail electricity merchants disclose in a standardized format on electricity bills and promotional materials the following: the contract price of electricity; basic contract terms; a baseline, regional system default label depicting emissions of SO₂, NOx and CO₂; justification for any "green power" claims or other special claims if made; and fuel mix; 2) A requirement that customers should annually receive detailed information concerning their rights and obligations under their power contract; 3) A requirement that there is adequate access to information; 4) A requirement that a customer's monthly bill is transparent, clearly showing all of the unbundled services that consumers are purchasing and the prices that they are paying for those services; and 5) A requirement that existing truth-in-advertising and consumer protection laws be vigilantly enforced.

Thank you again for allowing me this opportunity to make a statement. I would be glad to provide any other materials or answer any questions that you may have.