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COMMONWEALTH OF PENNSYLVANIA HOUSE OF REPRESENTATIVES CONSUMER AFFAIRS COMMITTEE
MAIN CAPITOL BUILDING ROOM 140 HARRISBURG, PENNSYLVANIA
PUBLIC HEARING ON MUNICI PAL ELECTRICITY AGGREGATION
WEDNESDAY, MARCH 3, 2010 9:32 A.M.
BEFORE:
HONORABLE JOSEPH PRESTON, JR., MAJORITY CHAIR HONORABLE MARC J. GERGELY HONORABLE HARRY READSHAW HONORABLE BRYAN BARBI N HONORABLE JOSEPH A. PETRARCA HONORABLE ROBERT W. GODSHALL, MINORI TY CHAIR HONORABLE ROB W. KAUFFMAN HONORABLE TI NA PICKETT HONORABLE SHERYL M. DELOZIER HONORABLE BRIAN L. ELLIS HONORABLE SCOTT PERRY HONORABLE DOUGLAS G. REI CHLEY
BRENDA J. PARDUN, RPR P. O. BOX 278 MAYTOWN, PA 17550 717-426-1596 PHONE/FAX 2
ALSO PRESENT:
GAI L M. DAVI S, EXECUTIVE DI RECTOR (D) TIMOTHY A. SCOTT, RESEARCH ANALYST (D) ELI ZABETH A. ROSENTEL, RESEARCH ANALYST (D) MARCI L. SANTORO, LEGISLATI VE ASSISTANT (D) COLIN M. FITZSI MMONS, EXECUTIVE DIRECTOR (R)
BRENDA J. PARDUN, RPR REPORTER - NOTARY PUBLIC 3 I NDEX
NAME PAGE
OPENING REMARKS AND I NTRODUCTI ONS 5
JAMES H. CAWLEY 11 CHAIRMAN PENNSYLVANIA PUBLI C UTILITY COMMI SSI ON
TONY C. BANKS 50 VICE PRESIDENT PRODUCT AND MARKET DEVELOPMENT FIRSTENERGY SOLUTI ONS
GENE ALESSANDRI NI 58 SENIOR VI CE PRESIDENT MARKETING PPL ENERGYPLUS
IRWIN "SONNY" POPOWSKY 87 CONSUMER ADVOCATE PENNSYLVANIA OFFICE OF CONSUMER ADVOCATE
DOUGLAS L. BIDEN 111 PRESIDENT ELECTRIC POWER GENERATION ASSOCIATION
RONALD M. CERNI GLI A 121 DIRECTOR NATIONAL ADVOCACY GOVERNMENT AND REGULATORY AFFAIRS DIRECT ENERGY, LLC
TERESA L. RI NGENBACH 125 MANAGER - MI DWEST GOVERNMENT AND REGULATORY AFFAIRS DIRECT ENERGY, LLC
RICHARD J. HUDSON, JR. 136 DIRECTOR REGULATORY AND LEGISLATI VE AFFAIRS CONEDI SON SOLUTIONS
EDWARD C. TROXELL 148 DIRECTOR GOVERNMENT AFFAIRS PENNSYLVANIA STATE ASSOCIATION OF BOROUGHS 4 WRI TTEN TESTIMONY SUBMITTED
DONALD PEPE 158 PRESIDENT PENNSYLVANIA MUNICIPAL ELECTRI C ASSOCI ATI ON
DUQUESNE LIGHT COMPANY 163
DOMINI ON RETAIL 167
CONSTELLATION ENERGY COMMODITI ES 174 GROUP, INC. 5 P R O C E E D I N G S
CHAIRMAN PRESTON: Good morning. The hour of 9:00 having come and gone by 9:30, sorry -- 9 : 30 having come and gone by, I 'd like to call to order the meeting of the
Consumer Affairs Committee.
Before I make comments, I'd like to be able to start to my right and your left, the audience's left, and to the rear and we'll have the respective members introduce themselves.
REPRESENTATI VE READSHAW: Good morning, everyone. I am Representative Harry
Readshaw, representing the 36th Legislative
District, Allegheny County.
REPRESENTATI VE BARBIN: Good morning.
I 'm Bryan Barbin. I represent Cambria County, the 71 st District.
REPRESENTATI VE PICKETT: Tina
Pickett, Bradford, Sullivan, and Susquehanna
Counties.
REPRESENTATI VE ELLIS: Brian Ellis,
Butler County.
REPRESENTATI VE PERRY: Scott Perry, 6 the great 9 2 nd, northern York and Cumberland
Counties.
REPRESENTATI VE GODSHALL: Bob
Godshall, Montgomery County.
REPRESENTATI VE PETRARCA: Joe
Petrarca, Westmoreland.
CHAIRMAN PRESTON: And I 'm Joe
Preston. I work for Bob Godshall.
First, I want to be able to say that if you would like electronic copies of today's testimony, there will be a sheet where we'll -- at the table there. If you put your address or leave your card down, we'll be able to get it to you.
Today's subject is dealing with the aggregation I think is important. And I want to be able to help set the tone. If you notice, there's not a bill that was introduced here; it was a draft. And I think that
Chairman Godshall and I have always tried to work together in a lot of things. So we want to be able to let you know that this is a concept that we're going to start off with, nobody's going to be for or directly against them for the members and the members of this 7 com mit tee .
I've never, since we've been there, asked them how to vote or anything. But this is something that I think that Pennsylvania really needs to look at as far as a concept.
Other people are doing it. Do we do it the same way or do we do something different?
And I want to be able to say this to the peopl e i n the industry or interested parties, whether you are for or against the aggregation issue, if you have thoughts or ideas, don't hold them back. Put them on the table. Be able to talk to the respective staff about that the potential suggested changes. We anticipate at least having a little bit more formal introduction of the bill reasonably in time. But at the same time, I think that we're going to be able to look at -- for the municipalities, from the industry, and especially for the consumer, as they look at what's coming in the future.
And I want to be able to set this, because this is the year -- and last year was spend time, especially since 50 percent of the committee were new, so we spent a lot of the 8 time away from just voting on some of the bills that we dealt with, but familiarizing them with the process of dealing with all of the aspects that this committee has insight over, with deal ing wi th the PUC and some of the other different safety issues and consumer issues.
In addition, in the next six months, is the thought that do we make changes in different substances that we have dealt with in the past. And I think now that we have a background, as I've always told the members, because we want to eliminate the questions ahead of time, so when we do have a bill in front of us, everybody's had a chance to be able to address those issues.
And I know that sometimes, we have people who come in now from outside the state, other levels of executives, who may have compared or dealt with other state systems.
But I'd like to think that in this committee, and I don't think any member would say that we haven't had a chance to ask a question. And the same thing with the industry. Every issue we've ever taken, we've made sure that all 9 sides have been equally represented, whether or not we were for or against the is sues.
And I want to be able to help set that tone to be able to make this perfectly clear. So I encourage you, instead of the last minute to come up, that this is what we want to be able to do and this is what we have problems with.
And I encourage you also to deal with
-- most of your -- all of you have good governmental representatives. And I encourage you to be able to talk to them just as well, because all of us have a good level of trust wi t h t hem.
Chairman Godshall, do you have any comments?
REPRESENTATIVE GODSHALL: I think what you just said, we're not going to try to do things the way they do things in
Was hington. We're going to do things they way we do it in Harrisburg. Is that right? We're going to -- there's not going to be a twenty- seven-hundred-page bill that we start with and then you look at certain pages and say, we don't like this or we don't like that. But 10 it's going to be that way anyway.
So, no, we do want to work with you all. And it's a new concept, a concept I believe in very strongly, the same with
Chairman Preston. And I think that it's, you know, something for the future, benefit a lot of our constituents, and it's the way to go here in Pennsylvania to help a lot of people with the rate caps coming off. I t's a new and innovative way of treating the problems.
CHAIRMAN PRESTON: And like to think, s i n c e we a r e go i ng t o s t a r t o f f wi t h t he chairman of the Public Utility Commission, and this is going to be broadcast on PCN. This will be a good issue where an awful lot of the consumers will be watching to be able to see exactl y what we're going to be doing.
And then, to the members of the committee, I anticipate, in the coming months, that we will been in different parts of the state addressing this issue and introducing it to the local elected officials before they have -- people get a chance to say I 'm for or against something. That this is a concept that we're going to look at. 11 That being said, we have Chairman
James Cawley of the Public Utility Commission for the Commonwealth of Pennsylvania. And,
Mr. Chairman, welcome, and we have the opportuni ty now to set the tone for where we're going to tomorrow.
CHAIRMAN CAWLEY: Well, thank you,
Chairman Preston and Chairman Godshall and members of the committee.
I appreci ate the opportunity to be here today to testify about this discussion draft which would grant legislative authority for municipalities to be a municipal aggregator of customers under Chapter 28, which is the electric choice chapter of the
Public Utility Code, and would provide for opt-out municipal aggregation of electric generation supply within a municipality's boundaries.
I thank you for calling this hearing and commend you for your leadership to provide an open and honest forum for discussion of this issue.
I am Jim Cawley. I'm here on behalf of my colleagues, my fellow members of the 12 Public Utility Commission. We support this discussion draft. And we support the concept of municipal electricity aggregation.
Let me begin, briefly, by saying what
I think was the legislative intent, the legislative hope, in 1996, when the legislature passed the Electricity Generation
Customer Choice and Competition Act, the so-called electric choice act or the electric competition act. The hope was that all customers or most electric customers would get their supply from an alternative electricity supplier, a so-called electric generation supplier, or EGS, and that the traditional electric utility would be merely the wires company.
So, in other words, the traditional electric utility would deliver the power, would keep the system up to date for reliability purposes, and would be the safety net for those customers who, for some reason, would not or could not get their supply from an alternative electric supplier.
The main point was, I think, that only a small residue of customers would remain 13 on the safety net service. And everybody would see the wisdom, that it was in their self-interest to get their electricity at a lower cost or to get an innovative product from an electricity supplier, and only a very small few, for some reason, would remain with the so-called default service, with the electric company.
Things got off to a wonderful start in 1997. At one point, over a million and a half customers in Pennsylvania were shopping with an electricity supplier. And then the wholesale prices of electricity got above the rate caps that had been put in place, while the electric utilities recovered their so-called stranded investments, and all of the millions of dollars that had been spent to educate consumers about the legislative intent and the legislative hope that customers would receive lower prices and innovative products from electricity suppliers become a faint memory, especially for small commercial and residential customers. So the legislative intent, simple by the passage of time, has been frustrated. 14 And there have been other things.
There are misconceptions upon the public, what
I call a misplaced brand loyalty to the electric distribution company, when, in fact, the electric distribution company is merely the distribution, the delivery entity. It is paid under PUC-regulated rates for delivering the power and doesn't care where customers get the power, because the PUC does not allow the electric distribution company to receive any profit on the wholesale electricity that it acquires for its default customers, those who don't shop.
CHAIRMAN PRESTON: Not to interrupt you, Mr. Chairman, could you just repeat that statement one more time, so the public can hear. Sometimes you have to say it twice.
CHAIRMAN CAWLEY: I have said this repeatedly. The electric distribution company gets paid PUC rates, regulated rates, for delivering the power, and it must get -¬ through a competitive process, which we require, it gets the power, for those who don't switch, in the wholesale market on a competitive basis. And then once that figure 15 has been -- that power has been acquired, whatever it costs after it's been competitively obtained, is passed through, dollar for dollar, to customers, at no markup. And that's required by federal law.
So the result of that is the electric distribution company doesn't care where you get your electricity because we don't allow them to make any profit on it. It gets the electricity as the safety net because it -¬ somebody has to get it for them if you don't switch to an alternative supplier.
Since the re is no pro fit mo tive, and, in fact, merely a cost to the utility, they would, in fact, prefer that you -- you get your power from an electricity supplier.
People don't understand that. And I call it a -- a misplaced brand loyalty, because we've run into this repeatedly, where customers say,
Well, you know, PPL has been my electricity supplier for decades and I feel loyal to them and I really don't want to abandon them. PPL doesn't care. They want you to switch.
So did I make that point clearly enough, Chairman? 16 CHAIRMAN PRESTON: You did. I'm but let's -- I think PPL does care about its customers.
CHAIRMAN CAWLEY: Well, it cares for their customers in the sense that they want them to be their distribution customers, but they don't care where you get your electricity. That's the point.
Other things have frustrated the legislative intent. There's a natural tendency among people, and I'm one of them, where I 'm getting older now, and I 'm more set in my ways, and I resist change. So this is something new, and it's not the status quo, and some people, therefore, don't want to make the effort to switch to an alternative supplier. They just don't understand it, when, in fact, it's in their self-interest to do so.
There is an unavailability of computers and even telephones to the poor and the near poor and, therefore, they can't contact alternative suppliers to get the cheaper rates and the innovative products.
And there's just good, old-fashioned 17 apathy. So the problem has not been with the larger commercial and industrial customers.
They are more cost conscious. They have sophisticated purchasing departments. They right along for the last dozen or thirteen years, since the choice act was enacted, they have switched, and they have made deals with alternative suppliers.
I t's the residential and small commercial customers. And when I say small commercial, I mean, generally speaking, it's entities with usually multiple accounts, up to
25 kilowatts of demand. These are smaller businesses. They just don't get it. And when they do receive the proper education and they hear what I've just been describing, they switch.
And, i n fact, the PPL experience is a stellar example. We have seen, in two months' time, 26 percent of the customers -¬ residential, commercial, and industrial -¬ have switched, and that's over three hundred thousand of their residential customers have already switched in less than two months' time. Almost half of the electricity that PPL 18 distributes is now being distributed to shopping customers.
So it works, if people are properly educated. But how do we convince the elderly, the poor and near poor, the merely reluctant or suspicious and the just plain apathetic, how do we get them to switch? And I think the answer is not what they did in Texas, for instance, where there was no safety net service. There was no default -- there is no default service in Texas. Everybody had to switch to an alternative supplier.
Everybody.
I don't think we're ready for that in
Pennsylvania. But I think we are ready for customer aggregation, meaning, by municipalities, within their boundaries, meaning they lend the credibility of -- when I say "they," I mean the elected officials of the municipality, lend the credibility of their office to acquiring on behalf of all of the citizens in the municipality, electricity supply at a discount, using effectively the buying power of numbers, of large numbers of customers to get a better deal. 19 That, I think, will go a long way.
And my colleagues feel it will go a long way to convincing those who are reluctant or suspicious or poor or just apathetic that this is a good thing fo r t hem to do . And that they don't really have to do anything, and if they don't do anything, then they'll get a discount or they'll get a more innovative product.
What are these innovative products?
Well, we've already seen the suppliers -- and
I'm going to use PPL as an example again.
What's being offered? Not only 10 to 13 percent discounts off PPL's price to compare, but green energy offerings are being made, which jives nicely with the goals of the
Alternative Energy Portfolio Standards Act of
2 0 0 4; discounts to senior citizens, military veterans, current military people; discounts or -- from the promotional rates that have traditionally been offered by the electric utility and now are being phased out; contract terms of one to three years where a price can be locked in; fixed and variable prices, depending on the needs of the customers; contributions to charities for every signed up 20 customer. And some day we may even see more creative enticements. We might someday see airline miles given, home energy audits, weatheriz ation to homes, discounted CFL bulbs. I mean, they can get really creative if you get t his market c reative enough -- or,
I mean, competitive enough.
And we've seen eight -- there are currently eight different suppliers serving residential customers in the PPL service territory. There is at least two in the
Duquesne territory. There's at least two in the Pe nn Power ser vic e t err ito ry.
This discussion draft goes a long way to achieving the goal of universal electric choice with only a residue staying with the electric company as the distributor.
I t provides that the PUC will license these municipalities, and after they're licensed by the PUC, they can then enter into contracts with other licensed EGSs that supply power. I t provides for municipal ordinances authoriz ing municipal aggregation, contracts that are open and clear and transparent with other PUC-li censed EGSs. 21 It provides for notices to the citizens of the municipality that give, in transparent terms, the -- all of the terms and conditions of service, including any fees and other charges and any credit collection and deposit policies or requirements.
It provides for an adequate opportunity for the citizens of the municipality to opt out of the program before it begins, should they wish to choose another supplier than the one that the municipal leaders have chosen. And it's very clear about what those procedures should be and the time frames that allow people, if they really don't want to participate, they can get out of it.
It applies to residential and small commercial customers only. I t excludes certain types of customers, for instance, those who are already being served by some other electric generation supplier program, perhaps a national account, you know, perhaps every Wal -Mart in the country is under a plan already and they don't want to participate in a local municipal aggregation. Maybe a 22 customer likes his -- has already chosen another supplier and doesn't want to go with the one that has been chosen by the municipality.
It provides for a three-year cap on the term of the contract with the supplier.
I'll talk more about that in a second.
It requires the electric distribution company to provide the municipality with customer lists of eligible customers, and it has privacy protections for that information.
I t pro vi des f or return - - i f s omebody is inadvertently switched, it provides for their switch back to what they want to do, plus compensation if they lost any money in the inadvertent switch.
It provides for distribution of adequate educational materials to customers.
It has a requirement for -- or demand, really, for reasonable cooperation by the electric distribution company with the municipality and recovery of any reasonable costs by the electric company for doing so.
And, finally, it provides for the authority for the Public Utility Commission, 23 just as we oversee other electric generation suppliers and license them, to provide for regulations to ensure, quote, a -- to encourage and promote large scale opt-out municipal aggregation in this commonwealth.
Now, let me just nitpick with a few things, because we generally very much support this proposed legislation. There's no pr o vi s i o n f o r c o mpe t i t i ve a c qu i s i t i o n o f t he power by the electric -- by the municipality.
In other words, there's no competitively -¬ there's no c ompeti ti ve proc es s requi red. You would think that the municipal leaders would have the good sense to get competing offers from several proposed suppliers, but they may not do so. So you may want to think about preventing opportunities for, shall we say, undesirable favoritism or other mischief by providing for competitive acquisition.
If c u r r e n t l a w -- c u r r e n t l a w ma y require it. If not, I think this bill should. I think that would require an examination of the township codes and borough codes and what have you.
Secondly, I think the intent is that 24 there be a cap of no more than three years for any term of the supply. But the legislation,
I think, needs a little strengthening in that area. You shouldn't have the terms, certainly, any longer than three years, because you -- you are locking customers in for three years and market prices can change, and the customers may get locked in at a price higher than what the market price is. And they're not going to be happy about it.
Now, the municipal elected officials can provi de in their contract for renegotiation, perhaps, during the contract term. The supplier is going to want certainty, too, because it has to go out and obtain the power for a three-year period of time. It's going to make commitments of its own, s o i t's going to be somewhat reluctant to allow the price to vary too much. But that's a matter of negotiation between the municipality and suppliers, and probably should put in any request for proposals or oth er com pet iti ve pro ces s.
And, finally, it's unclear exactly what the Public Utility Commission's role is 25 as far as the notice requirement that -- the notice that goes out to customers in the period of time in which they have to consider whether they're going to opt in or opt out.
I think the intent of the legislation is to give the commission more of a role than merely the repository of the final notice that goes out. I think -- because of what -- the propos ed legisl ati on gives us the authority to promul gate regulations, it would be our practice, as we do in licensing electric generation suppliers now, to review the applicati on and to approve the notice that goes out to customers to make sure it's in plain English, and that it's complete. It talks about all of the terms and conditions that are going to be offered.
So I think you — I think you want the commission to ensure that all of the notice requirements of the legislation are met, and that we aren't simply a place where these things are filed.
So with that, let me say, again, I think this is legislation that goes a long way to encouraging and promoting beneficial 26 electric choice in the commonwealth. And I commend you for again, for this forum.
We'd be happy to work with the committee as this legislation is introduced and goes through the legislative process.
And I'd be happy to answer any of your questions.
CHAIRMAN PRESTON: Thank you very much.
As we get used to some of the nomenclature dealing with this and we continue to say "municipality, " like to entertain your thought, for example, when we look at some of the other different governmental subunits, i.e., school districts that cover multijurisdiction. I n Allegheny County and southwestern Pennsylvania, we have a consortium of municipalities, which we legally recognize, called council of government for cause or forum.
And I only raise that issue because I watched when we went through the competitive issue of dealing with cable TV. At one time, there was only one. Now there's two, three or four. 27 Is it pos sible to consider some of the governmental subunits that we have as far as consortiums and that might also be part of the chance to be able to be considered? I n other words, had one call, for example, in my area, has twenty-one communities, twenty-one municipalities. Allegheny County, unfortunately, doesn't -- Cook County has a hundred thirty municipalities. You know, the second hi ghest in the country.
And I just wondered your opinion on that?
CHAIRMAN CAWLEY: I think the propos ed legisl ati on is broad enough to cover this. A municipality is defined as a county, city, township, town, or borough. And the legislation also amends Title 53, and provides for intergovernmental cooperation, where two or more municipalities may cooperate.
Now, whether the entities you're describing fall within the definition of
"municipality" would govern that. So maybe you want to clarify that.
CHAIRMAN PRESTON: Thank you.
Representative Pickett. 28 REPRESENTATI VE PICKETT: Thank you,
Mr. Chairman.
Mr. Cawley, in your comments about perhaps we don't have enough statement to require the municipalities to be competitive or to get competitive bids when they're thinking about signing up as an aggregated community, do you believe that the way this is written, that the municipality could take a percentage for themselves, an over cost -¬ something over the contract or percentage of the contract and, therefore, raise the cost to the consumers? Could they do that as an inducement to themselves to sign a certain contract?
CHAIRMAN CAWLEY: I think the legislation would provide for some compensation to the municipality. I think the cable franchise example is a good one, where there may not be direct payments to the municipality, but there are other inducements, like free service to libraries and other municipal -- maybe school districts. I think that's a -- within this legislation, as I see it. I see no barrier to those kinds of 29 arrangements, as long as they're transparent and everybody understands what's going on.
REPRESENTATIVE PICKETT: Thank you.
CHAIRMAN PRESTON: Representative
Readshaw.
REPRESENTATI VE READSHAW: I thank you, Mr. Chairman.
Chairman Cawley, I appreciate your remarks today. And in your remarks, you had alluded to what had transpired in Texas, but
I'm a great proponent in government of not reinventing the wheel if it's not necessary.
So are there any a ggr ega tio n programs t hat have taken place in other states that you might share with us what had happened, what's good, what's bad, what we should do or should not do?
CHAIRMAN CAWLEY: I'm only -- there are more than one state that has provided for municipal aggregation. The one I 'm most familiar with, but not very, is what they're doing in Ohio. And you're going to hear about that from other witnesses this morning.
So I agree with yo u, let 's not reinvent the wheel. Let's benefit from what 30 they've learned and what they're doing elsewhere.
REPRESENTATI VE READSHAW: Thank you.
CHAIRMAN PRESTON: Representative
Petrarca.
REPRESENTATI VE PETRARCA: Thank you,
Chairman.
Chairman Cawley, thank you for being here.
I represent a number of communities that have less than a thousand residents. To me, it seems like this legislation is not something that would benefit them, based on size, the municipalities that are going to be, as we say, cutting deals with some of these power companies based on numbers.
Is there anything here that I'm missing regarding smaller communities in
Pennsylvania?
CHAIRMAN CAWLEY: Well, again, it amends Title 53 and allows more than one municipality to ban together, which makes eminent sense. I f you get several communities all working together, you build up the numbers, you build up your buying and 31 negotiating power and that way they can ben efi t.
I mean, I 'm originally from McKean
County, and I know what you're talking about.
I come from a town of nine hundred people.
But if the people of Eldred would band together with the people of Smethport and Port
Allegany and Kane and make a deal, I think they can get a better one.
REPRESENTATIVE PETRARCA: So, theoretically, the entire county of McKean or
Wes tmorel and can band together for a price?
CHAIRMAN CAWLEY: Yes. In fact, the county commissioners could make a deal for every municipality in the county.
REPRESENTATI VE PETRARCA: Okay.
Other -- two other quick questions. How do I answer people when we get into these, like, discussions on electricity, that come to me and say, why don't -- why don't we in
Pennsylvania just re-regulate the electricity industry? Do you have an answer to that?
CHAIRMAN CAWLEY: I sure do. I think that would be a big mistake. I was on the PUC in the early '8 0 s when we did it under the old 32 rate -- base rate of return method. And I tell you, I much prefer the process now, when all of the inefficiencies and cost overruns and nuclear refueling delays of running power plant is no longer on the backs of captive customers. If those plants don't operate now, the investors who own them don't get paid.
We -- that's the biggest benefit of the electric choice. And people don't generally understand that the Public Utility
Commission regulates just the distribution part, and we have -- we have so-called ring fenced, we have separated the distribution away from just the generation part. And they get their electricity from somebody else now.
So all those risks are gone. And I don't want to ever go back and try to figure out whether a nuclear power plant was prudently constructed and its entire value sho uld go in the rate base and have a return earned on it. I don't want to go back to that anymore.
REPRESENTATIVE PETRARCA: Final question regarding the proposed acquisition of
Allegheny Energy in my area by First Energy 33 from Ohio. I can't say at this point that I 'm very happy with that news, but can you tell me, so that I'm clear, what the PUC involvement in that process is or will be?
CHAIRMAN CAWLEY: The law requires that the Public Utility Commission approve any changes of control of regulated public utilities. So Allegheny Energy and First
Energy must jointly petition the commission to merge. And this will be -- this will be a very large, open, undoubtedly contested proceeding. And the commission has the authority, if it approves the merger, to attach conditions in the public interest.
Those companies must receive not only the Public Utility Commission's approval in
Pennsylvania, but Virginia, Maryland, I think
West Virginia, and the Federal Energy
Regulatory Commission. So this is not going to happen for at l eas t a year, if it does happen. There's a lot of regulatory approvals required.
REPRESENTATI VE PETRARCA: Thank you.
Thank you, Mr. Chairman.
CHAIRMAN PRESTON: And relative to 34 that, Mr. Petrarca, and also to other members of the committee, we're going to see this happen in the next two to three years of different options and different companies merging or being bought or our companies trying to buy things, as we watch maybe in the gas indus try out our way, and one of the things, I think, we need to have is maybe a better workshop amongst ourselves and maybe will be able to work with staff, because you're entitled, also, to make comments on these things just as well, too.
So we'll be with you on that issue.
REPRESENTATI VE PETRARCA: Thank you.
CHAIRMAN PRESTON: Representative
Barbin.
REPRESENTATIVE BARBIN: Thank you,
Mr. Chairman.
And thank you, Chairman Cawley, for your testimony this morning.
You stated earlier in your testimony that you were in favor of this concept because i t c o u l d pr o vi d e b e n e fi t s t o c o n s u me r s . W e 'r e now faced with the issue of the rate caps having come off in the PP and L area, and 35 later this year, end of this year, the same rate caps will come off in my area, in
Johnstown and western Pennsylvania.
I've looked at this legislation, and is it fair to say that the aggregation concept is agreed to by the members of the PUC commis sion? Are there any that disagree with this concept as a method for maybe lowering electric rates in the -- you know in the foreseeable future?
CHAIRMAN CAWLEY: As you know, one of my col leagues has retired, so there are four members. And we have discussed this. We unanimously support municipal aggregation.
They've entrusted me to come over here and say that. And -- but I know they all agree with me. Because it gets the word out to those who that are in doubt or just suspicious or just plain apathetic, and we believe that electric choice gives customers the choice of lowering their electric bills from what they would otherwise be. The rate caps are coming off.
But I hasten to add that we cannot forget that the customers have saved a lot of 36 money in the last dozen or thirteen years.
Now, I hear those voices who say we should not only re-regulate but we should have -- we should do some Monday morning quarterbacking about whether customers, in fact, came out on the beneficial side money wise. And I -- it's me view that there's really no doubt about that.
Number one, we can't re-regulate for a lot of reasons, because if we did, we try to put the toothpaste back in the tube, what's going to happen is it would -- the electric utilities would immediately have to create a rate base again with generation assets, and they're going to do that at 2010 values, not
1996 values.
And if you try to do that, you will see -- if you l ook at Mi chi gan and you look at
Virginia, that have tried that, and it immediately triggers rate increases that make the present ones pale in comparison. That's number one.
And secondly, we all believe very much that retail electric competition does provide prices that are lower than they would 37 otherwise be, because you've had an increase in your cost of the generation in the last twelve years. What we're worried about is wholesale market, and whether that is actually operating competitively. But, unfortunately
70 percent of the bill, the wholesale pass- through of the costs, is within the Federal
Energy Regulatory Commission and not the PUC.
REPRESENTATI VE BARBIN: My question -- I 'm not -- I 'm assuming at this point that re-regulation isn't an option that the legislature or the governor will take. So we're faced with the situation where the rate caps are coming off. And the two things, when
I read this bill, that I don't see in the bill, and I just would like your opinion on them if you had one, was -- the concept is you're going to buy in bulk and therefore provide electric at a lower cost.
But would you or the commission be in favor of the provision that would provide a minimum discount if a municipality was going to aggregate? For instance, if 30 percent were the rate of -- the rate increase for this year in the western part of the state, should 38 this statute have a minimum discount amount if there is going to be a bulk purchase by a municipality? You know, say a 5 percent discount would be a minimum. Would you -- do you believe that would be of benefit to this legislation?
CHAIRMAN CAWLEY: Sounds good, but it -- you're anticipating market prices. I mean, you could put a discount in there, but it better not be real high, because if it's too high, it may not be capable of being met.
I mean, the wholesale market just may not allow the discount that you mandate and then you're going to defeat the whole purpose, and they can't even get any discount.
REPRESENTATI VE BARBIN: And that's probably dependent on what the term of contract is as well. That's why you suggested three years as a minimum terms of contract.
CHAIRMAN CAWLEY: I'm suggesting that it shouldn't be any more than three years. I would not like you to -- to, for instance, legislate a maximum of ten-year contract, because if you do that, you're -- I think you're exposing municipal officials to a 39 process that may promise more than it can deliver. They'll try to lock in ten years, and it's -- nobody -- nobody's crystal ball is that good. It will unavoidably lead to many renegotiations of the contract. You're going to get people's hopes up falsely, and if you may lock -- if you don't provide for customers to get out, you may be locking customers in for a very long period of time with no ability to go to a cheaper price from another supplier.
REPRESENTATI VE BARBIN: And my last question is, there's also been some discussion about a marketing payment to the municipalities based upon the number of people that remai n under the term of the contract.
Would the PUC commissioners been in favor of a provision in this law would this set forth by statute that a marketing payment be made to each municipality on a resident-by-resident basis as a -- kind of a -- the other side of the equation? You're buying in bulk, so, theoretically, this marketing rate would provide a direct payment to municipalities.
For instance, Johnstown, because they to go 40 out and market to those particular people, having been covered by the contract that the municipalities entered into.
Would you been in favor of a provision in the law to do that?
CHAIRMAN CAWLEY: I wouldn't oppose it. But I think you've got to understand that -- that the goal here is to get the lowest possible price for the customers within the municipal boundaries. And the supplier is only going to have so much money to play with. I t can either give the money as a -- as a payment to the municipality or it can lower the per-kilowatt-hour price. There's only so much you can do with the money. If you direct that it go to the municipality, that means that it's going to have less money to discount the price it gets the power for.
So it's up to you. You might be safer just leaving it up to the municipal officials to make their own arrangements for benefits to the municipality, in one way or another.
REPRESENTATI VE BARBIN: And why I 'm asking that question is, because Miss Pickett, 41 Representative Pickett, raised the question of whether municipalities could enter into contracts that provide something for them. To me, there would be a natural inclination on the part of the municipality to want to receive some money. But is there anything in your regulation of these entities that would preclude a marketing fee from being paid?
CHAIRMAN CAWLEY: There's nothing in this legislation or our regulations. Just to make s ure that everybody knows that it's permissible, you might want to make a provision that such an allowance to the municipality is perfectly lawful.
REPRESENTATI VE BARBIN: Thank you,
Mr. Cawl ey.
Thank you, Mr. Chairman.
CHAIRMAN PRESTON: Chairman Godshall.
REPRESENTATIVE GODSHALL: Just a couple of brief things. The only criticism I heard after this came out, you know, to date was from the municipalities, of which I have three right down home that have their own electric generating facilities and afraid of being raided, you know, from their customers 42 and to outside.
And they -- I think what we want to do is probably tighten up, you know, to try to make s ure that doesn't happen. That's one of the criticisms I 've had with this.
As you went through this, have you noticed -- what your are feelings on that issue?
CHAIRMAN CAWLEY: Well, it limits the benefits to customers within a municipal boundary. Those entities that have their own generating assets have their own advantages and presumably they can already offer power at a discount. But this takes care of other municipalities that don't have their own facilities.
REPRESENTATI VE GODSHALL: That's -¬
CHAIRMAN CAWLEY: I don't see any cross municipal raiding possible here.
REPRESENTATI VE GODSHALL: Take the borough of Hatfield, which is down home, have their own power generating facility, buy power and so forth, sell it to their residents.
They were concerned, Hatfield Township, around
Hatfield Borough, going into one of these 43 aggregation-type arrangements, what could be coming into Hatfield Borough, raiding, because they'd be selling at a lower price, you know, than the Hatfield Borough. That was a concern of the borough. Also Lansdale, also Perkasie, you know, down home, all having their own power plants. So -¬
CHAIRMAN CAWLEY: I don't see it in this legislation. I think it's -- you've segregated it to the point where there can't be that kind of raiding of customers.
What it may -- I mean, if anything they should be worried about is, can the supply be obtained cheaper from an outside supplier than what they can generate it for.
REPRESENTATI VE GODSHALL: I can see that, too, and I think they can see that.
Hey, at the same time, I wanted to ask you, on -- on page seven, pertaining to customers: After all, the EGS has acquired a large number of customers at low cost by the aggregation program and should be able to absorb migrations of customers or be given the opportunity in its contract with the municipalities to modify its price during the 44 term.
If there is, with -- what can happen in the future, and we don't know what these pri ces are going to be, what kinds of energy are going to be available. What would happen with this legislation, as you see it, if a municipality or two municipalities would do a three-year contract, and all of a sudden their rate that they contracted for and bought electric for on -- with futures or whatever, protected themselves, the rates were up here, and then all of a sudden, there's outside rates and they'd lose half their customers becaus e of a l ower rate comi ng i n from another aggregated, you know, community on the other side. Who's going to be the loser?
CHAIRMAN CAWLEY: Well, again, if if the RFP or the -- even if there isn't a competitive acquisition, if the contract with the supplier is properly drafted, I think it should make some provision for renegotiation of the price during the term.
Now, that's -- the supplier's not going to like that because, again, the suppli er's got to go out and get the power 45 ahead of time.
REPRESENTATI VE GODSHALL: Right. And make t he contract -¬
CHAIRMAN CAWLEY: And he's going to make the contracts. But my point there was -¬ is that t he suppli ers are s avi ng money by getting a large number of customers all at once, so their customer acquisition costs are lower. But there are limits, there are limits . They have still got to get the power in the wholesale market. And they've got to get it ahead of time. So there's probably going to be some willingness by the suppliers to renegotiate.
But the municipal elected officials are also going to have to protect their citizens by providing for that eventuality.
Becaus e i f they don't, you and I know what wil l happen. There's going to be -- there's going to be a lot of dissatisfaction by the citizens who see lower prices available elsewhere and yet they're locked in.
That's why I s ai d, do n't make the term so terribly long that you're going to lock everybody up without -- with no ability 46 to leave, because there's -- you only -- under this legislation, you only get to opt out at the beginning. Once you're in, you're in for the term, unless the contract with the suppli er provides otherwise.
And then we get into the whole question of, if you're going to be able to get out during the term, is there an early terminati on fee? Again, this should be the subject of contract. My feeling is -- and we've seen already wi th the EGSs supplying in
Pennsylvania already, some have early termination fees and some don't.
I t depends -- if there is -- if the term isn't too long, it's only a year, they c a n u s u a l l y g e t a l o n g w i t h n o e a r l y termination fee. If you want -- under the c u r r e n t o f f e r , i f y o u ' r e g o i n g t o l o c k i n a price for two or three years, you essentially are taking the risk that the prices are not going to go down, and, in fact, are going to go up, and you're going to be -- you're going to be okay.
But you've put your finger on a very sensitive point. And that is, this can be 47 very good for customers, but what if the price -- the market prices go below the contracted-for price?
I'l l s ay for about the third time, this should be the subject of the renegotiation in the contract. But it will have an upward effect on the price that the
EGS can offer if the -- if the supplier sees that customers can leave with or without a fee or the price can be renegotiated.
REPRESENTATI VE GODSHALL: Okay.
Thank you, sir.
CHAIRMAN PRESTON: Thank you very much, Mr. Chairman. We appreciate you being here. And as we go with this discussion, we w i l l b e t a l k i n g t o y o u a g a i n v e r y s o o n .
CHAIRMAN CAWLEY: My pleasure. Thank you, Chairman.
CHAIRMAN PRESTON: Our next set of individuals to testify in front of the committee are Tony C. Banks, vice president of product and market development for FirstEnergy
Solutions, and Gene Alessandrini -- hope I got that right -- senior vice president of marketing for PP and L Energy plan. 48 Gentlemen, i f you'll come forward.
While they're coming forward, we do have some members who have also added themselves to the hearing. If they would int roduce thems elves and the county they represent.
REPRESENTATIVE GERGELY:
Representative Gergely, 35th District,
Al l egheny County.
REPRESENTATI VE KAUFFMAN:
Representative Kauffman, Franklin and
Cumberland County.
REPRESENTATI VE REI CHLEY: Doug
Reichley, Lehigh and Berks County.
REPRESENTATI VE DELOZI ER: Sheryl
Delozier, Cumberland County.
CHAIRMAN PRESTON: And I do notice that we do not have microphones, for a change, at those tables. So if you do have questions, when recognized, if you'll come to the respective podiums to be able to speak.
Als o, rel ati ve to the questions we had to the commissioner and for members of the committee and those people who are listening, especially to the local officials, when I had 49 conversations when we were looking at this concept with the -- my staff on the committee, one of the things -- and I want the members to be able to play -- remember exactly what I 'm s ayi ng -- my i ntenti o ns are that when we go into the different corners of the state and have public hearings on this issue, that we will have a separate meeting only with the local elected officials, to be able to give them a chance to be able to deal with those things so they're not going to get bombarded, too.
And I want them to know, that's why
I 'm as ki ng them not to have formal concepts for or against something. We will do that.
We will also do something, too, to give access to the general public. We will have a public hearing in nontraditional hours, in other words, so that the citizens themselves can come and be able to hear exactly what is being proposed. And I thought that that was about the best way to do this.
We're not going to rush at this, but we're going to move step by step, but I want to make sure that all of the interested 50 parties have a chance to be able to hear things, so I'm asking people not to have preconceptions and to get on one side or the other. Let's l ook at this, as you already heard, from different ideas.
And I think that our next testifiers wil l give us a chance to be able to offer us their opinions and their experiences relative to that.
That being said, gentlemen, however you want to start, I don't -¬
MR. BANKS : Chairman Preston,
Chairman Godshall, members of the committee, good morning. And thank you for the opportunity to address this committee today on legislation to create opt-out municipal aggregation in Pennsylvania.
I 'm Tony Banks, vi ce president of
FirstEnergy Solutions, a competitive energy supplier serving business and residential customers here in the commonwealth and throughout the region.
My tes ti mony wi l l focus on how opt-out municipality aggregation would provide an effective rate mitigation tool to customers 51 served by competitive markets for electric generation here in Pennsylvania and how it is already working in other states, like Ohio, for example, to provide customers with meaningful savings on their electric bills.
But first, let me focus my remarks on what opt-out municipal aggregation is and what it isn't. Opt-out municipal aggregation is a way for l ocal communi ties to combine their residents and small businesses into a single, lar ge buy ing gr oup , a ttr act ing mo re participation from generation suppliers and promoting greater competition in the retail electric marketplace.
Rather than compete for individual customers, which drives up marketing and back¬ end costs, electric generation suppliers would compete to serve these large buying groups, and the lower cost to enroll these customers allows the supplier to pass the savings on to customers in the form of lower prices.
On the other hand, opt-out municipal aggregation does not prevent individual customers from exercising their right to choose their own generation supplier. 52 Customers will still have the ability to opt out of the municipal buying group and choose a different supplier for their electric generation. Customers who do not choose a different suppl ier, remain with the larger buying group and receive savings on their electric bills.
Simply put, by being part of the municipal aggregation group, customers will save money on their electric bill, even if they do nothing at all.
Munici pal aggregation is not much different than the structure already in place today in Pennsylvania. Today, if customers take no action to shop for electric generation service, they automatically receive default service from their electric -- their local utility.
Similarly, under opt-out municipal aggregation, customers who take no action will automatically default to the generation supplier with whom their municipality has negotiated a price and presumably that price will be lower than the utility default service price. 53 Another similarity is that under the current structure and with opt-out municipal aggregation, customers have the ability to shop with the generation supplier of their choice or take service from their local utility.
So opt-out municipal aggregation does not take away choice from the consumer. I t simply establishes a structure that should result in receiving electric generation service at a lower price than utility default service, even if the customer takes no action at all.
With opt-out municipal aggregation, the average customer will have the same buying power and opportunity to save as a group of larger businesses and industries. And for those residential customers and small bus inesses who don't have the time, expertise, or desire to shop for electric generation themselves, they will benefit from being part of a buying group that weighs various offers and makes the buying decision to benefit the entire group.
Another very important point about 54 opt-out municipal aggregation is that a municipality is not obligated to buy on behalf of its citizens. Under the proposed legislation, the municipality is merely provided an opportunity to make an aggregation choice if it believes there is a benefit in doing so. Presumably, a municipality would aggregate on behalf of its citizens only if there is an opportunity to reduce their electric bills.
So here's how opt-out municipal aggregation would work in Pennsylvania under the proposed legislation. First, municipalities must adopt an ordinance in order to apply for an electric generation supplier license with the Pennsylvania Public
Utility Commission. This license, once granted, would enable that entity to act as a municipal aggregator of electric generation supply service on behalf of its citizens.
The aggregator would then negotiate with various electric generation suppliers and eventually enter into a contract with the supplier offering the most favorable terms.
Once a contract is signed, all eligible 55 residential and small commercial customers within the municipality's boundaries and who do not opt out of the municipal aggregation program would be enrolled and served by the selected generation supplier.
Therefore, if no action is taken by the customer during the defined opt-out period, the customer would remain a participant in the municipal aggregation program and pay the lower price negotiated by the municipality. However, customers who chose to opt out of the municipal aggregation program, can take default service from the local utility or select another generation supplier of their choice.
In addition to being able to opt out of the program at the time the aggregation deal is signed, aggregated customers would receive notice every three years regarding their right to opt out of the municipal agreement at no charge.
I believe the time is right to move forward with the opt-out municipal aggregation in Pennsylvania. With rate caps having already expired for many utilities, including 56 PPL, Duquesne, and Penn Power, and with rate caps set to expire for Penelec, Met-Ed, West
Penn Power, and PECO at the end of this year, this legislation is timely. I t will promote competition. And it will help customers save on their electric bills in the years ahead.
Opt-out municipal aggregation is one of the better solutions for providing residential and small business customers throughout the commonwealth with a rate mitigation tool that has proven effective in other states. For example, in Ohio, where
FirstEnergy Solutions has hands-on experience, municipal aggregation, called governmental aggregation in Ohio, is providing more choices for customers whil e s upporting a strong and robust market for electricity.
More than two hundred Ohio counties, cities, villages, and townships have implemented governmental aggregation for their communities. And today, more than one million customers served by those aggregation groups receive savings on their electric bills through these arrangements.
The Ohio Consumers' Counsel estimates 57 that a residential customer using 850 kilowatt-hours of electricity is saving up to one hundred and ten dollars annually through governmental aggregation. And Ohio's two largest governmental aggregators report that residential and small business customers in their member communities have saved a total of more than one hundred million dollars through these programs.
In addition, there's no shortage of suppliers in Ohio competing for their business. Since governmental aggregation was approved in Ohio, six different suppliers have served these programs. And today, governmental aggregation is responsible for about 90 percent of the shopping activity among residential customers as well as 70 to
8 0 percent of commercial customers switching to competitive generation suppliers.
S o I ' d l i k e t o r e i t e r a t e t h e v e r y important fact that the proposed legislation would simply give local officials the opportunity, not the obligation, to decide whether municipal aggregation is the right choice for their community. Nothing in the 58 bill would mandate that municipalities pursue aggregation.
So to s ummari ze, I am convi nced that opt-out municipal aggregation, as proposed in this legislation, will provide significant energy savings to customers here in the commonwealth through increased customer shopping with a variety of generation suppliers.
An d Fi r s t En e r g y So l u t i o n s l o o k s forward to working closely with this committee, the general assembly, and the
Public Utility Commission to make municipal aggregation a reality in Pennsylvania.
I'm available to answer any questions you have about this very important issue. And
I thank you for your time and attention.
MR. ALESSANDRINI: Good morning,
Chairman Preston -¬
CHAIRMAN PRESTON: Want to pull that closer.
MR. ALESSANDRINI: Good morning,
Chairman Preston, Chairman Godshall, and members of the committee.
My name is Gene Alessandrini, senior 59 vice president of marketing for PPL
EnergyPlus. PPL EnergyPlus is the market and trading arm of PPL Corporation, based in
Allentown. PPL EnergyPlus is a competitive wholesale and retail supplier of electricity and natural gas and is not the same company as
PPL Electric Utilities, the regulated public utility serving much of northeastern and central Pennsylvania.
I 'm pleased to tell this committee that electric choice is opening new opportunities in Pennsylvania as shown by the large number of customers in the PPL electric service territory who have selected a new electricity supplier since the generation rate cap expired. These opportunities are not just an electricity savings to customers but also job growth, media and advertising spend, and related sales, marketing, and operational activities.
PPL EnergyPl us has been chosen as the energy supplier by many businesses across northeastern and central Pennsylvania. As generation rate caps expire in other markets at end of this year, we are preparing to help 60 businesses in other parts of the commonwealth with competitive electricity prices and natural gas supply, pricing proposals customized to their needs, and a wide range of services that help businesses control costs and use energy wisely.
I ndeed, Pennsylvania's Electric
Choice Act has opened numerous opportunities for consumers to take advantage of increased electricity competition.
Another outgrowth of electric choice is the opportunity to allow municipalities to buy power as an aggregator for their residents and businesses.
PPL EnergyPl us supports the concept of municipal electricity aggregation because it leverages the power of competition for more consumers and allows them to reap the benefits from highly competitive markets. Its goal is not to replace retail choice or retail suppliers but enhance retail choice by providing more choices.
This concept permits electricity suppliers to work efficiently with municipalities to provide alternative supply 61 options for customers who may not yet have chosen suppliers, and considering how to expand t he uni vers e o f r et a i l c us t o mers t hey serve, electricity suppliers must always be concerned about customer acquisition costs and acquisition rates.
Municipal aggregation can improve effective customer acquisition rates and reduce customer acquisition costs. Thus, municipal aggregation can provide a cost effective way for suppliers to serve customers who have not yet chosen alternative electricity suppliers on their own. In this way, municipal aggregation offers the opportunity for more customers to reduce energy costs by switching to alternative energy suppliers and experience the benefits of customer choice.
Consolidating numerous individual purchasers of electricity and natural gas into a single, larger power-purchasing pool by use of municipal aggregation will be another means by which competitive markets can work to benefit Pennsylvania consumers.
Aggregation can also be an effective 62 way to overcome inertia and motivate consumers to take advantage of competitive markets.
Aggregation can certainly serve a market need by providing an additional means for even more customers to received the benefit of retail choice.
For those individuals and businesses that have not yet taken the time to explore the electricity supply options in the competitive market, aggregation through municipalities could bring the power of competition for more consumers by allowing municipalities to do the research and find the best offer.
Consumers now have a multitude of choices. And they can exercise those choices at any time. Municipal aggregation is just one more choice, one more option that's made available to them.
The fact that this committee is taking the time to learn about municipal aggregation as yet another option for consumers is a clear demonstration that electricity competition is making a difference and opening more opportunities. Understand, 63 this is always a goal of competitive markets.
New ideas, more choices.
On behalf of PPL EnergyPlus, I applaud this committee for its leadership and openness to hear from those in the electricity supply industry about what can be done to further advance the opportunities created by choice in Pennsylvania.
We welcome an open dialogue on how to implement municipal aggregation in a means that is a win-win for all market participants and policy makers.
Thank you, again, for inviting me to participate in today's hearings. And welcome any qu est ion s.
CHAIRMAN PRESTON: Thank you.
Representative Barbin.
REPRESENTATI VE BARBIN: Thank you,
Mr. Chairman.
Mr. Banks, I have a question. I read your testimony, and it indicates that you have a million residential customers in Ohio that have received a savings of up to -- of over a hundred dollars per year through this government aggregation program. 64 And what I'm wondering is, is there a standard contract that is used with the -- I guess you have over two hundred of the municipalities, is there a standard contract that's used for purposes of getting this information out?
MR. BANKS: Well, in our case, our standard contract is typically a percent off, which kind of addresses some of the concern about, if the price to compare starts to move around, the customer's always guaranteed that they're s til l going to have a savings. But there are communities who adopt and want a fixed price, and we also have fixed-price offerings as well. But the bulk of our contracts are percent off.
And, you know, more recently they've been longer term, but we also have some that are shorter term. When I say longer term, we've actually signed contracts as long as nine years, but by virtue of the fact that it's a percent off, you don't have the same concern about whether or not you'll not save money if the price to compare starts to move around.
REPRESENTATI VE BARBIN: Because 65 Chairman Cawley indicated that he thought it was to the benefit of residents to have a contract with a maximum term of three years or less. Would that affect the terms that you would provide under your standard agreements in Ohio?
MR. BANKS: Of course, if the max was three years, that would be what we would consider offering. And, again, we would look at the marketplace, try to figure out what the competitors are doing, and to the extent, the community would like guaranteed savings, which the percent-off product offers you, we would be wil ling to provide that. But if the community was more interested in a fixed-price product, we'd be willing to provide that as well. But, again, it depends on what the competition is doing, and as a competitive supplier, we fully expect that we'll to have respond to the market and provide whatever the community thinks is most beneficial.
REPRESENTATI VE BARBIN: Does the PUC or the equivalent in Ohio require standard provisions in your contracts with your municipal groups? 66 MR. BANKS : There are standard provisions but not around pricing.
REPRESENTATIVE BARBIN: Do they include the marketing rate idea that's been discussed? You know, one of benefits to the municipalities has been discussed a marketing rate. Is that a standard provision?
MR. BANKS: Not to my knowledge, it's not.
REPRESENTATIVE BARBIN: Could you tell me what the standard provisions are under
Ohio law?
MR. BANKS : I'm probably going to have to get back to you on that --
REPRESENTATI VE BARBIN: That would be fine.
MR. BANKS : -- to be able to answer that question in detail, but I have folks here that can answer.
CHAIRMAN PRESTON: If you'll submit those to the committee and we will distribute them to all of the committee members.
MR. BANKS: We can do that.
REPRESENTATI VE BARBIN: Thank you,
Mr. Chairman. 67 Thank you, Mr. Banks.
CHAIRMAN PRESTON: Representative
Pickett.
REPRESENTATI VE PICKETT: Thank you,
Mr. Chairman.
I'm curious about the timing for the customer, the consumer to opt out of the municipal agreement. At what point can they do that? Do they have time to shop on their own, then hear what the municipal agreement is going to be in pricing and then make their decision?
MR. BANKS: Well, the consumer always has the opportunity to shop, even before the municipality would entertain an aggregation proposal. So that opportunity is always there.
And once a municipality does enter into an agreement with the supplier, we propose in the legislation that there be a thirty-day period at which the consumer can decide to opt out of that program and do something different, either go to the default service by the utility or pick another supplier. 68 REPRESENTATIVE PICKETT: So there's an opt-out time after the municipality announces the contract rate they're been able to get?
MR. BANKS: Yes.
REPRESENTATI VE PICKETT: All right.
Thank you.
And does FirstEnergy own generation?
MR. BANKS: Yes, we do.
So the advantages to you, as a company, for this to be the place, what are those?
MR. BANKS: Well, like any other generator, there's no guarantee that we can sell our power, so the more opportunity there is to sell into a competitive market, we're happy with that.
But as a lot of folks have talked about already, the key in municipal aggregation is that it does present a larger load that you can then start to target. Other wise, generators like ourselves would be i n c l i n e d t o g o a f t e r l a r g e r b l o c k s o f customers in the form of industrials and large commercials and probably ignore the 69 residential and small commercial market.
But by aggregating, it provides us incentive because we know now that we don't have the cost of customer acquisition to be concerned about, which typically ranges anywhere from -- some will tell you as low as thirty dollars per customer to as high as a hundred plus dollars per customer. And under aggregation, it could be as low as five to seven dollars per customer. That's a big incentive for us to want to support opt-out municipal aggregation.
REPRESENTATI VE PICKETT: Thank you.
Thank you, Mr. Chairman.
CHAIRMAN PRESTON: Representative
Perry. And, again, publicly, welcome back.
REPRESENTATI VE PERRY: Thank you,
Mr. Chairman.
Thank you, gentlemen, for your time, taking time out or your schedules to be with us today. Do you know and do you have any experience with the municipalities that have aggregated in Ohio, or anywhere else that you do business, what associated costs they may have? Do they need to set up some sort of a 70 board of fol ks among each of the municipalities to deal with this? Do they -¬ do they take customer calls, so to speak? Do they do any bil ling? What is their level of involvement after the contract is signed, or is that strictly a function of the state and the contract?
MR. BANKS: I can answer based on our experience in Ohio. We basically handle all the back office. The municipality really doesn't have to do anything for the most part. There may be some nuances that they have that relates to how they govern, but from the point of serving those customers, monitoring, we prepare all of the billing.
And in Ohio, the utility provides the billing service, the regulated utility, but we send out all of the opt-out notices filed with the commis sion to make sure those notices are proper, they have been filed in the right time frame. And the municipality really doesn't have to do much.
MR. ALESSANDRINI: Typically, these type of marketing relationships create some -¬ create a lot of what, like, a governance board 71 to make sure everybody's doing the right thing, and a marketing team, to make sure that you're putting the offer together correctly, you're clearing, your communication is transparent with the consumer to make the right decision. And then, you know, as Tony said, typically all the work's done at the -¬ back at the energy supplier level.
REPRESENTATI VE PERRY: So just to make sure I understand, and I think I do, there should be virtually no cost or very di minimus, other than the negotiation of the contract portion where they would obviously probably have an attorney involved, et cetera, on their behalf. And after that, that's it?
Should be.
MR. ALESSANDRINI: There's always some cost, very little, but there's always some cost because customers have questions, right, and sometimes they're going to prefer to talk to the person they know versus, you know, talk to the supplier. But, as Mr. Banks said, most of the costs are all incurred by the supplier offering the product to the cus tomer. 72 MR. BANKS: And in some cases, we provide reports and things like that, so they know how many people are in and out. But there really isn't much cost to the program.
REPRESENTATIVE PERRY: Thank you very much .
CHAIRMAN PRESTON: Also, if they have a contract, it doesn't stop your local borough council or township supervisors to be able to have a public meeting as well. So they have that extra relationship.
Representative Petrarca.
REPRESENTATI VE PETRARCA: Thank you,
Chairman.
First of all , Mr. Banks, you're government affairs people in Pennsylvania,
Tammy and Sharon, do a great job of taking care of us with our questions and problems and constituent issues, and I appreciate that.
MR. BANKS: Thank you.
REPRESENTATI VE PETRARCA: I n Ohio, when there are these aggregation programs, and let's say new municipalities enter into these programs, are there costs associated with those? And if there are costs, who incurs 73 those costs, just the new municipalities that join or start these programs, or is that spread acros s the entire customer base?
MR. BANKS : The one difference in
Ohio is that, in order to aggregate, the municipality has to have a ballot presented to the -- its citizens. And that cost, I'd have to get back to you. I'm assuming the municipality shares that cost, and in that case, there could be some reason to have the suppli er provide s ome support to the municipality.
But for the most part, that is the only difference. There is a ballot issue in
Ohio. Once that ballot is passed, we would help the community work through all of -¬ whatever nuances there are in establishing the program, and actually have our expert in that area here with me, if you have other questions. But she would actually participate in the council meetings, answer any questions, help them evaluate the program in terms of what they think is important to their constituency.
But, agai n, the cost is minimal other 74 than the fact that in Ohio, you do have to have a ballot issue, and it does cost money.
I don't know what that number is, but we can get back to you on that.
MR. ALESSANDRINI: I believe that question may be in reference to the consumer advocate's concerns, at least when I read his testimony. My opinion would be that the cost should be borne by the aggregator and the suppli er, not by the general population of the local utility.
REPRESENTATI VE PETRARCA: That's what
I would be worried about, that some cost, you know, large cost, what have you, that would be, as you say, borne by the all ratepayers.
I think that -¬
MR. BANKS : Oh, no. There's nothing like that.
REPRESENTATI VE PETRARCA: Thank you,
Chairman.
CHAIRMAN PRESTON: Representative
Gergely.
REPRESENTATI VE GERGELY: Thank you,
Mr. Chairman.
Question to Mr. Banks, first, of 75 course, Tammy's great in Pennsylvania. She's from my alma mater, the McKeesport area, so -¬
MR. BANKS : I think I am, too.
REPRESENTATI VE GERGELY: Even better.
CHAIRMAN PRESTON: You didn't know he's from -- I forgot to tell you, he's also from McKeesport.
REPRESENTATI VE GERGELY: Okay. That even makes it -- Tammy, you got to tell me.
The question I had was, on the -- as
I read the testimony, your agreement with
NOPEC, the Northeast Ohio Public Energy
Council?
MR. BANKS: Yes.
REPRESENTATI VE GERGELY: And those communities, you also provide a twelve- million-dollar grant to be administered in those communities. What -- it says for energy-related programs. What type of programs were administered or what are you looking to fund there?
MR. BANKS: Well, first of all, how they use that money is a decision that NOPEC is making. What we've offered, in general, is 76 a s tandard percent-off program for the customers, so they save money on their electric bills. And we thought about what was going on in the country, I guess, and all the difficulties the local communities were having, so we started to, rather than spend money on marketing dollars in other places, offer civic grants. And so we offer a civic grant to those customers who are willing to s i gn a l o nger-t erm type arrangement.
And in the case of NOPEC, they represent about a hundred twenty some odd communities, and they decided the way to use the grant would be to set up a fund that those communities would apply to NOPEC for, to do things like energy-efficiency programs and other green-type programs. But that was a
NOPEC decision. They're acting on behalf of the municipalities that are part of their group.
REPRESENTATIVE GERGELY: Thank you.
And a follow-up to PPL, as identified in testimony, we'll hear again with the next testifier, about one-quarter of your residents have already switched, about three hundred 77 thousand; correct?
MR. ALESSANDRINI: Correct.
REPRESENTATI VE GERGELY: And if you implement the aggregation program, how do you deal with the overlay between that municipal aggregation and the switch of those 25 percent of customers that already exist?
MR. ALESSANDRINI: Well, what basically happen is, those customers, in our opinion, would opt out, as we have mentioned before. If they were already with a supplier and had a commitment to that supplier, they would opt out of the municipal aggregation because of their commitment to that supplier.
Those customers who have not chosen, they woul d then have the opportunity to receive the benefits. And then, as their existing supplier contract expires, they would then have the right to opt in to the municipal aggregation or pick an alternative supplier.
REPRESENTATI VE GERGELY: Okay.
And Mr. Chairman, last comment, I think, maybe it's a commentary, is the word
"all" has been mentioned, will be mentioned one more time. I t's already been mentioned by 78 the PUC. I don't know that you encourage anything above and beyond the other choices t h a t e xi s t f o r e n e r g y f o r c o n s u me r s , a n d I think that should be brought out. I don't dis agree with muni cipal choice, but I think all choices should be equally promoted by the
PUC not one in particular.
Thank you.
MR. ALESSANDRINI: I agree.
CHAIRMAN PRESTON: Chairman Godshall.
REPRESENTATI VE GODSHALL: The only question I had was just asked pertaining to somebody that already has opted in. And I 'm in PPL territory, and I think you had probably some 20, 25 percent of your people have made options, and as the municipality comes along,
I guess, if the company I'm with, say Company
A, I can opt out of that at any time. Or if there's a contract obligation, I'm going to stay in there.
But I do think there has to be a little bit of confusion when the township does come along and says, you know, this is a contract, because people are not going to know, remember, you know, who they're with or 79 what they're -- or when they, you know, start. So it's -- I don't know -- it's easier starting from the beginning, but when you're starting in the middle, it's going to make things a little more hectic.
MR. ALESSANDRINI: Yes, I think the challenge for this program, like all, you know, I think, mass market programs is education and information. Right. And the town meetings that we discussed and other communication, via letter and discussions with the consumers is critical, because consumers are confused today on electric choice. And this is just adds one more little piece of the puz zle.
So there's no doubt our obligation and the obligation of municipalities will be to make s ure that we are very up front and open to the consumers so they understand what their choices are and what their obligations are so they can make the right decisions.
REPRESENTATI VE GODSHALL: Thank you.
CHAIRMAN PRESTON: I want thank you gentlemen for being here today. And I think what's interesting, as we move along -- 80 Oh, I 'm sorry. Representative Ellis.
I apologize.
REPRESENTATIVE ELLIS: Thank you,
Mr. Chairman. I appreciate the opportunity of going after the chairman.
First of all , Gene, I want to let you know that Christine and Tommy and Frank from
PPL also do a really good job.
MR. ALESSANDRINI: I was getting nervous. I'm glad somebody said that.
REPRESENTATI VE ELLIS: Rest assured.
The y d o a gr eat jo b a s w ell .
But what we've seen in your example is about a quarter of the population switching. And maybe, Mr. Banks, maybe you'll be able to help. When they did it in Ohio, what percentage of the residential consumers switched because of municipality aggregation?
What percentage saved additional dollars that they wouldn't have if there was not this plan in place?
MR. BANKS: Early on -- of course, it takes time for anything to develop. What I can say is, today, there is about 80 percent in the residential, small commercial market 81 who have switched in target areas we've gone after.
CHAIRMAN PRESTON: Did you say 80 or
MR. BANKS: Eighty.
CHAIRMAN PRESTON: Eighty.
MR. BANKS: Eighty.
MR. ALESSANDRINI: In their municipalities.
MR. BANKS: In their municipalities, right. And those are the municipalities in
FirstEnergy service territory.
We're seeing the market start to develop now that you've got the inertia -- in our service territories, we're starting to see some activity in Duq's service territory and some of the other utilities in Ohio. But it was a slow s tart, like you might expect. And
I don't know what the starting statistics were, but right now it's pretty high.
REPRESENTATI VE ELLIS: And in the PPL example, you're at 25. Where do you see that number finishing off, if there was no municipal aggregation? Would it get up to 35,
40? Because I know there's a portion of the 82 population that says, I should probably switc1h„ or shop, and they won't. Where do you see it as a successful number? Or do you consider
25, 26 percent successful?
MR. ALESSANDRINI: Twenty-five percent's pretty successful when you compare it to all the o ther markets that we participate in. So PPL service territory has the largest percentage shopping that I'm aware of. And we participate in all the PJM price set ting and equal market s. So it is very successful.
My expectation is -- this is my own opinion -- would be the number's probably going to get to 35 to 40 , and that should be considered very successful.
So why we think municipal aggregation makes sense is because it just provides another choice, and that allows that improvement or that continuous shopping can continue to occur. And it is primarily because of, most residential customers have a lot of other things on their mind besides their electric bill, and, you know, there is a strong loyalty to tradition. And tradition 83 is, this is my local company, and this is who
I support, this is who I pay.
So I think that's going to evolve over time, as education continues to show people the indifference, you know, PPL electric utility has on the supplier, but that's going to take time. But my guess would be 35 to 40 percent and why municipal aggregation makes sense, because that allows that number to continue to increase. And any time a customer can save money, that's really all our responsibility.
REPRESENTATI VE ELLIS: And based on your testimony there that you said there's a certain people that like it the way it was, is it safe to assume that there will be municipalities that like it way it was -¬
MR. ALESSANDRINI: Absolutely.
REPRESENTATI VE ELLIS: -- and don't opt in?
And, Mr. Banks, what percentage of municipalities that were given the option in your service area in Ohio chose just not to do anything?
MR. BANKS : Not a large percentage. 84 Again, in Ohio, you have to go through a ballot process, so that's kind of gating item.
A lot of municipalities just don't want to put something on the ballot. So oftentimes, we see the biggest part of the challenge is getting issue to be presented to the citiz ens through the ballot.
Once it's on the ballot, the percentage goes up significantly. I don't know the exact number. We can figure out what that is and get it back to you. But the gating item in Ohio is getting it on the ballot.
REPRESENTATI VE ELLIS: Okay. Thank you very much.
Thank you, Mr. Chairman.
CHAIRMAN PRESTON: Follow-up question by Representative Petrarca.
REPRESENTATI VE PETRARCA: Thank you,
Mr. Chairman.
Mr. Al ess andrini, one other quick question. Do you think that municipal aggregate makes sense for natural gas also?
MR. ALESSANDRINI: I would say yes.
And that's probably the only way you'll get 85 natural gas at the residential level in substantial amounts is probably through aggregation.
And, you know, as we've both said here today, acquisition costs and back office costs are pretty significant when you're acquiring individual customers on their own.
So this creates, you know, a large pool that allows that to, you know, be much more efficient and, therefore, makes us a lot more attractive for suppliers.
So -- so I think the only way you can get a natural gas supply is probably through an aggregation methodology.
REPRESENTATI VE PETRARCA: Thank you.
Thank you, Mr. Chairman.
CHAIRMAN PRESTON: I'll leave it with this when you consider when we went into the rate caps and we had a large group of my colleagues who were railed against it. Now,
I'm seeing the same colleagues who were against it want to put the rate caps back on.
Eight years ago, when we started with this, people weren't aware and didn't believe we would ever have what we call real 86 competition and that there would not be other companies and alternative sources to deal with this. And especially here in the central part of the state, I had a lot of my colleague say, this will never happen. The beauty shop or gas station, they won't have a chance or they won't have an alternative choice.
And now here in the central part of the state, as stated earlier, there are eight companies already, which I 've even attended some of the public announcements when these companies were coming in. And I think that, you know, in Pennsylvania, we're learning to be a little more progressive in dealing with some things and in looking at it, and that's why, again, we're going to address this draft and look at the issue.
You raised very interesting questions about the three years or, you know, to be able to deal with it, but I think the local municipalities -- and that's why I stated to you, that we will go into different areas of the state, we're going to meet with the local elected officials and explain it. Then we are going to met with the public in nontraditional 87 hours.
So that's why I'm asking everybody, let's jus t l ook at this first and see what we can come up with as a concept.
So thank you very much. And I 'm glad to see one of Mr. Gergely's former constituents and welcome.
Next i s I rwi n S onny Popowsky, consumer advocate from the Pennsylvania Office of the Consumer Advocate.
Good to s ee you here again, my friend. And we appreciate you representing the people of the commonwealth of
Pennsylvania, and we're interested in your comments. And whenever you're so ready, you may begin.
MR. POPOWSKY: Thank you, Chairman
Preston, Chairman Godshall, and members of the
Consumer Affairs Committee.
My name is Sonny Popowsky. I 've served as the consumer advocate for
Pennsylvania since 1990. And I've worked at the office since 1979.
I appreciate the opportunity to testify here today on this issue of municipal 88 aggregation of electricity customers. First,
I really want to commend you, Chairman Preston and Chairman Godshall and the members of this committee for your continued proactive approach to these issues surrounding generation service for Pennsylvania consumers, particularly as the last of our electric rate caps expi re at the end of this year.
I also want to commend the folks from
FirstEnergy Corporation for bringing the issue of municipal aggregation to my attention.
Once again, in light of that company's positive experience that you've already heard about in this approach in northeast Ohio.
I've reviewed the draft legislation that would allow Pennsylvania municipalities to serve as opt-out aggregators for generation service within their municipal boundaries. My general response is that this draft legislation provides a potentially valuable additional option that could benefit many
Pennsylvania consumers.
At the same time, I have -- I would offer several caveats that I think must be considered in light of Pennsylvania's own 89 e x p e r i e n c e a n d o u r o w n c u r r e n t r e g u l a t o r y structure.
So in nutshell, this legislation would permit individual utilities, or, importantly, Representative Petrarca, it would allow groups of municipalities to get together to allow their customers essentially to shop in aggregate as a block on an opt-out basis.
The fact that this is opt out, of course, is important, because if a customer did not want to participate in the municipal aggregation service, they would have to take an affirmative step to choose not to participate in that.
Now, under current Pennsylvania law, we already have in effect an opt-out aggregation, it's just the opt-out aggregator today is the utility. That is, if customers do nothing, they stay with their -- with their utility, default or provider-of-last-resort service.
Now, under our -- as you recall, in
2008, we made changes to the to the obligations of utility default service providers. They now are required, under Act 90 129 , to go out and acquire the least cost resources to serve their customers over time.
So they already have an obligation to try to go out and get the best deal for their customers.
Now, to the extent that customers can find a better offer in the retail market, of course, they are free to choose, but, today, that requires an affirmative choice, if they want to leave their utility.
The theory of municipal aggregation,
I think, is that by aggregating the buying power of a large number of small customers, a nonprofit municipal entity can get a better deal for those customers than if they each had to go out and shop on an individual basis.
And, in addition, as you well know, many customers either lack the understanding or the interest to go out and shop for themselves. And for those customers of this municipal aggregation, of course, provides another alternative to get some of the benefits of a competitive generation market that they might not get if they were having to go out on their own. 91 Representative Readshaw, you asked if there were other states that have done this.
And to my knowledge, the most successful aggregation programs have been in Ohio, as
Mr. Banks mentioned, and also in
Mas sachus etts.
I n Mas sachus etts, I think twenty-one towns with about two hundred thousand customers on Cape Cod and Martha's Vineyard have joined together to form what's called the
Cape Light Compact, which provides a broad array of power supply and energy efficiency services and has been doing that since 200 1.
Most recently, Cape Light entered into a contract with ConEd Solutions to provide basic generation service to customers in 201 0 at a rate of 8.7 9 cents per kilowatt hour, which is a pretty good rate in that part of New England.
Now, as you've also heard in Ohio, the aggregation that I'm most familiar with, the NOPEC, or Northeast Ohio Public Energy
Council, actually includes a hundred and twenty-six communities, and they've been in operation since the year 20 00. 92 Now, NOPEC s erves a nine-county region in northeast Ohio, which is primarily in the service territory of FirstEnergy.
NOPEC recently entered into a nine-year contract with FirstEnergy Solutions, the competitive arm of FirstEnergy. And
FirstEnergy Solutions will provide service to those folks at a 6 percent discount for residential customers and a 4 percent discount for small business customers below the price to compare that's charged by the local electric distribution utility, which is
FirstEnergy.
And also, as you heard, FirstEnergy
Solutions has made a twelve-million-dollar grant -- offered a -- provided a twelve- million-dollar grant to those communities for other energy efficiency, energy-related programs.
Jus t to get to your point,
Representative Barbin, I think that actually if I were a municipal official, what I would look for is a contract just like the one that
FirstEnergy Solutions has in Ohio, which is a percentage discount off of the contract. In 93 other words, one way to ensure that customers are better off would be to say, rather than have a contract at X cents per kilowatt hour, the contract could always be, we assure that it will be a percentage discount, whether that's 1 percent or 5 percent.
Certainly, if I were a municipal official, I'd like to see that, and it maybe something that you may want to include in the law. I wouldn't say a specific percentage, but at least a requirement that customers and municipal aggregation would pay no more than what they're paying for their utility.
So having seen some of the success in
Ohio and, I believe, in Massachusetts, the question is how would we mold a program like this into an existing program -- into the exi s ti ng cus tomer cho i ce program that we already have in Pennsylvania.
As I noted, in those states, these municipal aggregation programs have been in effect since -- in essence since the beginning of restructuring. Here, we're sort of in the middle, particular in places like Harrisburg, where -- in the PPL territory, where 25 94 percent of the customers have already -- have already switched.
The biggest concern that I have is this -- is the interplay between a municipal aggregation service and the existing default service that's provided by our utilities. You want to make sure that we don't in some way, in any way, undercut or increase the cost to the rest of the customers by having a municipal aggregation service for some customers.
And what I mean by that is, if a company, for example, let's say, Duquesne or
PECO has already gone out, let's say, for the next two or three years to acquire their default generation service, if they've already started entering into contracts with people to provide that service for their customers over the next two or three years, and then suddenly, six months from now, they find out that, oh, the city of Philadelphia is not participating or the city of Pittsburgh is going to municipal aggregation, you need to make s ure that the existing default service companies and existing default service 95 customers are not harmed by losing those customers or by losing those massive municipalities within their district.
So what I'm suggesting is that, in
Pennsylvania, what we need to make sure of is that the timing of our municipal aggregation programs is coordinated with the timing of our default service programs so that we don't leave our utilities or our default service providers in the lurch in the middle of a default service program.
We als o have to make sure that individual customers, like the two hundred -¬ or like the nearly three hundred thousand PPL customers who have already switched, that it wil l be clear to them what happens when their municipality goes to a municipal aggregation.
As you said, Chairman Godshall, we want to make sure that the customers know that they can stay with their chosen provider.
They need to know whether or not they can come back to their municipal aggregator or whether they would default back to PPL, for example.
Again, I think those kind of details can be worked out, but they're important 96 One other customer -- group of customers that's important, in my perspective, is low-income customers, who may be on a customer assistance program at the utility.
Those customers, frankly, are far better off staying in their utility customer assistance program than they would be either shopping with a new supplier or being part of a municipal aggregation, because some of those
CAP customers, those Customer Assistance
Programs, may be paying a rate based on their level of income that may be 50 percent of the regular rate or even less.
We want to make sure that the default for those customers is a customer assistance program. And we also want to make sure that new customers can get into those program over time, whether or not they're participating in municipal aggregation.
And f i nal l y, I jus t have two suggestions with respect to the draft legislation, which I think is a great start for this discussion. Those are -- and I think those have been raised by Representative
Petrarca and by Representative Gergely, which 97 are that, I think to the extent that there are costs involved in a municipal aggregation program, those costs ought to be borne by the municipality and those customers who are participating in the program. They should not be shi fted on to the remaining customers of the default service customers of the utility.
The second point is that the legislation requires the Public Utility
Commis sion to -- gives a duty to, quote, encourage and promote large-scale, opt-out municipal aggregation in the commonwealth. I think, as Representative Gergely said, I think that the commission should be a -- basically the referee here. They shouldn't be promoting one form of competition or aggregation over another, whether that is the utility default service or i ndi vidual customer choice.
The goal of the commission, I think, and our goal as public officials should be to educate consumers, educate municipal officials about the costs and benefits of these programs rather than trying to promote one program or over another.
So, i n cl os i ng, I do want to thank 98 the committee, again, for holding this hearing. I think this is exactly the type of conversation we should be having, exactly the kind of proactive developments that we should be looking at and debating in order to make sure that our Pennsylvania consumers have as many options as possible to deal with the concerns that we all share on increasing electric generation rates.
I'd be happy to answer any questions you have, and I'd certainly be happy to work with the members and staff of the committee as you go forward with this issue. Thanks.
CHAIRMAN PRESTON: Chairman Godshall.
REPRESENTATI VE GODSHALL: Sonny, the requirement already is in law that our suppliers have to supply the lowest cost energy along with a fixed menu that goes with it to, you know, to our constituents. When we have somebody else coming into these territories, are they using the same fixed menu that we demand by law, or, you know, why is there a difference?
If everybody's supposed to be supplying energy at a lowest cost and 99 pertaining -- you know, all of a sudden we have cost here. Now we have down here. Where are we going with this?
MR. POPOWSKY: I think that's the difficult question. And that's why I think we want to make sure that the municipal aggregator is providing some benefit as compared to what the utility is already providing.
REPRESENTATI VE GODSHALL: Right.
MR. POPOWSKY: In the case of PPL, for example, I think one of the things that people need to recognize is that we're seeing -- a lot of competitors have been able to come in and beat the PPL price for the year
2010. And that's in large part because when
PPL bought their power for 201 0, that was in
200 7, '8, and '9, when wholesale prices were a lot higher.
So here we get to 201 0, their prices are pretty high. The competitors have been able to come out and beat that price.
I don't think that necessarily is going to happen when the rate caps come off in
PECO, Met-Ed, Penelec, and Allegheny. There 100 may be less shopping than we've seen in PPL because the utilities will be providing ser vic e a t a pr ice th at's c los er to the wholesale market price at that time.
But having said that, the whole point here is that retail marketers, or under this legislation, municipal aggregators, if they can come in and find ways to secure generation at a lower price or offer other benefits to customers that they may not be getting from their default service, I think they should be free to do that. And the goal here would be to create another option where competitive marketers may be able to do a better job in securing the lowest cost power for customers.
REPRESENTATI VE GODSHALL: I have no problem, and I agree with you totally on that. But must the new energy also be at the same menu?
MR. POPOWSKY: No. I n other words, what we said in Act 1 29 is that the utilities mus t acquire a prudent mix of long-term, short-term and spot market contracts with the goal of providing the least cost service over time. That's the goal. They may not always 101 achieve that, but that's the goal.
So, no, the aggregators or the municipal -- I 'm sorry. The aggregators or the retail suppliers today are free to secure generation however they see fit.
REPRESENTATI VE GODSHALL: At will.
Really, at will, basically.
MR. POPOWSKY: Recognizing, though, that they're operating in the same general wholesale markets that the utilities are, but they may be able to do a better job. They may be able to get lower cost supplies.
REPRESENTATI VE GODSHALL: Okay.
Thank you very much.
CHAIRMAN PRESTON: Representative
Pickett.
REPRESENTATI VE PICKETT: Thank you,
Mr. Chairman.
Mr. Popowsky, in your concern about different groups being competitive against others and not giving everybody a fair advantage, and I'm in the Penelec region.
Caps come off next year.
There are buyers, groups coming into my area now to s ol i ci t c hamber members as a 102 group. So if they're able -- and they're saying they can sign people up by, say,
September, though the caps don't come off until December, and then they can start shopping for this bulk of electricity.
So by doing so, individuals can't belong to the chamber, but they're picking out a mid section of some pretty good usage from the small businesses. Are they, in effect, taking away the buying power of the rest of that municipality if they should come together to try to buy, when these chamber groups pick out the small businesses?
MR. POPOWSKY: I think that's exactly what those groups should be doing, by the way. Again, I think businesses, school districts should not be waiting until January
1st.
That's what happened in Pike County, if you recall, back in 2 0 0 6 . People were flabbergasted when they got hit with those increases. So I think the fact that you have chambers and school districts going out there, getting together, I think it's a great thing.
And as -- I don't think that's 103 inconsistent with this legislation. I think, as Mr. Banks said, in Ohio, at least up until the point where the contracts -- you have up to thirty days after the -- the municipal aggregation price comes out to opt out.
So certainly, in advance, I would encourage businesses and school districts and whatever in -- these exist in these service territories like Penelec and Met-Ed to be proactive and to try to get together, because if they can get together -- and we have seen this happen in the PPL territory, where some school districts have gotten together, they can form their own aggregation on a voluntary opt-in basis and get many of the same benefits that would occur under an opt-out aggregation, but they're doing it at their own decision, rather than waiting for their municipality to do it for them.
So I think i t's a good thing.
REPRESENTATI VE PICKETT: Thank you.
Thank you, Mr. Chairman.
CHAIRMAN PRESTON: Representative
Perry.
REPRESENTATI VE PERRY: Thank you, 104 Mr. Chairman.
Mr. Popowsky, do you have any concern for -- I would call kind of ancillary deals, so to speak? I f the distribution companies want to make a deal with aggregate municipalities and they're working against some other company in the same vein, and they're essentially the same price, and we leave thi s open that, look, if the distribution company wants to throw in a -- a fire truck, or, again, start some grant thing where it's open to political will or whim what that grant money is used for, does that concern you at all?
Does that open the process to chicanery or political whim? That the eighty- five-year-old lady that's paying her electricity bill doesn't really care about the new park or the energy-saving programs. She's got her house, it's paid for, and she's just hanging on and doesn't want to -- essentially, that raises the cost at some point for everybody. Is that something that we need to be concerned about?
And on the other side, on the flip 105 side of that, does putting some kind of restriction to that kind of activity limit the ability of the supplier, the distribution company to negotiate on behalf of themselves and everybody's best interest?
MR. POPOWSKY: Until Representative
Pickett raised that issue, I hadn't actually thought about it. But I think the only restriction that I would put on is a requirement that these -- any additional compensation be -- would have to be made public. That it would be -- like the twelve million dollars in northeast Ohio. I don't see anything wrong with that, that there's additional benefit for those communities, especially when customers are also receiving a
6 percent discount.
So I'd sa y, as long a s t he -- any additional compensation to the municipalities, additional benefits to the municipalities are made public, and as long as -- again, I think, as Representative Barbin suggested, as long as the price that the customers are paying is less than or, in my opinion, at least no more than what they would be paying for their 106 utility, I think that would be -- in my opinion, that would be adequate protection.
REPRESENTATIVE PERRY: Thank you,
Sonny.
Thank you, Mr. Chairman.
CHAIRMAN PRESTON: Representative
Gergely.
REPRESENTATIVE GERGELY: Thank you,
Mr. Chairman.
And, you know, just for the record, I think for yourself, who I'd congratulate on, I think, a really innovative piece of legislation, I do encourage especially the members of Allegheny County to get with
Duquesne Light. They did submit testimony in regard to the issue, and it is not as, I'd say, supportive of aggregation as the other electric suppliers.
And, obviously, my home district is represented by Duquesne Light, and I 'd like to get more of their input on this issue. I don't see them on the agenda, but they do have written testimony, so I'd like to have that for the record, Mr. Chairman.
And to Mr. Popowsky, just in theory, 107 say the southeastern Pennsylvania electric cooperative, or they're an aggregate buyer now for like all of Montgomery, Berks, and
Chester, would -- was able to negotiate an i nc redi bl y l ow rat e. And t he ALOM, the
Allegheny League of Municipalities cooperative in Allegheny County, couldn't get the similar rate. My customers could still choose the southeastern aggregate as a lower choice; is that correct?
MR. POPOWSKY: No, I don't believe so. Under this legislation, I think each -¬ the municipality or groups of municipalities would only be able to serve within their municipal boundaries. At least as I understand it, these municipalities, the municipal aggregators, would not be able to compete outside of their municipal boundaries.
REPRESENTATI VE GERGELY: But the current choices we have, that's not -- that's not true; correct? Like on the website, you can look at all the choices you have. That wouldn't be necessarily true for the municipal aggregates, is that what you're saying? 108 MR. POPOWSKY: If you look at our website, we have some suppliers who offer service i n Duquesne and in PPL, but those are -- so they can offer -- you're right, those retail competitors can offer service wherever they want, wherever they have a license to do so.
But as I understand it, a municipal aggregator could not -- could not participate outside of their municipality.
REPRESENTATI VE GERGELY: Okay.
MR. POPOWSKY: And if I could just add, in terms of Duquesne, I have been a tremendous supporter of the Duquesne default service. I think, frankly, they've done the best job in the state in terms of getting the lowest cost and service for their customers.
And that was one of the points I was getting at, which is, we want to make sure that if we have municipal aggregation, it not undercut or increase costs for the customers, whether it's Duquesne or Penelec or whoever, that also -- they still have the obligation to serve. They are still the ultimate default provider. 109 S o I -- I -- I s hare your concern that we not do anything that would increase their prices to -- to their remaining customers.
REPRESENTATIVE GERGELY: And you believe that's reflected upon outward buying,
I guess, that contract buying and services in years -- in buying, purchasing that power at the lowest rate possible, but being able to supply that for years -- forthcoming years. I guess what I'm trying to say, like in 2011,
Duquesne Light could probably predict the cost for their electric supply for their customers.
MR. POPOWSKY: We actually -- they've actually already presented a plan that we've agreed to, so that -- and is now pending before the PUC that would set the price, starting in 201 1, and as you know, when the
Duquesne price cap came off in 20 0 2 -- I think it was 20 02 -- rates actually went down by 25 percent, as you recall, in the Duquesne territory.
So, again, I think that the -- those companies, the electric distribution companies 110 still have the final obligation to serve, and we want to make sure that they will still be able to do that at the lowest price for their remaining customers.
REPRESENTATI VE GERGELY: Okay. Thank you .
CHAIRMAN PRESTON: Thank you. I guess I ought to read this list for the record now, since it was mentioned. Testimony submitted for the record, we have received from Donald Pepe, who's president of the
Pennsylvania Municipal Electrical Association, also from Duquesne Light, from Dominion
Retail, and also from Constellation Energy
Group. And for the members, that -- those comments are within your packet.
And if any of the guests would like to see them too, they're also available.
That being said, Sonny, thank you very much. We look forward to working with you in the future on this issue. And we'll be in touch wit h you. T hank you very much.
MR. POPOWSKY: Thank you.
CHAIRMAN PRESTON: Next we have
Douglas Biden, who is president of the 111 Electric Power Generation Association.
MR. BI DEN: Good morning, Chairman
Preston, Chairman Godshall, members of the committee. And thank you for the opportunity to present the views of the Electric Power
Generation Association on the draft municipal aggregation legislation.
I'd li ke to begin by reviewing the goals of electric restructuring and the progress we've made in reaching those goals, because I think it will help put in perspective the significance and timeliness of the legislation we're discussing today.
The three main goals of the electric restructuring were to shift the financial risks of construction, operation, and ownership of the generation from captive ratepayers to investors who are best positioned to manage those risks effectively; to provide market incentives for generation owners to build and operate those plants more efficiently; and, three, to promote competition and innovation in retail markets.
The shift of financial risks to investors has clearly occurred. I n 112 Pennsylvania, ratepayers no longer bear the financial burden of excess capacity, construction cost overruns, and forced outages that plagued many utilities during the monopoly era, and more than ten thousand megawatts of capacity have been added in
Pennsylvania in the past decade, and consumers have not paid a penny for generation outages, construction delays, or bad investments.
Tremendous improvements in power plant operating efficiency have been realized and documented and have benefited consumers.
Regarding the third goal of electric restructuring in promoting retail competition, here the experience has admittedly been mixed. Clearly, the retail rate caps have stifled retail competition, as price caps do i n a l l ma r k e t s .
However, retail competition has been promising in those utility service territories where the rate caps have expired. The experience in the Duquesne Light and Penn
Power territories has been promising, and now in PPL's territory, where nearly 45 percent of the total load has already switched to a 113 competitive supplier.
But it's really the small customers that we're here to talk about today. Because even though overall shopping has been very good in those areas where rate caps have expired and savings for residential customers of 1 0 percent or more have been realized, the fact remains that for a variety of reasons, the vast majority of residential and small commercial customers remain on utility default service, even when real savings are being offered by alternative suppliers.
Transaction costs, as you've heard from other testifiers today, on both the supplier and consumer side, are a consideration, an important consideration in the retailer's business model. And municipal aggregation can help reduce these costs for both customers and suppliers, thus reducing cost barriers and helping to make the market more effi cient.
Larger customers are proving by their actions that shopping is rewarding. For many smaller customers, however, acquiring the knowledge necessary to shop wisely is costly 114 to obtain and the risks are unknown, and many customers are opting not to try.
For suppl iers, the cost of educating small consumers, overcoming inertia, and motivating them to switch can oftentimes exceed the annual generation cost savings.
Munici pal aggregation can significantly lower these costs -- these customer acquisition costs for suppliers, thus increasing the number of suppliers desiring to serve such customers. And by alleviating most of the effort associated with the screening and selection process, the aggregator enables its small customers to take service from a competitive supplier at little or no transaction cost to those small customers.
Thus, the municipal aggregator can help jump start the market by bringing the benefit to retail competition to more small customers sooner and increasing the number of suppliers willing and able to serve small customers.
I n addition to lower transaction costs, there are other benefits to municipal aggregation, and you heard this from Mr. Banks 115 earlier. It creates greater bargaining power for smaller customers.
When it comes to bargaining for the price in terms of service, bigger is usually better. So aggregation can enable residential and small business customers to participate in the competitive market on a more equal footing with larger customers and negotiating lower prices.
Greater sophistication, municipal aggregation transforms relatively uninformed consumers with little time and few resources into more sophisticated buyers.
Municipalities routinely negotiate contracts on behalf of their citizens for services such as trash collection and cable TV. They can similarly acquire the expertise necessary to negotiate favorable terms for electricity ser vic e.
Municipal aggregators also have been willing and able to enter into longer term agreements with suppliers who may be willing to lower prices in exchange for longer-term income security.
The economic advantage of municipal 116 aggregation can clearly be demonstrated with a residential customer example. A customer with an all-electric home, with bills of perhaps three hundred dollars or more per month, obviously has a powerful incentive to learn about his or her options and shop for the best terms, because they can save hundreds of dollars on their bill each year.
Cus tomers wi th oil or gas heat, where the generation portion of their bill is, for example, only thirty dollars per month, can only save three dollars per month, or thirty- six dollars per year, even if the potential savings are 10 percent. One can readily appreciate why many such customers may not i nves t the t i me and res o urc es to real i ze s uch small savings. Thus, the inertia problem.
However, for a municipality or combination of municipalities of just a hundred thousand participants who aggregate these customers, a savings of thirty-six dollars per customer translates into 3.6 million dollars that remain in the local community to be saved or spent on other goods and services, much of which will benefit that 117 s ame l ocal c ommuni ty.
Obviously, this bill is not the silver bullet. It can't nullify rapidly escalating fuel prices like we experienced during much of the last decade, but it can be another significant tool at our disposal to help put competitive markets to work for small customers and help mitigate prices.
No w , I l i s t e d h e r e i n my t e s t i mo n y some questions and concerns that some of our member companies have. I don't really want to go into these today because I've come here today to be largely -- to express our support for this draft legislation.
And to tell you the truth, these concerns were put in our draft testimony rather late, and we have not, as an association, had an opportunity yet to discuss these, so I can't say that yet at this point that these rise to the level of association- sponsored amendments. But I put these here because I do believe that you're going to be hearing more about these concerns, if not from
EPGA as an association, at least from the s ubs et of our members i n the f uture. 118 I wi l l , however, be happy to take questions on these and tell you what those concerns are.
One might reasonably ask why EPGA cares about municipal aggregation legislation, after all, our members own and operate power plants and sell into the wholesale market.
We're going to sell that power to the utilities and the competitive generation suppliers whether or not that load is aggregated.
But as -- and as generators, we've delivered on our end of the restructuring deal by taking on the investment risks and producing the significant efficiencies in the wholesale market. But the restructuring job won't be complete unless and until we have robust competition at the retail as well as the wholesale level. And the competitive market will work best with active participation by all consumers, large and sma ll.
The introduction of this draft municipal aggregation legislation takes a significant step in drawing more, more small 119 consumers into the market, and we commend
Chairman Preston and the other co-sponsors of this legislation for recognizing the significant benefits that this can afford small consumers.
Thank you for your time and attention.
CHAIRMAN PRESTON: Thank you. And as you heard in my opening comments, that's why I kept it as a draft instead of introducing it as a bill. This is a -- gives everybody a chance for ideas, thoughts, concerns. And I hope that you will address them to the respective staffs to our left and right, to
Chairman Godshall and myself, so that we can loo k at t hem and be able to see what we can try to maybe be able to deal with some of this.
It's a wide open field, so this is the time. As a man -- gentleman once said,
Come on down. This is the time to be able to do it now, instead of trying to do it later, so we can avoid about being for or against.
We'll deal with those types of things later.
But that's the most important thing. No 120 additions should be out there.
Any questions?
Thank you very much. Appreciate it.
Next we will have Ronald Cerniglia, who is the director of the National Advocacy for Direct Energy, along with Teresa
Ringenbach, manager of Midwest, Government and
Regulatory Affairs with Direct Energy, and
Richard Hudson, the director of Regulatory and
Legisl ati ve Affairs for Con -- ConEdison
Solutions. Sorry about that.
And I have to say this about you,
Richard, since because -- you've heard me say that quite a few times when we met, it was about eight years ago, eight, five years ago, somewhere around there, that people didn't understand that this created a different form of industry, and they didn't think it was going to happen. And you stayed with it and you're still here.
MR. HUDSON: Two employers later, also.
CHAIRMAN PRESTON: Well, I hope next time you need somebody to help negotiate a contract, put me in. I 'm trying to make a 121 living.
Okay. That being said however, how you ever want to do it, you can go first.
MR. CERNIGLIA: Good morning,
Chairman Preston, Chairman Godshall, members of the committee. My name is Ron Cerniglia.
I am the director of National Advocacy
Government and Regulatory Affairs in the
U S f o r D i r e c t E n e r g y .
Thank you so much for the opportunity to present our views regarding the proposed municipal aggregation legislation.
As you might be aware, Direct Energy is one of North America's largest energy and energy services companies. We have over 5.1 mil lion customers. We operate in twenty states, the District of Columbia, plus all ten provinces in Canada.
And to better serve our customer base, we own natural gas-fired generation facilities. We operate over four thousand natural gas wells. And in addition to that, we have large contracts for wind assets and offer effici ency programs to help manage our customers' overall energy bills. 122 I n recognition of the successful efforts of the governor, the legislature, and the Public Utilities Commission in the design and implementation of this competitive electricity market, Direct Energy decided to locate our North American business corporate headquarters in Pittsburgh, initially employing approximately two hundred fifty employees. And I 'm very please that this number continues to grow as we expand our presence here in Pennsylvania.
We are al so investing in the communities where we operate with a
2.5-million-dollar community development fund here in Pennsylvania.
Lastly, Direct Energy serves residential, commercial, and/or industrial customers in Columbia Gas, Duquesne Light,
Allegheny, and PPL service territories.
Representative Petrarca asked a question regarding aggregation and potential -- and size of municipalities and whether or not there is any type of relationship there. And I wanted to respond to him by saying that through a Public Utility 123 Commission-approved aggregation program, we are currently serving and pleased to serve about thirty-five hundred of Pike County's forty-six hundred customers. We've been doing that since 2006, reducing their rates over this time period by approximately 40 percent.
From my perspective, competitive markets provide more value for a consumer's energy dollar and provide choice, innovation, energy efficiency, environmental and economic development benefits. These benefits are evolving in Pennsylvania, as more and more customers participate in the marketplace, choosing from among a large number of competitive suppliers with numerous rate offerings to meet customer needs.
I would like to applaud this committee and your efforts to explore the efficacy of aggregation. I f designed with the appropriate consumer protections and consumer education and if it's implemented in a transparent manner and done so to complement the existing, more traditional methods of acquiring customers, I believe that aggregation can prove to be an attractive 124 method for putting the competitive market within the grasp of residential, small business, and especially low-income customers.
Market ef fi ci ency and market power of small users is improved by reducing the total costs, including transaction costs, of the competitive provision of electric or gas service by potentially creating more value than could be achieved if these customers sho ppe d o ne at a t ime .
I now would like to turn it over to my colleague, Teresa Ringenbach, who will provide some guidance on what should be considered if a municipal aggregation program moves forward.
Teresa has firsthand experience in this area since 20 0 1 , where she launched and managed one of the first opt-out governmental aggregation programs in Ohio, ultimately managing opt-out electric and gas programs for ten Ohio communities.
Thank you again, Chairmen, for the opportunity to share my thoughts. And as always, we look forward to working with you 125 and members of your committee on this important issue.
Teresa.
MS. RI NGENBACH: Chairman Preston,
Chairman Godshall, members of the committee, thank you for allowing me the opportunity to speak to you today.
As Ron -¬
CHAIRMAN PRESTON: Pull that just about two more inches. There you go.
MS. RI NGENBACH: So as Ron indicated,
I have real-life experience with these programs in Ohio. I started one of the first electric aggregation programs in Ohio, when the rules with the commission were still being developed. I n addition, I went from there to run these types of programs for gas and electric in ten communities.
So I'm going to veer from my script a little bit, because I sat over there, listening to the questions, and wanted to be like the kid in the classroom going, "Oo, oo, oo, I know the answer."
So I decided I'd like to walk you through how it actually works in Ohio so you 126 can get a feel for how their law works and how it's i mpl emented.
So in Ohio, if you want to hold an opt-out aggregation program, you have to pass a ballot issue. And to answer questions on costs for a ballot issue, it can be very expensive if they do a special election. I f they do it as part of just a regular election process, it's fairly reasonable. And those costs do fall on the community.
So once they pass their ballot, they have to develop what's called a plan of operation and governance, and that is by law.
So their plan has certain things that have to be in it: How do customers opt out? What are the prices? Who's included in the pool for the aggregation? All of that goes into the plan.
They then have to have two public hearings on the plan of operation and governance, and then the plan has to be approved by city council.
So it's -- that plan is really key to these programs. Beyond just the public meeting that we talked about, it -- there has 127 to be a representative that's at the community who really understands how these programs are run, because, like it or not, there's going to be residents that are going to say, "I don't want t o t al k to yo u. My ci ty government negotiated this, and I want to talk to them."
So when you're developing that plan, you're developing it with the community and they're getting an education process on how their program's going to be run, too.
So once the plan is in place, they go out and they contract with a supplier. I have heard questions on, should there be minimum dis count rates? I don't think that there should be. And I say that from my perspective, because we actually offered a fixed rate on the electric side at that time, which, not to dig at FirstEnergy Solutions, but at that point, they were doing 5 percent off, which was a guaranteed savings, and our fixed rate was up to -- that fixed rate, when we compared it to the utility rate, it went up to 18 percent off. So, yeah, it wasn't a guaranteed savings but it was a fixed rate.
So, at that point, you develop what 128 is called an opt-out notice. Most of my communities, prior to the opt-out notice, mailed everyone a welcome letter -- or not a welcome letter, but a city-wide letter that said, "You're going to get a notice in the mail. It's coming from a supplier. And just be aware that this is coming and you should be loo kin g f or it. "
S o i t's an extra way to make them aware of the fact that they're going to get an opt-out notice. If you don't do anything, you could be put into the program.
The opt-out notice itself, there's specific rules in Ohio on what has to go into your opt-out notice. So they tried to create an opt-out notice that wasn't so large that nobody wanted to read it, because who's going to open this and read ten pages and then, right, but they also wanted to make sure it meshed with the already existing consumer protection rules for when a customer enrolled with a supplier.
So you had to have when will their service actually flow, who's going to bill them, what is the rate in -- the per-kilowatt- 129 hour rate, or on the gas side, it is per CCF or per MCF, depending on the utilities billing system.
There are provisions in there, what happens if you don't opt out, what happens if you're not supposed to get this opt-out notice. Right? Big, bold letters: If you do not live in the city of Cleveland, you should not be in this program. Please call us.
Right? So all of that goes into the opt-out.
And Chairman Cawley had touched on this, and Direct Energy completely agrees, there needs to be rules that come from the commis sion to ensure that all these notices and all these programs are run in some sort of consistent fashion.
So after the opt-out period, how long is that? In Ohio, it's twenty-one days. In this bill, I've seen thirty days. I will tell you, if you make it too long, you will create customer confusion, just as if you make it too short, you're going to create angry customers who didn't have enough time. So balancing that time period specific to Pennsylvania is key. 130 For example, in PPL, if you do thirty days -- so you have -- you mail the notice to the customers. They have thirty days to opt out. At that thirty-day period, the supplier will submit an enrollment to PPL. There's now three days for the customer to rescind with the supplier, an additional ten days to rescind with the utility. And then there's time beyond that because there's a window that you have to enroll your customer before the meteri ng date.
So now you're looking at, like, three months before the customer even sees this new rate on their bill. And any customer who's reading the opt-out notice and saying, "Yes, I want to be in," and then three months later opening the bill and going, "Who in the world is Direct Energy?" is going to have an issue.
So you want to make s ure it's not too short but also not too long. In Ohio, it's twenty-one days.
So my experience was, you mailed the opt-out notice, and then usually within four days of your mailing date is when you saw the biggest number of opt-outs come in. So you 131 usually saw a one- to two-week period where you saw opt-outs flowing on a regular basis, and then after that, it trickled off.
So the twenty-one days really sort of meshed with ensuring that customers were really enrolled in a rapid enough manner that they didn't forget what they did. So that's issue number one.
The other thing that happens is, ensuring that, after they're enrolled, after they opt out, that something does have to go to the supplier. In Pennsylvania today, when you enroll a customer, you have to send them what we call a welcome packet, but essentially it's a confirmation that you have submitted for enrollment. You should have to do the same thing in these types of programs.
After the opt-out period has ended, send something to the customers that said,
"You did not welcome, you did not opt out, thank you for joining our program." One more reminder to them.
On top of that, we've talked about here the terms of the agreement. And so there's two parts. There's the agreement with 132 the customer that says: Every three years you get an opportunity to opt out again. And then there's the agreement with the -- sorry -¬ with the community where it -- should the community be allowed enter into nine-year deals but the customers opt out every three years.
I would say, I agree with what
Chairman Cawley said, which is, if you allow them to enter into those nine-year deals, the community should have the ability to renegotiate their contracts prior to every three-year opt-out period. Because if the rate really is out of line with where the market is or where other suppliers' offers are, the community shouldn't be forced to be locked into a deal that they had made five years ago. Right. So that's something that should definitely be considered in the context of the legisl ati on.
As far as dollars paid to communities to market these programs, I'll share with you a couple of my experiences. One, you've heard about NOPEC, which is about a hundred and ten communities. NOPEC runs their own opt-out. 133 So they print everything, they mail it. The supplier doesn't do it.
At one point they were charging a dollar an opt-out to the supplier. That does affect your price.
Other communities, the supplier does all of the mailings, does all of the printings. You do it in conjunction with the community itself. So you usually have a law director and whoever their PR people and marketing people are involved in the process.
But you, as the supplier, are covering all the costs. So that's one part of the cost issue.
The other part is, there are programs -- and I have never seen a program where the donation went directly into city coffers. I have always seen programs where there's twelve million dollars for energy efficiency programs. Program I ran at the time did a hundred thousand dollars a year for -- to purchase computers for low-income neighborhoods or a donation to a park, to rebuild a park, donation to scholarship funds, things like that.
If you -- i f you l i mi t a communi ty's 134 abi lity to do those types of programs, I don't I think it takes away some of the value of these programs for the community to actually take that next step to do it. And if you're doing these programs as a bid, you're going to have bidding the lowest price in addition to those other items.
And I'd like to think that the communities are going to lean towards the lowest price, and if they wind up with these similar offers, then maybe that would be something that tips them over the edge.
But prohibiting it or allowing it, I would say allowing it probably is the better option for these communities.
The last thing I want to touch on is, we heard a little bit about how does this affect the procurements for a default service for the utilities. Pennsylvania's already unique, because you've seen something in PPL that you've not seen anywhere else in the country, where you saw over three hundred thousand customers switch in two months.
That's what you see with one aggregation program. 135 So I woul d thi nk i f there were concerns from wholesale suppliers, they should be really nervous right now, if they're concerned about aggregation, because they've already seen regular sign-up customers take away more customers than you see in a typical aggregation program.
In fact, in an aggregation program, t he y'r e go i ng t o k no w t he t i mi ng. They're going to know when the opt-outs are going out.
They're going to know that on X-Y-Z date the opt-out ends and there's going to be an influx of enrollments. So I would say they get more certainty out of these programs than they do in just the regular sign-up choice type of ma r k e t .
So, that said, as I said, I 'm always available for questions. I do consider myself an expert in this area because I did get to help develop these.
Just to touch on some of the things that you've already heard over and over again,
I was in -- I was at Dauphin High School for a town hall meeting on Monday night. And one of the things you've heard today is opt-out 136 aggregation helps customers who don't know how to take that next step to shop. We had two people get up and say, "I don't have access to the Internet. I don't want a call twenty different suppliers. I want someone I can talk to in person. I want somebody to help me make this decision."
And that's what these programs can do. They can help people like that.
So thank you again.
MR. HUDSON: Good morning,
Mr. Chairman, Representative Godshall, members of the committee. It's great to be before this committee.
As the chairman alluded to, I have appeared before this committee several times over the last few years, talking about the benefits of choice and competition. Glad to be back here today.
As an i ni t i a l mat t er, I 'd jus t l i ke to applaud the committee for its very deliberate and open process in dealing with this issue.
Chairman Godshall mentioned that we don't do things here in Pennsylvania the way 137 they do down in D.C. And I found that to certainly be true, and I think if the politi cians in D.C. followed the type of proces s that this committee does, we'd all be the much better for it.
So it's always a pleasure to work for this committee.
I'd li ke to start by jus t describing what ConEd Solutions is. We're a competitive retail electricity supplier, much like Direct
Energy. For the sake of clarity, I'm here today to testify on behalf of ConEd Solutions, which is a separate legal entity from our parent company, which is ConEd, ConEdison
Energy, I ncorporated, which is also the parent company of ConEdison Company of New York, which is the local utility in New York, and ultimately the parent company of Pike County
Electric, which is a public utility here in
Pennsylvania.
So while we like those guys, they're our sister companies, I'm here today to testify on behalf of ConEdison Solutions, whi ch, as you're aware, we've been a very active participant in the market here in 138 Pennsylvania.
We were very pleased to have both chairmen of this committee at our event to announce our entry into the residential market. And we hope some of you or your friends and colleagues and staff are our customers now. We're very excited and proud to be serving several thousand residential customers here in the PPL area.
As an ini tial matter, we support in concept the notion of opt-out municipal aggregation. As has been mentioned earlier, customer inertia is a very powerful force to overcome, and we think opt-out municipal aggregation is a tool to provide customers that otherwise wouldn't go out and shop for electricity service the opportunity to benefit from lower prices and more innovative products and services that the municipal supplier could pro vide.
The PPL example has been cited a lot here today. By any measure, 26 percent of customer shopping just two caps -- two months after the expiration of rate caps is a success story. But the flip side of that equation is, 139 there's s til l about 75 percent of customers that are still with PPL, despite the very strong economic incentives to choose another supplier. And I think this highlights the fact that, despite these strong economic incentives, many customers are still slow to make t he s wi tch.
As a famous quote goes, People aren't really logical; they're psychological. And this is an -- a proof point of that.
You've heard a lot about this issue of customer inertia. I f you're bored one night, I would encourage you to go on the
I nternet and look up a lot of the scientific stu die s t hat ha ve bee n d one ar oun d h uma n behavior and how people make decisions when there is a default option.
Numerous scientific behavioral studies have shown that if you give customers or people a default option, they will overwhelmingly choose the default option, despite a lot of logical reasons to choose an alternative. This is just human nature and it's natural.
And, unfortunately, because electric 140 restructuring put the electric utilities in the role as the default service provider, we've inadvertently created a situation here in Pennsylvania where the default option is, right now, a higher cost option for customers, and municipal opt-out aggregation is a way to help deal with that problem.
Now, with that said, I did want to shift gears a little bit and talk about some changes that I think are really important to the draft legislation. And I'm very happy we're pursuing open and deliberate process to talk through some of these details.
Fi rs t and foremos t, I thi nk i t's critical that any municipal opt-out aggregation program should not lock customers into a contract with the municipal aggregation supplier, whether it's three years, whether it's ten years, whether it's one month.
Customers should not be locked in to take the service from the municipal aggregation supplier.
And the reason for that is, is that, under an opt-out aggregation program, customers are not affirmatively choosing the 141 supplier, the price, the terms or the conditions of the service. It's really public policy initiatives enabling the municipality to make some of these decisions on behalf of customers that aren't making those affirmative choices for themselves.
So I do think it's fundamentally inappropriate for a municipality to try and lock customers into a contract that the customer has really know knowledge of in some instances, despite best efforts to provide customer education and a good opt-out process. It's just fundamentally inappropriate to lock customers into a contract under a municipal aggregation program.
And I can guarantee you, if legislation on this topic does not have explicit language prohibiting a municipal aggregation supplier from locking a customer into a contract, you'll live to regret it.
And the reason for that is, just imagine going into a Verizon Wireless store.
You want to change your cell phone service.
Yo u wa l k i n t o a Ve r i z o n Wi r e l e s s s t o r e . Y o u 142 go up to the customer service representative, and you say, you know, "I don't like my existing cell phone provider. I 'd like to see what options you have."
They give you a great phone, brand- new iPhone or whatever the nifty phone is, really good deal. It's 10 percent less than you're currently paying to AT and T wireless, a nd "S i gn me up."
You go to sign up, they type it in to the computer, and the clerk tells you, "I'm sorry. You local government signed you up for a contract with AT and T wireless," and you're stuck with them with that old, crappy phone and paying 10 percent more than you were before for the next three years.
Obviously, no one wants to be in a situation like that. And the commonwealth of
Pennsylvania shouldn't allow a situation like that to happen, in my opinion. And I speak as a representative of a company that is involved in municipal aggregation programs.
As Sonny mentioned earlier, we are the provider to the Cape Light Compact in
Massachusetts, which is a very successful 143 municipal aggregation program. And under that program, we do not lock customers into a contract because they're free to switch and take s ervice from another provider. Because after all, that was the intent of the electric choice competition act. And we shouldn't take any actions to take the choice out of customer choice.
That's reall y t he big is sue that I wanted to touch on. There's a couple of smaller additional details that I think we should look at. One's been mentioned earlier, we should try and define what "small commercial customer" means. The draft legislation doesn't do that.
I 've offered some language in a proposed mark-up of the draft legislation that would define "small commercial customers" in accordance with the existing default service plans that are already approved by the commission that allows for some degree of variation from utility to utility, because currently there isn't uniformity. And I think a lot of the EDCs have supported having sort of different rules for how they define their 144 customer groups.
Secondly, there really should be a very strict quality control measure under municipal aggregation program to make sure that customers that are under contract with an existing electric generation supplier and customers that did sign opt-out notice are not inadvertently enrolled in the municipal aggregation program.
The draft bill has some language to this effect. I think it should be tightened up a l ittle bit, and I think as part of any municipal aggregation program, the aggregation supplier and the municipality should be required to develop a comprehensive quality control plan to deal with these issues.
Along with that, the municipal aggregation supplier should not provide the opt-out notices to customers that are under contract with an alternative electric generation supplier already. So if you've already made your choice, and you've selected a supplier, you shouldn't receive the opt-out notice, number one, because you're ineligible to participate in the opt-out program, and, 145 number two, it just creates a lot of customer confusion, as some other folks have testified to today.
That covers most of the issues that I wanted to address. I think this is an important tool. And I'm glad we're having this process to look at these issues.
I think the issue that I mentioned earlier is critically important, making sure that we don't lock customers into a municipal aggregation program they didn't affirmatively select. So I think that customer freedom is something that we should seek to maintain.
But with that said, I 'm happy to answer any questions. I thank you, again, for the opportunity to be here.
CHAIRMAN PRESTON: Representative
Perry.
REPRESENTATI VE PERRY: Thanks,
Mr. Chairman.
My question is for Teresa. I just want to make sure I understand you clearly.
With your experience, you're saying that you would be in favor of the legislation dictating the terms of notification, i.e., three letters 146 or -- and I 've done some business in utility services industry, and each client that I deal with, sometimes they want, you know, three letters and a phone call and a door hanger and then the next one doesn't want anything, so jus t go out and do it.
So I want to make sure I understand, from your experience, what you're advocating.
MS. RI NGENBACH: What I'm advocating is that the legislation be clear that the commission put together rules on what should go into these plans or how the program should be run and what should be included, at a minimum, in an opt-out notice.
So -- and that includes, should there be a welcome letter before the -- or after the opt-out period, and those shall go into rules. I think the commission is experts in this area, because they've already done it for just the regular signing up of choice customers. And I think they would be in the best position to sort of make sure that consumer protections that are already in place are implemented for opt-out programs also.
REPRESENTATI VE PERRY: Okay. So it's 147 the legislation would enumerate that the commission's responsibility is to provide the details of notification, et cetera, in the package.
MS. RINGENBACH: Yes.
REPRESENTATI VE PERRY: Okay.
Thanks.
CHAIRMAN PRESTON: Thank you.
I do want to say, Mr. Hudson, always good to see you. I always think about it because I worked with Direct Energy. When I first met you, you were president of a company, and now it's been bought by Direct
Energy, so it must say an awful lot about what you built. And, like I said, it was a new ind ust ry at tha t t ime .
So look forward to working with you and the consortium here, and also glad that -¬ people don't realize that Direct Energy is a multinational corporation and operates in
North America and the United States and has continued to grow and offer their services.
Thank you, gentlemen and lady, for coming. And I'm sure that you have to be careful, because the way it is, I 'm sure other 148 companies are looking, and that's what we need. So let me know if you want me to negotiate your contract.
Thank you.
Next we have Edward Troxell, the director of government affairs from the
Pennsylvania state borough's association.
And as he comes forward, I think we've had a chance to be able to see the mixture of the testimony, and I look forward to, as you've already heard me say, that when we do this, we will be coming and we will want to meet s eparately from township, borough, local elected official, and I think that's necessary sometimes so people don't have the preconceived ideas. And I wanted you to know that we'll do the general public just as well.
MR. TROXELL: Exactly. I guess, before I get started, yeah, we are ultimately the end user in this whole thing, so I think it's necessary to give a chance to meet.
But that said, let me kind of go through my testimony with you this morning.
Some of the ideas -- or this afternoon, as a 149 matter of fact.
And so, good morning. Chairman
Preston, Chairman Godshall, members of the com mit tee .
I 'm Ed Troxel l . I 'm the di rector of government affairs for the boroughs' association. I want to thank you for the opportunity to present PSAB's perspective on the municipal aggregation.
Since 1911, our association has represented the nine hundred fifty-eight boroughs of the commonwealth.
Can you hear -- little bit lower maybe? Great. How's that?
Okay. Since 19 11, we've represented about nine hundred sixty municipalities, boroughs, throughout the commonwealth. And what we do with those boroughs is we actually combine, aggregate their voices, and we actually bring to you some of the ideas, some of the issues, some the policy ideas that the boroughs are concerned about.
This is one of those areas where we are going to join together as an association with the other local government associations 150 and share, maybe, some ideas what are the best ways to approach municipal aggregation.
Some of the background exactly for our boroughs that they have with energy itself, and also currently in the borough code there is specific language allowing for manufacture, supply of electricity to its residents. There is also extensive language regarding the operation of electric plants and rates to be charged.
These enabling sections of the code have been used by a number of boroughs throughout the commonwealth, thirty-five as a matter of fact, to provide electricity to their residents.
Lastly, it should be noted that these provisions in the code are quite comprehensive, and, in fact, they include distribution, transmission, as well as potential generation of electricity.
However, today, we're looking at -- a very simple portion of it is electric generation itself and aggregating it alone for our communities.
So, with that said, there's about 151 four basic ideas, and I'm sure there's more that -- I 've heard more this morning, and we can kind of morph as things go along, but four things that are important to the association and local governments.
I have a list here. One is the inclusion of municipal accounts in aggregation agreements; secondly, mandatory public hearings on the intent to aggregate electricity needs, which is more for the consumer's sake; clear guidelines on geographic constraints for aggregators, the borders, et cetera, that we talked about; and also, concise language exempting consumers that are served by already existing municipal and cooperative electric providers, you know, some of those boroughs that already provide electricity, et cetera, areas like that.
Under the inclusion of municipal accounts, I've enumerated here that enabling our municipalities to include their accounts in the aggregated agreements is probably going to be vital; have to be included in the final product. There's several reasons, the benefits to be gained by doing this. I t will 152 be lowering the cost of operating local governments as well.
I tems include things like street and traffic lighting, sewer and water treatment, municipal building electric needs as well as pol ice an d f ire se rvi ce fac ili tie s a ll cou ld lower their costs as well if they're able to participate within the aggregation.
The inclusion of these accounts not only saves the municipality money, it reduces the need for municipalities to pass those costs on to consumers, the taxpayer. Add these energy savings in the municipality to the savings of the participating customers of the aggregation agreement itself and you realize a win-win.
Unfortunately, under the current draft language, electric consumers other than residential or small commercial are excluded from the enrollment in the municipal aggregation. I would have to say that there mus t be a measured benefit to the municipality to assume the responsibilities of the licensed aggregator, so we would insist to have language inserted where we could actually put 153 in these municipal accounts. We find that actually one of the major areas we want to pursue.
Also something that we'd like to have included under the mandatory public hearings on intent, for the benefit of potential consumers and to provide information to the public in a timely fashion, PSAB would recommend that language be incorporated stipulating at least one public hearing prior to the adoption of an ordinance establishing municipal aggregation.
In today's highly charged, informati on-hungry society, it only makes sense to notify and seek the input of local residents in our municipalities. And we all know how we're dealing with the press and stories like that, and something like this is a pretty major move by our communities, so we would really even probably go over and above those mandatory hearings.
As the draft language doesn't require -- I mean does require passage of an ordinance prior to applying for an aggregation license, we believe including the requirement 154 for a public hearing to be a welcomed measure of protection. We have vast experience with municipal ordinance procedures, and while there is a public comment period put out there, thirty-day time period, we all know what happens really. I mean, sometimes things get out there and the advertising process, like I mentioned earlier, really needs to be beefed up for us.
I'll just go through the clear guidelines on geographic constraints. One of the questions that we had was basically -- I know within the draft, I believe we mentioned something about counties being a municipality for an aggregator. And we're kind of concerned basically there, what if we have a municipality smaller, like boroughs or couple boroughs, that have already aggregated, and let's say a county wants a move into the municipal aggregation business. What do we do in that case? Who's opted out, et cetera?
You know, these are things we're going to have to look at eventually.
And, l astly, I have under here concise language exempting consumers served by 155 cooperatives. That's also another one of those areas that folks that are already being provided the energy, that would be extremely helpful to them.
So in my conclusion, I just want to say that and history demonstrates that PSAB and its member boroughs have sought a variety of solutions for our community's energy needs. Boroughs have owned and operated energy assets for decades.
I'd just like to say, the first nuclear power plant was built in a borough, in
Shippingport. So we're kind of proud of that fact. And today, as we address the potential for the aggregation of our electricity, we look forward to develop effective language that will benefit our communities as well as benefit our taxpayers as well as the consumer.
Thank you.
Available for any questions.
CHAIRMAN PRESTON: Thank you.
I just want to be able to say to you, and I understand that. It's very important, because I 've watched it happen. 156 And, again, I 'm encouraging people not to have an opinion just exactly for or against. Let's listen and let's see what we can try to do and -- as far as the consumers are concerned, especially the small bus inesses, that we want to be able to look at, to be able to give them and make
Pennsylvania more competitive, but, yet, at the same time so that businesses do grow and be provided service to the municipalities and the boroughs and the townships.
I represent two boroughs myself,
Aspinwall and Wilkinsburg, and we're concerned about that just as well. You know, in
All egheny County, we have one, they don't have any street lights except for corners. They don't have sidewalks. But in some of the older boroughs where you have the sidewalks, they have street lights. So they're concerned about their utility consumption just as well.
So I t hink we need to be able to work with us together.
MR. TROXELL: We look forward to working with the committee on the language. I mean, it's a great idea. Some of the concepts 157 I heard from the earlier panels -- I 'm sorry,
I was a little bit late -- but, you know, those consumer protections need to be there.
But I do want to stress that this is a win-win. I t can cut down the municipal cost of operating local government. I think that saves the local taxpayer money as well as saving the consumer on the bargain that he ma k e s .
S o thank you very much.
CHAIRMAN PRESTON: Thank you very much. Appreciate it. And for the audience and for the businesses and the citizens out there in the general public who will be seeing this over the next couple of weeks on the PCN channel, just as well.
And if there are any members who are especially interested, you can contact PCN itself and wind up getting a CD, a copy of the public hearing just as well here instead of just the -- along with the written testimony.
So with that being said, thank you very much. And we are adjourned.
(Whereupon, the hearing concluded at
12:16 p.m.) 158
* * * * *
WRITTEN TESTIMONY SUBMITTED
(The following letter has been submitted by Pennsylvania Municipal Electric
Ass oci ati on.)
Dear Chairman Preston:
As the President of the Pennsylvania
Municipal Electric Association (PMEA)1/, I am writing to provide our organization's comments with regard to your draft legislation on municipal electricity aggregation. We appreciate this opportunity to give you our input on this important legislation, and we request that the remarks and requested changes bel ow be i ncl uded i n the record of the upcoming scheduled hearing on this subject of the House Consumer Affairs Committee.
PMEA is the trade association representing the interests of its member boroughs in Pennsylvania which own and operate municipal electric distribution systems.
There are 35 of thes e bo roughs i n our 159 Commonwealth, which have for many years provided reliable electric distribution and generation service to the residents and businesses located within those boroughs, under the authority granted by the Legislature in The Borough Code. The rates and practices of those community owned electric systems are directly regulated by their respective Borough
Councils, and thus are directly controlled by the consumers which they serve. Each of these
35 boroughs purchases its generation supply at the lowest available rates from wholesale providers, and thus each acts as an aggregator of electric generation service for its citi zens .
PMEA generally supports the concept and approach of authorizing municipal electricity aggregation set forth in the draft legislation, which your staff has provided to us. 2/ Based on our members' many years of experience as electric distribution providers and municipal electric generation service aggregators 3/, we have found that the economy of scale benefits which are achieved by municipal aggregation provide an effective 160 means of controlling electric costs, along with the benefits of local ownership and control. With the addition of the two clarifying changes suggested below and set forth in the attached, PMEA would therefore support the legislation.
PMEA Requested Changes to the 2/16/10 draft Municipal Aggregation of Electric
Generation Supply legislation
The following are PMEA's requested changes to the draft bill, which are also reflected on the attachment to this letter:
[1] We note that the draft legislation provides, at the newly added
Section 2 8 0 6.3(c)(4)(vi) of Title 66, for the exclus ion from enroll ment i n muni cipal aggregation for "...loads served by a municipality that owns and operates its own electric distribution system." 4/ This is of course appropriate, since the 35 borough owned and operated electric distribution systems already function as electricity aggregators for their citiz ens. At page 1 1 , line 1 4 of the draft, we recommend to replacing the words
"loads served" with "end-use consumers served 161 or authorized to be served". The word "loads"11 is not defined in the bill, and this PMEA proposed change is consistent with the phrase used earlier in the same sentence of the draft bil l. Al so, the currently wording of this exclusion in the draft bill possibly could be read to mean that only present consumers served by the 35 PMEA member boroughs are excluded from enrollment in the municipal aggregation, making it ambiguous as to whether future consumers located within these 35 boroughs are likewise excluded. Thus, we believe that clarification of the language is appropriate.
[2] At the end of the sentence at page 17, line 3 of the draft bill, we request including the phrase, "; provided however, that such education materials shall not be provided to end-use consumers served or authorized to be served by a municipality that owns and operates its own electric distribution system". This addition is important to avoid confusion for consumers within the 35 PMEA boroughs. For example, after the 1996 Electricity Generation Customer 162 Choice and Competition Act (Act) went into effect, we found a number of instances where consumers in the PMEA member boroughs received marketing materials which were inadvertently sent by electric generation suppliers, even though the Act excluded those consumers from competition. We believe that this addition is prudent to avoid the type of consumer confusion which our member boroughs experienced previously.
On behalf of our member boroughs, we appreciate your consideration of these requested refinements to the draft legislation, and we hope they can be included in the bill when it is introduced.
Should you, your staff or others have questions or desire further information please feel free to contact me (724-452-6610), or our counsel, Tony Adonizio (717-730-2052). Thank you for your consideration.
Sincerely yours, Donald Pepe,
President, PMEA, and Borough Manager,
Zelienople Borough.
(This concludes the letter submitted by Pennsylvania Municipal Electric 163 Association. The content was not altered to correct any errors in spelling, grammar, or punctuation.)
* * * * *
(The following letter has been submitted by Duquesne Light Company.)
BEFORE THE HOUSE CONSUMER AFFAIRS
COMMITTEE, MARCH 3, 2010, MUNICIPAL
AGGREGATION OF ELECTRIC GENERATION SUPPLY
Duquesne Light Company provides electric distribution, transmission and power supply service in Pittsburgh and the surrounding area. As an urban utility, its service territory has numerous municipalities, townships, and boroughs. Duquesne is concerned with the effects of the Municipal
Aggregation House Bill on it and its customers and therefore opposes the bill in its current form.
While the theory of aggregation is that a municipality can get lower rates for small customers, Duquesne Light believes introducing municipal aggregation into an electric service territory will increase the 164 costs of providing default service to residential and small commercial customers throughout Pennsylvania. The Electric
Distribution Company (EDC) is responsible for planning and procuring default service for all its customers at the "least cost over time."
This customer migration is a serious risk that results in energy wholesalers who bid on and provide default service energy to add on an additional risk premium. That additional risk premium causes the default service price to increase and will be reflected in higher prices to be paid by customers. Since the default service rate is the base rate that alternative suppliers try to undercut, when default service prices rise, the prices for alternative supply rise with it. Thus the beneficiary is not the customer, but wholesale suppliers who supply both default service and alternative supplies.
The proposed "opt-out" provision is anti-choice. The customers' right to shop for alternative supply is premised on customers having the right to decide and choose their suppliers. Under municipal aggregation, 165 customers do not choose. It is the municipality who decides who will supply all the customers in the municipality ( unless a customer affirmatively opts-out, or resigns, from the government-imposed program). The few jurisdictions that have implemented a form of opt-out aggregation program tend to have very little "real" customer retail choice.
Municipal aggregation programs supplied by wholesale suppliers have been used as a substitute to customer choice in the absence of the development of retail markets.
Pennsylvania and Duquesne Light are in a very different situation. Duquesne is one of the top ten utilities in the United States in terms of having the highest level of retail load shopping with competitive suppliers.
Given that most utilities in Pennsylvania are just beginning to come off of long-term generation rate caps and move toward market- based pricing, Duquesne Light believes it is premature to subvert retail competition in favor of a program that simply assigns customers to wholesale suppliers.
Municipal aggregation as proposed 166 will create new stranded costs of utilities.
Electric utilities are required to provide least cost default service power supply for all customers and to be ready, willing and able to provide that service. The electric utility oftentimes procures the power it needs to supply that obligation prior to the time the power is needed. Most utilities buy their supply years in advance of delivery so that customers are not subject to the volatility of spot market prices which can j ump quickly, excessively, and without warning. Municipal aggregation and the loss of load to the default service provider introduces a high risk of stranded power supply costs since much of the default service supply has already been purchased by the supplier to serve the default service load. This legislation, which is to take effect in 60 days after approval, does not protect the utility or other default service suppliers from the purchased power costs it has already incurred and committed to under contracts for its customers due to its obligation to provide such service.
I n summary, Duquesne believes that 167 the Municipal Aggregation House Bill should not be passed as proposed. It will increase costs for default service supply by increasing the risk of such service and will undermine retail customer choice. Electric customer choice legislation was passed by the
Legislature in PA in 1 9 9 7 --- without municipal aggregation. Such legislation is not needed, and customers already have the right to choose and are not requesting that municipalities make that choice for them.
Duquesne Light appreciates the opportunity to present its views.
Respectfully Submitted, Duquesne
Light Company, March 3, 2010.
(This concludes the letter submitted by Duquesne Light Company. The content was not altered to correct any errors in spelling, grammar, or punctuation.)
* * * * *
(The following letter has been submitted by Dominion Retail.)
PENNSYLVANIA MUNICIPAL AGGREGATION
LEGISLATION Before the House Consumer Affairs 168 Committee
Dominion Retail (DR) is a licensed electric generation supplier (EGS) in
Pennsylvania with offices in both Pittsburgh and Richmond, VA. DR currently serves about
370 ,00 0 Pennsylvania retail electric customers, primarily residential, and over
130,000 retail natural gas consumers.
DR has generally supported municipal aggregation programs when properly designed, whether opt-it or opt-out. DR has been actively supplying municipal aggregation programs in Ohio for almost 10 years.
Municipal aggregation programs can be effective and valuable education tools to help consumers learn about electricity supply alternatives, to save money, and/or attain price stability when they otherwise might not have the time or expertise to research and select an electric generation supplier on their own.
Municipal aggregation can shift large percentages of customers and their supply requirements from default service to independent contracts. 169 DR has found that many municipal aggregation customers do not realize that are being placed into a municipal aggregation program. Since these customers will not grant their affirmative consent, every municipal aggregation customer contract should be easily cancelled at any time with no fees.
DR has the following comments on the proposed legislation;
DR strongly recommends that under
Sec. 6103 "Grant of Authority" that the interested municipality hold elections, as they do in Ohio, which require that a majority of the local voters must authoriz e their municipality to act as an aggregator, thereby adding to the legitimacy of the aggregation process. Furthermore, in the event of a conflict between political sub-divisions as to which has power to authoriz e an aggregation program, it shall be deemed to be the smallest sub-division closest to the citizenry.
Secondly, once the municipality has received authorization to act as an aggregator, it is crucial that the selection of an electric generation supplier be done in 170 an open, transparent manner that ensures public integrity and confidence in the process and also ensures that the local voters/consumers receive the best offer available. We recommend that in Sec. 2806.3,
"Municipal Aggregation of Electric Generation
Supply" ( c) "Opt Out Municipal Aggregation", that language be added stating that the
Municipal Aggregator be "subject to all applicable procurement provisions of the relevant municipal code."
Furthermore, in this same section, under (a) Licensing and (b) Ordinance required, it is not appropriate that a municipality be licensed as an electric generation supplier, because their role is clearly not that of an EGS, and because of the geographic limitation to their activities.
Nonetheless, as Municipal Aggregators, their activities should be subject to PUC regulation because they will be impacting large numbers of customers in an opt-out switch situation.
Similar language revisions should also be made in Sec. 2803.
In Section 2806.3(d) Notice and 171 Opt-out Procedures(1) (iii) and (1 )(iv), it is recommended that aggregation customers not be subjected to penalties should they decide to leave the program, at any time, or if they move outside the Municipal Aggregator's geographical boundaries. If the aggregation program is being created and implemented for the benefit of the municipality's residents, they should be allowed to leave the program at their convenience, not be potentially
"trapped" into some type of long-term contractual arrangement, that would prohibit them from affirmatively selecting a supplier.
I t is important that municipal aggregation not negatively impact the intent of the original legislation to have each customer select their own supplier.
In this same section (2806.3), but in sub-section (d)(4)(i)(b), the list of customers residing within the boundaries of the Municipal Aggregator that is provided by the electric distribution company (EDC) to the
Municipal Aggregator should simply not include customers who are "under contract with an electric generation supplier or in a special 172 arrangement with the electric distribution company." Instead, the Municipal Aggregator should receive a list of those residents who are eligible to participate in the aggregation program. Providing this additional proposed identification risks anti-competitive behavior and possible breach of another supplier's contract with existing customers.
Also in this same section (2806.3), but in sub-section (d)(4 )(ii), we recommend that the Municipal Aggregator distribute its opt-out notices within 45, rather than 30, calendar days of the date the list is received from the utility. Based on our experience, the extra 15 days provides much needed administrative time, in particular, to prepare an accurate list of recipients within the municipality.
Under Section 2806.3(d)(5) Notice of
Municipal Aggregation and opt-out notice (ii): consumers who are inadvertently included within the aggregation, whether they are ineligible or have opted out, would be switched back to the consumer's previous supplier at no cost and be reimbursed for 173 financial loss if they incurred any. In the interest of administrative fairness, we recommend that such consumers be required to notify the Municipal Aggregator within 60 days of such error so that such liability to the aggregator would not be extended indefinitely.
Under Section 2806.3(e) Duties of electric distribution companies and a new sub-section ( f) Duties of commission: The proposed language would grant the electric distribution company full and current cost recovery of all expenses related to municipal aggregation by means of a non-bypassable charge to all residential and small commercial customers on the utility's system. This sentence should be deleted with the issue of cost recovery instead be subject to review by the PUC as explained in the new subsection
(f). In addition, the PUC would also be authorized to establish municipal aggregation market share load caps for electric generation suppliers within a specific EDC territory
(e.g. 25 percent), to review municipal aggregation program implementation dates, financial security requirements for EGS and 174 Municipal Aggregators, efforts to minimiz e negative disruption of existing customer choice programs, enrollment rules for EDCs concerning the identification of customers participating in municipal aggregation programs as it relates to EDC record-keeping, budget billing, and other matters that the
PUC believes are related to municipal aggregation programs.
(This concludes the letter submitted by Dominion Retail. The content was not altered to correct any errors in spelling, grammar, or punctuation.)
* * * * *
( The following letter has been submitted by Constellation Energy Commodities
Group, Inc.)
Comments to the House Consumer Affairs
Committee On Municipal Electricity
Aggregation, March 3, 2010.
INTRODUCTION
Pennsylvania has been a leader in electric choice and competition for over a decade. The Commonwealth's efforts — through 175 laws and the Public Utility Commission's
(Commission) implementation of such laws -¬ have led to robust competition to serve the
Default Service supply requirements of utilities through well-developed wholesale supply structures, providing competitively- priced Default Service for those customers who choose not to or otherwise do not take service from retail Electric Generation Suppliers
(EGSs). Additionally, the competitive retail market is working well in those service territories that have come out from under rate caps. For instance, PPL Electric Utilities
Corporation has identified that, in its service territory alone, over 250 ,00 0 customers have chosen competitive retail supply from an EGS in the two months in which the caps have expired ( over 24 9 , 0 0 0 of which are residential or small commercial customers). It is against this backdrop that the General Assembly should consider any proposals intended to increase the number of customers being served by EGSs in the
Commonwealth.
As we understand it, the committee is 176 considering a structure through which a municipality's residential and small commercial customers may be bundled together in order to seek supply from a single EGS, a structure commonly referred to as " Municipal
Aggregation." More specifically, since the residential and small commercial customers would be automatically enrolled in the
Municipal Aggregation program unless they affirmatively 'opt-out' of such service, this structure is also referred to as "Municipal
Opt-Out Aggregation."
Constellation Energy Commodities
Group, Inc. (CCG or Constellation) appreciates the opportunity to provide Comments to the
Committee. Through these Comments, CCG highlights some of the challenges and issues surrounding Municipal Opt-Out Aggregation when it is implemented in jurisdictions where a
Default Service framework is already in place.
BACKGROUND OF CONSTELLATION
CCG is a wholly owned subsidiary of
Constellation Energy Group, Inc, a Fortune 50 0
North American energy company with several other subsidiaries, including electric 117 generation suppliers, merchant generation subsidiaries and a regulated utility subsidiary, Baltimore Gas and Electric
Company. CCG is a power marketer focusing on serving wholesale power needs of utilities, co-ops and municipalities that competitively source their load requirements. Constellation has been an active participant in the
Commission's proceedings to establish Default
Service Plans (Plans) for the Commonwealth's utilities, and has been active in bidding to supply utilities' Default Service supply requirements under the Plans resulting from an approved by the Commission in those proceedings.
COMMENTS ON MUNICIPAL OPT-OUT AGGREGATION
Electric utilities are required by
Pennsylvania law to provide Default Service, whi ch includes the full requirements of wholesale energy supply products necessary to meet all electric supply needs of such utilities' respective retail customers, who do not or cannot purchase their electric supply from competitive EGSs. The provision of
Default Service in the Commonwealth is 178 governed by certain laws and regulations, and structures for individual Default Service
Plans vary for each utility. Many of these
Plans for Default Service procurement have already been approved by the Commission, have begun and are continuing their supply procurements, and have resulted in robust competition from wholesale suppliers bidding to serve Pennsylvania's utilities' load requirements at the lowest costs.
Under Municipal Opt-Out Aggregation, all residential and small commercial customers in a particular municipality within a utility's territory are bundled together and required to take their service pursuant to a
Municipal Opt-out Aggregation program, and are served by a single EGS, rather than through the utility's Default Service that is supplied by a diverse array of wholesale suppliers.
However, even where Municipal Opt-Out
Aggregation is in place, the utility would still be required to provide some form of
Default Service to customers in the municipality's Municipal Opt-Out Aggregation program, either for customers who opt-out of 119 the program or in the event such a program fails or ends. As a result, while the
Municipal Opt-Out Aggregation program essentially becomes the "default" product for such customers, the utility's Default Service remains their "last resort" service.
Constellation emphasizes in these comments that, as a result, the creation of
Municipal Opt-Out Aggregation programs under current, well-established Default Service structures in place in the Commonwealth will impose significant risks to existing Default
Service structures -- risks that will be borne by customers, utilities, and Default Service suppliers. Constellation recommends herein that, if the General Assembly adopts legislation to allow for the creation of
Municipal Opt-Out Aggregation programs, such new policies should not alter existing
Commission-approved Default Service Plans, and the risks inherent in such policies should be considered and addressed with respect to any future Default Service Plans.
Municipal Opt-Out Aggregation Substantially
Alters the Commonwealth's Default Service 180 Framework and Presents Significant Risks
Municipal Opt-Out Aggregation substantially changes the nature of each utility's Default Service. For instance, problems arise in the scenario in which a utility uses a Commission-approved Default
Service Plan that relies on full requirements procurements -- as is the case for almost all of the Commonwealth's utilities — under which the utility holds competitive procurements for wholesale suppliers to serve a 'load- following' percentage of the utility's Default
Service supply requirements. Wholesale suppliers bidding to serve a utility's Default
Service supply requirements under such a
Default Service Plan understand, accept and account for the fact that the utility's load will change as customers at their own election choose to leave Default Service for competitive retail supply from an EGS, and that such individual customers may at some point in time return to Default Service.
Municipal Opt-Out Aggregation, however, fundamentally changes the patterns and ways in which customers both leave and 181 return to Default Service. If the General
Assembly established Municipal Opt-Out
Aggregation policies (or if it seems that such policies are likely to be implemented in the near term) , bidders in procurements under
Default Service Plans already approved by the
Commission will recogniz e and account for the significant load variability differences that
Municipal Opt-Out Aggregation programs present with respect to serving a portion of a utility's Default Service supply requirements.
In order to address such differences, wholesale suppliers may either limit their participation in Default Service procurements or else account for the increased risk of large-scale declining and returning load under
Municipal Opt-Out Aggregation through additional premiums in their bids. Reduced participation and/or additional premiums will lead only to less competitive Default Service procurements with less competitive Default
Service bids, to the detriment of utilities'
Default Service consumers. Higher Default
Service prices will be paid by all Default
Service customers, even though all 182 municipalities may not have implemented or do not plan to implement Municipal Opt-Out
Aggregation programs.
In summary, the implementation of
Municipal Opt-Out Aggregation represents a new
"default" product for certain municipalities' customers that will increase the costs of utilities' statutorily-mandated Default
Service product for all customers. For all of these reasons, Constellation urges the
Commonwealth to carefully consider the risks associated with Municipal Opt-Out Aggregation, and address them appropriately if such policies are approved. Specifically, if
Municipal Opt-out Aggregation is implemented, the Commonwealth should take steps to ensure that the timing of any newly-created Municipal
Opt-Out Aggregation program will not affect existing Commission-approved Default Service
Plans and/or already-executed contracts under
Commission-approved Default Service Plans.
Additionally, the existence of any Municipal
Opt-Out Aggregation program must work within the framework, timing, and aspects any future
Default Service Plan. For instance. 183 specifically with respect to such future
Plans, the General Assembly should enact measures that allow for the exclusion of any customer load included in a Municipal Opt-Out
Aggregation program from any Default Service procurements and supply for all other customer load within a utility's territory.
CONCLUSION
Constellation looks forward to working with the General Assembly, the
Commission, the Commonwealth's utilities, customer representatives, and EGSs to address these complicated and challenging issues in order to ensure that Pennsylvania remains a leader in competitive market development which inures to the benefit of all Pennsylvanians.
Respectfully Submitted, Divesh Gupta,
Senior Counsel, 111 Market Place, Suite 500,
Baltimore, Maryland 21202, (410)470-3158, [email protected], on Behalf of
Constellation Energy Commodities Group, Inc.
(This concludes the letter submitted by Constellation Energy Commodities Group,
Inc. The content was not altered to correct any errors in spelling, grammar, or 184 punctuation.)
* * * * *
THIS CONCLUDES ALL WRITTEN TESTIMONY SUBMITTED
* * * * * 185 REPORTER'S CERTIFICATE
I HEREBY CERTIFY that I was present upon the hearing of the above-entitled matter and there reported stenographically the proceedings had and the testimony produced; and I further certify that the foregoing is a true and correct transcript of my said stenographic notes.
BRENDA J. PARDUN, RPR Court Reporter Notary Public