Low-income customers have important interests at stake in the decisions of this Committee and the State Corporation Commission concerning electric industry restructuring. They struggle today to maintain electric service, for basic life support uses such as lighting, hot water, refrigeration, or heating. They are the least able to withstand the increases in residential rates that most commentators agree are the likely result of introducing greater market forces in electricity price-setting.

They are the least able to fend for themselves in a cutthroat electron market, and to bargain for and receive decent, reasonable customer service. They are the least likely to be approached by power brokers seeking to build up a business of serving residential customers on a competitive basis. The minority members of the low-income community are at risk of being red-lined out of access to the same service available to the larger community. Low-income consumers are likely to be the first to be cut off, the first to suffer service reliability degradation, the first to be denied service except under onerous conditions.

Low-income consumers are the canaries in the mineshaft. In their suffering, we will first see the damaging effects of naked competition on the small customer, the residential customer, the small commercial customer. The so-called regulatory bargain has, albeit imperfectly, put the brakes on abuses by large powerful electricity suppliers of vulnerable consumers. We should not throw out this system, however flawed, unless we have first put in place a functioning and fully effective system of protections that ensures all consumers, including the most vulnerable among us, affordable access to quality electricity services.

Low income customers want rate reductions, not "choice." The range of "choices" that can conceivably provided in the electric industry is much narrower than in the telephone industry. In telecommunications, information can be stored and manipulated as it passes through the switches and wires. This makes a number of storage and manipulation services feasible and desirable, and a competitive and data storage/manipulation market has arisen to meet consumer needs. But electricity cannot be stored, and the only possible differentiations in its delivery are already captured in the utility system: time of use, voltage, wattage and energy variations. Expanding the range of these variations is not worthy of the concept of consumer "choice." In fact, the entire discussion of customer choice would become an academic exercise if industrial rates were greatly reduced as the large customers seem to demand.

The Flip-Side of "Choice" is "Confusion." We know from the history of telephone deregulation that a great many ordinary customers are confused about their suppliers, don't know who their long distance carrier (or even their local carrier) is, and are at best indifferent to the importunings of competing carriers. Many are frustrated by the intrusion of hard sell pitches for different carriers. Many are confused by the babel of messages from competitors. Even in the realm of competitive telephone offerings, the ordinary consumer lacks knowledge to make effective consumer choices.

The problem of confusion and vulnerability to the hard sell is particularly acute for low-income customers. Residential customers really know very little about their local telephone bill or what they might find affordable. A West Virginia study of local service found that residential customers have little idea of what type of service they use. Three-quarters of low-income customers in the survey reported that they were not aware of their own local usage plan. Moreover, only one in five of the customers surveyed were aware that their local phone company offered more than one usage plan. "Without prompting, nearly eight in ten customers (78%) did not know other plans were available."

The response to a similar survey in Connecticut was not quite as dramatic. Nonetheless, researchers concluded that nearly one quarter (23 percent) of the households surveyed did not know what type of local service they were using. When queried about whether specific service options might be available, the percentage of households who were either "unsure" or who said that the option "maybe" was available ranged from 22 percent to 36 percent.

In a Michigan survey of public assistance recipients roughly half of the customers surveyed (46 percent) said they knew which type of service they had. The residential customers did not reveal a reasoned or sophisticated search process for that service. Fewer than one in five households said that they had shopped for the least expensive service provided by the local telephone company.

More disturbing for those who argue that residential customers will shop for utility service based on price, the Michigan research found that "those on flat rate service are much more likely to have said that they don't know why they chose their service." Moreover, the elderly (54+ years old) are three times as likely as the nonelderly to say they chose their service because they've "always had it."

Finally, the Michigan research reported that many customers do not even know who their long distance carrier is. "On average, about two-thirds of the respondents correctly identified their long distance carrier."

A recent study of low-income residential telephone consumers in by the National Consumer Law Center in Boston found that "many of those who subscribed to measured service probably made too many phone calls each month to benefit by this service, and those who could benefit most, people who made few phone calls, did not subscribe to measured service." The Boston study also showed that low-income customers in minority neighborhoods had a disproportionate take-rate for enhanced services.

By contrast, low-income customers in minority inner-city neighborhoods did not know about the availability of rate affordability programs such as Lifeline and Link-Up; the company did not push these services, and customers did not know to ask for them. Thus, low-income customers are unaware of their situation, unaware of their options, and unable to protect themselves in a competitive market for basic utility services.

Retail Competition Will Make Electric Prices More Volatile. Most analysts of the models of competition in the electric industry agree that the market will be more volatile. Prices will reflect the short-term conditions of the market. When ample supplies of low-cost power are available, prices will drop. But when the system approaches a capacity constraint, prices will spike up.

Volatility is a severe problem for fixed income customers. Low-income customers tend to be limited to a fixed income, and cannot adjust to meet the swings of the market.

Customer Service Regulations. Because of these new likely realities, aggressive consumer protections will be needed. At a minimum the State Corporation Commission must regulate:

1. Credit terms: require nondiscriminatory credit terms; prohibit denial of service for past due amounts owed to a different supplier; assure compliance with the Equal Credit Opportunity Act and Fair Credit Reporting Act.

2. Prohibit redlining and provide for adequate enforcement of these protections;

3. Prevent Unfair Trade Practice marketing practices and fraud, i.e., marketing misrepresentations; slamming; fraudulent sales;

4. Establish rules to protect the privacy of the customer's billing and usage information presently controlled by the Distribution Company;

5. Provide a neutral dispute resolution authority;

6. Regulate the minimal requirements and procedures for disconnection of service;

7. Mandate the application of the Winter Rule and other health and safety rules concerning "protected accounts";

8. Establish a provision to offer discounts for low-income customers;

and

9. Provide for the suspension/revocation of a license to sell at retail of any company violating these requirements, and permit individual customers or customer groups to petition for Department enforcement actions.

The Distribution Companies alone will not address the potential discriminatory access barriers that may arise with unregulated energy marketers and sellers. Sellers and marketers may seek to "cream skim" certain customer groups based on income or geographic location. Others may make unrealistic promises (e.g., power quality) or mislead customers on pricing options and actual bill impacts. These activities will stifle competition for all customers. Rules need to be developed in this proceeding to govern the basic customer-seller relationship that will be the linchpin of the new competitive era.

ADDITIONAL RESOURCES:

See, RPM Systems, Inc., An Exploratory Study of: Low-Income Telephone Subscribers in Connecticut, May, 1988.

Michigan Citizens Lobby, Low Income Households in the Post-Divestiture Era: A Study of Telephone Subscribership and use in Michigan, October, 1986.

Adrienne Quinn and Roger Colton, The Impact on Low-Income People of the Increased Cost for Basic Telephone Service, National Consumer Law Center, 1992.