Good morning, Mr. Chairman and members of the Committee . 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 the impact of electric utility deregulation on Virginia's low-income residents. Judy Mason, Executive Director of the association, is here with me and will make some additional remarks.
More than a million residents of Virginia (1,053,509 according to 1990 Census counts) have incomes below 150% of the federal poverty guideline. This is the income eligibility criterion for receiving LIHEAP (Low Income Home Energy Assistance), the federal program which funds utility payment assistance in Virginia and across the nation. Many of these residents are elderly or disabled, but the majority are working poor families trying to make ends meet with as little assistance from government as possible. These are the Commonwealth's most vulnerable users of electricity. In a competitive retail market, they would be least able to withstand rate increases or fluctuations; they would be most likely to be denied service, or to receive lower quality and higher priced service; and they would be least likely to be aware of their service options, or to be able to protect themselves in a competitive market. They will be the consumers who are most negatively impacted by the deregulation of Virginia's electric utility industry.
I want to talk to you this morning about universal service and the need to continue programs that assist low-income Virginians in meeting their utility needs. Low-income families are often faced with electric bills that exceed 20-25% of their household income. By comparison, the median income customer usually pays less than 5% of their income on electricity. If low-income families are having difficulty paying regulated electric rates today, how much more difficulty will they have in a deregulated environment when not only consumers have the right to choose, but also electric service providers can reserve the right not to serve customers that are "undesirable." Without an obligation to serve, utilities could choose their customers, and some low-income customers might be unable to obtain service.
Low-income consumers are the customers that nobody will want. Since their typical electric consumption is relatively small, they have higher transaction costs. They are a bad credit risk -- 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.
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 now under consideration by the SCC will made maintaining local phone service even easier for everyone. No mandate for lifeline service exists in Virginia's 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. The harms of winter electric shut-offs are well recognized. However, the threat to health and safety of a loss of electricity during the summer can be just as harmful. The lack of continuous electric service is not only inconvenient; it is also dangerous. 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. Regulation permits a direct passthrough of all expenses of providing electric service, including credit and collection expenses associated with problem-pay customers. 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, we all 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. VACAP recommends that the charge 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 subsidies for low-income consumers, 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.
Other Issues
As far as other issues dealing with the structure of a deregulated 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.
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 opportunity to address the Subcommittee and would be pleased to answer any questions.