I. Introduction

In this subcommittee hearing last August, my presentation touched on many concepts and issues of equity and fairness in a restructured electric utility industry. Industrial customers are at the table for their second and third helpings of the benefits of competition. The transition of natural monopolies in a regulated environment to a legislated competitive market will bring radical changes that consumers, especially the low-income are unprepared for. In other deregulated industries such as banking, insurance and telecommunications, market forces alone have never remedied the disparities that have prevented low-income consumers the ability to exercise choice. Implementing industry change will move along more swiftly if the public is assured that important safeguards such as: affordability, and environmental and social benefits are not at risk. The proposal we are addressing here today is lacking a discussion of specific mechanisms to ensure energy efficiency programming, which adds value to our economy, environment and national security.

II. Stranded Benefits

The draft working model sites Stranded Margins, that is the risk of paying a higher rate if competitive prices prevail for customers of low cost utilities, as a benefit to retain. Other Stranded Benefits that are at risk are not mentioned. For example, for the past three decades utilities under provisions of the obligation to serve were also responsible for delivering social benefits such as the Residential Conservation Service, the elderly WRAP program, and utility or region specific programs of assistance. Between 1978 and 1989 utilities provided 9.6% ($418 million) of funding available for low-income weatherization. Utilities were responsible for 22% of all units weatherized in that time period. The average investment per unit was only about one-third as much as in the DOE Weatherization Program. In the decade between 1985 and 1995, utilities became the dominant player in funding the efficient end use of electricity. In Virginia, 2,568 dwellings were weatherized in the past fiscal year. Over $2.2 million, or 54% of Virginia Weatherization funding was from matched/leveraged resources from the private sector and utilities for the past fiscal year. In 1993, 991 utilities nationwide operated Demand Side Management programs, spending $2.8 billion---a 13% increase over 1992 expenditures. DSM investments saved 44,000 Gwh of energy and reduced potential peak demand by 40,000 MW in 1993. The stranded benefits of DSM are significant and justify a new comprehensive economic analysis. Past analysis of DSM programs included only avoided cost of new generation and now should include societal and environmental costs. End user cost effectiveness should not be overlooked. The technological production boom has brought prices down. There has also been great movement along learning and experiential curves. Many energy efficiency technology applications show an attractive return on investment and positive life cycle costs. The Oak Ridge National Laboratory study found a benefit-cost ratio of 2.39 for the Weatherization Program. In a competitive environment there will be market barriers and utilities will want to shed these programs if all competitors are not bearing the same responsibility. This loss will increase the burden on consumers who have no other way to reduce consumption of energy to an affordable level. In Chapter 2-Reliability Issues, in the context of generation capacity and supply and demand price signals, the concern is expressed that "low-income customers may not have the wherewithal" to make an investment in alternative sources of heat. Rather the perspective should be to reduce the heat loss and not assume that they only need to buy more heat which they cannot afford. Low-income consumers may not have the financial resources to invest in more equipment or insulation but most have the "wherewithal" to turn down the thermostat and wear coats to bed because that is what is affordable. Low-income consumers do not generally have substantial discretionary energy use.

III. Risk of Adverse Impact on Rates and Service

It is not only the dynamics of supply and demand price signals that will impact rates, moreover, when we consider the historical cost-of-service ratemaking may be replaced by value-of -service ratemaking which takes into consideration alternatives available to customers, given the lack of alternatives for low-income consumers, the value of electric service is higher and prices are set accordingly. In a competitive environment allocation of fixed and variable costs can pass higher costs on to captive low-income consumers. Utilities will charge larger customers close to their variable costs to keep their prices low and competitive. The Phase I-Rate Review should consider these different concepts of ratemaking and cost allocation. In addition, the SCC is currently considering Special Rates for large industrials, many states have legislated for special rates discounted for the very low-income. For example, West Virginia has a 20% discount for the coldest months for qualifying low-income to be able to afford heat. Restructuring provides the best opportunity to develop programs for the most vulnerable populations. In terms of service, residential consumers are already facing a reduced level of customer service with office closings and centralized call centers with bottleneck problems. The internal restructuring of utilities has assigned representatives to business services and key accounts while making it virtually impossible to get in touch with anyone for basic service needs. The local listing in the phone book has been replaced with a toll-free number with inadequate capacity and you can no longer walk in to the office to pay your bill. Consider that if through arrears, or some other problem, your power was disconnected at your home on this freezing December day, you will likely will spend the night in the cold and dark. The large customers do not have this problem because representatives have spent the last two years making personal outreach efforts to these customers to ensure they have a direct contact in the utility to solve their problems quickly. Adequate customer service for this vital service is not addressed clearly in the model. Recommendation 12, for additional utility reporting requirements on customer service will not reflect the number of calls that never got through.

IV. Information is Power-- TOU Metering, Savings Access

The very obscure time-of-use, time-of-day, alternative and experimental rates that exist have existed for many years will suddenly proliferate and expand in a competitive environment. Significant promotion and education will be necessary to access the savings they avail. Large customers are already receiving this information along with plant visits and detailed analysis of their energy usage patterns and comparative tariff analysis. The proposed plan suggests using predetermined customer load profiles. However, load profiles can vary greatly with such variables as number of occupants, occupant behavior, structure, appliance mix, and weather to name a few. With more people working at home, equipment and lighting additions, remodeling trends, and any energy efficiency improvements, most historical data available could have great divergence from actual useage. Energy audits and load research metering are necessary today for adequate profiling and planning of energy loads. If utilities are expected to offer these services along with metering, they will ask for confidentiality of the information obtained. This will not serve the purpose of consumer choice nor allow for targeting of energy efficiency measures, equitable access to savings and low-income assistance.

V. Universal Systems Benefits Charge

Across the nation today at least $4.2 billion is included in the rates of franchised electric utilities for programs dedicated to energy efficiency, renewables and low-income assistance annually. Utility rates today include the elements to support these programs. Low income assistance is the common denominator of "system benefits" kept by most new restructuring laws and regulation in California, Pennsylvania, Rhode Island, Vermont, New Hampshire, Maine, Montana, Washington, Idaho and Arizona. There is a clearly growing consensus as to the merits of a systems benefits charges in the United States. 911 Emergency Calling is an example of a charge for public benefit. There are many ways to fund, structure, collect and administer a systems benefits charge and the proposal we are addressing here today should include an approach for Virginia. Some states have created or are considering charges equal to 3-5% of utility revenues or around two to five tenths of a cent per kwh. However, to be competitively neutral and non-bypassable the distribution fee should be imposed on a Btu basis on all fuels at the meter. A systems benefits charge can be used to provide the current level of public benefits while markets are given a chance to develop. I don't believe that Virginia will want to be a leader in ignoring stranded benefits in this restructuring proposal. There is a great risk to not addressing these public benefits in the transition period as well as in a fully developed market. Public outcry, pollution, elderly and disable suffering, financial stress, and ultimately questionable competitiveness, are very real risks should Virginia fail to address Stranded Public Benefits.

Respectfully Submitted,
by:
Mary Ann Capp
VMH, Inc.
Energy Management Services