retail electric competition - us department of energy€¦ · tion. in every state that is...

Retail Electric Competition:A Blueprint for Consumer Protection

Barbara Reid AlexanderConsumer Affairs Consultant

15 Wedgewood DriveWinthrop, Maine 04364

October 1998

This report was prepared for the U.S. Department of Energy, Chicago Regional

Support Office (Purchase Order DE-AP45-97R553188). Funding was provided

by the Department of Energy�s Office of Power Technologies, Ofiice of Energy

Efficiency and Renewable Energy.

ii

This report was prepared as an account of work sponsored by an agency of the UnitedStates Government. Neither the United States Government nor any agency thereof, norany of their employees, makes any warranty, express or implied, or assumes any legalliability or responsibility for the accuracy, completeness, or usefulness of any information,apparatus, product, or process disclosed, or represents that its use would not infringeprivately owned rights. Reference herein to any specific commercial product, process,or service by trade name, trademark, manufacturer, or otherwise, does not necessarilyconstitute or imply its endorsement, recommendations, or favoring by the United StatesGovernment or any agency thereof. The views and opinions of the author expressedherein do not necessarily state or reflect those of the United States Government or anyagency thereof.

This report has been reproduced directly from the best available copy.

Available to DOE and DOE contractors from the Office of Scientific and Technical Infor-mation, P.B. Box 62, Oak Ridge, TN 37831; prices available from (423) 576-8401, FTS626-8401

Available to the public from the National Technical Information Service, U.S. Departmentof Commerce, 5285 Port Royal Rd., Springfield, VA 22161

Disclaimer

Printed with soy ink on recycled paper

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Table of ContentsEXECUTIVE SUMMARY ................................................................................................. 3

INTRODUCTION ........................................................................................................ 11Consumer Protection Issues ................................................................................................ 11

How The Blueprint Is Organized ........................................................................................ 12

CHAPTER I: CONSUMER EDUCATION AND DISCLOSURE POLICIES ............................... 15

Consumer Education ............................................................................................................ 15Telephone Restructuring: A Case Study ...................................................................... 16The Implications for Electric Restructuring .................................................................. 17

Shopping for Electricity ....................................................................................................... . 19

What Should Be Disclosed .................................................................................................. 20Price .......................................................................................................................... ........ 20Contract Terms ................................................................................................................ 21Supply Mix ....................................................................................................................... 21Emissions ......................................................................................................................... 21Labor ................................................................................................................................ 21

When Disclosures Should Be Provided ............................................................................. 22

CHAPTER II: CONSUMER PROTECTION AND PUBLIC PURPOSE PROGRAMS:THE ROLE OF THE LOCAL DISTRIBUTION UTILITY .................................................. 23Obligation to Serve ............................................................................................................ .. 24

Default Service ................................................................................................................ ...... 24Create a Bid Process ...................................................................................................... 26Require Distribution Utilities to Provide Default Service

at Market-Based Rates ............................................................................................ 27Require Distribution Utilities to Provide Default Service

Under a Rate Cap or Rate Decrease ..................................................................... 27Ballot and Spread by Random Assignment ................................................................ 27

Assuring Reliability of Service .............................................................................................. 28

Universal Service Programs .................................................................................................. 29

Credit and Collection Policies ............................................................................................. 32Disconnection of Service .............................................................................................. 32Allocation of Partial Payments ....................................................................................... 32

Customer Privacy ............................................................................................................... .... 33

CHAPTER III: STATE REGULATION OF COMPETITIVE ENERGY SUPPLIERS ....................... 35The Rationale for State Consumer Protection Regulation ................................................ 35

Existing State and Federal Consumer Protection .............................................................. 37Application for Credit .................................................................................................... 37

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Credit Terms (Truth in Lending Act) ............................................................................. 38Unfair and Deceptive Practices .................................................................................... 39Debt Collection............................................................................................................... 40Telemarketing and Consumer Fraud and Abuse Prevention Act ............................. 40Cooling Off Rule .............................................................................................................. 40

Definition of Services Subject to Competition ................................................................. 40

Licensing Criteria for Suppliers ............................................................................................ 42

Disclosures .................................................................................................................... ......... 43

Regulation of Credit Practices .............................................................................................. 44

Regulation of Contract Terms ............................................................................................... 44

Regulation of Unfair Trade and Marketing Practices .......................................................... 46Slamming ......................................................................................................................... 46Marketing Renewable Energy ........................................................................................ 47

CHAPTER IV: THE MANY FACES OF CUSTOMER CHOICE:AGGREGATION AND GROUP BUYING POWER ..................................................... 49Consumer Benefits From Aggregation ................................................................................ 50

Barriers to Effective Aggregation ......................................................................................... 51

Consumer Energy Cooperatives ......................................................................................... 53

A Note on the �Muni-Lite� Concept .................................................................................. 53

CHAPTER V: THE NEW CONSUMER PROTECTION ROLE:

JURISDICTIONAL AND ENFORCEMENT IMPLICATIONS........................................... 55Jurisdiction of the State Utility Commission....................................................................... 55

Access to Books and Records; Enforcement Tools ......................................................... 58

The Role of the Consumer Advocate ................................................................................ 59

The Role of the State Energy Office ................................................................................... 60

CONCLUSION ........................................................................................................... 61

ENDNOTES ............................................................................................................... 63APPENDICESA. A Short Primer on Retail Electric Restructuring ................................................................. 67

B. Excepts from State Electric Restructuring Legislation ....................................................... 71

C. National Council Publications on Electric Industry Restructuring .................................... 99

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Diane PirkeyOffice of Utility Technologies,U.S. Department of Energy

Cheryl HarringtonRegulatory Assistance Project

Matthew BrownNational Conference of State Legislatures

Deborah SchachterGovernor�s Office of Energyand Community Services,State of New Hampshire

Joel EisenbergOffice of State and Community Programs,U.S. Department of Energy

Acknowledgments

The author gratefully acknowledges the following reviewers:

Irwin �Sonny� PopowskyConsumer Advocate,State of Pennsylvania

Commissioner William GillesWashington Utilities andTransportation Commission

Camie Swanson-HullIndiana Public Utilities Commission

Richard ScheerEnergetics, Incorporated

Jeannette BrinchEnergetics, Incorporated

Carole Reynolds, Mary Engle,Janice Frankle, Gina Scharr HowardBureau of Consumer ProtectionFederal Trade Commission

The author takes full responsibility for any errors or misstatements.

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Consumer Protection Issues

Almost every state has a proceedingunderway to study or implement themove to retail electric competition.While 12 states (California, New Hamp-shire, Rhode Island, Maine, Massachusetts,Pennsylvania, Nevada, Oklahoma, Mon-tana, Illinois, Connecticut, and Virginia)have adopted legislation to mandateretail electric competition by a datecertain, many other states have initiatedregulatory proceedings to explore, and,in some cases, implement, retail competi-tion. In every state that is exploring retailelectric competition, legislators, stateenergy regulators and other statepolicymakers, business groups, environ-mental and consumer advocates, andcustomer groups are trying to determinehow this new industry structure will work,what it should look like, and how con-sumers will be affected.

The adoption of retail electric competi-tion will require states to rethink a broadrange of issues concerning the provisionof basic electric utility services to allcustomers. This Blueprint for ConsumerProtection is intended to help statedecision makers respond to one signifi-cant part of the overall agenda, referredto as �consumer protection� issues andconcerns. Basically, this set of issues willredefine the consumer�s relationship withhis/her energy supplier and redefine his/her rights and remedies to obtain andmaintain electric service. This documentdoes not address market structure,stranded cost recovery, divestiture, the

approval of mergers and acquisitions, therelationship between retail competitionand the environment, or the terms andconditions governing the relationshipbetween distribution companies andnew competitive suppliers. While theseissues are crucial to the ultimate out-come of any retail electric competitioneffort, they are beyond the scope ofthis Blueprint.

In general, �consumers� refer to residentialand small commercial customers. Thesecustomer groups are typically not of-fered the opportunity to negotiate acustomer-specific contract. Rather, theyare typically low-usage customers whouse less energy or electricity than largercustomers. In addition, they typically areoffered pre-printed �take it or leave�contracts by suppliers of mass-marketedproducts; it is likely that electricity will beno exception to this general practice.Finally, these customers typically shopfor mass-marketed products withoutexpert assistance and usually do nothave legal or financial assistance or thenecessary background to negotiatespecific deals in the marketplace forsuch items in their budget.

While most observers would certainlyacknowledge that residential customersshould be provided some standardizedconsumer protections, others mayquestion the inclusion of small commer-cial customers in this group. However,most states that have adopted retailelectric competition have included smallcommercial customers, defined with

Introduction

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respect to their electricity usage ordemand criteria, within the consumerprotections discussed in this Blueprint.Similar to residential customers, smallcommercial customers use less electricitythan larger commercial or industrialcustomers and usually do not have thetime or special skills required to obtainelectricity on the basis of individuallynegotiated contracts. In many states, aswell, policymakers have responded tothe high incidence of telephone fraudand the unauthorized change of tele-phone supplier (referred to as �slam-ming�) that has victimized small commer-cial, as well as residential, customers.

Consumer protection issues are crucial tothe move from monopoly regulation ofelectricity and gas to a competitivemarket for generation services. Mostparticipants in the restructuring debateagree that the general public will notconsider the prospect of theoreticallylower prices in the future as a sufficienttradeoff if the new market also means anincrease in fraud, customer confusion,complaints, and inability to understandand participate in a new market structure.In short, consumer protection issues arecrucial to the public�s acceptance ofcompetition.

This Blueprint is primarily aimed at state-level decision makers in states that havenot yet adopted electric restructuringlegislation, presenting examples fromthose states that have progressed to theimplementation stage. For readers whomay need a primer on the �whys andwherefores� of electric restructuring,

Appendix A contains a short introductionto the forces that have stimulated themove to retail competition in the electricindustry.

How The BlueprintIs Organized

The Blueprint is organized so that readerscan quickly find specific issues andpolicy discussions. Each issue is pre-sented with background information anda summary of recent state electriccompetition legislation or regulations onthat topic. Key decisions and options arehighlighted in text boxes that presentexamples from states that have alreadyadopted legislation and regulations onthese topics.

Chapter I presents an overview ofconsumer education and disclosurepolicies and programs. The purpose ofthese programs is to enable consumersto easily compare offers and to get theminterested in shopping for electricity andelectricity products. Because electriccompetition is not being undertaken inresponse to a grassroots effort (asexplained more fully in Appendix A), it isimportant that residential and smallcommercial customers not be caught bysurprise when these changes are imple-mented. In addition, a competitivemarket operates to keep prices as lowas possible only when customers areknowledgeable about their options andcan compare prices and select theproduct and price most beneficial to them.

Introduction

13

Chapter II addresses the redefined roleof the remaining monopoly, the electricdistribution company. Every state that ismoving to retail electric competition isadopting separate regulatory approachesfor distribution and transmission and thegeneration or sale of electricity. Thisseparation or �unbundling� of the currentintegrated utility, as well as the manner inwhich charges are presented on thecustomer�s monthly utility bill, requireslegislators to identify the public policybenefits that are built into the currentregulatory structure and the regulatedrates. Legislators must also determinewhether existing or additional publicpolicy benefits should be added to thenew �unbundled� system. The distribu-tion function will typically operate as amonopoly and the state utility commis-sion will continue to regulate it as such.That means that the prices, services andconsumer protections associated withthe delivery of distribution services willcontinue to be regulated. However, thedistribution company will have a differentrole from its current one. Its main obliga-tion in the future will be to assure thatcustomers are connected to the distribu-tion system. This differs from the priorobligation of the electric monopolysupplier, which was to assure not onlyconnection and delivery, but electricityservices as well. The change in obliga-tion has important implications for thehistorical state interest in assuring universalavailability and affordability of electricity.

Chapter III focuses on regulation of thenew actors in the competitive market:suppliers of electricity and electricityservices. Suppliers will include newentities and new incarnations of currentutilities. Their services and products willbe competitive; that is, their prices willnot be regulated. However, this does notmean that the competitive suppliers willbe entirely free of regulation. Most statesare creating licensing criteria and estab-lishing minimum consumer protections, aswell as prohibiting unfair trade practices.Such a regulatory approach is similar toother state-regulated businesses, such asconsumer credit, banking, insurance andhealth care. Key issues with respect tothe regulation of competitive suppliersinclude:

n how to prevent �slamming� (a changein the customer�s supplier withoutpermission);

n whether and how suppliers shouldbe licensed;

n how to integrate the regulation ofsuppliers with existing state andfederal consumer protection laws;

n what role suppliers will play inassuring that electricity is availabilityand affordable to all customers;

n how to prevent redlining; and

n how the supplier�s contract termsand collection remedies should beregulated, if at all.

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Chapter IV looks at a new opportunitythat will arise with the onset of theelectricity competition: the ability toaggregate or create customer poolsbased on political boundaries (municipalor county) or customer organizations oraffinity groups. For example, someadvocates for low-income customerspoint to the possibility of significantbenefits for traditionally hard-to-servecustomers by grouping them together intoa single purchasing entity.

Chapter V explores the implications ofthe new industry structure on stateapproaches to regulation and on differ-ences between utility regulation and theregulation of competitive business ingeneral. In effect, the state regulatoryapproach will move from regulatingprices to one that emphasizes consumer

Introduction

protection and fair trade practices. Thisfundamental change will require states torethink the location of new regulatoryduties, as well as the enforcement skillsand resources that will be needed toaccomplish new tasks.

Appendix A contains backgroundinformation on the economic, technologi-cal and political forces that are drivingthe changes in the electric industry.

Appendix B contains examples ofrecently-enacted state legislation thataddresses consumer protection issuesassociated with electric competition.

Appendix C contains a bibliography ofuseful reading materials on restructuringpublished by the National Council onCompetition in the Electric Industry.

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CONSUMER EDUCATIONAND DISCLOSUREPOLICIES

What if state and federal policymakersrestructure the electric industry to createa competitive market, but participationby residential and small commercialcustomers is much lower than expected?A competitive market needs both willingbuyers and sellers. If buyers don�tparticipate in the competitive market, theability of the competitive market to exerta better discipline on prices than tradi-tional utility price regulation will beimpaired. Indeed, if customers do notshop for electricity or suppliers do notmarket to residential customers, there is areal risk that the promise of competitivemarkets for electricity will not be real-ized. In a worst case scenario, the resultmay be the unintended creation of anunregulated monopoly or oligopoly.

While many key decisions that willimpact the creation of a competitivemarket are not the subject of this Blue-print, two initiatives may go far to helpstimulate customer interest in competitionand help consumers develop the skills toshop for electricity. The first initiativefocuses on how consumers learn aboutthe move to electric competition. Thesecond initiative focuses on givingconsumers the tools to enter the com-petitive market and make an informedchoice. The judicious use of disclosurerequirements that enable customers to

shop and compare offers, can helpprevent fraud and abuse, and provide aform of regulatory investment that mayprove cheaper than enforcement pro-ceedings in a hearing or court room.

Consumer Education

Most residential and small businessconsumers routinely pay their monthlyelectric bill without much attention toregulated rates or usage patterns. In-deed, recent research reveals that mostconsumers do not know their annualenergy usage or the price paid per kWhon their utility bill.1 Residential house-holds use far less energy than commercialor industrial customers and the annualresidential energy bill (65% of which iselectricity for households) typically

CHAPTER I

A customer who asked to be part of the

Pennsylvania electric pilot programs in

November, 1997, had

this reaction to the

offers that appeared in

his mailbox from

electricity suppliers,

�Each had different information, a different

pitch--you couldn�t compare apples to

apples.� The customer felt that partici-

pating in the pilot program took more

time than it was worth in potential savings.

�The Outlook,� Timothy Appell, Wall

Street Journal, December 15, 1997.

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consumes 5% or less of householdincome.2 Even in states with higher thanaverage electricity rates, such as the NewEngland states where residential ratesaverage 11-13 cents per kWh, themonthly electric bill is still a relativelysmall portion of a typical residentialcustomer�s monthly budget. Whileresidential customers often are con-cerned about electricity prices, the moveto retail electric competition is not beingdriven by their concerns. Because of this,some observers believe that residentialcustomers will not participate extensivelyin the new competitive market, especiallywhen their initial savings may be 10% orless compared to current annual costs.Will customers be naturally inclined toshop and compare prices when savingson their bills during the early years maynot exceed $5 to $10 per month? Willlow-income, elderly and non-Englishspeaking customers obtain the informa-tion necessary to understand an issue thatappears complex, with a daunting newvocabulary, and that at first glanceappears to threaten the reliability of theirelectric service?

Telephone Restructuring:A Case Study

Policymakers are looking to lessonslearned from restructuring of the tele-phone industry, which began with thebreak-up of AT&T and the onset of longdistance telephone competition in 1984.In telephone industry restructuring, neitherfederal or state regulators undertook anysignificant public education campaign toprepare customers for changes. Oncelong distance telephone competitionbegan, it produced a litany of complaintsby residential and small business custom-ers, alleging that their long distanceservice providers had been changedwithout their permission, a practiceknown as �slamming.� Telephone cus-tomers also complained about aggressivemarketing tactics, such as telemarketingcalls during the dinner hour, or the highprices of some credit card and operator-assisted calls at pay phones. Manytelephone customers also questioned theprices charged by some companies forpay-per-call services (1-900 calls) thatappeared on their local phone bills andthreatened the continuation of localphone service if the unregulated chargeswere not paid.

These developments have, in turn,resulted in legislative and regulatoryefforts to belatedly address consumerprotection and education issues associ-ated with telephone restructuring. Cus-tomers have reacted to questions aboutelectric restructuring by raising thesesame concerns and asking for protec-tions to prevent their reoccurrence.

Consumer Education And Disclosure Policies

Even though the long distance telephone

market was first opened to competition

in 1984, AT&T still had over a 50% market

share in 1996.

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Careful attention to timing, educationalmessages, information disclosure, andassurance of consumer protections willaccelerate the development of competi-tive retail markets for electricity and helpensure that the benefits of lower prices,more choices, and better service areavailable to all consumers.

The Implications forElectric Restructuring

Many states have concluded that themove to electric competition will requirea larger educational effort than thetraditional utility bill inserts or publichearings and workshops. Preparingcustomers to shop for electricity andthen respond to marketing messages theyreceive will require a comprehensive andprofessional outreach and educationaleffort. Customers will need frequentmessages from a variety of sources tounderstand their new rights, responsibili-ties, and opportunities. Outreach andeducation will probably require addi-tional resources, since most state regula-tory commissions have not had toconduct such efforts in the past. Thedramatic change in relationship betweencustomers and their electric utility cannotbe accomplished by relying solely on thetools that have prevailed in a monopolyutility structure.

The purpose of a comprehensive publiceducation program should be to maxi-mize public participation in the imple-mentation of retail competition, minimizecustomer confusion about the changesbeing undertaken, and equip all custom-ers with the means to participate effec-tively in the competitive electric market.While any state-funded educational effortmust be neutral and objective, it shouldnot be confused with the promotionaland brand name marketing efforts ofcompetitive suppliers. Customer educa-tion and outreach programs in severalstates have been designed to motivatecustomers to learn about electric com-

California�s PUC has initiated a $90 million

state-wide education program called

�Plug In, California!� to stimulate customer

awareness of competition. This program,

funded by distribution utilities through

rates charged to all customers, is de-

signed to inform customers with TV

and radio advertisements, followed

by a direct mail campaign targeted

to every household. In addition,

more than $13 million is

available to community-

based organizations to

focus on local education

activities, especially for low-income, rural,

and elderly customers.

The Pennsylvania PUC has ordered all

distribution utilities to fund comprehensive

consumer education programs with a

statewide multi-media campaign and a

local education

effort that involves

community organiza-

tions. The PUC has

set program funding

levels for each utility at $5 per customer

over a 4-year period.

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petition with modern marketing tech-niques. Key components of a welldesigned electric competition educationprogram have included:

n information dissemination by means ofinteractive activities, as well as bro-chures or other written materials, anduse of a variety of mass media outlets,with the intent to motivate the public tobecome interested in, and learn moreabout, electric competition;

n explanations in clear language (andmultiple languages in some states) ofthe basic concepts of electricrestructuring, which include (1) infor-mation on how prices, consumerprotections and low-income pro-grams may be affected; (2) explana-tions of customer risks and responsi-bilities; (3) information about how toassess and make use of a householdenergy profile to shop for electricity;(4) how to compare offers fromelectric suppliers; (5) informationabout aggregation; and (6) informationabout dispute resolution mechanisms,including the role of state agencies

in resolving disputes with retailelectric suppliers;

n well-publicized public forumsconducted in several geographicalareas to obtain public input andprovide opportunities for informationexchange;

n active involvement of communityorganizations in developing messagesand devising and implementingeducation strategies, particularly forlow-income, elderly, foreign speak-ing, rural and other customers whomay miss more traditional media-based efforts;

n use of focus groups and surveys togather public input on both broadrestructuring issues and concerns, aswell as on public education needsand reaction to initial outreachinitiatives;

n a toll-free hotline to provideguidance to consumers seekingadvice about personal energy needs,the selection of a retail supplier,aggregation, or dispute resolution;and

n use of pre-established outcomemeasures of customer awareness,understanding and ability to act,which periodically evaluate educa-tion and outreach efforts.3

In states that have designed comprehensiveelectric restructuring education programs,the state public utility commission has takena leadership role in coordinating, funding,

The Maine Customer Education

Advisory Board on Electricity Retail

Access has recommended a $1.6

million education plan in four phases:

n Awareness

n Understanding

n Assurance

n Acceptance


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and implementing the program, althoughusually with a broad-based advisorycommittee or other public involvementprocess. While there are several fundingoptions, such as state tax appropriation,increased commission budget, or fundingvia the distribution utility�s rates, most stateshave opted to fund their education pro-gram through imposition of transition costson distribution utilities.

Shopping for Electricity

The arrival of customer choice carrieswith it the potential for customer confu-sion. If the experience in other industriesis any guide, comparing electricity pricingoffers will be especially confusing anddifficult. Is $5 a month and 10¢ per kWhbetter than $10 a month and 8¢ per kWh?Or $6 and 12¢ per kWh with a 40% off-peak discount? Furthermore, the sale ofelectricity itself may be bundled withother products, such as alternative meters(which will offer additional energymanagement services or pricing options),or even other products, such as Internetaccess or telephone services. Productlinkages may make comparisons amongoffers by multiple suppliers even moredifficult.

In some industries, such as consumercredit, appliances, cars, and food,4

uniform consumer disclosures have beendeveloping for decades.5 This author hassuggested that the lack of uniform pricedisclosure on bills and other marketingmaterials in the long distance telephoneindustry may have contributed in part tothe lack of significant gain in market share

for AT&T competitors for over a de-cade.6 This same development mayoccur with the move to electric competi-tion unless there is a concerted effort toadopt a different approach. The primaryproblem is that consumers lack bothcritical information and skills to easilyevaluate different price offers. Further-more, consumers have a long-standinghabit of receiving their electric bills andpaying them automatically. Nothing morehas been expected of customers in aregulated market. If consumers do nottake the time to shop in a competitivemarket, they cannot fulfill their essentialrole in making competition work in favorof the most efficient suppliers (or thosesuppliers promoting attributes other thanprice which may be valued by someconsumers, such as environmentallyfriendly products or energy sourceslocated in the consumer�s state). In theabsence of key consumer information,the marketplace works on the basis ofinformation manipulation rather than

Maine�s Consumer Education Program

Rule requires distribution utilities to

fund a Commission-approved $1.6

million consumer education

program for electric restructuring

over a four-year period. The

assessment will be recovered from

ratepayers. �This funding determina-

tion is based on the principle that

those consumers who benefit from a

program should pay to support it.�

Order Adopting Rule, Docket No. 97-

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efficiency. This is particularly true forconsumers whose monthly bill for elec-tricity or telephone is a modest part ofthe household budget.

Recognizing this, the National Associationof Regulatory Utility Commissioners(NARUC) in July 1996 urged statesadopting retail direct access programs toinclude enforceable standards of disclo-sure and labeling that would allow retailconsumers to easily compare the price,price variability, resource mix, andenvironmental characteristics of theirelectricity purchases.

Among other purposes, NARUCannounced its belief that�the electric industry should facili-tate informed customer choice thatwill promote efficient markets.�

What Should Be Disclosed

Consumer research has confirmed thatthe public wants comparative priceinformation. Focus groups and surveys inNew Hampshire and Massachusetts ofcustomers who had participated in pilotelectric competition programs, docu-mented confusion with the lack ofstandardized pricing statements andcalled for state regulation to providestandard price disclosures.7 As a resultof this experience, utility commissions inNew England have worked together todevelop a model, uniform ElectricityDisclosure Label and a more detailedTerms of Service document for the saleof electricity to residential and smallcommercial customers to be used by

suppliers marketing in the New Englandregion. The following discussion summa-rizes key recommendations of thiscollaborative effort:8

Price

Customers should be able to compareprices on an �apples-to-apples� basis.The most commonly recommendedapproach is to disclose the supplier�sprice structure in a cents per kWh for 3-4common usage levels (i.e., 500, 1000 and2000 kWh levels for residential custom-ers). One key policy issue is whether auniform price disclosure method shouldreflect only the competitive generationservice offered by the supplier orinclude all other pieces of the customer�smonthly electric bill, i.e., distributioncharges and possibly other unregulatedservices. Limiting price disclosure togeneration services allows suppliersselling across a wide geographical areato use a single label without regard todifferences in distribution charges. Ifdistribution costs are included, it isimpossible to include a label, for ex-ample, in a Boston Globe ad that reachesconsumers in other utility service areas.

If suppliers are required to provideaverage price information at severaltypical usage levels, most customers canidentify a level most closely matchingtheir own. One-time cash rebates orother price inducements should probablynot be reflected in the disclosure ofaverage electricity price. Prices for time-of-use (TOU) rates should be based onconsistent load profiles for customers,with usage levels shown. If a supplieruses variable prices in which prices


21

change according to an index, thedisclosure could show prices reflecting arecent period or project under a uniformset of assumptions, much like variablerate consumer credit contracts (includingmortgages) under the Truth in Lending Actrules.9

Contract Terms

In addition to price, consumers will needto know the contract duration andwhether the price is fixed or variableover the term of the contract. Otherimportant terms include penalties forearly termination, late fees, or other extracharges. Because consumers are unlikelyto actually sign a contract document tobuy electricity, it will be important forconsumers to know and understand thematerial terms of their agreement. Afterall, consumers will no longer be able to relyon the tariffs filed by their current utility withthe public utility commission (a form of�master contract�) for their purchase ofelectricity in a competitive market.

Supply Mix

Consumers are concerned about theenvironment, and want information aboutfuels used to generate electricity.10 Onesupplier�s electrons will not automaticallyflow only to the homes of its owncustomers. Rather, the local power poolwill probably dispatch sufficient electric-ity to meet local demand based on costand reliability factors of the total genera-tion mix. Nonetheless, if more customersbuy from �green� suppliers, renewablepower will be an increasing part of thelocal power mix. Therefore, severalstates are working to develop a method

of disclosing fuel mix on electricityproduct labels, showing major fuel types(coal, oil, nuclear, renewable energy) as apercent of the supplier�s total generationmix. For example, California requires allsuppliers to disclose their fuel mix basedon an historical record.11 If a supplierobtains �generic� power from the re-gional power pool, the fuel mix disclo-sure should reflect that power mix or acomparable substitute. If the supplierproposes to market power from aparticular facility, the fuel source for thatfacility could be presented.

Emissions

Massachusetts has recently adoptedregulations that require suppliers whomarket in that state to disclose price, fuelmix, and air emissions (sulfur dioxide,nitrogen oxides and carbon dioxide).12

A supplier�s generation source emissionsmust be expressed in a form whichcompares them to average regionalemissions of all generating sources. Thisapproach allows customers to comparea supplier�s emissions profile with otherpower generators.

Labor

Massachusetts� electric restructuring lawalso requires suppliers to disclose thepercentage of their generation mix thatcomes from power sources with em-ployee union contracts and the percent-age that comes from power sources thatuse replacement labor during labor disputes.

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When Disclosures Should Be Provided

There are at least three distinct events or points of contact in acustomer�s relationship with an electricity supplier that suggests aneed for different disclosures. Suppliers should disclose informa-tion to their customers (or potential customers) in (1) promotionalmaterials; (2) Terms of Service documents or contract summaries;and (3) monthly bills.

The first point of contact is at the time a supplier advertises itselectricity products. Drawing comparisons to a requirement of theTruth in Lending Act, some experts recommend development ofan Electricity Facts Label with disclosures concerning price, fuelmix and emissions (or other required items), which should appearin a supplier�s printed advertisements and written promotionalmaterials.13

A second point of contact is at the point when a customer entersinto a contractual relationship with the supplier. In contractualterms, the supplier has made an offer which the customer hasaccepted. After the agreement is made, the supplier must informthe customer about the material terms of the agreement in order tohave a legally enforceable contract. This can be done in a Termsof Service document, which should contain all the material termsof the contract, including the supplier�s pricing method, fees, andcomplaint procedure. In California, Pennsylvania and Maine, theTerms of Service disclosure must also offer customers a �right ofrescission� to cancel the contract without penalty within 3-5 days.If this right is prominently disclosed in the Terms of Service docu-ment, customers may examine the price and other contract termsin detail before deciding to continue the contractual relationship.

The third point of contact during which information should bedisclosed is in the supplier�s bills. Customers will receive a bill either directly from thesupplier (which may or may not include the distribution/transmission portion of thebill) or as part of the customers� distribution company bill. At this point, customerswould want to know the actual cost per kWh for electricity used during that billingperiod. Doing so would require suppliers to divide their customers� charges forelectricity by total kWh usage. Note that such a disclosure requirement is not asubstantive regulation of a supplier�s rate design or pricing method. This proposalwould allow customers to see the effect of their suppliers� price design on their ownusage patterns.


Terms of Service Document.

In addition to price, contract length,

supply mix, and emissions data, other

key disclosures that states should

consider requiring suppliers to

highlight in a Terms of Service

document include:

n All additional fees, including early

termination penalties or late fees

n Deposit policy

n Collection procedures, including

right to payment arrangements,

and special programs available

for low-income customers, if any

n Supplier�s dispute or complaint

handling policy, including the

state commission�s toll free

complaint number

n Limitations and disclaimers of

warranties

n If applicable, the customer�s

right of rescission and how to

exercise this right

23

CONSUMERPROTECTION ANDPUBLIC PURPOSEPROGRAMS:

The Role of The LocalDistribution UtilityThe move to retail electric competitionwill require each state to redefine therole of its local utilities. For over 100years local electric utilities have had amonopoly on the generation, distribution,and transmission of electricity. Nowpolicymakers must decide what portionof this vertically-integrated industry willremain subject to monopoly regulationand what portion should be open tocompetition. The distribution functionwill remain a monopoly in all states whichhave adopted electric restructuringlegislation to date. This will mean that thelocal poles and wires used to deliverelectricity will not be duplicated. Insome states, the distribution function willcontinue to include billing, metering andcustomer service functions, but in otherstates these services will also be openedto competition. The consumer protec-tion implications of billing and meteringcompetition will be explored further inChapter III.

Long distance transportation�or trans-mission--of electricity through highvoltage transmission wires will continueto be regulated under the federal juris-diction of the Federal Energy RegulatoryCommission (FERC). This transmissionsystem is used primarily for wholesale

transactions between today�s utilities butis now being opened to private transac-tions by generation plant owners toassure nondiscriminatory access underFERC-controlled policies and prices. Thisdivision between the state-controlleddistribution system and the federally-controlled transmission system generallyconforms with the historical jurisdictionof states over the retail sale of electricityand the authority of the federal govern-ment (FERC) over wholesale transac-tions.14 Although not required to do so,some regions are forming an IndependentSystem Operator (ISO) to govern accessto the transmission system and to estab-lish price and access rules which accom-modate competitive generation suppli-ers. This is still an evolving issue inmany states.

CHAPTER II

In general, statesare deciding how toregulate the three majorfunctions of theelectric industry:

Generation: The generation and sale of

electricity

Transmission: The long distance trans-

portation of electricity between distribu-

tion utilities and generating sources

Distribution: The local delivery system,

including poles and wires

24

The changing role for utility companies toa more limited distribution function hasimportant implications for consumerprotection and public purpose programs.States will need to analyze the compre-hensive regulatory scheme that is appli-cable to today�s public utilities anddecide which policies and regulationsshould continue to apply to the distribu-tion portion of the business; whichshould be changed or added to respondto the new industry structure; and whichshould be created to apply to thecompetitive generation portion of thebusiness. With respect to distributioncompanies, the most important policiesand issues that should be addressedinclude

n obligation to serve;n default service;n reliability of service and

service quality;n Universal Service programs;n credit and collection policies;

andn privacy of customer information.

The remainder of this Chapter willaddress these issues.

Obligation to Serve

The duty of the distribution utility willchange from an obligation to serve toaccess to the electric grid on a nondis-criminatory basis. Under this approach,the distribution utility will continue toprovide line extensions and assureconnection to the local distribution

system. Indeed, the distribution utility willprobably retain its right to use eminentdomain power to assure the properdesign and operation of the deliverysystem. This continued delegation ofstate authority is often viewed as justifi-cation for continued utility participation inthe implementation of state policies, suchas encouraging energy efficiency, andsupporting renewable resources anduniversal service programs. What is clearfrom this altered mission is that stateregulators may no longer count on thelocal utility alone to assure that all house-holds have access to reasonably pricedelectricity service.

Default Service

Every state that has considered theimplications of a move to retail competi-tion has determined that a Default Serviceoption (also referred to as a �StandardOffer� or �Basic Service�) must be pro-vided to customers who do not choosea competitive supplier for generationservices. In other words, customers willbe assured a continuous source ofelectricity even if they do not choose anew supplier. In addition to thosecustomers who �choose not to choose,�there are other customers who must beassured access to electricity, such as

n those refused service by a retailsupplier;

n customers whose supplier �s electricservice contract is canceled for anyreason;

Consumer Protection And Public Purpose Programs

25

n customers who need supply during atransition to a new dwelling or whobecome new customers and havenot yet chosen a supplier; and finally,

n those customers whose supplierstops doing business or whoselicense is revoked by a state agency.

It is important to recognize that theDefault Service option exists to servetwo different groups of customers: (1)customers who choose not to select acompetitive supplier; and (2) customerswho are unable to select or retainservice from a competing supplier. Thepurpose of Default Service for customerswho have options, but do not exercisethem, is different from the purpose ofsafety net service for those who areunable to obtain competitive electricityservices with reasonable terms. Withregard to the choose not-to-choosegroup, states will have to decide whowill provide the generation portion of theservice. This decision will have a signifi-cant impact on market power (that is,whether the incumbent will be awardedthese customers) and customer accep-tance of change. If there is too littlechange, customers may not see the pointof entering the competitive market. Ifthere is too much change (i.e., the adop-tion of a volatile market-based price as asubstitute for an historically stable ratestructure), customers may resist andthreaten the political acceptance of themove to competition. As in all otheraspects of restructuring, the market priceand number of competitors will have agreat deal to do with customer reaction

to, and interest in participating in, thecompetitive market.

The purpose of ensuring a safety net forcustomers who cannot obtain generationservice at a reasonable price is related touniversal service policy goals and theneed to assure access to the electricitysystem for all customers. Whether techni-cally low-income or not, these customershave a basic need for continuous electricservice, and society has an interest inpreventing unnecessary risks to house-hold health and safety that could becaused by significant interruptions in thesupply of electricity. The alternative isphysical disconnection of service.Nothing would do more to createadverse reaction to competition than asignificant increase in customer discon-nections as a result of difficulties workingwith competitive suppliers or the inabilityof customers to obtain service fromsuppliers. Even if most customers needDefault Service for only short periods oftime, some kind of Default Service willalways be needed and should not beconfused with what may be a short-termneed for Default Service for customerswho choose not-to-choose.

Even though Default Service servesmultiple purposes, it is possible to deviseone regulated service to respond todifferent needs. Alternatively, a statecould authorize two different services,one for a transition period which isavailable to current customers whochoose not-to-choose, and anotherwhich is permanently available to anycustomer in transition or who enters the

26

competitive market and seeks to return toregulated rates. Massachusetts haspursued this approach. Utilities in thestate will offer a Standard Offer rate toexisting customers for a seven-yearperiod, which will be regulated based onrates in effect prior to the onset of retailcompetition. Safety Net service, apermanent service with more volatilemarket-based rates, will be available toany customer who enters the competitivemarket and then seeks to return toregulated rates.

The most controversial policy issueassociated with Default Service has beenits impact on the existing utility company,particularly with respect to customerswho do not choose in the early years ofretail competition. If customers can, bydoing nothing, remain customers of their

current utility, then the distribution utility(and its retail sales affiliate) has gained atremendous competitive advantage.Competitors will have an uphill battle topenetrate this almost guaranteed market,which may, in turn, discourage them

from incurring marketing expensesassociated with gaining residential

and small commercial customers,especially in relatively small markets. Inmost jurisdictions, incumbent utilities haveargued strenuously for the right to pro-vide electricity to these customers and tobe clearly identified as their electricitysource. Potential competitors have justas strenuously objected, pointing out thatthis approach �gives� a significant share ofthe emerging market to incumbents andwill prevent, or at least delay, the devel-opment of a competitive market.

States have identified four ways toprovide Default Service:

Create a Bid Process

This process allows one or more retailsuppliers to provide Default Servicethrough a competitive bidding process.The winning bidder (or perhaps twobidders offering different rate designs)obtains the right to serve customers for aset period of time. The state requires thedistribution company to offer electricityservice pursuant to the bid conditionsand procedures or establishes newregional entities to conduct bids for suchservices, thereby entirely eliminating thedistribution utility. In either case, custom-ers see a change in their electricitysupplier. The distribution company orregional entity is required to act in a

Both Maine and Rhode Island

restructuring legislation mandate

that the distribution company

obtain Default Service for its

customers via an open market

bid supervised by the public

utilities commission.

Several Ohio legislators have

proposed that generation services for all

customers be bid based on regional retail

marketing areas. Customers could then

opt out by choosing their own

competitive supplier.


27

fiduciary capacity on behalf of its cus-tomers in conducting the bid process sothat their customers get the best dealpossible, given the conditions of thestated offer. Under this approach, thestate regulatory commission oversees thebid process and mandates key terms forDefault Service: rate design, billingoptions, term of service, etc. This optionhas the advantage of providing a regu-lated service option with the leastamount of change to customers butwhich builds upon the competitiveaspects of the new electricity market.

Require Distribution Utilities toProvide Default Service atMarket-Based Rates

Some states have chosen to anoint thedistribution company as the provider ofDefault Service and to mandate a marketprice, that is, the price any customerwould pay for access to short-termsupplies of electricity. This scenario isoften accompanied by a requirementthat utilities divest their generation facili-ties or sell their power output into a pooland then obtain market priced electricityfor default customers. Because shortterm market rates are often volatile, thisoption is often accompanied by legisla-tive requirements to cap rates at currentlevels or even decrease rates overall.

Require Distribution Utilities toProvide Default Service Undera Rate Cap or Rate Decrease

Another variation on Default Servicerequires distribution companies tocontinue supplying electricity to itscustomers using its own generation

facilities or energy obtained from thewholesale market. This option is alsotypically accompanied by a requirementthat the utility provide either a rate cap orrate decrease during the transition years(the years in which stranded costs arebeing recovered). This option allowscustomers to do nothing and continue toreceive electricity from their current utility.

Ballot and Spread byRandom Assignment

Prior to the implementation of customerchoice, a state could mandate thatcustomers choose an electricity suppliervia a ballot system and randomly assignthose who do not select a specificsupplier to one of several suppliers whohave registered and indicated a willing-ness to accept such customers. Thecommission would have the authority tomandate certain basic minimum termswhich suppliers would have to meet as a

In California distribution utilities must sell all

their power into the power

pool (Power Exchange) and

then obtain electricity for

Default Service customers at

the prevailing market price for

a transitional period. This

service is priced at market rates,

but the customer�s total bill reflects a

10% rate decrease in the early years, as

mandated by the state�s electric restruc-

turing legislation.

28

condition of providing this service. Thisapproach has the advantage of forcingthe development of a competitivemarket, but customers may not be readyto accept this mandated change in theirelectricity supplier.

In fact, this approach was used in somestates following implementation ofcompetition in the interstate long dis-

tance telephone market. Customerscomplained and resisted automaticassignment to a supplier, referring to itas a form of �regulatory slamming� andtriggering association with the particularlyegregious practice of changing customers�telephone providers without permission.

Assuring Reliabilityof Service

Distribution utilities will remain respon-sible for most aspects of power qualitybecause of their retained ownership ofthe distribution system, that is, the polesand wires that deliver electricity to eachcustomer�s home and place of busi-ness.15 Therefore, distribution utilities willremain responsible for service reliability(outages, their frequency and duration),installation of service (service drops, aswell as line extensions in previouslyunserved areas), service disconnection,complaint resolution, change-orders, andbilling and collection.

Electric restructuring legislation passed inseveral states has reaffirmed the duty ofdistribution utilities to maintain servicequality and reliability in the transition to anew industry structure and has linked thatobligation to the use of Performance-Based Ratemaking (PBR) in setting rates fordistribution services. PBR typically retainsstrict control over basic service rates forcore customers by either freezing pricesor revenues or establishing a formula thatrestricts utilities� ability to raise prices orrevenues for these customer groups.Utilities are usually given significant pricing

Larger utilities in Massachusetts have

negotiated settlements which

require distribution

companies to continue

to provide a Standard

Offer based on current

rates with a 10-15% decrease for

customers who do not choose. In

addition, these utilities must also provide

a Safety Net Service to customers who

enter the competitive market and then

seek to return to the distribution com-

pany for a short period of time. This

service must be provided at short term

market rates. Recently-enacted electric

restructuring legislation in Massachusetts

has adopted this approach.

Pennsylvania�s electric restructuring law

does not mandate divestiture

and requires the local utilities to

continue to provide generation

services subject to various rate

caps during the period in which stranded

costs are being collected. The PUC may

choose an alternative method for Default

Service after the transition period.


29

and marketing flexibility within limits setby either the rate freeze or the rateformula. In return, utilities assume morerisk. Shareholders may retain earnings ifthe utility is efficient or if earnings in-crease, but must also assume the risk ofloss if earnings drop during the term ofthe plan. Most of these alternative rateplans are multi-year in nature.

Utility commissions have struggled withhow to assure adequate customerservice and reliability through PBR. Com-missions initially reasoned that theywould rely on their existing rules andinvestigatory authority to monitor andrespond to any deterioration in servicequality or reliability. Many commissionsdealing with deteriorating service qualityin the telephone industry have found thisapproach to be insufficient.16 Morerecent regulatory plans for both tele-phone and electric/gas utilities contain aspecific customer service and reliabilityindex that monitors selected attributes ofservice quality and establishes penaltiesin the form of customer rebates or

earnings reductions if performancedeteriorates during the term of the plan.17

Universal Service Programs

A thorny issue in every state is how toaddress the impacts of a competitiveelectricity market on vulnerable custom-ers. Some customers are vulnerablebecause of their inability to afford utilityservices or because they are unable toread and comprehend their rights andresponsibilities in a competitive market.Most states fund universal service pro-grams through utility rates, either directlyor indirectly, which are designed to assistlow-income, elderly, or disabled custom-ers with affordable electric service.These programs typically include

n shut-off or disconnection moratoria;

n flexible payment arrangements;

n ratemaking policies concerning howutilities are �made whole� for baddebt and customer service expenses;

Both the California and Pennsylvania utility commissions have initiated rulemakings that

mandate reporting requirements for their distribution utilities which monitor service reliability

and other attributes of customer service. These proposed rules typically require distribution

utilities to report key indices of reliability, such as minutes of outage per customer and

frequency of customer outages. The California PUC will continue to include these perfor-

mance indicators in the distribution utilities� Service Quality Index included in its

PBR plan. The indices include financial penalties for failure to meet historical

baseline performance standards.

30

n requirements for budget billing andbill payment counseling;

n bill payment assistance programs, ratediscounts, percentage of incomepayment plans, and arrearage forgive-ness when customers make regularpayments; and

n targeted energy efficiency andweatherization programs.

Direct costs associated with targeteddiscounts and energy managementservices are relatively easy to identify, butthe indirect costs or benefits of certainprograms are not as easily identified.Utilities have argued that these programsshould not be funded through rates in acompetitive environment. Of course,competitive suppliers will have noobligation to comply with these tradi-tional public purpose programs withoutspecific regulatory directives. Distribu-tion companies, although regulated, willhave a much narrower role. Policymakershave legitimately asked whether electric-ity should be treated like food or gaso-line�where the government�s role toassist those without sufficient resources ishandled through the tax system. Mostcommissions and state legislatures thathave taken action in this area haveannounced their support for continuationof programs and policies that addresslow-income customers and others withspecial needs. Legislation adopted insome states not only mandates thecontinuation of current programs, butallows for expansion or development ofnew programs by the public utilitiescommission.

State policymakers are confrontinginadequate funding of traditional financialassistance programs for basic needs,18

and a lack of certainty about the futureprice of electricity, particularly for low-income customers who may be facedwith few or no supplier options. Billassistance and other programs have beencreated via utility regulation, modest tobe sure in some states, for vulnerablecustomers facing unaffordable electric orgas bills. Proponents of funding suchobligations by means of the state�sgeneral tax system argue that utilities arenot social welfare organizations and thatit is more equitable to fund assistanceprograms through the tax structure basedon a household�s income and ability topay. Those who support funding theseprograms via utility rates argue that thecost of these programs is already in-cluded in rates, that the creation of a newtax-supported energy assistance programis unlikely to occur in the near future, andthat a small per-kilowatt hour charge is arelatively small price to pay for universalservice programs when industrial custom-ers stand to reap significant benefitsthrough lower prices and increasedservice options. 19

The design and funding of these programswill no doubt vary among the states. InMaine, each utility has designed differentprograms to respond to local concernswithin the statutory expenditure guidelineof .5% of jurisdictional revenues. TheMaine PUC has initiated a rulemaking todetermine whether the programs shouldbe operated on a statewide or distribu-tion utility-basis and whether existing


31

programs, which are different at eachutility, should follow a uniform ap-proach.20 The California Public UtilityCommission has appointed a Low-Income Governing Board to recommenda statewide administrative structure forlow-income programs funded throughdistribution utility rates.21 The Pennsylva-nia PUC has ruled that existing utilitiesshould maintain control and implementa-tion of their low-income programs,22 andhas addressed the exact program designand funding level in each utility�s restruc-turing plan. To date, the Commission hassubstantially increased the funding andeligibility for these programs.23

The role of competitive suppliers infunding and delivering universal serviceprograms has been explored in somestates, but no state has yet designed asystem in which suppliers fund programbenefits to low-income customers.However, the Pennsylvania PUC hasordered that bill payment assistanceprogram credits, provided to qualifiedlow-income customers, be �portable.�That is, they must be applied in a pro-ratamanner to both the distribution and thegeneration portions of the bill.24 This willassure that low-income customers enterthe competitive market with their billcredits (based on their total electric bill)intact.

Selected UniversalService Programs

Maine: Distribution utilities must

continue to fund low-income

assistance programs up to .5% of

jurisdictional revenues.

California: The existing 15% discount

and access to no-cost weatherization

programs for low-income custom-

ers will continue, funded by a Public

Goods Charge applicable to

all customers through their

distribution companies.

New Hampshire: Based on the

universal service directives in its

electric restructuring legislation, the

N.H. PUC approved a new low-

income assistance program to be

funded by distribution companies at

a rate of 3 mills per kWh.

Pennsylvania: Electric

restructuring legislation

mandates, at a minimum,

continuation of current programs and

policies and requires such programs to

be funded through a non-bypassable

charge on customers. In the context of

individual restructuring plans, the PUC has

expanded both energy efficiency and bill

payment assistance programs.

Illinois: Recent legislation

authorizes a new $76 million

low-income program to

be funded by distribution

utility ratepayers.

New Ham p shire

Illino is

32

Credit and CollectionPolicies

Most states will continue to regulate thecredit and collection practices of distri-bution utilities, much as they do today.These regulations typically include billcontent and format requirements, creditand collection procedures, limitations onthe disconnection of at-risk customers(particularly during extreme weatherconditions), right to payment arrange-ments, and reconnection policies.Electric restructuring legislation in severalstates (Pennsylvania, Massachusetts, andConnecticut) has imposed some or allexisting credit and collection rules on allcompetitive suppliers as well. Otherstates are creating separate rules of a lesscomprehensive nature. These issues willbe explored in Chapter III of this Blue-print. However, with respect to distribu-tion utilities, there are at least two issuesthat should be addressed in this chapter:physical disconnection of service andallocation of partial payments.

Disconnection of Service

In a competitive market, sellers usually donot have collection devices that prohibitnon-paying customers from obtaining thesame product from alternate sellers. Moststate restructuring laws to date prohibitcompetitive suppliers from using thethreat of physical disconnection at theircustomers� meters to collect unregulatedcharges. Of course, suppliers must beable to discontinue their services tononpaying customers, but this can beaccomplished by notice to customers(Notice of Contract Cancellation) and to

the distribution company without physi-cal disconnection of customers from thegrid. If the distribution company fails toobtain specific instructions from itscustomers, the customer whose contractis canceled by a supplier will be pro-vided with Default Service, which shouldbe subject to actual disconnectionaccording to commission-approvedprocedures. Competitive suppliers willbe able to use standard collectionoptions available to any competitivebusiness, many of which are subject tostate and federal consumer protectionlaws, discussed further in Chapter III.These options include contacting cus-tomers and attempting to directly collectunpaid bills, using debt collection agen-cies, Small Claims Court, and, in moreserious cases, filing a civil complaint in acourt of general jurisdiction. Suppliers willalso be able to report customer credithistories to credit reporting agencies andmake use of this information in determin-ing credit terms for applicants.

Allocation of Partial Payments

Closely related to the discussion ofservice disconnection is the issue ofallocating partial payments. If a customerpays only a portion of a total bill issuedby a distribution company under contractwith the customer�s supplier, a rule mustbe established to determine how toallocate the partial payment between theregulated and non-regulated services.Because the distribution and transmissioncharges are regulated and the electricitysales are not, most states have deter-mined that the customer�s payment befirst allocated to those services subject


33

to disconnection (and for which there isno alternative). This is the same approachtypically taken today when a regulatedutility bills for non-regulated services,such as the sale or lease of water heatersby a gas utility. In addition, this approachalso assures that customer payments willbe allocated first to the nonbypassablecharge which covers stranded costsincluded by distribution utilities oncustomer bills.

Customer Privacy

Consumers today should be able toexpect that their utility billing and pay-ment records are confidential. There is nofederal law, however, that compels privacy,and in many states, there is no statute thatspecifically protects such records.

Typically, utilities protect this informationfrom disclosure and do not routinely sellor make available customer-orientedresearch and survey results. In a retailcompetition scenario, the distributioncompany will have information concern-ing its customers that retail suppliers willwant to obtain, such as usage profilesand billing and payment history. Allowingaccess to such information in a competi-tive market is complicated by the factthat regulated distribution companies willnaturally want to give access and prefer-ences to their unregulated retail salesaffiliates. This may result in cross-subsidi-zation of the utility�s unregulated retailsales efforts by regulated rates for itsmonopoly distribution function, which, inturn, will hamper the development of atruly competitive market because other

competitive suppliers will not have suchan advantage. Indeed, because thedistribution company and the marketingsection of most current public utilities areone organization, this information isroutinely exchanged now and, depend-ing on who gets the billing and account-ing computer, will continue in the futureunless specifically prohibited.

States must strike a balance between theneed for fair dealings in the use andaccess to customer information toenable development of a competitivemarket and customers� reasonableexpectation that personal billing and

Unlike most states, California

has a statutory policy to

protect customer-specific

information held by utilities.

PUC Code §§585 and

588 establish a

general policy that

protects cus-

tomer-specific information held by utilities

without written authorization by the

customer. Narrow exceptions for

commission and law enforcement access

to customer-specific billing and payment

records require that any exception

provide for �...protection of the reason-

able expectation of customers of public

utilities in the privacy of customer-specific

records maintained by that utility.� Even in

providing for access to such information

by law enforcement officials, a customer�s

usage is protected from access without a

court order or subpoena.

34

payment information will remain private.Suppliers argue that customers benefit if,at least, their usage information is madeavailable, because suppliers can bettertarget their marketing offers based onusage profiles. However, most stateshave, to date, allowed the release ofgeneric information (not customer-specific) without permission, and gener-ally prohibited the release of customer-specific information without their permis-sion. This requires the distribution com-pany to obtain individual customerpermission to release information to itsretail sales affiliate or to any other sup-

plier. In addition, states that have ad-dressed this issue have required thatdistribution utilities provide their custom-ers with historical usage history at leastonce per year at no cost.

State rules in this regard typically do notchange the ability of the distribution utilityor retail supplier to communicate cus-tomer-specific information to creditreporting agencies or debt collectors forlawful purposes as described in the FairDebt Collection Practices Act or FairCredit Reporting Act both of which arediscussed further in Chapter III.


35

STATE REGULATION OFCOMPETITIVE ENERGYSUPPLIERS

The Rationale for StateConsumer ProtectionRegulation

While the move to retail electric compe-tition is often referred to as �deregula-tion,� this description is not entirelyaccurate. No state has proposed thatthe retail sale of electric or gas servicesbe totally deregulated. Rather, thisdescription is most often used to refer tothe repeal of the state�s traditionalauthority over prices charged for genera-tion services. Traditionally, pricing author-ity has been exercised at the state levelby a public utility commission whichreviews and approves any rate or chargefor services provided to retail customers.Rates, charges, and the terms of serviceare then set forth in �tariffs� that aremandatory terms or conditions of serviceunder which utilities may provide ser-vices to customers.

While prices themselves will not beregulated, many other aspects of thebargain between the energy serviceprovider and the customer, particularlythe residential customer, will be subjectto state regulation. State regulation willbe based on consumer protectionprinciples that form the basis for regula-tion of many products and services

marketed to residential customers. Stateregulation is often justified by the impor-tance of a particular product or serviceto consumer health and welfare. Forexample, housing prices are rarelyregulated, but housing units must typically

conform to state and local standards toprevent the sale or rental of substandardhousing. State regulation also protectsindividual consumer bargaining powerwhen dealing with sellers who seem tohold �all the cards� in the bargaininggame. Consumers are often presentedwith �contracts of adhesion,� which arepre-printed contracts that contain de-tailed terms that bind them after the dealis struck and over which they have littlebargaining ability. In other words, whilenominally competitive, the market may beone that favors one side of the bargainunduly even if the price is technicallysubject to competition. Rental housing,consumer credit, and insurance areexamples of industries in which stateshave traditionally played an active role inregulating contract terms. Regulatory

CHAPTER III

Retail electric and gas competition

substitutes contracts between parties in

place of traditional state-approved tariffs.

The buying and selling of generation

services is thus governed by the law of

contracts and not the non-negotiable

tariffs of a fully regulated public utility

industry.

36

action may take the form of disclosure(uniform methods of price disclosure,plain language contract requirements) oroutright regulation of certain terms (pro-hibiting certain practices, allowing acontract term only under certain condi-tions and with certain disclosures, provid-ing a right of rescission or cancellation).

The sale of electricity is a prime candi-date for this traditional form of stateconsumer protection and contractregulation for several reasons. First,electricity is a necessity of life. Moststate and local housing laws include lackof electricity and heating in the definitionof �substandard housing.�25 Second,consumers are not prepared to shop forelectricity after almost a century of�cradle to grave� regulation over everyaspect of their electric and gas utilityservices. Even in New Hampshire, afterextensive publicity and marketing effortsby suppliers which began early in 1997,most residential and small commercialcustomers were not aware of retailelectric competition or the probableimpact of competition on their monthlyelectric bill in a survey conducted in thefall of that year.26 Results such as thesesuggest that consumers are not preparedfor dramatic changes and may needadditional consumer protections during atransitional period.

And third, most contract terms offered toresidential and small business consumerswill not be subject to negotiation. Theywill resemble typical �contracts ofadhesion,� which have boilerplateprovisions not subject to individualnegotiation. Therefore, it is likely thatstates will seek to regulate some aspectsof the contractual bargain between thesellers of competitive energy servicesand residential and small commercialcustomers. Such state regulations shouldbe applicable to transactions by bothdistribution companies (with regard tothe direct provision of generation ser-vices) and retail electric suppliers in theirdealings with residential and small com-mercial customers. Most states to datehave concluded that transactions bylarger commercial and industrial cus-tomers do not need standardizedprotections.

Finally, the need for state contract regula-tion and consumer protection reflectslessons learned during telephone deregu-lation. Many states have taken steps toregulate certain electric competitionpractices based on their experiencewith, and customer reaction to, longdistance telephone competition.

State Regulation Of Competitive Energy Suppliers

37

Connecticut�s policy

concerning discrimina-

tion in the application

for electricity service

provides that... �No

electric supplier...shall refuse to

provide electric generation services to, or

refuse to negotiate to provide such

services to any customer because of age,

race, creed, color, national origin, ancestry,

sex, marital status, sexual orientation, lawful

source of income, disability or familial

status. No electric supplier shall decline to

provide electric generation services to a

customer for the sole reason that the

customer is located in an economically

distressed geographic area or the cus-

tomer qualifies for hardship status....No

electric supplier shall terminate or refuse to

reinstate electric generation services

except in accordance with the provisions

of Title 16 of the General Statutes.� An Act

Concerning Electric Restructuring, Public

Act No. 98-28, §29.

Existing State and FederalConsumer Protection

The regulation of competitive energysuppliers should reflect existing state andfederal consumer protection laws, themost important of which are brieflyhighlighted below.

Application for Credit

The federal Equal Credit Opportunity Act(ECOA)27 applies to the granting of�credit,� including credit for utility ser-vices.28 The term �credit� in this federal

statute is defined very broadly to includeany agreement in which the obligation topay is deferred, even when there is nofinance charge and regardless of thenumber of installments required forrepayment. The ECOA prohibits creditdiscrimination on the basis of race, color,sex, marital status, religion, national origin,age, handicap, receipt of public assis-tance (such as the receipt of TemporaryAssistance for Needy Families (TANF),formerly the Assistance for Families withDependent Children (AFDC) program, orfood stamps) and exercise of disputeand enforcement rights under federalconsumer protection statutes. The ECOAis particularly important to electricitysales because it may be an importanttool to prevent the practice of�redlining.� �Redlining� refers to thepractice of denying credit or alteringcredit terms to residents, simply becausethey live in certain neighborhoods.29

Furthermore, under the ECOA, a creditormay not alter deposit requirements oradopt different disconnection proce-dures based on race, receipt of publicassistance, or because another familymember owes a balance on a separateaccount. The ECOA incorporates the�effects test� used in housing and em-ployment litigation to prevent discrimina-tion that, while not intended to rely on anillegal basis for credit denial, has ademonstrated adverse effect on aminority group with racial, ethnic, or othercharacteristics listed in the ECOA.30

The Fair Credit Reporting Act (FCRA)31 is amore specialized federal statute aimed

38

primarily at the practices of organizationswho maintain data on consumers and sellit to businesses, who then use it as partof their evaluation of applications forcredit, insurance, or employment, or

other transactions initiated by consumers.The statute was originally enacted in1970, but was extensively amended in1996 (Public Law 104-208). The FCRArequires that when a business relies oninformation in a consumer report to denyor alter credit terms, certain disclosuresmust be made in writing to the affectedconsumer. This law currently applies topublic utilities and will apply as well toretail energy suppliers. A key change ofthe 1996 FCRA amendments requires thatproviders of credit information, such asstores, banks, insurers, energy suppliers,and others, report accurate information.

Both statutes are enforced by consumers(who may file for statutory damages andattorney fees), the state AttorneysGeneral, and the Federal Trade Commis-sion through cease and desist orders,court action, restitution, and injunctiverelief, as well as other specializedagencies for creditors under their jurisdic-tion, such as banking authorities.

Credit Terms(Truth in Lending Act)

Both the state regulation of financecharges, consumer credit terms, and thefederal Truth in Lending Act (TILA)32 havenot generally applied to public utilitiesbecause these laws apply to a narrowdefinition of credit. For the most part, thefederal TILA and state consumer creditlaws regulate transactions in which afinance charge is imposed, i.e., when adebt is deferred and an interest ratecharged for installment payments. Acredit transaction subject to the TILAtriggers a host of disclosure, procedural,

Selected ServicesSubject to Competition

California has ordered that so-called

�revenue cycle services� (billing,

metering and consumer services)

be subject to competition for

large customers in 1998 and

for residential and small

commercial customers

beginning in 1999.

Maine�s electric restructuring

legislation mandates that billing

and metering competition

commence no later than 2002,

two years after full retail

competition begins in 2000.

Pennsylvania�s electric restructuring

legislation does not specifically provide

for competition in services other than

generation. However, the recent PECO

Energy restructuring plan

settlement calls for billing and

metering competition in that

utility�s service territory

beginning in 1999.

Massachusetts� legislation requires a

study of metering, customer billing and

information services competition by

January 2001.


39

and substantive requirements. It is pos-sible that retail energy suppliers willdevise payment plans that resemblecredit sale transactions or sponsor open-end credit plans for the sale of electricitywhich will trigger the TILA disclosure anddisputed bill procedures. It is more likely,however, that electricity sales will not fallunder the TILA because sellers will typi-cally not structure contracts to allow forextended payments, partial payments, or afinance charge as that term is defined inthe TILA. Instead, retail electric salecontracts that require the customer topay in full within a certain number of daysor pay a specified late fee will be morecommon transactions. These terms, bythemselves, usually do not qualify as�credit� within the meaning of the TILA.

Unfair and Deceptive Practices

The Federal Trade Commission (FTC) Actprohibits �unfair methods of competitionand unfair or deceptive acts or practicesin or affecting commerce.�33 All stateshave adopted a similar statute, some-times referred to as the �Unfair andDeceptive Practices Act� or UDPA,typically enforced by the state AttorneyGeneral. Under federal law the FTC hasjurisdiction to define such practices ingeneric rules where deceptive practicesare widespread, or to enforce theprohibition through individual adjudica-tory proceedings, using cease and desistorders and taking businesses to federalcourt to obtain penalties and redress toaffected consumers. Most state Attor-neys General have similar remedies underUDPAs. While the FTC Act does not giveconsumers a private right of action, under

some state laws individual consumerscan sue businesses and seek actualdamages (with a minimum amount),equitable relief, and attorney�s fees. Classactions by consumers are also an optionunder some state laws. Historically, thesestatutes have been used to preventunlawful and deceptive advertising,deceptive pricing, and unfair tradepractices, and to regulate special salesapproaches, such as door-to-door sales,multi-level marketing or pyramid sellingschemes, and negative option plans.

The FTC Act exempts federal banking andinsurance industries on the grounds thatthese industries are closely regulated byother federal and state authorities. Somestate statutes also exempt state bankingand insurance industries because unfair anddeceptive practices are also tightly regu-lated by other state authorities. Some stateUDPA laws specifically exempt publicutilities34 and about half of the state con-sumer protection laws have a provisionwhich generally exempts transactionswhich are subject to some regulation by astate or federal administrative agency fromregulation under the UDPA.35 State courtshave interpreted this exemption bothnarrowly (the specific conduct must becondoned by the state or federal agency)and broadly (the business is exempt if it issubject to regulation), depending on thenature of the state exemption statute andthe nature of the regulatory scheme. Thissituation will need to be clarified withrespect to the activities of retail energysuppliers, particularly the affiliates ofregulated distribution companies.

40

Debt Collection

The Fair Debt Collection Practices Act36

(FDCPA) regulates the conduct of debtcollection agencies and others, includingattorneys, who collect debts owed to athird party. Therefore, although an impor-tant consumer protection statute, theFDCPA does not directly apply to a selleror creditor, e.g., energy supplier, whocollects debts owed directly to him orher under most circumstances. Thirdparties who collect debts owed to autility or a competitive electric serviceprovider would, however, be subject tothe FDCPA.

Telemarketing and ConsumerFraud and Abuse PreventionAct

Congress enacted this legislation37 tocombat the growth of telemarketing fraudby providing law enforcement agencieswith powerful new tools to provideconsumers with new protections, and toprovide guidance for lawful telemarketingactivities. Under this Act, the FTCadopted the Telemarketing Sales Rule.38

Key provisions of the Rule require spe-cific disclosures by telemarketers, pro-hibit misrepresentations, set limits andtimes telemarketers may call consumers,prohibit calls after a consumer asks not tobe called, and requires that specificbusiness records be kept for two years.The Telemarketing Sales Rule also restrictstelemarketing calls to the hours between8 am and 9 pm. Utilities and competitiveelectric suppliers will be subject to thisAct and the FTC Rule.

Cooling Off Rule

The FTC has also promulgated the CoolingOff Rule39 which gives consumers threedays in which to cancel and receive a fullrefund on sales of $25 or more when thesales transaction is made at theconsumer�s home, his/her workplace, orat facilities rented by the seller on atemporary basis, such as hotel rooms orconvention centers. The Cooling Off Ruleis relevant to electricity sales that occur inlocations away from the seller�s normalplace of business. Sales that occursubject to this Rule require the seller toprovide the buyer with a summary of thebuyer�s cancellation rights, and twocopies of an actual cancellation form.Some states have extended their versionof this rule to sales made over thetelephone, thus triggering a 3-day right ofcancellation for sales of electricity viatelemarketing.

Definition of ServicesSubject to Competition

All state electric restructuring legislationadopted to date defines competitiveservices to include, at a minimum, thegeneration and sale of electricity. Themost controversial issue surrounding thedefinition of competitive services hasbeen whether they should include billing,metering, and associated consumerservices.

Proponents of competition in billing andmetering services point to the potentialfor customer savings if a competitivemarket is allowed to develop. Suppliersalso argue that they need to be able to


41

package these services with electricitysales so as to link the many products thatmay be bundled, thus emphasizing thekey role played by the bill as a marketingtool. Other advocates for billing andmetering competition point to the valueof �real-time� meters that send properprice signals concerning customerelectricity use at certain hours of the dayor times of the year, a feature not avail-able on most residential and smallcommercial customer meters today.Many suppliers have pointed out thattheir motivation to sell electricity to low-usage consumers may be greatly influ-enced by their ability to market additional(and perhaps more profitable) servicesto them. The impetus of technologicaldevelopments in the metering industry inparticular, coupled with lower costs,suggests that customers will have sub-stantially more choices for metering andbilling in the future.

Opponents of competitive billing andmetering point out that customers willbe confused enough with generationcompetition without allowing additionalservices to be unbundled from thecurrent utility bill and subject to com-petitive marketing. In addition, unionrepresentatives in particular emphasizethe impact on local jobs if billing andmetering are suddenly subject to com-petition. Utilities themselves argue thatthese services are part of the naturaldelivery services monopoly and thatsome of these services cannot beprovided more economically in acompetitive market.

Whether states move to outright competi-tion in these areas or allow develop-ments to proceed at a slower pace, theywill face the following concerns:

Should suppliers be able tooffer alternative meters to theircustomers that allow for differentpricing options, such as time-of-day and time-of-year prices?

Some higher-use customers may have alower monthly bill with meters that allowmore sophisticated pricing structures.Suppliers may also offer energy manage-ment or home energy systems withmeters that allow integration of energyservices with alarms, automatic appliancecontrols, and even telecommunicationsservices. However, low-usage residentialcustomers (who do not have electric hotwater or heat or other high-use appli-ances) may not benefit from such oppor-

Norway�s Guidelines for Metering and

Settlements of Electricity Trade (Novem-

ber 5, 1994) require large customers to

obtain real-time meters to allow billing on

their actual hourly usage characteristics.

Residential and small commercial custom-

ers with traditional meters are billed on

the adjusted load profile of the network,

or distribution area in question. The

adjusted load profile is calculated as the

difference between the network owner�s

system load profile, adjusted for network

losses, and usage by end users with real-

time meters. These load profiles are

calculated quarterly. Most states in the

U.S. have adopted Norway�s approach.

42

tunities because both the equipment(meter) and billing costs are likely to behigher than the potential savings.

Who should be able to issue billsto customers?

Suppliers argue that it is unfair to allowdistribution utilities to issue a combinationbill that includes both regulated andcompetitive services without providingsuch an option to them as well. TheCalifornia deregulation order, whichallows suppliers to issue a unified bill,makes it clear that suppliers who negoti-ate such an option with distributioncompanies must assume the risk ofcollection for both the regulated andstranded cost charges. This will requiresuppliers to conduct their own collectionprograms without benefit of the distribu-tion company�s �threat of termination� or�disconnection� service policies.

How should these services beunbundled from current rates?

If suppliers can sell and bill separately formetering services, state regulators willthen have to unbundle these chargesfrom current rates and give customerswho obtain them a credit on their distri-bution charges so that customers do notpay twice.

Should meter installation betested differently?

Some states may want to separatephysical installation of the meter fromautomatic meter reading options offeredby some suppliers. This would allowutilities to maintain control over meterinstallation (with its safety consider-ations), but allow customers to have

alternative meter usage data accesseddirectly by suppliers.

How should customers withstandard meters be treated?

Customers who do not have or want a�high tech� meter should be able toparticipate in the competitive market withtheir standard mechanical meter. Al-though some states require that largeindustrial customers obtain �real time�meters to enable more accurate billing, allother customers should be billed on thebasis of standard load profiles for thecustomer class in question, rather than ondifferent rates for each hour of service.This approach was pioneered in Norway,a country that moved to retail electriccompetition several years ago.

Licensing Criteria forSuppliers

Many industries and businesses whoseactivities can affect public health andsafety, such as hospitals, nursing homes,insurance companies, debt collectionagencies, home repair contractors, andbanks are required to meet minimum staterequirements to conduct business in thatstate. In a similar vein, whether referredto as �registration,� �certification,� or�licensing,� most state electric restructur-ing legislation requires prospectiveelectricity suppliers to comply withminimum state requirements.

Typically, states require a form of security,or bond, to assure reimbursement ofcustomer deposits, advance payments,or restitution ordered by a regulatory


43

body. The amount of the bond is set highenough to compensate parties adverselyaffected by a firm�s failure to perform.Requiring a bond (like a performancebond on a construction project) or aletter of credit has at least two beneficialconsequences. First, a company�s abilityto obtain a bond or a letter of credit isproof of its financial soundness. Second,the bond provides a source of funds forcompensation to individual parties. Moststates require a bond as a condition oflicensure, the amount of which reflectsthe different types of retail suppliers likelyto emerge.

Typical state electric restructuring legisla-tion requires the state regulatory authority,usually the public utility commission, tolicense retail electric or gas suppliersbefore conducting business within thestate. Licensing requirements may includethe following minimum criteria:

n Evidence of general financial integrity

n A bond or equivalent security in anamount based on the applicant�svolume of sales

n Evidence that the firm is technicallyqualified to conduct its proposedbusiness

n Information on disciplinary or en-forcementactions in other states in which itoperates

n Information concerning theapplicant�s consumer complainthistory in other states

n Disclosure of its ownership structureand affiliates doing business in thestate

n Location(s) of the applicant�s officein the state, or, if no office, its agentfor service of process and its geo-graphic scope of business

n A description of services that will beoffered

n The name and telephone number of acustomer service individual forcustomers to contact the supplier

The licensing process should not be abarrier to entry, as is the typical Certifi-cate of Convenience and Necessity usedfor most public utility licensing today.Rather, the role of the utility commission inthe licensing process is to ensure financialsafety, system reliability and basic con-sumer protections.

Disclosures

Specific disclosure requirements that astate should consider as part of itsregulatory scheme for electric suppliersare described in detail in Chapter 1.

44

Regulation ofCredit Practices

Most state electric restructuring legislationimposes only those credit-related ruleson suppliers that already exist in state andfederal consumer credit laws (such as theECOA, discussed earlier in this Chapter).However, some states have recentlyrequired suppliers to comply with mostor all credit and application-for-servicerules currently applicable to utilities. TheMassachusetts and Connecticut electricrestructuring statutes require suppliers tocomply with existing consumer protec-tion rules with respect to credit andapplication-for-service. The Connecticutstatute also requires suppliers to recog-nize a customer�s right to a medicalemergency, winter-based moratoria oncancellation, and payment arrangementrequirements.

Regulation ofContract Terms

Suppliers typically include contract termsmost favorable to them in their pre-printed contracts with residential andsmall commercial customers. Whiledisclosure of these contract terms in aTerms of Service document, coupledwith a right of rescission, is an importantconsumer protection tool, disclosurealone may not be sufficient remedy. It isunlikely that suppliers will compete onmany of these pre-printed terms. Somesuppliers may offer superior customerservice (such as fast-acting 1-800 callcenters, more billing options and fast

response to disputes and questions). It isless likely that suppliers will compete tooffer generous payment arrangements forthose who cannot pay in full everymonth, waive contractual cancellationpenalties for customers who need tomove to Default Service, or waivecollection costs for low-income custom-ers. Therefore, the following substantivecontract terms are candidates for stateregulation:

n Late Fees: States may establish amaximum monthly late fee. No morethan 1.5% per month is typical, butMassachusetts rules prohibit late feesfor residential customer transactions.

n Notice of Renewal: Some statesrequire suppliers to notify customersat least two billing periods in ad-vance of the need to renew and theconsequences of failure to renew.

n Length of Contract Term: Somestates are considering whetherresidential and small commercialcontracts should have a maximumterm (1-2 years), at least during atransition period. This would allowcustomers to become more experi-enced prior to allowing door-to-door sales representatives to obtaincustomer signatures on 5-year agree-ments with excessive early termina-tion penalties, a practice that oc-curred in Toronto, Canada, at theonset of retail gas competition.


45

n Collection Costs: Suppliers should beprohibited from charging collectioncosts or damages in addition to theoverdue amount.

n Payment Arrangements: States havediffered on whether suppliers mustoffer at least one reasonable pay-ment arrangement to residentialcustomers prior to contract cancella-tion.

n Notice of Cancellation: Suppliersshould be required to provide aminimum notice period prior tocancellation of a contract for non-payment and establish the content ofthe notice.

n Medical Emergency: Most states(Connecticut is a notable exception)have not required suppliers to honora medical emergency at thecustomer�s household if declared bya registered physician for a minimumperiod, but this is a typical provisionof state utility regulation.

n Pre-Payment Meters: Pre-paymentmeters are controversial becausethey allow customers to be discon-nected from all electric service duringextreme weather without notice orcompliance with health and safetyconcerns. States may want to con-sider ruling against the use of suchmeters as a condition of service forlow-income customers, unless suppli-ers require such meters as a conditionof service for all its customers.

n Deposits: Several states regulate amaximum deposit amount for resi-dential customers. In Pennsylvania,suppliers may not require the de-posit unless customers have a historyof failure to pay for electric service,thus prohibiting suppliers from basingtheir credit worthiness decisions onnon-utility service history.

n Right of Rescission: Most statesrequire suppliers to provide all newcustomers with a 3-day right ofrescission that is triggered by theirreceipt of the Terms of Servicebrochure with its price and contractterm disclosures.

n Dispute Resolution: Most statesrequire suppliers to notify customersof their right to refer disputes to thestate regulatory agency, if a suppliercannot resolve it satisfactorily. Theability to refer disputes to a neutralregulatory agency has an additionalbenefit beyond that offered to theindividual consumer. Dispute resolu-tion authority allows the regulatorycommission to monitor sales prac-tices as well as compliance withbasic consumer protection rules.

46

Regulation of Unfair Tradeand Marketing Practices

Most state electric restructuring legislationinvests the state utility commission withauthority to adopt regulations whichprohibit unfair trade and marketingpractices by energy suppliers. Otherstates may rely on their existing consumerprotection laws and the jurisdiction ofthe Attorney General for this type ofregulation. Regardless, every state so farhas sought to adopt specific provisionsto prevent slamming and to encouragerenewable energy development.

Slamming

One potentially unfair trade practice thatmost states have already decided toregulate is �slamming,� which is switchingthe customer�s supplier without permis-sion or with fraudulently-obtained per-mission, a practice that has been thesubject of widespread complaint andcondemnation in the telephone industry.This course of conduct is sufficiently likelyto occur with competitive electricsuppliers that state restructuring legislationhas either prohibited the practice outrightor authorized the regulatory commissionto prevent it.

The most controversial issue associatingwith anti-slamming regulation has beenwhether customers must provide signedauthorization before their distributioncompany switches suppliers. Proponentsof such an approach view a signedauthorization as the best method toprevent slamming. On the other hand,signature requirements provide an enor-

mous advantage to existing utilities, as thesignature acts as a barrier to contractswith competitive suppliers.

For example, if a customer personallycommunicates with a distribution com-pany to authorize the switch and pro-vides identifying information, such as his/her account number, additional barriersto finalizing this transaction should not beerected. After all, the contract to supplyelectricity is between the customer andthe supplier. The distribution company�sobligation is merely to record the changefor billing purposes. Reliance on oralcommunication from the customer in suchsituations should be allowed. But what ifthe supplier has initiated contact with thecustomer (via telemarketing or mail) andhas obtained valid consent over thetelephone? Should the distributioncompany be allowed to switch thecustomer�s supplier upon notice from thenew supplier? What if the customer hascashed a check from the new supplierwhich states that cashing the check willcause the customer�s electricity supplierto be changed?40 Opening up theauthorization to include anyone otherthan the consumer opens the door tofraud. Even requiring that the authoriza-tion be signed by the consumer (thuspreventing telemarketing alone fromfinalizing the sale) is fraught with diffi-culty, as the check cashing schemedemonstrates.

Recent legislation in California,41 Massa-chusetts,42 and Connecticut43 reflects agrowing attempt to deal with this prob-lem. Customers who are solicited by a


47

supplier, or his agent, to switch compa-nies must not be switched until the newsupplier obtains authorization in one ofthree methods: oral verification by anindependent third-party; electronicverification; or written authorization.These options have proven to be theleast likely to result in slamming, but theyare not foolproof if a supplier is deter-mined to commit fraud. In addition, thisapproach is likely to be most successfulif accompanied by a �right to rescind�any contract for electricity within three

business days after a customer receives awritten Terms of Service brochure. Ifstate policy links the �right of rescission�with receipt of contractual disclosures,suppliers will be stimulated to confirmtheir sales promptly. This approach willalso accommodate the expectations ofmost customers who do not currentlysign written contracts to obtain electricity,natural gas, propane and fuel oil.

Marketing Renewable Energy

A marketing and disclosure issue that issure to remain controversial is the mannerin which electricity sources should beadvertised as �green,� �renewable,� �lesspolluting,� or �environmentally-friendly,�how such disclosures should be regu-lated and, if so, by who and how. Recentnational and regional surveys haveconfirmed that many customers want toshop for electricity based on environ-mental criteria.44 Marketing campaignsconducted as part of the New Hamp-shire electric competition pilot programin 1997 confirmed this trend. Suppliersused such phrases as �We donate 1% ofyour power bill to groups working toprotect New Hampshire�s environment�(Working Assets, Inc.) and �Now is thetime to start saving money and saving theplanet� (Green Mountain Energy Partners,selling Hydro Quebec power). Becausecustomers want to include environmentalcriteria in making their electricity purchasedecisions, suppliers will want to focus onthese aspects of their service to obtainnew customers.

There is risk associated with marketingrenewable energy, particularly insofar asadvertising is concerned. Both state andfederal laws prohibit deceptive advertis-ing. At the federal level, the FederalTrade Commission (FTC) enforces theFederal Trade Commission Act;45 stateAttorneys General typically have primaryauthority for implementing state consumerlaws relating to deceptive advertisingand marketing. The FTC has issued policystatements describing its policies withrespect to unfair or deceptive advertising

At their annual meeting in California in

1998, the National Association of

Attorneys General (NAAG) formed a task

force to study the marketing of �green�

power and other claims by electricity

marketers. The task force is working to

develop a set of model marketing

guidelines for consideration by states

moving to retail electric competition.

48

claims.46 In addition, the FTC requires thatall important marketing claims, whetherexpressed or implied, be substantiated.47

The FTC has adopted specific guidancefor environmental claims, FTC Guides forthe Use of Environmental Marketing Claims(16 CFR § 260). While these guidelinesdo not specifically mention electricitysales, general provisions, such as a

requirement that sellers document theirclaims based on a reasonable interpreta-tion by consumers, do apply. The FTCGuides, among other things, state thatgeneral environmental claims should beavoided or qualified, as necessary, toprevent deception about the specificnature of the environmental benefit.

49

THE MANY FACES OFCUSTOMER CHOICE:

Aggregation AndGroup Buying Power

Individual customers will be able toparticipate in competitive electric andgas markets in several ways. The mostcommon is referred to as �direct access.�In this approach, customers enter into abilateral contractual relationship with theirchosen electric or gas supplier. Thecontract governs services, terms andconditions, and fees associated withprovision of these services. Even thougha distribution company may act as thebilling agent for the supplier, the rights andremedies of the customer and thesupplier will be established in the con-tract between them.48 This chapter of theBlueprint addresses how the state may

stimulate and regulate alternative ap-proaches to electric competition thatenhance its benefits to residential cus-tomers. These approaches, however, arenot viewed as substitutes for consumerprotection policies identified elsewherein this document.

An alternative to direct access is a formof group buying that is generally referredto as �aggregation.�49 Under this ap-proach, the customer enters into arelationship with an entity that acts as amiddleman between him/her and theretail energy supplier. The entity may be apolitical subdivision, such as a municipal-ity or county, or a national, state, or localorganization that seeks to obtain energyand other products on behalf of itsmembers. Aggregation may be based ongeographic location or non-geographiccriteria, such as membership in a group,or employment. In some states, efforts

Excerpt from Massachusetts legislation:

�Following adoption of aggregation through the votes specified above, such program shall

allow any retail customer to opt-out and choose any supplier or provider such retail cus-

tomer wishes.... Nothing in this section shall be construed as authorizing any city or town or

any municipal retail load aggregator to restrict the ability of retail electric customers to obtain

or receive service from any authorized provider thereof.

It shall be the duty of the aggregated entity to fully inform participating ratepayers in advance

of automatic enrollment, that they are to be automatically enrolled and that they have the

right to opt-out of the aggregated entity without penalty. In addition, such disclosure shall

prominently state all charges to be made and shall include full disclosure of the standard offer

rate, how to access it, and the fact that it is available to them without penalty.�

Section 247, adding Section 134 to Chapter 164.

CHAPTER IV

50

are underway to create non-profitentities which aggregate the sale ofelectricity and energy managementservices to residential or low-incomeresidential customers. Aggregation inparticular is often viewed as a way tostimulate creation of a competitivemarket for low-use customers who maynot otherwise be the target of marketingefforts by energy suppliers.

Consumer BenefitsFrom Aggregation

Both customers and power suppliers maybenefit from aggregation:

n Low-use residential and small busi-ness customers may not benefit fromdirect access because their usagecharacteristics, coupled with a lackof advanced metering systems, maymake them expensive to serve.Marketing costs to reach and con-summate deals with these customersmay exceed profit potential onelectricity sales alone, unless thevolume of sales is high. On the otherhand, if a power supplier can negotiateone sale with an entity that represents alarge group of customers with a similarenergy profile, without incurring upfrontmarketing costs, lower prices mayresult.

n If Default Service is based on themarket price or is priced belowmarket rates by regulators, individualresidential customers may not findenergy any cheaper in the market-place. However, an aggregator maybe able to offer other valuableservices and products, such asenergy management or even tele-phone service, in a package deal thatis desirable to customers.

n Aggregation may improve the marketpower of residential and smallbusiness customers. The aggregatorthat can deliver a significant energyload can bargain for a lower price

The Many Faces of Customer Choice:Aggregation and Group Buying Power

New Hampshire�s electric pilot program

began in April 1997, when the state PUC

opened 3% of the state to competi-

tion. Half of the participating

customers were picked by lottery

and half participated by virtue of

their location. Called �Geo-

graphic Areas of Choice,�

certain municipalities were chosen

as targets for competition. These

municipalities were allowed to determine

how suppliers would be selected and

how residents would be recruited to

participate. When Peterborough, N.H.,

solicited proposals, 13 energy suppliers

responded. Four public hearings were

held. Once the supplier was selected,

each citizen had to affirmatively choose

to receive electricity from the winning

bidder. Out of 5,000 residents, 1,400

actually participated. The resulting two-

year, fixed-price contract was estimated

to save participants 15-20% on their

electric bill. The winning supplier also

contributed $25,000 to the town�s

economic development fund.

New Ham pshire

51

and enhanced energy managementservices on behalf of group mem-bers.

n Aggregation may also be an impor-tant tool to achieve a state�s UniversalService goals. In general, low-income customers use less energythan other residential customers.Furthermore, while most low-incomecustomers do pay their bill, a highpercentage of low-income custom-ers cannot pay their electricity or gasbill in a timely manner because of itssignificant impact on householdincome (over 20% for some custom-ers with higher-use and very lowhousehold income). Therefore, it islikely that low-income customers mayneed more customer service sup-port, or carry a high risk of bad debtexpense. Whether low-incomecustomers should be the focus ofaggregation efforts or whether theyare better off in general as part of theresidential class is a hotly debatedtopic among customer advocates.However, there is little debate aboutthe notion that if suppliers do notmarket to residential customers ingeneral, low-income customers willmost likely be ignored.

Barriers to EffectiveAggregation

Advocates have sought to remedyseveral potential barriers to aggregation instate electric restructuring legislation.Should customers be required to �opt in�to be bound to a contract for the sale ofelectricity negotiated by a group ororganization? Or should customers bepresumed to be bound and have theoption to �opt out�? In other words,should a customer be bound to a con-tract with the aggregator in the same waythat a customer can be bound in acontractual relationship with a directaccess supplier? Proponents of aggrega-tion argue that for benefits to be realized,membership in the group should signifythat customers approve the group�spower supplier; cost savings, due toeconomies of scale, may then, in fact, berealized.

Membership rights and responsibilitiesmay affect supplier bids; suppliers maynot bid on a group contract if the numberof ultimate customers is unknown. How-ever, aggregation proponents note thatthe �opt out� approach has not beensuccessful in most states. Only Massa-chusetts has adopted legislation whichallows a municipality, after a detailedpublic process, to presume that theirresidents� power supplier will beswitched to the town�s selection unlessthe customer opts out of the program.California�s legislation specifically requiresindividuals to opt in to an aggregationplan, including one proposed by theirlocal municipality.50 No state legislation

52

has allowed a private aggregator togroup customers without specific affirma-tive approval from each customer in thegroup. This means that, for example, if theAmerican Association of Retired Persons(AARP) seeks to aggregate customers in astate, the members who want to approveAARP�s plan must positively approve it;membership alone will not suffice topresume supplier choice.

A second potential barrier to the use ofaggregation, especially applicable in themunicipal context, is the process a townmust follow to solicit proposals andselect a winning bidder. It is likely that inmost states, a municipality will need legalauthorization to initiate this type ofactivity. At the very least, the selectionprocess requires public presentation offinal bid offers, public meetings orhearings, and public comment and reviewof the town�s proposed selection.

Municipalities and quasi-governmentalagencies need to establish a frameworkwithin which an aggregation program isdesigned. This may present a thirdbarrier. For example, Massachusetts

requires that a municipality first devise anenergy plan and establish criteria forselection of a power supplier. The statehas also legislated minimum requirementsfor any municipal solicitation for powersupply, which is designed to assurecustomer service and consumer protec-tion provisions are not compromised forlower prices. A town may select asupplier on the basis of criteria thatincludes, but does not rely entirely on,price. This allows a municipality tochoose a supplier that furthers environ-mental and energy efficiency goals, aswell as price competitiveness. Thetown�s plan and contract requirementsmay also be subject to approval by thestate, which may impose additionalrequirements on the solicitation process.

In most states a private aggregator, doingbusiness as an individual or an organiza-tion, must obtain a license to sell electric-ity and agree to comply with all appro-priate state regulations. In other words,such issues as price and contract termdisclosures, collection remedies, billformat, and other consumer protectionprocedures will also be applicable tocontracts negotiated by aggregators.However, some state licensing require-ments distinguish between suppliers andaggregators or brokers who do not taketitle to electricity. Such distinctions mayimpact requirements for bonding andother financial securitization. Substantialbonding requirements may act as abarrier for small non-profit groups at-tempting to provide aggregation serviceson behalf of its members.

Massachusetts legislation allows a town

to run its own energy efficiency programs

with a Systems Benefit Charge (up to 3

mills per kWh) and to directly invest (up

to 1 mill per kWh) renewable energy

funds in its own community.


53

Consumer EnergyCooperatives

Energy advocates in Vermont are design-ing a full-service consumer-ownedenergy cooperative whose mission is tolower members� energy bills by combin-ing competitive energy pricing withcomprehensive energy services. Itsproponents differentiate their strategyfrom competitive energy suppliers asdescribed below.

Most retail competitors are expected tooffer primarily a single energy source andcompete primarily on the basis of price.By contrast, the cooperative will featurevalue-added services designed to lowermembers� total energy bills. Bill savingswill be achieved through competitivepurchasing of energy and aggressive

The Consumer Electric Cooperative (CEC)

proposes to deliver important services

to low-income households, including

n aggregating the market power of

low-income customers into larger groups

for the purpose of negotiating better

prices;

n delivering energy efficiency programs

to reduce total bills; and

n pursuing bill minimization policies,

such as switching customers from electric

space heat to a less expensive fuel

source.

delivery of comprehensive energy-efficiency measures addressing all energysources. The Consumer Energy Coopera-tive (CEC) will also lower bills by helpingcustomers select the most cost-effectivemix of energy sources for their individualenergy service needs. CEC will offer itsmembers the convenience of a single billfor all energy services.51

While the CEC states that it will targetlow-income customers with specificservices that meet their needs, it will notfocus exclusively on these customers,but seek a broad-based membershipamong residential customers. The CECwill seek to aggregate low-incomecustomers through partnerships withexisting community-based networks.

A Note on the�Muni-Lite� Concept

Some municipal aggregation modelsclosely resemble municipal powerdistricts or rural electric cooperatives.However, there is a significant difference.Unlike traditional municipal utilities orcooperatives, a municipal aggregatordoes not seek to own or control thelocal distribution system; the poles andwires remain the property of the localdistribution utility. But what if a townseeks to gain access to the wholesalemarket on behalf of its residents andcompete with the local utility withoutany changes to the state�s electric powerlaws? This is what Palm Springs, Califor-nia, sought to do in 1996. The City ofPalm Springs applied to the Federal

54

Energy Regulatory Commission (FERC) forapproval to purchase wholesale power,which would then be transported tocustomers by the local utility, SouthernCalifornia Edison (SoCal Edison). SoCalEdison opposed the proposal, arguingthat residents were attempting to avoidpaying state-approved retail rates whichincluded costs not reflected in thewholesale market price. In August 1996,FERC denied Palm Springs� claim andstated that its attempt to establish owner-ship of the distribution system by pur-chasing duplicate meters was not enoughto trigger its access to the wholesalemarket.

As a result of this ruling, it is now likelythat municipalities cannot obtain accessto the wholesale market and escape theircurrent franchise utility unless the staterestructures its retail service or moves tocreate a new municipal utility with all therights and duties of such an entity. Thislatter option would then require themunicipality to contract with the localutility for use of the distribution systemalready in place, or seek to obtain suchproperty from the utility by eminentdomain and pay its fair market value.


55

THE NEW CONSUMERPROTECTION ROLE:

Jurisdictional AndEnforcementImplications

This Blueprint highlights the policy implica-tions of new relationships betweenconsumers and their electric supplier andbetween retail suppliers and regulators.If the regulatory approach for publicutilities has historically been dominatedby a traditional model of total price andentry controls, the new regulatory modelwill rely instead on consumer protectionand lower barriers to entry for new firmswith little or no price regulation. Insteadof monopoly power, with its focus onprices and rate design, the new competi-tive market structure will likely be ac-cused of fostering �unfair� competition,caused by inadequate access to infor-mation by buyers and unequal bargainingpower between buyers and sellers.These are crucial defects for a commod-ity widely regarded as a necessity.

If states are to transform their approachto a truly competitive market, they mustacquire new tools for working effectivelywith the electric industry, and makeinnovative use of old ones. Examples ofnew tools include

n setting licensing criteria as a screeningfunction to reinforce standards ornorms defined in regulations;

n educating customers to participate inthe competitive market based oninformed choice;

n responding quickly to unfair anddeceptive marketing and advertisingpractices;

n policing standards of conductbetween holding companies andaffiliates to assure the developmentof a competitive market structure;and

n umpiring disputes between competitorsand between customers and theirsuppliers.

Jurisdiction of the StateUtility Commission

The degree to which an existing statepublic utility commission will havejurisdiction over non-traditional suppliersof electricity, i.e., retail electric suppliers,will be decided by state legislation.Jurisdictional areas that might be ad-dressed include

n licensing;

n disclosure requirements for advertis-ing, terms of service contracts, andmonthly bills;

n contract terms;

n prevention of unfair trade andmarketing practices;

CHAPTER V

56

n authority to resolve customerdisputes;

n the interaction of retail sales affiliateswith parent utility holding companiesor distribution utilities; and

n establishment of minimum billing,credit and collection practices.

In some states, the utility commission mayshare its jurisdiction with the AttorneyGeneral�s office. However, no state hasenacted retail electric competition byrelying entirely on state and federal UnfairTrade Practice Acts or their equivalent.Nevada�s electric restructuring lawincludes a reorganization of its consumerprotection and public advocacy func-tions by combining them in one divisionof the Attorney General�s office, while atthe same time granting concurrent juris-diction to the public utility commission tolicense and regulate the conduct andcontract terms of competitive suppliers.

Whether state public utility statutesalready contain sufficient jurisdictionalauthority for the commission to regulateretail electric suppliers, as well asaggregators and brokers who do not taketitle to electricity, will require detailedstate analysis. Some jurisdictional statutesfor public utilities link the state authoritywith ownership or control of property inthe state or require utilities to owngenerating facilities to qualify. Theserestrictions do not allow jurisdiction overaggregators, brokers, or marketers withoutadditional legislation. In addition, legisla-tive guidance is necessary to establish

policies for regulation of retail suppliersand the manner in which regulationshould be different from traditional priceand entry regulation applied to utilitiesand future distribution companies.

Because most states have assumed thatsome legislative changes will be requiredin any case to implement full retail com-petition, it will be important for suchlegislation to clarify the regulatorycommission�s role in licensing, monitoring,regulating, and enforcing minimum marketstandards of conduct on all major partici-pants. Indeed, all state electric restruc-turing statutes enacted to date eitherassume or make clear commissionjurisdiction over new market entrants forthe purposes of registration or licensingand, at a minimum, consumer complaints.

The New Consumer Protection Role:Jurisdictional and Enforcement Implications

California�s original electric restructuring

legislation (AB 1890) granted the PUC

jurisdiction over competitive suppliers for

registration and certain complaints, but

deferred to other state agencies for key

consumer protection oversight. In

August, 1997, a comprehensive con-

sumer protection bill applicable to

suppliers expanded the PUC�s jurisdiction

and required significantly more oversight

in registration criteria

and regulation of

contract terms and

disclosures. SB 477

(Stats. 1997, ch. 275).

57

The typical state approach to date hasbeen to define �retail electric supplier�(or an equivalent term) to refer to thoseentities that will sell or offer to sellelectricity to retail consumers. Thisdefinition of retail supplier includes theretail sales affiliates of traditional publicutilities, newly formed entities which sellelectricity from supplier-owned genera-tion facilities located both in or out-of-state, as well as aggregators, marketersand brokers who market electricity fromgeneration facilities which they do notdirectly own or operate. From theviewpoint of consumer protection, it willbe important for a state to regulate anyentity that seeks to promote or market thesale of electricity, whether or not theentity owns generation supplies. Theterm does not usually include entitieswhich offer only to sell demand-sidemanagement or energy efficiency ser-vices, or metering equipment, or otherenhancements to the sale of electricity.

Each state must also decide how thenew competitive market will apply to

publicly-owned utilities, such as munici-pal or rural electric cooperatives. Com-mission jurisdiction over these entitiesdiffers from state to state. However,policymakers involved in this debate willwant to consider that exempting pub-licly-owned electric companies fromlicensing and consumer protectionrequirements imposed on other retailelectric suppliers will grant them a morefavorable market position. If publicly-owned electric departments or coop-eratives seek to enter the competitivemarket to sell electricity to the generalpublic, it seems reasonable to include

Recently enacted Illinois

restructuring legislation created a

separate unit within the Attorney

General�s office to handle con-

sumer protection issues related

to the electric industry. This

action will concentrate resources

and develop expertise that exists

only at the utilities commission in

other states.

The Pennsylvania

Customer Choice

Act, Section 2803

defines �electric

generation supplier

or electricity supplier� as �a person or

corporation, including municipal corpora-

tions, which chooses to provide service

outside their municipal limits except to

the extent provided prior to the effective

date of this chapter; brokers and

marketers, aggregators or any other

entities, that sell... electricity or related

services, utilizing the jurisdictional,

transmission, or distribution facilities; or an

electric distribution company that

purchases, brokers, arranges or markets

electricity or related services for sale to

end-use customers, utilizing the jurisdic-

tional, transmission and distribution

facilities of an electric distribution

company.�

Illino is

58


them in the same overarching consumerprotections adopted by the state forother competitive suppliers.

Access to Books andRecords; Enforcement Tools

In addition to clarifying commissionjurisdiction over competitive suppliers,state legislation may also need to makeclear the extent of a commission�s ability

Maine�s electric restructuring legislation

clarifies the Public Utilities

Commission�s jurisdiction over retail

electric suppliers to include

n licensing, including renewal and

revocation;

n informational filings; public information

disclosures;

n standard consumer protection

provisions;

n penalties of up to $5,000 for each

violation;

n dispute resolution;

n cease and desist orders;

n restitution; and

n court enforcement by the PUC

directly or through the Attorney

General.

to obtain access to a supplier�s booksand records. As a practical matter, acommission is unlikely to conduct routineaudits, but legislation should addressregulatory authority to conduct investiga-tions upon reasonable cause and toobtain access to books and records forenforcement purposes.

Furthermore, if a commission does notalready have the authority to orderrestitution to affected consumers or levyfines or penalties, such authority shouldbe considered as part of state restructur-ing legislation. While a commissionwithout such authority may have wieldedits regulatory powers via rate cases andother certification procedures requiredfor traditional public utilities (such asproviding a lower rate of return in re-sponse to inefficient management orpoor service quality), these rate casetools will not be available to change thebehavior of errant retail suppliers in acompetitive market.

If a commission does not obtain authorityto order restitution or fines, it will mostlikely be unable to respond promptlyand forcefully to an emerging pattern offraud or violation of consumer protectionrules, and may be forced to make use ofits license revocation authority when alesser penalty might be more appropri-ate. For example, under current statutoryauthority, the New Jersey Board of PublicUtilities may only seek a fine of up to$500 per violation against public utilities.While this may even be inadequate forenforcement against public utilities, theexistence of ratemaking treatment amelio-

59

rates this defect to some extent. Withoutsuch rate case tools, this small penaltywould probably be inadequate toprevent widespread abuse of consumerprotection rules by competitive supplierswho are not subject to price regulation.

Montana�s electric restructuring legislation

specifies that the Commission may

revoke or suspend the license

of an electricity supplier,

impose a penalty, or both,

�for just cause on the

commission�s own investiga-

tion or upon the complaint

of an affected party if it is established

that the supplier

n intentionally provided false

information to the commission;

n switched, or caused to be switched,

the electricity supply for a customer

without first obtaining the customer�s

written permission;

n failed to provide a reasonably

adequate supply of electricity to its

customers in Montana; or

n committed fraud or engaged in

deceptive practices.�

Fines are set at the range of $100 to

$1,000 per day for each violation.

The Role of theConsumer Advocate

In most states, residential consumers arerepresented before the public utilitiescommission by independent legalconsumer advocates. While commis-sions themselves are re-thinking their newregulatory roles, so are consumer advo-cates. State consumer advocates areoften housed in the Attorney General�soffice or as part of the Executive Branch.Should the consumer advocate be givenauthority to participate in any commissionrulemaking, licensing, or other policydecision with respect to supervision ofretail electric suppliers? Should con-sumer complaints that find their way tothe public advocate be coordinatedwith the utility commission or the Attor-ney General? States that have adoptedlegislation to date provide a continuingsignificant role for the consumer advo-cate with authority to participate incommission proceedings during thetransition to competition.

Public advocates are also exploring newroles as participants in statewide con-sumer education programs and have, insome states, taken a lead role in coordi-nating the exploration of innovativeaggregation options for residentialcustomers. Several consumer advocateshave sought increased legislative appro-priations to pay for intensive participationin key proceedings and customer out-reach efforts that need to be quicklyaccomplished in preparation for retailcompetition. Furthermore, most con-sumer advocates expect to play an

60

important role in monitoring commissioncompliance with statutory directives in acompetitive marketplace, to use theirauthority to appeal commission decisionsbefore the courts, and to seek customerrestitution for violations.

The Role of theState Energy Office

For states with a strong energy office,such as Massachusetts and California,electric restructuring legislation imposesimportant new authority with respect toenergy efficiency, environmental disclo-sures associated with energy sales, andrenewable energy development. Inthose two states, as in others, the stateenergy offices took a lead role in policydiscussions leading to adoption ofelectric restructuring legislation. TheMassachusetts Department of EnergyResources (DOER) proposed a completeplan to achieve customer choice in thatstate and submitted it to the Departmentof Public Utilities and to the State Legisla-ture. The DOER and the Attorney General(within which the public advocateresides) then took the lead role in negoti-ating settlements with major utilities thatultimately formed the basis for manypolicies adopted by the State Legislature.

Similarly, the California Energy Commissionplayed a key role in design and imple-mentation of environmental disclosures,and has responsibility for the State TrustFund to support �the operation ofexisting, and the development of newand emerging, in-state renewable re-source technologies.52

Massachusetts� electric restructuring

legislation authorizes the Department of

Energy Resources to promulgate

rules that define

minimum demand-side

efficiency programs

operated by distribution

utilities. The funding level for such

programs starts at 3.3 mills per kWh in

1998 and phases down to 2.5 mills in

2002, with a total of about $500 million.

Included in this funding amount is a

permanent set-aside of .25 mills for low-

income energy efficiency programs.

Funding for renewable energy averages

0.7 mills per kWh for the first five years

(about $150 million), and 0.5 mills

thereafter.

California�s Senate Bill 1305 requires that

all retail suppliers selling electricity in

California disclose their

sources of electricity,

using a format developed

by the California Energy

Commission. The bill also

requires suppliers to report

fuel type and fuel consump-

tion information to system

operators and make such

information available to the Commission

to verify their customer disclosures.


61

The move to retail electric competitionin states across the country will beaccompanied by the review and revisionof many existing public policies andregulatory approaches associated withour 100-year old system of regulatingelectric service to all homes and busi-nesses. This Blueprint for ConsumerProtection has explored many issuesassociated with consumer protection

and universal service. States that havealready adopted retail electric competi-tion legislation have provided excellentmodels. They have recognized thatconsumer protections are vital to politicalacceptance of electricity competition.As one commissioner stated at a recentNational Association of Regulatory UtilityCommissioners meeting, �The safest job inmy commission is the consumer com-plaint specialist!�

CONCLUSION

63

ENDNOTES1. K. Winneg, M. Herrmann, A. Levy and B. Roe,Baseline Survey, Consumer Knowledge, Practices andAttitude: Electric Utility Deregulation and ConsumerChoice, National Council on Competition and theElectric Industry (NCCEI), Consumer InformationDisclosure Project, January, 1998. This and otherNCCEI research can be obtained from their website:http://eetd.lbl.gov/NationalCouncil/ and at theRegulatory Assistance Project (RAP) website: http://www.rapmaine.org.

2. Baxter, Lester, Low-Income Energy Policy in aRestructured Electricity Industry: An Assessment ofFederal Options, Oak Ridge National Laboratory, U.S.Department of Energy, ORNL/CON-443, July, 1997,Figure 1 at 6. Low-income households have a higherenergy burden; that is, they spend 10% or more, over20% in many cases, of their household income onenergy compared to households with averageincome.

3.Schachter, Deborah, �Public Outreach and Educa-tion in Electric Utility Restructuring,� in Alexander,Barbara, Consumer Protection Proposals for RetailElectric Competition: Model Legislation and Regula-tions, Regulatory Assistance Project, Gardiner, Maine,October, 1996. Ms. Schachter�s paper summarizedthe results of a study of California�s Caller ID EducationProgram by Dr. Brenda Devlin of Ohio State Universityfor the California PUC, and preliminary results of theNew Hampshire Electric Pilot Program. Thesematerials are also available at the RAP website.

4. In the Fair Packaging and Labeling Act, Congressdeclared that, �Informed consumers are essential tothe fair and efficient functioning of a free marketeconomy. Packages and their labels should enableconsumers to obtain accurate information as to thequantity of the contents and should facilitate valuecomparisons.� 15 U.S.C. §1451.

5. A reasonable consumer disclosure policy canovercome potential legal hurdles. This footnotesummarizes a legal memo by Michael Stoddard ofConservation Law Foundation (May 20, 1997), whichsummary also appeared in Oppenheim andAlexander, Model Electricity Consumer ProtectionDisclosures, NCCEI, January, 1998; also available at theRAP website.

Commercial speech is that which is solely related tothe economic interests of speaker and audience. Itmay be constitutionally regulated if it is misleading,unlawful (e.g., promoting an unlawful service), orwhere the government has a substantial interest (such

as consumer protection) that is directly advanced bythe regulation and the regulation is narrowly tailored tothe objective. Disclosures have been held to be adirect and narrowly tailored means of achievingconsumer protection, although a demonstration that itis reasonable to expect deception may be required.Zauderer v. Office of Disciplinary Counsel, 471 U.S.626, 105 S. Ct. 2265, 2282, 85 L.Ed.2d 652 (1985),quoting In re R.M.J., 455 U.S. 191, 201, 102 S.Ct. 929,936, 71 L.Ed.2d 64 (1982). Lack of standardization inthe marketplace and public lack of knowledge areamong the standards used in such an inquiry.

States may also regulate interstate commerce tofurther a legitimate state interest, such as protectingconsumers and preventing deception or unfaircompetition. Such state regulation must not, on itsface or in practice, discriminate against out-of-stateproducts and services, and may not impose a burdenon interstate commerce that is out of proportion tothe state interest.

6. Alexander, Barbara, The Transition to Local Telecom-munications Competition: A New Challenge forConsumer Protection, Public Counsel Section,Washington Attorney General, October, 1997.Available at http://wa.gov/ago/utility/alexander.html.

7. New Hampshire survey results are available from theNew Hampshire PUC website: http://www.state.nh.us/puc; The national focus groupresearch is summarized in Holt, Edward, InformationConsumers Want in Electricity Choice: Summary ofFocus Group Research, NCCEI, December, 1997.

8. T. Austin et al., Uniform Consumer DisclosureStandards for New England: Report and Recommen-dations to the New England Utility RegulatoryCommissions, NCCEI, October, 1998.

9. Truth in Lending Act, 15 U.S.C. §1601, et seq. andits implementing Regulation Z, 12 C.F.R. Section 226.For example, for variable rate credit applications andsolicitations, creditors must disclose the fact that therate may vary and state how the rate will be deter-mined, including identifying the index or formula andany margin or spread added to the index or formula.For introductory �teaser� rates that are temporary, thecreditor must also disclose the annual percentage ratethat will apply after the introductory rate expires.Special rules also govern the accuracy and currencyof disclosed rates. See, e.g., 12 C.F.R. 226.5a(b)(1).Variable rate mortgages must disclose how theinterest rate would change based on the prior 15-yearhistory of the index used to trigger rate changes.

64

10. Both the previously cited New Hampshire surveyand the NCCEI Report summarizing national focusgroup research have confirmed this desire forinformation on supply mix.

11. California Senate Bill 1305 (enacted October 8,1997) requires all retail suppliers selling electricity inCalifornia to disclose the sources of electricity theysell, using a format developed by the California EnergyCommission.

12. Investigation by the Massachusetts Department ofTelecommunications and Energy upon its ownmotion, commencing a Notice of Inquiry/Rulemaking,pursuant to 220 C.M.R. §§ 2.00 et seq., establishingthe procedures to be followed in electric industryrestructuring by electric companies subject to G.L.C.164, Docket 96-100 (February, 1998). Attachments B-1�B-4 contain sample labels.

13. The Truth in Lending disclosure requirements arenot limited to printed materials, but the New Englandcollaborative has recognized the difficulty ofpresenting information provided on the ElectricityLabel in an oral format.

14. FERC has adopted several criteria to assist in thedetermination of the boundary between statedistribution jurisdiction and FERC transmissionjurisdiction in its seminal decision on wholesalecompetition, Federal Energy Regulatory Commission,Order No. 888, Final Rule issued on April 24, 1996(Docket Nos. RM95-8-000, Promoting WholesaleCompetition Through Open Access Nondiscrimina-tory Transmission Services by Public Utilities, andRM94-7-001, Recovery of Stranded Costs by PublicUtilities and Transmitting Utilities).

15. The distribution system is the source of the vastmajority of customer outages. Power reliability relatedto the long distance transmission system may be thesubject of additional federal legislation.

16. Davis, Vivian, et al., Telecommunications ServiceQuality, National Regulatory Research Institute,Columbus, Ohio, March, 1996.

17. This section draws heavily on Alexander, Barbara,�How to Construct a Service Quality Index inPerformance-Based Ratemaking Plans, The ElectricityJournal, April, 1996. Additional materials on this topicmay be found in a recent NARUC publication,�Performance-Based Ratemaking Regulation in aRestructured Electric Industry,� particularly thechapters on Quality of Service and Universal ServiceIndices (NARUC, Washington, D.C., 1998), availablefrom the NARUC website: http://www.naruc.org.

18. Baxter, Lester, Op. cit. at 6. Even consideringbenefits under most common low-income programs,low-income households must allocate over 20% oftheir monthly budget to retain energy services insome states. Furthermore, targeted energy assistancefunds, such as the Low-income Home EnergyAssistance Program (LIHEAP) and DOE�s Weatheriza-tion Assistance Program (WAP) have sufferedsignificant program cuts in recent years.

19. In Massachusetts, for example, the largest electricutility, the New England Electric System (NEES),supports the continuation of low-income ratediscounts as part of their support for electricrestructuring. In Maine, the Industry Energy ConsumerGroup, representing the largest industrial customers,has supported the continuation of funding for low-income programs through the distribution service rateas a condition of the move to retail electric competi-tion, albeit as part of a package of proposalsnegotiated with consumer and low-income advo-cates.

20. Maine PUC, Inquiry Regarding Possible Low-incomeAssistance Legislation, Docket No. 97-582, October7, 1997.

21. California PUC, Interim Opinion on Public PurposePrograms�Threshold Issues, Decision 97-02-014,February 5, 1997.

22. Pennsylvania PUC, Final Order Re: Guidelines forUniversal Service and Energy Conservation Programs,Docket No. M-00960890F0010, July 11, 1997.

23. The Pennsylvania PUC�s recent Restructuring Ordersfor electric distribution companies have increasedfunding for both the rate payer assistance program(CAP) and the Low Income Usage Reduction Program(an energy management program) as follows:

PECO Energy: The Commission approved asettlement which calls for a $50 million universalservice budget, of which $5.6 million is energymanagement.

PP&L: The CAP or rate assistance program wasexpanded from $2 million to $11.7 million; LIURPexpanded from $4 million to $4.7 million with anadded program targeted to baseload electricityusage.

West Penn Power: CAP expanded from $.9 millionto $5.88 million; LIURP expanded from $.8 to $2.2million.

65

Duquesne Light: CAP expanded from $.55 million to$5.3 million; LIURP expanded from $.7 million to $1.75million.

Pennsylvania Electric Co. (GPU Energy): CAPexpanded from $620,000 to $4.9 million over 4 years;LIURP expanded from $652,000 to $1.9 million.

Metropolitan Edison (GPU Energy): CAP ex-panded from $452,000 to $4.6 million over fouryears; LIURP expanded from $772,000 to $1.8 million.

24. Pennsylvania PUC, PECO Energy Restructuring Orderon Joint Petition for Full Settlement, Docket No. R-973953, May 14, 1998.

25.While electricity is not often used nationally as aprimary heat source, most other forms of heat (fueloil, natural gas) cannot operate without electricity topower their motors and exhaust fans.

26. RKM Applied Research, (Benchmark ResearchSummary presented to the N.H. Public UtilitiesCommission) Residential Consumer and SmallBusiness Study, Portsmouth, N.H., October 15, 1997.Most residential and small business respondents hadheard only a little (46%) or nothing at all (15%) aboutthe introduction of competition in the electricindustry. Fifty-five percent of the respondents saidthat they were unsure whether their monthly electricbill would increase or decrease under competition,but for those who stated their bill would likelydecrease, the average customer thought their billwould decrease 17.6%, far higher than mostobservers estimate is likely to occur.

27. 15 U.S.C. §1691-1691f. The ECOA is imple-mented by Regulation B, 12 C.F.R. §202.

28. The Federal Reserve Board�s Regulation B exemptspublic utilities from some specific provisions, such asthose relating to the use of spousal credit history andspousal income, but even these exemptions areapplicable only to public utilities whose rates areapproved by a state regulatory agency. Reg. B, 12C.F.R. §202.3(a).

29. Sheldon, Jonathan, Credit Discrimination, (NationalConsumer Law Center: Boston, 1993) at 59-60.

30. Regulation B explicitly incorporates the effects testas a basis for discriminatory conduct. Federal ReserveBoard Official Staff Commentary, §202.6(a)-2.

31. 15 U.S.C.§§1681-1681u. There are no interpretiveregulations, but the FTC has issued a Commentary, 16

C.F.R. Part 600, and Notices of Rights and Duties underthe Fair Credit Reporting Act, 16 CFR Part 601.

32. 15 U.S.C.§§1601 et seq., Regulation Z, 12 C.F.R.Part 226.

33. 15 U.S.C. §45(a).

34. Delaware Code §2513(b); Louisiana-LSA-Rev. Stat.51:1406(1); Maryland Code, Comm. Law, §13-104(2);Ohio Rev. Code §1346.10; West�s Rev. CodeWashington Ann. §19.86.170.

35. E.g., Maine, Massachusetts, Michigan, RhodeIsland, South Carolina, cited in Alperin and Chase,Consumer Law (West Publishing Co., 1968), §114.

36. 15 U.S.C. §1692-1692o.

37. 15 U.S.C. §§6101-08, August 16, 1994.

38. 16 C.F.R. Part 310.

39. 16 C.F.R. Part 429.

40. This practice was started by telecommunicationsproviders and copied by several energy suppliers inthe New Hampshire and Pennsylvania retail competi-tion pilot programs.

41. A.B. No. 1890, §366(e).

42. Chapter 164 of the Acts of 1997 (eff. November25, 1997), Section 193.

43. Connecticut Public Act No. 98-28, eff. 4/29/98,§30.

44. See the NCCEI research cited in prior footnotesand available on their website.

45.15 U.S.C. §45

46. See Federal Trade Commission Policy Statement onDeception, appended to Cliffdale Assocs., Inc.. 103F.T.C.110, 174 (1984); Federal Trade CommissionStatement Regarding Advertising Substantiation,appended to Thompson Medical Co., Inc., 104F.T.C.648, 839 (1984); Federal Trade CommissionUnfairness Policy Statement, appended to Interna-tional Harvester Co., 104 F.T.C. 949 (1984).

66

47. 49 Fed. Reg. 30,999 (1984).

48.The material terms of this contract will be disclosedin the Terms of Service brochure described in ChapterI and subject to the basic consumer protectionprovisions discussed in Chapter III.

49. The state�s creation of a Default or Standard Offer,as discussed in Chapter II, is a form of aggregation forthose customers who do not choose a supplier; thisChapter, however, focuses on customers whopositively select an aggregator or power broker toobtain energy on their behalf.

50. This issue is closely related to the state�s policyconcerning how a customer provides authorizationto select or change his or her electric supplier. At thevery least, a customer�s authorization to select anaggregator as the supplier, thus authorizing theaggregator to obtain electricity on the customer�sbehalf, should not be more difficult or requireadditional procedural hurdles, compared to customerselection of a supplier under direct access.

51. Prospectus (DRAFT), Community Energy Coopera-tive, Prepared by the Community Energy CooperativeDevelopment Team, February 21, 1997, at 1.

52. AB 1890, §381, August 31, 1996.

67

A SHORT PRIMER ON RETAILELECTRIC RESTRUCTURING

Since the turn of the century, electricutilities have been viewed as �naturalmonopolies.� Because of the tremen-dous costs involved in building powerplants and transmission lines, electricutilities were assumed to provide aservice that only one entity in a givenarea could deliver efficiently. Utilitieswere granted exclusive franchises inexchange for submitting to regulation, thepurpose of which was, and has contin-ued to be, to assure adequate service atreasonable cost. This traditional picture ischanging and this vertically-integratedindustry (production/generation, transmis-sion, delivery and sale to retail custom-ers) is being broken into pieces or�unbundled.� Increased competition iscoming to the electric industry, due tothe interaction of five key factors:

■ New technologies in energy pro-duction, conservation and informa-tion systems are creating opportu-nities for more efficient produc-tion, delivery and consumption ofelectricity. The most importantdevelopment in this area has beenrapid price reductions associatedwith the construction of new naturalgas-fired turbine and combined cycleplants. This has meant that electricitycan be generated at lower cost thanat many older and more expensivepower plants.

APPENDIX A

■ Federal laws have been changed toencourage new entrants in electric-ity generation and to create acompetitive wholesale transmis-sion market. The Public UtilityRegulatory Policies Act (PURPA) of1978 requires utilities to buy powerfrom independent power producers;this law initiated the growth ofelectricity generation outside thevertically-integrated public utilities.The 1992 Energy Policy Act (EPAct)authorized the Federal Energy Regula-tory Commission (FERC) to ordertransmission-owning utilities toprovide transmission service to anybuyer or seller of wholesale electric-ity. Under this authority, FERC hasissued a series of decisions designedto create a wholesale market in thesale of electricity.

■ New players are seeking to enterthe industry at all levels: wholesaleand retail sales, generation, trans-mission ownership, merchant andaggregation functions, and conser-vation services. As these newplayers see opportunities for compe-tition, they will create a significantpolitical and economic force forchange.

■ Industrial customers are insistingon lower rates and higher efficien-cies from their utility suppliers,that has led the way in most statesfor development of a retail market.These proponents of competitionpoint to the positive benefits from

68

increased competition in the airline,gas, trucking and telecommunicationsindustries as a rationale for initiatingelectricity competition. Industrialcustomers are skilled and sophisti-cated; they understand the potentialadvantage in bargaining for theirelectricity needs in the open market.

■ Electricity production accounts forover 50% of key air pollutionemissions, focusing attention onthe industry. Policymakers andconsumer advocates are looking forthe most efficient way to assign risksand costs to the production and useof electricity. The current regulatorystructure provides an inherent incen-tive for electric utilities to increasetheir sales of kilowatt-hours becausemost state ratemaking policiesencourage utilities to increase theirprofits by selling more electrons.Such regulatory imperatives, in turn,result in higher air emissions than mightotherwise occur in a competitivemarket, as well as increased airpollution from older power plantswhich are required to comply withthe more stringent emission standardsof newer plants.

The call for increased competition in theelectric industry has coincided with apush toward privatization in many othercountries and with a political desire todecrease our reliance on regulation infavor of more competition in manyindustries. In the telecommunicationsindustry, for example, Congress enactedthe Telecommunications Act of 1996

which, among other requirements:(1) calls for competition in the localprovision of telephone service; (2)opens up the previously separated cableand long distance telephone companiesto competition from each other; and (3)replaces a long history of state andfederal price regulation with calls formarket fairness and consumer protection.The push for retail competition in theelectric industry has not been far behind.

Twelve state legislatures have alreadymandated retail competition in theirstates with implementation dates thatvary from 1998-2006 (See Appendix B).Almost every other state has initiatedproceedings to examine whether retailcompetition is either an inevitable ordesirable result. In addition, severalfederal legislative proposals that mandateretail competition are slated for seriousattention in the near future.

Proponents of these changes emphasizethat lower costs typically result fromcompetitive, as opposed to regulated,markets. They theorize that allowingcompetition in at least the generationportion of the business will result inlower prices than under the traditionalmonopoly regulation approach. While itis undeniable that retail competition willcreate an opportunity for some custom-ers to negotiate for lower prices, con-sumer advocates question whether thisbenefit will flow automatically to lower-use residential and small commercialcustomers in general or low-incomecustomers in particular. These observerspoint to the airline industry in which

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prices have, in fact, dropped for custom-ers who can travel at certain times butsignificantly increased for businesscustomers traveling at peak days or times.This has come at a cost of reducedservice and higher fares for small citiesacross America. Consumer advocatesalso point to the recently deregulatedtelecommunications industry wherecompetition for basic exchange servicehas appeared in large cities and for largevolume users, but not for rural or mostresidential customers.

As a result of these concerns, the debateabout electric competition in many stateshas included an extensive analysis of thepublic benefits associated with tradi-tional regulatory structures and efforts toeither address those benefits directly inthe new industry structure or transferthem to the new competitive retailmarket. These public benefits include

■ conservation and demand-sidemanagement initiatives mandatedby state policy makers;

■ universal service and low-incomeprograms;

■ utility-sponsored research anddevelopment;

■ consumer protection policies andprograms associated with the sale ofelectricity to residential and smallcommercial customers; and

■ support for renewable energy andenvironmentally beneficial energysources as embodied in PURPA andleast cost planning policies.

Overarching this debate about compet-ing public policies and whether toprotect or abandon them is the contro-versy surrounding �stranded costs.�These costs dwarf those associated withpublic policy initiatives and may deter-mine whether most customers see anyreduction in prices as a result of themove to competition. Stranded costsrepresent the capital invested by utilitiesin power plants and power-purchasingcontracts that will not be profitable in acompetitive market. The differencebetween what the utilities invested inthese plants and contracts and what theyare worth on the open market in the nextseveral years is the �stranded� portion ofthese costs. Utilities want to be reim-bursed for these costs as part of thetransition to competition. They argue thattheir shareholders had every reason toexpect these costs to be recoveredbecause they were incurred with theknowledge and blessing of state andfederal regulators.

Opponents argue that the change tocompetition will produce winners andlosers and that utility shareholders mustshare in the pain. Some states, likeCalifornia, Maine, and Massachusetts, areallowing utilities to recover most or all oftheir stranded costs, but they are requir-ing them to sell some or all of theirpower plants. This �divestiture� approachprevents the old monopolies from putting

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their new competitors at a disadvantage,because, as continuing owners of thetransmission and distribution system, theymight give their own power plantsspecial treatment. Divestiture is particu-larly important because of the increasingnumber of mergers among utilities in thelast several years, which have set thestage for a potential reduction in compe-tition in some regional electricity markets.

Readers interested in a more detaileddiscussion of the economic and publicpolicy issues associated with the move

to retail electric competition may findadditional information from the NationalCouncil on Competition and the ElectricIndustry (NCCEI), a joint project of stateutility regulators, through the NationalAssociation of Regulatory Utility Commis-sioners (NARUC), legislators, through theNational Conference of State Legislatures(NCSL), and energy officials, through theNational Association of State EnergyOfficials (NASEO). The National Council�swebsite includes links to their publicationshttp://eetd.lbl.gov/nationalcouncil/.

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EXCERPTS FROM STATEELECTRIC RESTRUCTURING LEGISLATION

AGGREGATION

California Senate Bill 477 (Stats. 1997, ch. 275).

Section 366 is added to the Public Utilities Code to read:

366. (a) The commission shall take actions as needed to facilitate direct transactions betweenelectricity suppliers and end use customers. Customers shall be entitled to aggregate theirelectric loads on a voluntary basis, provided that each customer does so by a positivewritten declaration. If no positive declaration is made by a customer, that customer shallcontinue to be served by the existing electrical corporation or its successor in interest.

(b) Aggregation of customer electrical load shall be authorized by the commission for allcustomer classes, including, but not limited to small commercial or residential customers.Aggregation may be accomplished by private market aggregators, cities, counties, specialdistricts or on any other basis made available by market opportunities and agreeable bypositive written declaration by individual consumers.

(c) If a public agency seeks to serve as a community aggregator on behalf of residentialcustomers, it shall be obligated to offer the opportunity to purchase electricity to allresidential customers within its jurisdiction.

Massachusetts: Chapter 164 of the Acts of 1997, eff. November 25, 1997.

Section 134. (a) Any municipality or any group of municipalities acting together within thecommonwealth is hereby authorized to aggregate the electrical load of interestedelectricity consumers within its boundaries; provided, however, that such municipality orgroup of municipalities shall not aggregate electrical load if such are served by an existingmunicipal lighting plant. Such municipality or group of municipalities may group retailelectricity customers to solicit bids, broker, and contract for electric power and energyservices for such customers. Such municipality or group of municipalities may enter intoagreements for services to facilitate the sale and purchase of electric energy and otherrelated services. Such service agreements may be entered into by a single city, town,county, or by a group of cities, towns, or counties.

A municipality or group of municipalities which aggregates its electrical load and operatespursuant to the provisions of this Section shall not be considered a utility engaging in thewholesale purchase and resale of electric power. Providing electric power or energyservices to aggregated customers within a municipality or group of municipalities shall notbe considered a wholesale utility transaction. The provision of aggregated electric powerand energy services as authorized by this Section shall be regulated by any applicablelaws or regulations which govern aggregated electric power and energy services incompetitive markets.

APPENDIX B

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A town may initiate a process to aggregate electrical load upon authorization by amajority vote of town meeting or town council. A city may initiate a process to authorizeaggregation by a majority vote of the city council, with the approval of the mayor, or thecity manager in a Plan D or Plan E city. Two or more municipalities may as a group initiate aprocess jointly to authorize aggregation by a majority vote of each particular municipalityas herein required.

Upon an affirmative vote to initiate said process, a municipality or group of municipalitiesestablishing load aggregation pursuant to this Section shall, in consultation with the divisionof energy resources, pursuant to Section 6 of Chapter 25A, develop a plan, for reviewby its citizens, detailing the process and consequences of aggregation. Any municipalload aggregation plan established pursuant to this Section shall provide for universalaccess, reliability, and equitable treatment of all classes of customers and shall meet anyrequirements established by law or the department concerning aggregated service. Saidplan shall be filed with the department, for its final review and approval, and shall include,without limitation, an organizational structure of the program, its operations, and its funding;rate setting and other costs to participants; the methods for entering and terminatingagreements with other entities; the rights and responsibilities of program participants; andtermination of the program. Prior to its decision, the department shall conduct a publichearing. The department shall not approve any such plan if the price for energy wouldinitially exceed the price of the standard offer, as established pursuant to Section 1B ofthis chapter, for such citizens in the municipality or group of municipalities, unless theapplicant can demonstrate that the price for energy under the aggregation plan will belower than the standard offer in the subsequent years or the applicant can demonstratethat such excess price is due to the purchase of renewable energy as described by theDivision of Energy Resources pursuant to Chapter 25A.

Participation by any retail customer in a municipal or group aggregation program shall bevoluntary. If such aggregated entity is not fully operational on the retail access date, anyratepayer to be automatically enrolled therein shall receive standard offer service unlessaffirmatively electing not to do so. Within 30 days of the date the aggregated entity is fullyoperational, such ratepayers shall be transferred to the aggregated entity according to anopt-out provision herein. Following adoption of aggregation through the votes specifiedabove, such program shall allow any retail customer to opt-out and choose any supplieror provider such retail customer wishes. Once enrolled in the aggregated entity, anyratepayer choosing to opt-out within 180 days shall do so without penalty and shall beentitled to receive standard offer service as if he was originally enrolled therein. Nothing inthis Section shall be construed as authorizing any city or town or any municipal retail loadaggregator to restrict the ability of retail electric customers to obtain or receive servicefrom any authorized provider thereof.

It shall be the duty of the aggregated entity to fully inform participating ratepayers inadvance of automatic enrollment that they are to be automatically enrolled and that theyhave the right to opt-out of the aggregated entity without penalty. In addition, suchdisclosure shall prominently state all charges to be made and shall include full disclosure ofthe standard offer rate, how to access it, and the fact that it is available to them withoutpenalty. The Division of Energy Resources shall furnish, without charge, to any citizen a listof all other supply options available to them in a meaningful format that shall enablecomparison of price and product.

(b) A municipality or group of municipalities establishing a load aggregation program pursuant

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to Subsection (a) may, by a vote of its town meeting or legislative body, whichever isapplicable, adopt an energy plan which shall define the manner in which the municipality ormunicipalities may implement demand side management programs and renewable energyprograms that are consistent with any state energy conservation goals developedpursuant to Chapter 25A or Chapter 164. After adoption of the energy plan by suchtown meeting or other legislative body, the city or town clerk shall submit the plan to thedepartment to certify that it is consistent with any such state energy conservation goals. Ifthe plan is certified by the department, the municipality or group of municipalities mayapply to the Massachusetts Technology Park Corporation for monies from the Massachu-setts Renewable Energy Trust Fund, established pursuant to Subsection (a) of Chapter 40J,and receive, and if approved, expend moneys from the demand side managementsystem benefit charges or line charges in an amount not to exceed that contributed byretail customers within said municipality or group municipalities. This will not prevent saidmunicipality or municipalities from applying to the Massachusetts Technology Park Corpo-ration for additional funds. If the department determines that the energy plan is notconsistent with any such state-wide goals, it shall inform the municipality or group ofmunicipalities within six months by written notice the reasons why it is not consistent withany such state-wide goals. The municipality or group of municipalities may re-apply atanytime with an amended version of the energy plan.

The municipality or group of municipalities shall not be prohibited from proposing forcertification an energy plan which is more specific, detailed, or comprehensive or whichcovers additional subject areas than any such state-wide conservation goals. Thissubsection shall not prohibit a municipality or group of municipalities from considering,adopting, enforcing, or in any other way administering an energy plan which does notcomply with any such state-wide conservation goals so long as it does not violate the lawsof the commonwealth.

The municipality or group of municipalities shall, within two years of approval of its plan orsuch further time as the department may allow, provide written notice to the departmentthat its plan is implemented. The department may revoke certification of the energy plan ifthe municipality or group of municipalities fails to substantially implement the plan or if it isdetermined by independent audit that the funds were misspent within the time allowedunder this subsection.

CONSUMER PROTECTION POLICIES


Sec. 391: The Legislature finds and declares all of the following:

(a) Electricity is essential to the health, safety, and economic well-being of all Californiaconsumers.

(b) The restructuring of the electricity industry will create a new electricity market with newmarketers and sellers offering new goods and services, many of which may not be readilyevaluated by the average consumer.

(c) It is important that these customers be protected from unfair marketing practices and thatmarket participants demonstrate their creditworthiness and technical expertise in orderto engage in power sales to these members of the public.

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(d) Larger commercial and industrial customers are sophisticated energy consumers that haveadequate civil remedies and are adequately protected by existing commercial law, asdemonstrated by the absence of significant amounts of contract litigation betweencommercial and industrial natural gas users and natural gas marketers in California.

(e) It is important to create a market structure that will not unduly burden new entrants intothe competitive electric market, or California may not receive the full benefits of reducedelectricity costs through competition.

(f) It is appropriate to create a system of registration and consumer protection for theelectric industry, designed to ensure sufficient protection for residential and small com-mercial consumers while simplifying entry into the market for responsible entities servinglarger, more sophisticated customers.

(g) It is the intent of the Legislature that:

(1) Electricity consumers be provided with sufficient and reliable information to beable to compare and select among products and services provided in theelectricity market.

(2) Consumers be provided with mechanisms to protect themselves from marketingpractices that are unfair or abusive.

(3) Pursuant to the authority granted to the commission in this part as to registrationand consumer protection matters, the commission shall balance the need tomaximize competition by reducing barriers to entry into the small retail electricityprocurement market with the need to protect small consumers againstdeceptive, unfair, or abusive business practices, or insolvency of the entityoffering retail electric service.

CONSUMER EDUCATION

Maine: Public Law 1997, ch 316 (May 29, 1997)

Sec. 35A § 3214: Bill Unbundling; Consumer Education

1. Unbundled bills. Beginning January 1, 1999, electric utilities shall issue bills that state thecurrent cost of electric capacity and energy separately from transmission and distributioncharges and other charges for electric service. By January 31, 1998, each electric utilityshall file with the commission a bill unbundling proposal. The commission shall complete itsreview of those proposals and adopt a rule establishing unbundled bill requirements byJuly 1, 1998. Rules adopted under this subsection are routine technical rules pursuant toTitle 5, Chapter 375, subchapter II-A.

2. Consumer education advisory board; rules. The commission shall adopt rules implement-ing a consumer education program in compliance with this subsection.

A. The commission shall immediately organize a consumer education advisory boardto investigate and recommend methods to educate the public about the

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implementation of retail access and its impact on consumers. The commissionshall ensure broad representation of residential, industrial and commercial electricconsumers, public agencies and the electric industry on the advisory board.Members of the board shall serve without compensation.

B. In its recommendations, the advisory board shall address:

(1) The level of funding necessary for adequate educational efforts and theappropriate source of that funding;

(2) The aspects of retail access on which consumers need education;

(3) The most effective means of accomplishing the education of consumers;

(4) The appropriate entities to conduct the education effort; and

(5) Any other issue relevant to the education of consumers regarding theimplementation of retail access and its impact on consumers.

C. The commission shall consider the recommendations of the advisory board whenadopting rules to implement a consumer education program. Rules adoptedunder this subsection are major substantive rules pursuant to Title 5, Chapter 375,subchapter II-A. The commission shall provide these rules to the Legislature inaccordance with Title 5, Chapter 375, subchapter II-A, no later thanFebruary 1, 1998.

Nevada: Assembly Bill 366, July 16, 1997.

Sec. 48

3. The commission, before the commencement of direct access to alternative sellers for anelectric service, shall carry out an educational program for customers to:

(a) Inform customers of the changes in the provision of electric service, including, butnot limited to, the availability of alternative sellers of electric service;

(b) Inform customers of the requirements relating to disclosures, explanations or salesinformation for sellers of competitive services; and

(c) Provide assistance to customers in understanding and using the information tomake reasonably informed choices about which service to purchase and fromwhom to purchase it.

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CONSUMER DISCLOSURES


Sec. 394.5

(a) Except for an electrical corporation as defined in Section 218, or a local publicly ownedelectric utility as defined in subdivision (d) of Section 9604 offering electrical service toresidential and small commercial customers within its service territory, each entity offeringelectrical service to residential and small commercial customers shall, prior to the com-mencement of service, provide the potential customer with a written notice of theservice describing the price, terms, and conditions of the service. The notices shall includeall of the following:

(1) A clear description of the price, terms, and conditions of service, including:

(A) The price of electricity expressed in a format which makes it possible for residen-tial and small commercial customers to compare and select among similarproducts and services on a standard basis. The commission shall adopt rules toimplement this subdivision. The commission shall require disclosure of the totalprice of electricity on a cents-per-kilowatthour basis, including the costs of allelectric services and charges regulated by the commission. The commission shallalso require estimates of the total monthly bill for the electric service at varyingconsumption levels, including the costs of all electric services and chargesregulated by the commission. In determining these rules, the commission mayconsider alternatives to the cent-per-kilowatthour disclosure if other informationwould provide the customer with sufficient information to compare amongalternatives on a standard basis.

(B) Separate disclosure of all recurring and nonrecurring charges associatedwith the sale of electricity.

(C) If services other than electricity are offered, an itemization of the servicesand the charge or charges associated with each.

(2) An explanation of the applicability and amount of the competition transitioncharge, as determined pursuant to Sections 367 to 376, inclusive.

(3) A description of the potential customer�s right to rescind the contract withoutfee or penalty as described in Section 395.

(4) An explanation of the customer�s financial obligations, as well as the proceduresregarding past due payments, discontinuance of service, billing disputes, andservice complaints.

(5) The entity�s registration number, if applicable.

(6) The right to change service providers upon written notice, including disclosure ofany fees or penalties assessed by the supplier for early termination of a contract.

(7) A description of the availability of low-income assistance programs for qualifiedcustomers and how customers can apply for these programs.

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(b) The commission may assist registered entities in developing the notice. The commissionmay suggest inclusion of additional information it deems necessary for the consumerprotection purposes of this section. On at least a semiannual basis, registered entities shallprovide the commission with a copy of the form of notice included in standard serviceplans made available to residential and small commercial customers as described insubdivision (a) of Section 392.1.

(c) Any entity offering electric services who declines to provide those services to a con-sumer shall, upon request of the consumer, disclose to that consumer the reason for thedenial in writing within 30 days. At the time service is denied, the entity shall disclose tothe consumer his or her right to make such a request. Consumers shall have at least 30days from the date service is denied to make such a request.


Section 1F

(5)(i) Before service is initiated by a generation company, aggregator, or supplier to anycustomer, the generation company, aggregator, or supplier shall disclose informa-tion on rates and other information to a customer in a written statement which thecustomer may retain. The department shall promulgate rules and regulationsprescribing the form, content, and distribution of such information to be dis-closed, which shall include, but not be limited to, the following: the disclosure ofthe rate to be charged; whether the generation company or supplier operatesunder collective bargaining agreements and whether such generation company orsupplier operates with employees hired as replacements during the course of alabor dispute; any charges, fees, penalties, or other conditions imposed upon acustomer should he or she choose to purchase power from another generationcompany, aggregator, or supplier during the term specified in the contract; thefuel mix and emissions of the generation sources; whether a credit agency will becontacted; deposit requirements and the interest paid on deposits; due date ofbills and all consequences of late payment; consumer rights where a bill isestimated; consumer rights of third-party billing and like arrangements; consumerrights to deferred payment arrangements; low-income rates; limits, if any, onwarranty and damages; the applicable provisions of this section; the provisionsfor default service; a toll-free telephone number for service complaints; any otherfees, charges, or penalties; and the methods by which a consumer shall benotified of any changes to any of these items. A generation company, a supplier,or an aggregator licensed by the department to do business in the common-wealth pursuant to this section shall prepare an information booklet describing acustomer�s rights under the provisions of this chapter. Such company, supplier, oraggregator shall annually mail this booklet to its customers.

(ii) A generation company, an aggregator, or a supplier shall be allowed to advertisethe percentage of its power or energy portfolio that is generated by employersthat operate under collective bargaining agreements or that operate withemployees hired as replacements during the course of a labor dispute or thatconnotes or signifies to the ratepayer the relative environmentally beneficialeffects of the power or energy sold by said generation company, an aggregator,or a supplier pursuant to rules and regulations promulgated by the department.

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(iii) In addition to the disclosure requirements provided for in Subparagraphs (i) and (ii), thedepartment shall promulgate such rules and regulations prescribing information to bedisclosed by a generation company in any advertising or marketing of electricity rates,which regulations shall include, but not be limited to, disclosure of the rate to be charged inbold print in the case of print advertisements or through clear spoken language in the caseof television or radio advertisements and on any monthly billing materials. The departmentshall coordinate with the attorney general to avoid duplication and to ensure consistencywith the attorney general�s regulations.

(6) The department shall promulgate uniform labeling regulations which shall be applicable toall suppliers as a condition of licensure pursuant to paragraph (1). Such information to berequired by regulation in said labeling shall include price data, information on price variabil-ity, and customer service information and information about whether the generationcompany or supplier operates under collective bargaining agreements and whether suchgeneration company or supplier operates with employees hired as replacements duringthe course of a labor dispute, fuel sources, and air emissions of sulfur dioxide, nitrogendioxides, carbon dioxide, heavy metals, and any other emission which the departmentmay determine causes significant health or environmental impact and for which sufficientlyaccurate and reliable data is available. The department shall require that such an electricityinformation label provide prospective and existing customers with adequate informationby which to readily evaluate power supply options available in the market. Electricitysuppliers shall be required to present such information, including information about theenvironmental characteristics of the sale of electric power products and services andwhether the generation company or supplier operates under collective bargainingagreements and whether such generation company or supplier operates with employeeshired as replacements during the course of a labor dispute to customers, in conformancewith department requirements as to form and substance, and shall comply with federaland state laws governing unfair advertising and labeling.

CONSUMER COMPLAINTS


Sec. 392.1

(a) The commission shall compile and regularly update the following information: names andcontact numbers of registered providers, information to assist consumers in makingservice choices, and the number of customer complaints against specific providers inrelation to the number of customers served by those providers and the disposition ofthose complaints. To facilitate this function, registered entities shall file with the commissioninformation describing the terms and conditions of any standard service plan madeavailable to residential and small commercial customers. The commission shall adopt astandard format for this filing. The commission shall maintain and make generally available alist of entities offering electrical services operating in California. This list shall include allregistered providers and those providers not required to be registered who request thecommission to be included in the list. The commission shall, upon request, make thisinformation available at no charge. Notwithstanding any other provision of law, publicagencies which are registered entities shall be required to disclose their terms andconditions of service contracts only to the same extent that other registered entities

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would be required to disclose the same or similar service contracts.

(b) The commission shall issue public alerts about companies attempting to provide electricservice in the state in an unauthorized or fraudulent manner as defined in subdivision (b) ofSection 394.25.

(c) The commission shall direct the Office of Ratepayer Advocates to collect and analyzeinformation provided pursuant to subdivision (a) for purposes of preparing easily under-standable informational guides or other tools to help residential and small commercialcustomers understand how to evaluate competing electric service options. In imple-menting these provisions, the commission shall direct the Office of Ratepayer Advocatesto pay special attention to ensuring that customers, especially those with limited-English-speaking ability or other disadvantages when dealing with marketers, receive correct,reliable, and easily understood information to help them make informed choices. TheOffice of Ratepayer Advocates shall not make specific recommendations or rank therelative attractiveness of specific service offerings of registered providers of electricservices.

LICENSING:


Sec. 394.25

(a) The commission may enforce the provisions of Sections 2102, 2103, 2104, 2105, 2107,2108, and 2114 against registered entities as if those entities were public utilities asdefined in these code sections. Notwithstanding the above, nothing in this section shallgrant the commission jurisdiction to regulate registered entities other than as specificallyset forth in this part. Registered entities shall continue to be subject to the provisions ofSections 2111 and 2112. Upon a finding by the commission�s executive director thatthere is evidence to support a finding that the entity has committed an act constitutinggrounds for suspension or revocation of registration as set forth in subdivision (b) ofSection 394.25, the commission shall notify the entity in writing and notice an expeditedhearing on the suspension or revocation of the entity�s registration to be held within 30days of the notification to the entity of the executive director�s finding of evidence tosupport suspension or revocation of registration. The commission shall, within 45 daysafter holding the hearing, issue a decision on the suspension or revocation of registration,which shall be based on findings of fact and conclusions of law based on the evidencepresented at the hearing. The decision shall include the findings of fact and the conclusionsof law relied upon.

(b) A registered entity may have its registration suspended or revoked, immediately orprospectively, in whole or in part, for any of the following acts:

(1) Making material misrepresentations in the course of soliciting customers, enteringinto service agreements with those customers, or administering those serviceagreements.

(2) Dishonesty, fraud, or deceit with the intent to substantially benefit the registeredentity or its employees, agents, or representatives, or to disadvantage retail

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electric customers.

(3) Where the commission finds that there is evidence that the entity is not financiallyor operationally capable of providing the offered electric service.

(c) Pursuant to its authority to revoke or suspend registration, the commission may suspend aregistration for a specified period or revoke the registration, or in lieu of suspension orrevocation, impose a moratorium on adding or soliciting additional customers.

Any suspension or revocation of a registration shall require the entity to cease servingcustomers within the boundaries of investor-owned electric corporations, and theaffected customers shall be served by the electrical corporation until such time as theymay select service from another service provider. Customers shall not be liable for thepayment of any early termination fees or other penalties to any entity under the serviceagreement in the event the serving electric service provider�s registration is suspended orrevoked.

Maine Public Law 1997, ch 316 (May 29, 1997)

Sec. 35A § 3203: Licensing of competitive electricity providers;consumer protections; enforcement

1. Authority. In order to provide effective competition in the market for the generation andsale of electricity in the State and to provide an orderly transition from the current form ofregulation to retail access, the commission shall license competitive electricity providers inaccordance with this section.

2. Requirements. A competitive electricity provider may not undertake the sale of electricityat retail in this State without first receiving a license from the commission. Before approvinga license application, the commission must receive from the applicant:

A. Evidence of financial capability sufficient to refund deposits to retail customers inthe case of bankruptcy or nonperformance or for any other reason;

B. Evidence of the ability to enter into binding interconnection arrangements withtransmission and distribution utilities;

C. Disclosure of all pending legal actions and customer complaints filed against thecompetitive electricity provider at a regulatory body other than the commissionin the 12 months prior to the date of license application;

D. Evidence of the ability to satisfy the renewable resource portfolio requirementestablished under Section 3210; and

E. Disclosure of the names and corporate addresses of all affiliates of the applicant.

The commission shall consider the need for requiring and, if it determines there is a need,may require a competitive electricity provider to file a bond with the commission asevidence of financial ability to withstand market disturbances or other events that mayincrease the cost of providing service or to provide for uninterrupted service to itscustomers if a competitive electricity provider stops service.

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3. Informational filings; public information. The commission shall establish by rule informationdisclosure and filing requirements for competitive electricity providers. The rules mustrequire generation providers to file their generally available rates, terms and conditionswith the commission. The commission, subject to appropriate protective orders, mayrequire the submission of individual service contracts or any other confidential informationfrom a competitive electricity provider.

The commission by rule shall establish standards for publishing and disseminating, throughany means considered appropriate, information that enhances consumers� ability toeffectively make choices in a competitive electricity market.

Rules adopted under this subsection are major substantive rules as defined in Title 5,Chapter 375, subchapter II-A and must be provisionally adopted by March 1, 1999.

4. Standard consumer protection provisions. As a condition of licensing, a competitiveelectricity provider that provides or proposes to provide generation service to acustomer, wherever located, with a demand of 100 kilowatts or less:

A. May not terminate generation service without at least 30 day prior notice to thecustomer;

B. Must offer service to the customer for a minimum period of 30 days;

C. Must allow the customer to rescind selection of the competitive electricityprovider orally or in writing within 5 days of initial selection;

D. May not telemarket services to the customer if the customer has filed with thecommission a written request not to receive telemarketing from competitiveelectricity providers;

E. Must provide to the customer within 30 days of contracting for retail service adisclosure of information provided to the commission pursuant to rules adoptedunder Subsection 3 in a standard written format established by the commission;and

F. Must comply with any other provisions adopted by the commission by rule ororder.

5. Licensing renewals and revocations. Consistent with all applicable requirements of Title 5,Chapter 375, the commission may limit the duration and effectiveness of a license to aspecified term, may conduct proceedings for the renewal of licenses and may conductproceedings for the revocation of a license when a requirement of this section has notbeen complied with by a competitive electricity provider. The commission shall adoptrules governing the procedures for issuing or revoking a license under this section andrelated matters.

6. Consumer protection standards; rules. The commission shall establish by rule consumerprotection standards and standards to protect and promote market competition inorder to protect retail consumers of electricity from fraud and other unfair and deceptive

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business practices.

7. Penalties. In an adjudicatory proceeding, the commission may impose a penalty of up to$5,000 for each violation of this section or any consumer protection rule adopted underthis section. Each day a violation continues constitutes a separate offense. Penaltiescollected by the commission under this section must be deposited in the Public UtilitiesCommission Reimbursement Fund under Section 117.

8. Dispute resolution. The commission shall resolve disputes between competitive electricityproviders and retail consumers of electricity concerning standards established pursuant toSubsection 6.

9. Additional actions. The commission may impose by rule any additional requirementsnecessary to carry out the purposes of this chapter, except that this section may not beconstrued to permit the commission to regulate the rates of any competitive electricityprovider.

10. Cease and desist orders. The commission may issue a cease and desist order:

A. Following an adjudicatory hearing held in conformance with Title 5, Chapter 375,subchapter IV, if the commission finds that any competitive electricity provider ortransmission and distribution utility has engaged or is engaging in any act orpractice in violation of any law or rule administered or enforced by the commis-sion or any lawful order issued by the commission. A cease and desist order iseffective when issued unless the order specifies a later effective date or is stayedpursuant to Title 5, Section 11004; or

B. In an emergency, without hearing or notice, if the commission receives a written,verified complaint or affidavit showing that a competitive electricity provider or atransmission and distribution utility is selling electricity to retail consumers withoutbeing duly licensed or is engaging in conduct that creates an immediate danger tothe public safety or is reasonably expected to cause significant, imminent andirreparable public injury. An emergency cease and desist order is effectiveimmediately and continues in force and effect until further order of the commis-sion or until stayed by a court of competent jurisdiction. In a subsequent hearingthe commission shall in a final order affirm, modify or set aside the emergencycease and desist order and may employ simultaneously or separately any otherenforcement or penalty provisions available to the commission.

11. Restitution. The commission may order restitution for any party injured by a violation forwhich a penalty may be assessed pursuant to this section.

12. Enforcement. The commission through its own counsel or through the Attorney General mayapply to the Superior Court of any county of the State to enforce any lawful order made oraction taken by the commission pursuant to this section. The court may issue such orders,preliminary or final, as it considers proper under the facts established before it.

13. Notice to Attorney General. If the commission has reason to believe that any competitiveelectricity provider or transmission and distribution utility has violated any provision of law

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for which criminal prosecution is provided and would be in order or any antitrust law ofthis State or the United States, the commission shall notify the Attorney General. TheAttorney General shall promptly institute any actions or proceedings the Attorney Generalconsiders appropriate.

14. Disconnection restricted. A transmission and distribution utility may not disconnect serviceto a consumer due to nonpayment of generation charges or any other dispute with acompetitive electricity provider, except that the commission may permit disconnectionof electric service to consumers of electricity based on nonpayment of charges forstandard-offer service provided under Section 3212.

15. Standard billing. The commission shall consider requiring standard billing information on billsfor electric power service. If standard billing information is required, the commission shallinvestigate the possibility of adopting standards consistent with other New England states.The commission may not prohibit transmission and distribution utilities from contractingwith generation service providers to include both entities� charges on a single bill. Thecommission may not preclude the inclusion of other information on bills for electric powerservice.

16. Access to load data. Upon request from a competitive electricity provider, the commis-sion shall provide load data on a class basis that is in the possession of a transmission anddistribution utility, subject to reasonable protective orders to protect confidentiality, ifconsidered necessary by the commission.

17. Rules. Except as otherwise provided in this section, rules adopted pursuant to this sectionare routine technical rules as defined by Title 5, Chapter 375, subchapter II-A.


Section 1F

The department shall promulgate rules and regulations to provide retail customers with the utmostconsumer protections contained in law, including, but not limited to, the following provisions:

(1) The department shall license to do business in the commonwealth all generation compa-nies, aggregators, suppliers, energy marketers, and energy brokers in accordance with theprovisions of Subparagraphs (i), (ii), and (iii). The department shall maintain a list of alllicensed generation companies, aggregators, energy brokers, energy marketers, andsuppliers, which shall be available to any consumer requesting such information through thedepartment for a reasonable fee.

(i) All generation companies shall submit a license application to the department forapproval to sell electric power or provide generation services within thecommonwealth. Such application shall include the following: the company�stechnical ability, as defined pursuant to regulations promulgated by the depart-ment, to generate or otherwise obtain and deliver electricity and provide anyother proposed services; documentation of financial capability of the applicantto provide the proposed services; a description of the company�s form ofownership; and documentation regarding any valid purchase power contractsbetween the company, the company�s affiliates, or the company�s parent orsubsidiary, and any electric company formed pursuant to the provisions of this

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chapter. A license shall not be granted unless and until all of the above informationis provided with the payment of a fee, the amount to be determined by thedepartment.

(ii) All private, non-profit, or co-operative aggregators established pursuant toSections 135 and 136 seeking to do business in the commonwealth shall submit alicense application to the department, subject to rules and regulations promul-gated by the department and subject to the payment of a fee, the amount to bedetermined by the department.

(iii) All energy brokers, energy marketers, and other suppliers seeking to do businessin the commonwealth shall submit a license application to the department,subject to rules and regulations promulgated by the department and subject tothe payment of a fee, the amount to be determined by the department.

Montana Senate Bill 390, Amending Title 69, Montana Code Annotated(Eff. May 2, 1997)

25-8-404. Licensing.

(1) Except as provided in 69-8-311, an electricity supplier shall file an application with andobtain a license from the commission before offering electricity for sale to retail customersin the state of Montana.

(2) As a condition of licensing, an electricity supplier shall identify and describe its activitiesand purposes and the purposes of each of the electricity supplier�s affiliates, if any,including whether an affiliate that owns or operates distribution facilities offers customerchoice through open, fair, and nondiscriminatory access to the electricity supplier�s or theelectricity supplier�s affiliates distribution facilities.

(3) The commission may require electricity suppliers that provide electricity supply service tosmall customers to make a standard service offer that ensures that those customers haveaccess to affordable electricity.

(4) The commission may require:

(a) proof of financial integrity and a demonstration of adequate reserve margins orthe ability to obtain those reserves; and

(b) a licensee to post a bond should an electricity supplier fail to supply electricity orlack financial integrity.

(5) An electricity supplier shall provide the commission and all distribution services providerswith copies of all license applications pursuant to Subsection (2). Licensees shall updateinformation and file annual reports with the commission and all distribution servicesproviders.

(6) License applications are effective 30 days after filing with the commission unless thecommission rejects the application during that period. If the commission rejects a licenseapplication, the commission shall specify the reasons in writing and, if practical, identifyalternative ways to overcome deficiencies.

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(7) Notwithstanding this chapter, a cooperative utility is not required to apply for a licensefrom the commission to be an electricity supplier to customers served by that coopera-tive utility in its electric facilities service territory or to any customers served by anothercooperative utility subject to the consent of the other cooperative utility�s local governingbody.

69-8-408. Penalties � license revocation.

(1) The commission may begin a proceeding to revoke or suspend a license of an electricitysupplier, impose a penalty, or both, for just cause on the commission�s own investigationor upon the complaint of an affected party if it is established that the electricity supplier:

(a) intentionally provided false information to the commission;

(b) switched, or caused to be switched, the electricity supply for a customerwithout first obtaining the customers written permission;

(c) failed to provide a reasonably adequate supply of electricity for its customersin Montana; or

(d) committed fraud or engaged in deceptive practices.

(2) Any person selling or offering to sell electricity in this state in violation of 69-8-404, 69-8-410, and this section is subject to a fine of not less than $100 or more than $1,000 for theviolation or a license revocation or suspension. Each day of each violation constitutes aseparate violation.

(3) The fine must be recovered in a civil action upon the complaint by the commission in anycourt of competent jurisdiction.

(4) A license revocation proceeding under this section is a contested case proceedingpursuant to the Montana Administrative Procedure Act, Title 2, Chapter 4, part 6.

LOW INCOME PROGRAMS


35A § 3214. Needs-Based Low-income Assistance

1. Policy. In order to meet legitimate needs of electricity consumers who are unable to paytheir electricity bills in full and who satisfy eligibility criteria for assistance, and recognizingthat electricity is a basic necessity to which all residents of the State should have access, itis the policy of the State to ensure adequate provision of financial assistance.

2. Low-income assistance. In order to continue existing levels of financial assistance for low-income households and to meet future increases in need caused by economic exigen-cies, the commission shall:

A. Receive funds collected by all transmission and distribution utilities in the State at arate set by the commission in periodic rate cases; and

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B. Set initial funding for programs based on an assessment of aggregate customerneed in periodic rate cases. The funding formula may not result in assistance beingcounted as income or as a resource in other means-tested assistance programsfor low-income households. To the extent possible, assistance must be providedin a manner most likely to prevent the loss of other federal assistance.

3. Special rate. Nothing in this section may be construed to prohibit a transmission anddistribution utility from offering any special rate or program for low-income customers thatis not in effect as of the effective date of this chapter, subject to the approval of thecommission.

4. Financial support. If the Legislature appropriates from the General Fund financial supportfor households and individuals receiving assistance under this section, the commission maynot terminate the assistance provided by transmission and distribution utilities unless theGeneral Fund source has completely replaced such assistance. The commission mayadjust the assistance provided pursuant to this section based on the amount of anyfinancial support from the General Fund and may reinstitute assistance subsequent to anytermination of assistance if the commission finds that the General Fund source no longercompletely replaces such assistance.


Section 1F

(4)(i) The department shall require that distribution companies provide discounted rates forlow income customers comparable to the low-income discount rate in effect prior toMarch 1, 1998. Said discount shall be in addition to any reduction in rates that becomeseffective pursuant to said Subsection (b) of said Section 1B on March 1, 1998, and to anysubsequent rate reductions provided by a distribution company after said date pursuantto said subsection. The cost of such discounts shall be included in the rates charged to allother customers of a distribution company. Each distribution company shall guaranteepayment to the generation supplier for all power sold to low-income customers at saiddiscounted rates. Eligibility for the discount rates established herein shall be establishedupon verification of a low-income customer�s receipt of any means tested public benefit,or verification of eligibility for the low-income home energy assistance program, or itssuccessor program, for which eligibility does not exceed 175 per cent of the federalpoverty level based on a household�s gross income. Said public benefits may include,but are not limited to, assistance which provides cash, housing, food, or medical care,including, but not limited to, transitional assistance for needy families, supplemental securityincome, emergency assistance to elders, disabled, and children, food stamps, publichousing, federally-subsidized or state-subsidized housing, the low-income home energyassistance program, veterans� benefits, and similar benefits. The Division of EnergyResources shall make available to distribution companies the eligibility guidelines for saidpublic benefit programs. Each distribution company shall conduct substantial outreachefforts to make said low-income discount available to eligible customers and shall reportto said division, at least annually, as to its outreach activities and results. Outreach mayinclude establishing an automated program of matching customer accounts with lists ofrecipients of said means tested public benefit programs and based on the results of saidmatching program, to presumptively offer a low-income discount rate to eligible custom-ers so identified; provided, however, that the distribution company, within 60 days of saidpresumptive enrollment, informs any such low-income customer of said presumptive

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enrollment and all rights and obligations of a customer under said program, including theright to withdraw from said program without penalty.

Not later than March 1, 1999 the department shall conduct an investigation and report tothe joint committee on government regulations regarding the cost and benefits ofexpanding eligibility for the discount rates established in clause (i) of Subparagraph (4) ofthe first paragraph of Section 1F to any low-income customer who is eligible for anymeans tested public benefit for which eligibility does not exceed 175 per cent of thefederal poverty level based on gross household income. The department shall furtherprovide to said committee any legislative recommendations necessary to implement thissection.

(ii) Prior to the termination of the seven year period of the standard service transition rate,the department shall, in consultation with said division, evaluate the effects of electricityrestructuring on the affordability of electric power for low-income customers. Thedepartment shall make recommendations to the general court relative to the continuationof the low-income discount rate authorized pursuant to this subsection or to makemodifications thereto. The department shall, in its recommendations, consider whetheror not to modify said discount by establishing a sliding scale low-income discountprogram.

(iii) A residential customer eligible for low-income discount rates shall receive the service ondemand and may return to standard offer service at any time including from defaultservice. Each distribution company shall periodically notify all customers of the availabilityof and method of obtaining low-income discount rates and standard offer service. Anexisting residential customer eligible for low-income discount on the date of start of retailaccess who orders service for the first time from a distribution company shall be offeredstandard offer service by that distribution company. A residential customer eligible forlow-income discount receiving standard offer service shall be allowed to retain standardoffer service upon moving within the service territory of a distribution company.

(iv) There shall be no charge to any residential customer for initiating or terminating low-income discount rates, default service, or standard offer service when said initiation ortermination request is made after a regular meter reading has occurred and the customeris in receipt of the results of said reading. A distribution company may impose a reason-able charge, as set by the department through regulation, for initiating or terminating low-income discount rates, default service, or standard offer service when a customer doesnot make such an initiation or termination request upon the receipt of said results and priorto the receipt of the next regularly scheduled meter reading. For purposes of thissubsection, there shall be a regular meter reading conducted of every residential accountno less often than once every two months. Notwithstanding the foregoing, there shall beno charge when the initiation or termination is involuntary on the part of the customer.

Montana Senate Bill 390, Amending Title 69, Montana Code Annotated(Eff. May 2, 1997)

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28) �Universal system benefits programs� means public purpose programs for:

(a) cost-effective local energy conservation;

(b) low-income customer weatherization;

(c) renewable resource projects and applications, including those that captureunique social and energy system benefits or provide transmission and distributionsystem benefits;

(d) research and development programs related to energy conservation andrenewables;

(e) market transformation designed to encourage competitive markets for publicpurpose programs; and

(f) low-income energy assistance.

69-8-402. Universal system benefits programs.

(1) Universal system benefits programs are established for the state of Montana to ensurecontinued funding of and new expenditures for energy conservation, renewable resourceprojects and applications, and low-income energy assistance during the transition periodand into the future.

(2) Beginning January 1, 1999, 2.4% of each utility�s annual retail sales revenue in Montana forthe calendar year ending December 31, 1995, is established as the annual funding level foruniversal system benefits programs. Unless modified as provided in Subsection (7), thisfunding level remains in effect until July 1, 2003.

(a) The recovery of all universal system benefits programs costs imposed pursuant tothis section is authorized through the imposition of a universal system benefitscharge assessed at the meter for each local utility system customer as provided inthis section.

(b) Utilities must receive credit toward annual funding requirements for a utility�sinternal programs or activities that qualify as universal system benefits programs,including those portions of expenditures for the purchase of power that are forthe acquisition or support of renewable energy, conservation-related activities,or low-income energy assistance, and for customers� programs or activities asprovided in Subsection (7).

(c) A utility at which the sale of power for final end-use occurs is the utility thatreceives credit for the universal system benefits program expenditure.

(d) For a utility to receive credit for low-income related expenditures, the activitymust have taken place in Montana.

(e) If a utility�s or a customer�s credit for internal activities does not satisfy the annualfunding provisions of Subsection (2), then the utility shall make a payment to the

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universal system benefits fund for any difference.

(3) Cooperative utilities may collectively pool their statewide credits to satisfy their annualfunding requirements for universal system benefits programs and low-income energyassistance.

(4) A utility�s transition plan must describe how the utility proposes to provide for universalsystem benefits programs, including the methodologies, such as cost-effectiveness andneed determination, used to measure the utility�s level of contribution to each program.

(5) A utility�s minimum annual funding requirement for low-income energy and weatherizationassistance is established at 17% of the utility�s annual universal system benefits funding leveland is inclusive within the overall universal system benefits funding level.

(a) A utility must receive credit toward the utility�s low-income energy assistanceannual funding requirement for the utility�s internal low-income energy assistanceprograms or activities.

(b) If a utility�s credit for internal activities does not satisfy its annual funding require-ment, then the utility shall make a payment for any difference to the universalenergy assistance fund.

(6) An individual customer may not bear a disproportionate share of the local utility�s fundingrequirements, and a sliding scale must be implemented to provide a more equitabledistribution of program costs.

(7) (a) A customer with loads greater than 1,000 kilowatts shall:

(i) pay a universal system benefits program charge equal to the lesser of:

(A) $500,000 less the customer credits provided for in thisSubsection (7); or

(B) the product of 0.9 mills per kilowatt hour multiplied by thecustomer�s kilowatt hour purchases, less customer creditsprovided for in this Subsection (7);

(ii) receive credit toward that customer�s annual universal system benefitscharge for internal expenditures and activities that qualify as a universalsystem benefits program expenditure and these internal expendituresmust include but not be limited to:

(A) expenditures that result in a reduction in the consumption ofelectrical energy in the customer�s facility; and

(B) those portions of expenditures for the purchase of power atretail or wholesale that are for the acquisition or support ofrenewable energy or conservation-related activities.

(b) Customers making these expenditures must receive a credit against the customer�s annualuniversal system benefits charge, except that any of those amounts expended in a

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calendar year that exceed that customer�s universal system benefits charge for thecalendar year must be used as a credit against those charges in future years until the totalamount of those expenditures has been credited against that customer�s universal systembenefits charges.

PERFORMANCE-BASED REGULATION AND SERVICE QUALITY


Section 1E

(a) The department is hereby authorized to promulgate rules and regulations to establish andrequire performance based rates for each distribution, transmission, and gas companyorganized and doing business in the commonwealth pursuant to the provisions of thischapter. In promulgating such performance based rate schemes, the department shallestablish service quality standards each distribution, transmission, and gas company,including, but not limited to, standards for customer satisfaction service outages, distribu-tion facility upgrades, repairs and maintenance, telephone service, billing service, andpublic safety provided, however, that such service quality standards shall include bench-marks for employee staff levels and employee training programs for each such distribution,transmission, and gas company.

(b) In complying with the service quality standards and employee benchmarks establishedpursuant to this section, a distribution, transmission, or gas company that makes a perfor-mance based rating filing after the effective date of this act shall not be allowed to engagein labor displacement or reductions below staffing levels in existence on November 1,1997, unless such are part of a collective bargaining agreement or agreements betweensuch company and the applicable organization or organizations representing suchworkers, or with the approval of the department following an evidentiary hearing at whichthe burden shall be upon the company to demonstrate that such staffing reductions shallnot adversely disrupt service quality standards as established by the department herein.Nothing in this paragraph shall prevent reduction of forces below the November 1, 1997level through early retirement and severances negotiated with labor organizations beforesaid date.

(c) Each distribution, transmission, and gas company shall file a report with the department byMarch first of each year comparing its performance during the previous calendar year tothe department�s service quality standards and any applicable national standards as maybe adopted by the department. The department shall be authorized to levy a penaltyagainst any distribution, transmission, or gas company which fails to meet the servicequality standards in an amount up to and including the equivalent of 2 per cent of suchcompany�s transmission and distribution service revenues for the previous calendar year.

(d) The department is authorized and directed to promulgate regulations relative to analternative dispute resolution process for the handling of damage claims by customers inan amount under $100. The department shall establish a 60 day timeline for the resolutionof all mediation claims. The department shall issue a biannual report to the house andsenate clerks and the joint committee on government regulations which shall include, butnot be limited to, the following information: nature of consumer claims, number ofconsumer claims and resolutions of consumer claims reviewed by the department during

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the previous six months. Said report shall be available for public review at the depart-ment.

SLAMMING


Section 366.5 is added to the Public Utilities Code, to read:

(a) No change in the aggregator or supplier of electric power for any small commercialcustomer may be made until one of the following means of confirming the change hasbeen completed.

(1) Independent third-party telephone verification.

(2) Receipt of a written confirmation received in the mail from the consumer after theconsumer has received an information package confirming the agreement.

(3) The customer signs a document fully explaining the nature and effect of the changein service.

(4) The customer�s consent is obtained through electronic means, including but notlimited to, computer transactions.

(b) No change in the aggregator or provider of electric power for any residential customermay be made until the change has been confirmed by an independent third-partyverification company, as follows:

(1) The third-party verification company shall meet each of the following criteria:

(A) Be independent from the entity that seeks to provide the new service.

(B) Not be directly or indirectly managed, controlled, or directed, orowned wholly or in part, by an entity that seeks to provide the newservice or by any corporation, firm, or person who directly or indirectlymanages, controls, or directs, or owns more than 5 percent of the entity.

(C) Operate from facilities physically separate from those of the entity thatseeks to provide the new service.

(D) Not derive commission or compensation based upon the number ofsales confirmed.

(2) The entity seeking to verify the sale shall do so by connecting the resident bytelephone to the third-party verification company or by arranging for the third-party verification company to call the customer to confirm the sale.

(3) The third-party verification company shall obtain the customer� s oral confirmationregarding the change, and shall record that confirmation by obtaining appropriateverification data. The record shall be available to the customer upon request.

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Information obtained from the customer through confirmation shall not be usedfor marketing purposes. Any unauthorized release of this information is groundsfor a civil suit by the aggrieved resident against the entity or its employees whoare responsible for the violation.

(4) Notwithstanding paragraphs (1), (2), and (3), an aggregator or provider of electricpower shall not be required to comply with these provisions when the customerdirectly calls an aggregator or provider of electric power to change serviceproviders. However, an aggregator or provider of electric power shall not avoidthe verification requirements by asking a customer to contact an aggregator orprovider of electric power directly to make any change in the service provider.

(c) Any aggregator or provider of electric power offering electricity service to residential andsmall commercial customers that violates the verification procedures described in thissection shall be liable to the aggregator or provider of electric power offering electricityservices previously selected by the customer in an amount equal to all charges paid bythe customer after the violation.

(d) A change in provider of electric power by an aggregator is not a change in provider ofelectric power for purposes of this section.

(e) Public agencies are exempt from this section to the extent they are serving customerswithin their jurisdiction.

(f) An electrical corporation is exempt from this section for customers which default to theservice of the electrical corporation.


Section 1F.

(8)(a)

Each customer choosing a generation company or its affiliate, subsidiary, or parent company, or asupplier or aggregator shall be required to affirmatively choose such entity. It shall be unlawful for ageneration company, supplier, or aggregator to provide power or other services to such a cus-tomer without first obtaining said affirmative choice from the customer. For the purposes of thissection, the term �affirmative choice� shall mean the signing of a letter of authorization, third partyverification, or the completion of a toll-free call made by the customer to an independent thirdparty operating in a location physically separate from the telemarketing representative who hasobtained the customer�s initial oral authorization to change to a new electricity provider. For thepurposes of this section, the term �third party verification� shall mean an appropriately qualified andindependent third party operating in a location physically separate from the telemarketing represen-tative who has obtained the customer�s oral authorization to change to a new electricity serviceprovider, such authorization to include appropriate verification data, such as the customer�s date ofbirth and social security number; provided, however, any such information or data in the possessionof the third party verifier or the marketing company shall not be used, in any instance, for commer-cial or other marketing purposes, and shall not be sold, delivered, or shared with any other party forsuch purposes. Such authorization shall include appropriate verification data, such as thecustomer�s date of birth and social security number; provided, however, any information or data in

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possession of the independent third party verifier or the marketing company shall not be used, inany instance, for commercial or other marketing purposes, and shall not be sold, delivered, orshared with any other party for such purposes.

For the purposes of this section, the term �letter of authorization� shall mean,

(i) a separate document, an easily separable document containing only the authoriz-ing language described in paragraph (d), whose sole purpose is to authorize ageneration company, aggregator, or supplier to initiate a primary generationcompany, aggregator, or supplier change. The letter of authorization must besigned and dated by the consumer requesting the primary generation company,aggregator, or supplier change.

(ii) The letter of authorization shall not be combined with inducements of any kind onthe same document.

(iii) At a minimum, the letter of authorization must be printed with a readable type ofsufficient size to be clearly legible and must contain clear and unambiguouslanguage that confirms:

(1) The consumer�s billing name and address;

(2) The decision to change electricity service from the current generationcompany, aggregator, or supplier to the prospective generationcompany, aggregator or supplier;

(3) That the consumer understands that only one generation company,aggregator, or supplier may be designated as the consumer�s electriccompany; and

(4) That the consumer understands that any primary generation company,aggregator, or supplier selection the consumer chooses may involve acharge to the consumer for changing the consumer�s primary generationcompany, aggregator, or supplier.

(iv) Letters of authorization shall not suggest or require that a consumer take someaction in order to retain the consumer�s current generation company, aggregator,or supplier.

(v) If any portion of a letter of authorization is translated into another language, then allportions of the letter of authorization must be translated into that language.

Each customer choosing a generation company or its affiliate, subsidiary, or parent company, asupplier or aggregator shall have the right to rescind, without charge or penalty, his or her choice ofgeneration company, aggregator, or supplier no later than midnight on the third day following thecustomer�s receipt of a written confirmation of an agreement to purchase electricity. Upon theswitching of a customer�s service provider, there shall be included in the customer�s first bill anacknowledgment to be completed by the customer agreeing to the service switch. Such bill shallalso include all information mandated under clause (i) of Subparagraph (5).

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Each customer choosing a generation company or its affiliate subsidiary, or parentcompany, a supplier or aggregator shall have the right to rescind, without charge orpenalty, the choice of generation company, aggregator, or supplier no later than midnighton the third day following the customer�s receipt of a written confirmation of an agree-ment to purchase electricity and a statement of the terms and conditions of service asdescribed in Subsection (5)(i). Upon switching of a customer�s service provider, thereshall be included in the customer�s bill for distribution service an acknowledgment of theservice switch, along with information on how to file a complaint regarding an unauthorizedswitch.

(b) A customer may initiate a complaint that his retail electricity service has been switched byor to another service provider without his prior authorization. Said complainant shall filethe complaint with the department within 30 days after the statement date of the noticeindicating that the customer�s retail electricity service has been switched. The depart-ment shall, within 10 business days of receiving the complaint, request from the customera copy of the customer�s electricity bill, the name of the original service provider, thename of the new service provider, and any other information the department may deemrelevant. The customer shall, within 15 business days of the department�s notifying thecustomer, submit to the department the requested information. Within 15 business daysof receiving the request of information from the customer, the department shall send

(i) to the customer, a letter acknowledging receipt of the information;

(ii) to the original service provider, a letter informing it of the pending complaint andrequesting it to provide information relevant to the service switch; and

(iii) to the new service provider, a letter informing it of the pending complaint,requesting the proof of the customer�s affirmative choice to switch his serviceprovider, and requesting it to provide other information the department deemsrelevant. The original service provider and the new service provider shall, withinfive business days of the department�s request, return the requested informationto the department. Within 25 business days after receiving a copy of thecustomer�s third party verification and all relevant information as required herein,the department shall determine if the customer authorized the new serviceprovider to switch the customer�s service.

(c) If the department determines that the new service provider does not possess therequired proof of the customer�s affirmative choice, the department shall calculate andrequire the new service provider to refund the following: (i) to the customer, the differ-ence between what the customer would have paid to the previous service provider andactual charges paid to the new service provider; (ii) to the customer, any reasonableexpense the customer incurred in switching back to the original service provider; and (iii)to the original service provider, any lost revenue, which shall consist of the amount ofmoney the original service provider would have received for the service used by thecustomer during the time the customer received services from the new service provider ifthe customer�s service had not been switched. This amount shall gross, irrespective ofexpenses, what the original service provider would have reasonably incurred providingthe services to the customer. The department shall promulgate rules and regulations forthe implementation of this subsection.

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(d) Any generation company, supplier, or aggregator determined by the department to haveswitched any customer�s service provider without proper authorization from thecustomer one or more times in a 12 month period shall be subject to a civil penalty not toexceed $1,000 for the first offense and not less than $2,000 nor more than $3,000 for anysubsequent offense per customer. In determining the amount of the civil penalty, thedepartment shall consider the nature, circumstances, and gravity of the violation, thedegree of the respondent�s culpability, and the respondent�s history of prior offenses.

(e) Any generation company, supplier, or aggregator determined to have switched anycustomer�s service provider without proper authorization more than 20 times in a 12month period may, after a full hearing and determination by the department that suchgeneration company supplier or aggregator intentionally, maliciously or fraudulentlyswitched the service or more than 20 customers in a 12 month period, be prohibitedfrom selling electricity in the commonwealth for a period of up to one year. In determiningthe length of suspension, the department shall consider the nature, circumstances andgravity of each violation and the degree of the culpability of the generation company,supplier or aggregator.

(f) The department shall track instances in which a generation company, supplier, oraggregator switched a customer�s electricity service without the customer�s priorauthorization. The department shall keep a record of all unauthorized switches whichoccurred during a calendar year. Beginning with calendar year 1999, the department shall,by March 31 of each year, file an annual report with the joint committee on governmentregulations and the house and senate committees on ways and means detailing the totalnumber of unauthorized switches, enforcement procedures undertaken by the depart-ment against such slamming tactics, so-called, the total amount of dollars returned tocustomers, the total amount of dollars collected in civil penalties pursuant to Subsection(c), and the overall impact of the provisions of this section.

STANDARD OFFER/DEFAULT SERVICE


Sec. 35A § 3214

When retail access begins, the commission shall ensure that standard-offer service is available to allconsumers of electricity.

1. Establishment of terms and conditions. The commission shall open a rule-making proceed-ing no later than October 1, 1997 to establish terms and conditions for standard-offerservice that include, but are not limited to:

A. Entry and exit restrictions;

B. Protection against a standard-offer service provider�s failure to provide service ascontracted for;

C. Appropriate rate design issues;

D. Retaining averaged prices for all customers in the same class; and

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E. Credit, collection and disconnection practices.

By February 15, 1998, the commission shall provisionally adopt rules establishing terms andconditions for standard-offer service. Rules adopted under this Subsection are majorsubstantive rules pursuant to Title 5, Chapter 375, subchapter II-A.

2. Selection of standard-offer service providers. After terms and conditions for standard-offer service have been established under Subsection 1, the commission shall administer abid process to select a standard-offer service provider for that transmission and distribu-tion utility�s service territory. By July 1, 1999, the commission shall review the bid submis-sions for each transmission and distribution utility and select the standard-offer serviceprovider or providers for that utility�s service territory.

A. The commission shall determine the general credit data and specific informationfrom general load and usage data that transmission and distribution utilities mustprovide to potential standard-offer service bidders, including, but not limited to,monthly demand and energy consumption and the number of customers in eachcustomer class. The commission shall ensure that individual customer confidential-ity is preserved in this process and that a transmission and distribution utilityreleases customer-specific data only with the customer�s permission. If thetransmission and distribution utility incurs additional costs to develop andproduce the required data, the commission shall permit that utility to recoverthose costs through transmission and distribution rates.

B. The commission shall establish the maximum duration of a standard-offer servicecontract after considering all relevant factors, including, but not limited to, marketrisks and the need for price stability and contract flexibility.

C. A competitive electricity provider that is an affiliate of a large investor-ownedtransmission and distribution utility may submit bids to provide standard-offerservice for up to 20% of the electric load within the service territory of the largeinvestor-owned transmission and distribution utility with which it is affiliated. Toprevent the unfair use of information possessed by a large investor-ownedtransmission and distribution utility, the commission shall ensure that a utility seekingto bid on standard-offer service has no greater access to relevant informationthan is provided to other potential bidders.

D. A consumer-owned transmission and distribution utility and a small investor-owned transmission and distribution utility may submit bids to provide standard-offer service for that utility�s service territory. To prevent the unfair use of informa-tion possessed by a consumer-owned transmission and distribution utility or asmall investor-owned transmission and distribution utility, the commission shallensure that a utility seeking to bid on standard-offer service has no greater accessto relevant information than is provided to other potential bidders.

By February 15, 1998, the commission shall provisionally adopt rules establishing amethodology for structuring the bidding process for standard-offer service inorder to implement the provisions of this subsection. In adopting rules, thecommission shall consider methods to ensure, to the extent possible, at least 3providers of standard-offer service in each transmission and distribution utilityservice territory, as long as the method does not result in any significant adverse

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impacts on rates paid by consumers. Rules adopted under this subsection aremajor substantive rules pursuant to Title 5, Chapter 375, subchapter II-A.

3. Price cap; investigation. If the qualifying bids under Subsection 2 for standard-offer servicein any service territory, when combined with the regulated rates of transmission anddistribution service and any stranded costs charge, exceed, on average, the total rate forelectricity immediately before the implementation of retail access, the commission shallinvestigate whether the implementation of retail access remains in the public interest orwhether other mechanisms to achieve the public interest and to adequately protectconsumer interests need to be put in place. Pursuant to Section 3217, the commissionshall notify the Legislature of the results of its investigation and its determination.

4. Implementation period. Standard-offer service must be available until March 1, 2005. ByJanuary 1, 2004, the commission shall begin an investigation to determine whether thecontinued availability of standard-offer service is necessary and in the public interest. Thecommission shall conclude the investigation by June 30, 2004 and report its results to theLegislature pursuant to Section 3217.

5. Territorial and rate class application. Nothing in this section precludes the commission frompermitting or requiring different terms and conditions for standard-offer service in differentutility service territories or for different customer classes.

Nevada: Assembly Bill 366, July 16, 1997.

Sec. 45.

1. The commission shall designate a vertically integrated electric utility to provide electricservice to customers who are unable to obtain electric service from an alternative selleror who fail to select an alternative seller. The provider so designated by the commission isobligated to provide electric service to the customers. Electric service provided by theutility pursuant to this section shall be deemed to be a noncompetitive service for whichthe utility may recover its costs pursuant to NRS 704.001 to 704.655, inclusive, 704.701 to704.751, inclusive, 704.800 to 704.900, inclusive.

2. Upon a finding by the commission that the public interest will be promoted, the commis-sion may prescribe alternate methods for providing electric service to those customersdescribed in Subsection 1. The alternate methods may include, but are not limited to, thedirect assignment of customers to alternative sellers or electric distribution utilities or aprocess of competitive bidding for the right to provide electric service to the designatedcustomers.

3. The commission shall establish minimum terms and conditions under which electric servicemust be provided pursuant to this section, including a minimum period during which acustomer must be obligated to pay for the electric service from the assigned provider.The price charged for electric service for a particular group of customers must reflect theincremental cost of serving the group.

4. If the designated provider of the electric service is a vertically integrated electric utility, theutility shall provide the electric service through an affiliate whose sole business activity isthe provision of electric service.

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5. Except as otherwise provided in this Subsection and Subsection 6, the rate charged forresidential service provided pursuant to Subsection 1 must not exceed the rate chargedfor that service on July 1, 1997. The limitation set forth in this subsection is effective until2 years after the date upon which, in accordance with Section 39 of this act, thecommission repeals the regulations which established the pricing method for that serviceand the terms and conditions for providing that service.

6. The commission may, in accordance with NRS 704.110, 704.120 and 704.130, approvean increase in the rate charged for residential service provided pursuant to Subsection 1 inan amount that does not exceed the increase necessitated, if any, to ensure the recoveryby the vertically integrated electric utility of its just and reasonable costs. The provisions ofthis section do not limit or prohibit in any manner the operation of any order issued by thecommission before July 1, 1997.

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NATIONAL COUNCILPUBLICATIONS ON ELECTRICINDUSTRY RESTRUCTURING

Research ReportsFederal, State, and Local Tax Implications ofElectric Industry Restructuring (Deloitte &Touche, 1996)

Assessing Impacts of Restructuring on SmallBusiness, Residential, and Low-Income Custom-ers (Roger D. Colton, 1996)

The Unintended Impacts of Restructuring (DaveSchoengold, 1996)

The Organization of Competitive WholesalePower Markets and Spot Price Pools (Paul A.Centolella, 1996)

Stranded Benefits in Electric Utilities Restructuring(Nancy Brockway & Michael Sherman, 1996)

The British Electric Utility Restructuring Experi-ence: History and Lessons for the U.S. (MichaelC. Brower, Stephen D. Thomas, & CatherineMitchell, 1996)

Regulation and Competition WithoutPrivatization: Norway�s Experience (Jan Moen &Jan Hamrin, Printed in The Electricity Journal,March 1996)

Public-Interest Research and Development in theElectric and Gas Utility Industries (Carl Blumstein,Richard Scheer, and Stephen Wiel, 1998)

Briefing PapersCustomer Choice (Cheryl Harrington, 1996)

Electric Utility Transition Costs (Eric Hirst & LesterBaxter, 1996)

Market Power in the Electric Utility Industry; AnOverview (William Shepherd, 1997)

Restructuring Issues Associated with NuclearPower Plants (William B. Marcus, 1997)

Regional issues in Restructuring the ElectricIndustry (Sue Tierney, 1998)

Disclosure SeriesFull Environmental Disclosure for Electricity:Tracking and Reporting Key Information(David Moskovitz et al., July 1997)

Information Disclosure for Electricity Sales:Consumer Preferences from Focus Groups(Alan S. Levy et al., July 1997)

Disclosure of Fuel Mix and Emissions by RetailElectric Service Providers: Issues of Confidential-ity vs. Public Right to Know (Scott Hempling, July1997)

Information Disclosure for Electricity Sales:Consumer Preferences from Focus Groups,Report 2 -- West Coast (Mario Teisl et al., 1997)

Information Disclosure for Electricity Sales:Consumer Preferences from Focus Groups,Report 3-- Rocky Mountain West (Lynn Halverson& Edward Holt, 1997)

Uniform Consumer Disclosure Standards for NewEngland: Report and Recommendations to theNew England Utility Regulatory Commissions(Tom Austin et al., January 1998)

Information Consumers Want in ElectricityChoice: Summary of Focus Group Research(Edward Holt, January 1998)

Summary Report: Baseline Survey � ConsumerKnowledge, Practices, and Attitudes: ElectricUtility Deregulation and Consumer Choice(Kenneth Winneg, et al., January 1998)

Model Electricity Consumer Protection Disclo-sures (Jerrold Oppenheim & Barbara Alexander,April 1998)

Label Testing: Results of Mall Intercept Study(Kenneth Winneg, et al., April 1998)

APPENDIX C

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OtherCouncil Design Criteria List(Jan Hamrin, 1995)

Six Generic Restructuring Models(Jan Hamrin, 1995)

A Glossary of Restructuring Terms(Jan Hamrin, 1995)

National Council Publications can bedownloaded from its websitehttp://eetd.lbl.gov/NationalCouncil/

This report was prepared for the U.S. Department of Energy, Chicago Regional Support Office (Purchase Order

DE-AP45-97R553188). Funding was provided by the Department of Energy�s Office of Power Technologies,

Ofiice of Energy Efficiency and Renewable Energy.

Barbara R. Alexander is an attorney and former Director of the Consumer Assistance Division of the Maine Public

Utilities Commission. She conducts research and training for regulators and legislators on the development of

consumer protection and service quality programs associated with competitive electric, gas and telephone

service. She may be reached by e-mail at [email protected].

retail electric competition - us department of energy€¦ · tion. in every state that is...

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