STATE OF VERMONT
PUBLIC SERVICE BOARD
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:
INVESTIGATION INTO THE REFORM OF : Docket No. 6140
VERMONT’S ELECTRIC POWER SUPPLY :
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COMMENTS OF VERMONT ELECTRIC COOPERATIVE
The Vermont Electric Cooperative, Inc. (“VEC”) submits these comments in
response to the Public Service Board’s (“PSB” or the “Board”) order dated December 23,
1998. In that order the PSB invited participants in the docket to comment on the
sequence of events set forth in various filings regarding how to proceed with this Docket.
In its December 11, 1998 Order, establishing three technical hearings for January,
the Board also proposed several other topics for discussion. One of these topics was the
“Voluntary Opening of Utility Service Areas to Competition.” For the past nine months
VEC has been investigating the feasibility of doing just that. Hence, we are in a unique
position to offer comments on this topic.
The first section of VEC’s comments provides an overview and update of VEC’s
investigation into the voluntary opening of its service territory to competition before such
opening occurs in the rest of the State. The second section is designed to provide
additional comments and observations on restructuring. These discussions help lay the
foundation for the third section, which provides suggestions on the sequence of activities
that should be undertaken in Docket 6140 from this point forward.
If you have any questions or comments, feel free to contact Kelly McKenna,
VEC’s General Manager by phone at 802-635-2331, or e-mail at
kmckenna@kmck546869@aol.com. You may also contact Craig Kieny of VEC at 802635-2331 or through e-mail at the following address: kieny@together.net.
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I.
OVERVIEW/UPDATE ON VEC’s INVESTIGATION
In the spring of 1998, the VEC began investigating the feasibility of
implementing customer choice in its service territory prior to any state mandate to do so.
VEC’s membership signified its support for this investigation by approving
overwhelmingly a bylaw amendment permitting VEC’s Board of Trustees to enact
consumer choice.
VEC saw several potential benefits that might accrue to its members from the
implementation of this choice. The immediate benefits could include the following:

Members gain simply by having a choice to choose;

Members could either save money by switching suppliers or be assured that they
are receiving electricity from VEC at a fair price; and

Members would have the opportunity to promote the use of renewable resources
or other goals by selecting service packages that are not available now, if they
desire.
On the other hand, if VEC determined it was not in the best interests of its
members to offer choice on its own, the membership would still receive valuable benefits
from the investigation. With retail choice expected to receive considerable discussion in
the 1999 legislative session and at the PSB in various dockets, VEC would be in a
position to provide much more meaningful input into discussions at the state level than if
it had conducted no investigation.
A.
VEC’S PLAN OUTLINE
VEC began its investigation by developing an outline of a plan that conforms as
closely as possible to the PSB Order in Docket 5854, dated December 31, 1996 and
Senate Bill 62 as passed by the Vermont Senate in 1997.
We summarize the highlights of the plan as follows:
i.
GENERAL
Members will be able to purchase their retail electric service from any supplier
who is deemed qualified to operate in the service territory. The right to choose will be
offered to all members effective at the same time.
VEC will distribute the electricity that its members purchase over its system of
poles and wires. All members will be billed for this service on a cents/kWh rate for their
entire monthly kWh consumption. Included in this charge will be the cost of Green
Mountain Power, Central Vermont Public Service, Citizens Utilities and VELCO
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transmission plus New England Independent System Operator (“ISO”) expenses.
Suppliers will be responsible for transmission charges to the New England transmission
grid.
ii.
ENERGY EFFICIENCY
Until the implementation of a statewide efficiency utility or some other delivery
mechanism, VEC will continue to provide demand-side management services to all
members on its distribution system. Any costs incurred by VEC in the design, delivery
or monitoring of these programs will be collected through the VEC distribution charge,
similar to how they are collected in today’s industry structure.
iii.
VEC RETAIL ELECTRIC SUPPLY
VEC will sell retail electricity to any member who: 1) makes a conscious decision
to purchase from VEC; and 2) does not make a decision to purchase from any supplier; or
is no longer served by a supplier. The cost of this supply will be based on the cost of the
power VEC purchases from Northeast Utilities (“NU”).
Stranded costs resulting from VEC purchases from VEPPI and small power
producers (“SPP”) on its own system will be collected through a stranded cost charge
assessed to all members on the VEC distribution system on a cents/kWh basis.
Residential and farm members in the VEC distribution service territory choosing to
purchase their retail electricity needs from VEC will be entitled to a NYPA preference
power credit.
iv.
METERING AND BILLING
At least initially, VEC will be responsible for reading all members’ meters on the
distribution system, regardless of who is providing retail electric service.
If a member remits payment for only a partial amount of the bill, the money will
go toward paying VEC’s distribution charges first, state-imposed wire charges second,
and the retail electric supply third. It will be the responsibility of the retail electric
supplier to collect overdue payments owed it by the member.
VEC will be the only entity with the right to disconnect. However, a retail
electric supplier other than VEC will have the right to discontinue serving a member
upon prior written notice to the member and VEC.
If a supplier decides to discontinue serving a member, the member will have the
option of choosing an alternative supplier or purchasing through VEC. If the member
cannot find a supplier that is willing to service it, VEC will be obligated to serve that
member.
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B.
ISSUES TO ADDRESS
After developing the draft outline of the plan, VEC set out to identify all issues
that would need to be addressed in order to implement choice successfully.
VEC developed its initial list of issues in-house through brainstorming and discussion
sessions. To supplement the list, we researched policies developed by other states that
have passed legislation to implement choice. We also reviewed plans prepared by
utilities that have implemented choice or are preparing to do so and spoke directly to staff
at some of these utilities.
The complete list of issues that VEC identified is too large to include in this text.
Major issues of importance include:

Estimation of stranded costs due to VEPPI and SPP purchases

Billing for stranded costs

Treatment of NYPA preference power in a competitive market

Electronic data interchange

Supplier Certification and Information Disclosure Requirements

Rules on switching suppliers

Hourly load reporting to New England Independent System Operator
We attach a copy of a draft of the current “outline” of the plan as Appendix 1.
That Appendix contains a more detailed list of issues.
NOTE: We present this outline for discussion purposes only. It is
not to be interpreted as VEC’s final position on any of the topics.
Rather, it reflects internal discussions to date and possible ways to
address various issues.
C.
WHERE DOES VEC’S PLAN STAND NOW?
VEC believes that it is in its members’ best interests to implement choice on its
own if it can be reasonably expected to be cost-effective to the membership.1
VEC has an internal working group addressing each of the issues. The tasks
assigned to the group are:
1
Cost-effective means members save at least as much money as must be spent to implement choice prior to
the rest of the state.
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1.
Breakdown each major issue and identify any additional issues that would
need to be addressed to ensure the successful implementation of customer
choice.
2.
Develop as many reasonable alternatives as possible for addressing each
issue.
3.
Select the most appropriate solution for each issue.
4.
Determine whether VEC can cost-effectively implement choice on its
own.
Because the group has not finished its work, we have not yet decided whether
VEC can address all of the issues on its own in a cost effective manner. The areas that
give us the most concern at this point are:

The cost of upgrading our information system to handle data transfers with
suppliers or the cost of hiring this function out.

Ensuring consideration of all viable options.

Labor, information and financial resources needed to install and operate software
necessary for reporting the hourly load data for each supplier to the New England
Independent System Operator on a daily basis.

Labor and information resources necessary for whomever is certifying suppliers
and monitoring information disclosure.

The need to serve our members under the current industry structure at the same
time we are attempting to address the issues of a new industry structure.

The impact of the implementation of inconsistent alternative solutions.
The internal working group expects to have a better idea by mid-1999 of how
much time and money VEC would need to spend in order to implement choice on its
own. At that time we will be able to determine whether continuing to investigate
implementing choice on our own is in the best interests of the VEC members.
Another area of concern that must be taken into account in determining the costeffectiveness of moving ahead alone is how many suppliers can be expected to
participate. VEC is a small market with 80% of its load being residential. In states that
have implemented choice, only a small percentage of residential customers have switched
from their incumbent utility. In addition, there have been considerably fewer suppliers
targeting residential customers than commercial customers. If few or no suppliers other
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than VEC participate, the costs of implementing choice on our own may never be
recovered through member savings.
II.
ADDITIONAL COMMENTS AND OBSERVATIONS ON
RESTRUCTURING
We have learned a tremendous amount in our investigation -- much more than we
could cover in these comments. However, there are several issues that we believe
deserve discussion at this time. We present these below.
OPERATIONAL ISSUES MAY NOT BE GETTING THEIR DUE RESPECT
The majority of talk in Vermont, and in most states, has centered on the need to
lower costs of generation and on the proper parties to pay for the stranded costs.
Unfortunately, our investigation shows this to be only a part of the problem.
There has been little discussion regarding the operational issues and associated
costs involved with implementing choice. Receiving even less attention are the
potentially significant, and largely avoidable, costs involved with implementing choice
hastily.
In its investigation, the most important thing VEC has learned is that the list of
operational issues that must be addressed for a smooth and successful implementation is
larger and more complex than most people realize. Utilities, especially in the
Information Systems and Customer Service areas, will have important issues to resolve.
A handful of states have implemented a version of retail choice in a relatively
short period of time. Although we have no hard data to cite, there are rumors that the
states have spent millions of dollars addressing the issues. The fact that this money has
been spent and customers have the right to choose does not, in itself, mean that the
processes work well. However, it does mean that we can learn from what other states
have done, avoid costly pitfalls and develop an improved process.
At a minimum, we should receive input from companies who have expertise
regarding the complete transition from a vertically integrated utility to a distribution
company whose customers can choose their retail electricity supplier. We can then
obtain a better understanding of the extent of the issues that need to be addressed before
moving to choice. This will also allow us to develop a realistic time frame for successful
implementation.
CONSISTENCY AMONG SERVICE TERRITORIES
Customers in all parts of Vermont must have similar rights and opportunities in
order for competition to be successful. This principle means that many rules, especially
those that suppliers will need to follow or that will affect suppliers, must be consistent
throughout the state.
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From a supplier’s perspective, the existence of different rules among service
territories may make operating in some parts of the state easier than others. This could
cause suppliers to focus their marketing efforts in the parts of the state that are easier to
serve and neglect others. End-users in the neglected parts of the state may be harmed by
relatively limited, or non-existent, competition.
Because Vermont comprises only a very small part of New England
(approximately 5%), the State may want to advocate the adoption of uniform rules
throughout New England. If rules are unduly burdensome in Vermont, we could
implement competition and see many fewer options than those in neighboring states.
Such an outcome would greatly diminish the potential benefits of retail competition.
SOME COST MITIGATION TECHNIQUES CAN BE PURSUED PRIOR TO RETAIL
COMPETITION
As others have pointed out, many of the cost mitigation techniques that have been
discussed can be pursued under today’s utility structure.
Much has been said about the benefits of retail competition and the savings that
are being realized in states that have already implemented choice. The short-term savings
in these states have come primarily, if not entirely, from state-mandated (and somewhat
negotiated) rate reductions and windfalls from the sale of generating assets.
These events could have occurred without a move to retail competition, although
they probably would not have occurred without retail competition being the end goal.
If the consolidation of distribution companies will lead to efficiencies in the
delivery of electricity in an environment of retail competition, it is likely that similar
efficiencies can be achieved through consolidation in the current industry structure. The
same can be said for buy-downs or buy-outs of the contracts with the Independent Power
Producers and the investigation into the sale or shut down of Vermont Yankee.
The most significant cost mitigation option in Vermont’s control that is dependent
upon retail competition is the re-negotiation of the Hydro-Quebec contract. It should be
noted that, to VEC’s knowledge, this is a result of comments made by Hydro-Quebec and
not by any laws or contract terms. Thus, in theory, securitization, buy-outs or buy-downs
could also be a strategy with Hydro-Quebec, if that entity is willing to pursue these
options.
BENEFITS AND DOWNFALLS OF WHOLESALE COMPETITION
The problem Vermont finds itself in with respect to increasing power costs is due,
in large part, to the long-term power contracts into which utilities have entered. These
contracts have committed the utilities to purchase power from certain generating facilities
7
or companies for extended periods of time regardless of the price of that power compared
to alternatives.
This strategy can pay off when market prices stay higher than those at which the
utility is buying for an extended period. However, this strategy can backfire when market
prices stay below those that the utility is paying. Unfortunately, in recent years we have
had much more of the latter. We expect this trend to continue for some important supply
sources in Vermont.
In long-term arrangements, generators have little incentive to become more
efficient and the utilities and/or their customers take on a majority of the risk of
inaccurate price projections.
Retail competition attempts to make generators focus on constantly seeking to
generate more efficiently by giving customers the right to purchase from any supplier
they choose at any time. As customers switch suppliers based on price, suppliers will be
forced to become more cost efficient, and prices will be minimized.
Another method that may accomplish similar goals is for utilities to enter only
short-term contracts for the electricity that they pass on to their customers. The ability to
enter contracts more often will allow utilities to take advantage of efficiency
improvements in the market in a manner similar to the way in which retail customers
would make choices under retail competition. With proper regulation, end-use customers
would see the benefits of lower prices.
Notwithstanding the fact that we need to investigate fully the extent of the
operational issues that retail competition creates before passing judgment on its costeffectiveness, another advantage of wholesale competition is that many of the operational
issues involved with choice can be avoided.
In theory, the net benefits of these two factors could be comparable to those
achieved through retail choice.
On the other hand, even if it can be shown that the savings generated by
wholesale competition are comparable to those in retail competition, wholesale
competition could suffer from several problems. If the rest of the Northeast is moving to
retail competition, businesses may see other states as being more attractive locations than
Vermont regardless of short-term price comparisons. In addition, customers typically
prefer the freedom to choose as opposed to having no ability to choose, regardless of
whether they exercise that right. Finally, monopolies are rarely more cost efficient than
the free market.
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III.
RECOMMENDATIONS ON SEQUENCE OF ACTIVITIES IN DOCKET
#6140
Average electric rates in Vermont are projected to be the highest in the Northeast
in the next several years. Prices in Vermont are already among the highest in the country.
Although the statewide average does not tell us how each utility compares to the regional
or national averages, most are projecting an upward trend.
As was pointed out at the technical conference on December 18, 1998, some of
the reasons for Vermont’s high cost of electricity are difficult to avoid. For example, a
lack of a significant amount of natural resources to generate electricity increases
transportation costs, and the rural nature of the state leads to higher distribution costs on a
cents/kWh basis.
On the other hand, a significant amount of the problem is due to above-market
power costs. These costs are caused by long-term contracts from other generators or
direct investments in power plants with licenses to operate well into the future.
It is obvious that something needs to be done soon to minimize electricity costs in
Vermont. The longer we wait, the worse off Vermont will be.
In general terms, VEC believes that the most appropriate approach for Vermont is
a two step process. First, implement wholesale choice as soon as practicable to reap the
benefits of competition in the wholesale market. Second, implement retail choice after a
careful assessment of the various methodologies and the potential pitfalls. This may not
get us to retail choice as quickly as some would like. But it would most likely allow us to
see benefits quicker than waiting for the move to retail competition.
In its order dated December 11, 1998, the Board instructed the Clerk of the Board
to schedule three technical conferences in January 1999 covering:
1.
Sales or auctions of power supply assets;
2.
Securitization as a means of lowering power costs;
3.
Mergers and industry consolidation.
In addition to these conferences, VEC believes the Board’s investigation should
include the following:
1.
Identify the extent of issues that need to be addressed to implement choice
smoothly.
This will provide utilities and regulators with a better idea of what moving
to retail competition entails and to weigh the pros and cons of various
methodologies. With a complete picture of the issues, Vermont will then
9
be in a better position to determine the best way to restructure the industry
for Vermont.
To facilitate this discussion VEC, along with Central Vermont Public
Service and Green Mountain Power, believes that hiring NEES Global to
conduct a two-day seminar would provide valuable input to this docket.
NEES Global is an unregulated subsidiary of New England Electric
Systems that offers consulting services. Their staff members have direct
experience with implementation of choice in several New England states
and have worked with utility clients operating in 28 states and two foreign
countries.
NEES Global would come to us as neither an opponent nor proponent of
choice. They are practitioners that will provide us with unbiased
information gathered through experience in various approaches to similar
questions.
The seminar could be conducted early in the process, possibly February or
March. This would get the issues out on the table early and put the whole
topic of restructuring in perspective.
A draft agenda of the issues that we propose for the seminar is attached as
Appendix 2. Many of the details of the seminar still need to be developed
including date, location and finalization of the agenda. The agenda can be
adjusted based on comments from the Board or other participants in the
docket.
We estimate that the seminar will cost approximately $20,000. This may
sound like a substantial sum for a two-day seminar. However, this is a
small amount compared to the potential costs that could come from
implementing choice hastily and/or repeating the same mistakes that other
states have made.
2.
Allow utilities to restructure their resource portfolios to allow for more
aggressive wholesale competition with a target date of mid-2001.
This will allow utilities and their customers to take advantage of lower
prices in the wholesale market in much the same way end-use customers
would in retail competition. However, any potential savings would most
likely be seen quicker than if all issues to be addressed, and the probable
lengthy debate and negotiation on the rules of retail competition.
Many of the power supply issues that have been mentioned as
prerequisites to retail competition in other fora, will need to be addressed
prior to implementing wholesale competition, including the treatment of
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stranded costs. It also may be helpful to address many of the cost
mitigation efforts already identified prior to implementing wholesale
competition.
As mentioned previously by others, these could be addressed through a
series of workshops occurring after the NEES Global seminar. The topics
to cover could include the following:
a.
Education on the Regional Power Supply Marketplace
It is important that all parties have a realistic understanding of the
current cost of power in the northeast market, and what factors will
drive the cost of power in the future. A workshop that includes a
presentation by an unbiased expert on the market in the northeast
could serve this purpose and be conducted in several hours. The
workshop should cover the costs of various types of power, for
example load-following, renewable power, etc.
b.
Mitigation of Independent Power Producer Costs
Because all consumers in Vermont are affected by the contracts
with the Independent Power Producers, this workshop should be
conducted early in the process. The workshop could look at
various ways to mitigate the costs of the contracts with the end
result being a decision on the most appropriate method.
c.
Environmental and Least Cost Planning Considerations
In order to implement any changes to Vermont’s power supply
portfolio, utilities and suppliers need to know the criteria by which
decisions will be judged. Thus, early in the process of industry
restructuring the Board should develop positions for environmental
impacts of supply resources and least-cost planning concepts.
All subsequent reviews of asset divestiture and resource portfolio
restructuring should be reviewed with these positions in mind. To
make resource decisions now without a clear understanding of how
they will be judged could put all of us in a position similar to the
one we are in now.
d.
The Possible Sale or Closure of Vermont Yankee
The Board should oversee analyses that compare the value of
continued operation of Vermont Yankee to closing it or selling it
and purchasing the lost generation on the open market. There have
been many discussions regarding the plant’s value with the
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conclusion being dependent upon opinions of market prices. A
study “conducted” by the Board could help shed valuable light on
the facts surrounding the value of Vermont Yankee.
3.
Parallel to the investigations required for moving to wholesale choice, the
Board should begin investigations into the treatment of issues that must be
dealt with in moving to retail competition that are not dealt with in a
transition to wholesale competition.
Through this investigation the Board can determine which rules for
industry restructuring are right for Vermont and how they can be
implemented.
In addition to those issues identified through Item 1, possible topics would
include the treatment of NYPA Preference Power in a competitive
environment and other special impacts on municipals and cooperatives
resulting from their ownership structure.
4.
An announcement by the PSB of its intentions may be helpful to ease the
minds of financial institutions, suppliers and end-use customers. The
announcement should include the risks and benefits of both wholesale and
retail competition as well as target dates for the transition to more
aggressive wholesale competition and the investigation into the
implementation of retail competition.
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DRAFT
APPENDIX 1
DRAFT
OUTLINE
VERMONT ELECTRIC COOPERATIVE’S PLAN TO
IMPLEMENT CHOICE ON ITS OWN
NOTE: This outline is presented for discussion purposes only. It is not to be
interpreted as VEC’s final position on any of the topics, but reflects internal
discussions to date, and possible ways to address various issues.
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DRAFT
VEC PLAN FOR CUSTOMER CHOICE
INTRODUCTION/SUMMARY
Since early 1998, the Vermont Electric Cooperative, Inc. (VEC) has been
investigating the feasibility of implementing retail choice in its service territory prior to
any state mandate to do so.
VEC is in a unique position to offer its customers the opportunity to choose their
retail electric supplier. As a result of its recent reorganization in bankruptcy, VEC’s only
commitment to above-market-cost power supplies is its share of purchases from PURPA
Qualifying facilities across the state through the Vermont Electric Power Producers, Inc.
(VEPPI), and purchases from small power producers (SPPs) in its own distribution
service territory.
The power purchased from these suppliers accounts for approximately 7% of
VEC total energy needs. Hence, although VEC needs to come up with a plan to satisfy
the terms of these contracts if it offers choice, the magnitude of stranded costs is much
smaller for VEC than it is for most utilities in Vermont.
WHY INVESTIGATE ALLOWING CUSTOMERS TO CHOOSE?
VEC sees several potential benefits that its members will enjoy as a result of its
investigation into allowing customer choice. These benefits include:

By investigating implementing retail choice on its own, VEC will be in a much
stronger position to provide meaningful input into discussions at the state level
regarding retail choice. This input could prevent policy decisions that would
otherwise inadvertently create implementation problems that VEC would have a
difficult time solving;

Members gain simply by having a choice to choose;

Members will have the opportunity to look for less expensive supply. If
successful, they will save money. If not, they will be assured that they have
obtained a fair price.

Members will have the opportunity to promote the use of renewable resources or
other goals by selecting service packages that are not available now, if they
desire.
OVERVIEW OF PLAN
VEC will distribute the electricity that its members purchase over its system of
poles, wires, substations and the like. All members will be billed for this service on a
cents/kWh rate, for their entire monthly kWh consumption. Included in this charge will
14
DRAFT
be the cost of GMP, CVPS, Citizens Utilities and VELCO transmission plus NEPOOL
expenses.
The electricity that flows on the distribution system and is consumed by the
members will come from a variety of suppliers. The members will be able to purchase
their electricity from any supplier who is qualified to operate in the service territory.
VEC will sell retail electricity to any member who chooses to purchase from
VEC, does not choose to purchase from another supplier or is no longer served by a
supplier. The cost of this supply will be based on the cost of the NU contract. Stranded
costs resulting from VEC’s purchases from VEPPI and the SPPs will be collected
through a stranded cost charge assessed to all members on the VEC distribution system.
Residential and farm members in the VEC distribution service territory, choosing
to purchase their retail electricity needs from VEC, will be entitled to a NYPA preference
power credit.
VEC will send out bills that cover both the VEC distribution charges and the
charges for retail electric supply, regardless of who the member is purchasing their
electricity from. VEC will collect all money from the members and will distribute money
to the various retail electricity suppliers.
In the event that a member remits payment for only a partial amount of the bill,
the money will go to pay VEC’s distribution charges first, state-imposed wires charges
second, and the retail electric supply third. Retail electric suppliers will have the right to
discontinue serving a member, upon prior notice to the member and VEC. If a supplier
decides to discontinue serving a member, the member will have the option of choosing an
alternative supplier, including VEC. If the member cannot find a supplier that is willing
to serve it, VEC will be obligated to serve that member.
VEC will not be obligated to collect past-due payments on behalf of the suppliers.
VEC will be the only entity with the right to disconnect a member’s service. The
terms of the disconnection will work similar as it does today.
VEC will continue to provide demand-side management services to all members
on its distribution system. Any costs that are paid by VEC will be collected through the
VEC distribution charge.
CONCLUSION/RECOMMENDATION
The smooth implementation of customer choice is more complicated, time
consuming and expensive than many people realize.
At this time we have not come to a conclusion regarding if, and when, VEC can
cost-effectively implement customer choice within its service territory before the rest of
15
DRAFT
the state. VEC will continue investigating solutions to the issues it has identified as being
required for the successful implementation of retail choice.
THE COMPLETE REPORT
The following pages contain information on the following topics:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
I.
VEC’s Competitive Supply Mix
Renewable Resource Portfolio Requirement
Treatment of Stranded Investments
Transmission
Demand-side Management
Supplier Certification and Information Disclosure Requirements
Rate Unbundling/Bill Design
Metering/Billing
Codes of Conduct Between VEC Departments
Customer Protection
Low Income Protection and Assurances
Switching Suppliers
Disconnection
Partial Bill Payment
Hourly Load Reporting to NEPOOL
VEC/Supplier Terms and Conditions
VEC/Member Terms and Conditions
VEC’S COMPETITIVE SUPPLY MIX
In a competitive market, VEC will continue to provide a source from which
customers may purchase their electricity. VEC will provide this service to all members
who make a conscious decision to purchase from VEC, those who choose not to bother
shopping around for an alternative supplier and those who cannot find an alternative
supplier. For the purposes of this report this service will be called “VEC’s Basic Service
Offer.”
We believe it is in the best interests of VEC’s members that VEC compete in this
business for the following reasons:
1.
To provide members a reliable, familiar, local alternative; and
2.
To act as the “default provider” for members who do not want to be
bothered with looking for a new supplier;
3.
To serve as a reliable back-up for members whose supplier to no longer
supply them;
4.
To provide members a not-for-profit alternative.
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DRAFT
VEC’s Basic Service Contract will be supplied through its existing contracts with
Vermont Electric Power Producers, small power producers on the VEC system, the New
York Power Authority and Northeast Utilities. We describe these below.
Vermont Electric Power Producers, Inc. (VEPPI)
There is one wood-burning generation facility and approximately 20 hydro-units
throughout the state that sell power to all Vermont utilities through a contract negotiated
with the Public Service Board.
The VEPPI power is divided among the Vermont utilities based on each utility’s
percentage of total kilowatt-hour sales in the preceding calendar year. VEC’s current
share of this power is 2.47%. This percentage will decrease on November 1, 1998 to
2.42%.
VEPPI supplied approximately 6% of VEC’s power needs for 1997 and is
expected to provide a similar amount in 1998. The exact amount of power that will be
supplied by VEPPI in the future is dependent upon factors which are not completely
within VEC’s control, including the annual load in VEC’s territory, the annual load of
Vermont as a whole and weather. However, from one year to the next these factors are
consistent enough that we can reasonably assume VEPPI will supply 5% - 10% of the
load on VEC’s system.
VEPPI power is expensive compared to current market prices for generation of
similar characteristics. For 1997 VEC paid $125/mwh for this power, while current
market prices for capacity and energy are closer to $40/mwh.
SMALL POWER PRODUCERS ON THE VEC SYSTEM (SPPS)
VEC has entered into contracts to purchase electricity from VEC members who
operate their own hydroelectric stations.
The electricity purchased through these contracts accounts for approximately
0.1% of VEC’s total energy requirements. Since all of the SPP power is hydroelectric,
the total power VEC purchases through these contracts is dependent upon weather
conditions. However, because the output of these plants is so small relative to the total
load on the VEC system, we can reasonably assume the percentage of power supplied by
these producers will not change significantly.
In calendar year 1997 VEC purchased 159,355 kWh at an average cost of
$74/MWH. The cost of this power increases each year based on rates established by the
PSB. The contracts all have different expiration dates; however, they all expire between
February 2006 and August 2007.
NYPA PREFERENCE POWER
17
DRAFT
All Vermont municipal and cooperative utilities are entitled to purchase relatively
inexpensive power from the New York Power Authority (NYPA.) This power is for
distribution to residential and farm members only.
In 1997 power purchased from NYPA accounted for approximately 13% of
VEC’s total energy requirements. The amount of power VEC receives is consistent from
year to year.
In 1997 the cost of the NYPA power averaged $13.70/mwh. This price typically
increases 3-4% per year.
The contract with NYPA extends through June 2002, with month to month
extensions available through May 2004. Talks are currently underway to extend the
contract, with initial indications that the extension will run through 2021. VEC expects
to continue to receive the same amount of power in the extension as it does now.
However, the price of the power during the extension remains uncertain.
NORTHEAST UTILITIES NET-REQUIREMENTS CONTRACT
VEC is negotiating a net-requirements contract with Northeast Utilities. The
contract will provide VEC with all power-related products required by the New England
Power Pool (NEPOOL) which are not served by VEPPI, the SPPs and NYPA.
The NEPOOL products include energy, installed capability, operating capability,
ten-minute spinning reserves, ten-minute non-spinning reserves, thirty-minute reserves
and Automatic Generation Control. Total cost of the power purchased through this
contract averages approximately $37.90/mwh in 19992. The prices escalate between
1.25% and 2.1% annually through the term of the contract to an average price of
approximately $40.42 cents/kWh in 2002.
Based on current VEC loads and the output of VEPPI, SPPs and NYPA the NU
contract is expected to serve approximately 80% - 85% of VEC’s energy needs in each
year of the term of the contract. The contract contains provisions that will allow VEC to
move to customer choice at any time of the term of the contract, without incurring any
stranded costs other than those that may result from VEC’s ongoing commitments.
The contract begins on January 1, 1999 and runs through December 31, 2002.
COST OF VEC’S COMPETITIVE SUPPLY
VEC’s Basic Service Offer will be priced at the cost of the NU contract. Because
the VEPPI and small power producer contracts are significantly more expensive than the
2
The cost of the power is $43/MWH during on-peak hours and $33/MWH during off-peak hours. The
$37.90/MWH is based on a weighted average of on-peak and off-peak kWh usage on the VEC system for
calendar year 1997.
18
DRAFT
NU contract, VEC will need to collect additional money from all of its members to cover
these costs. VEC will collect this money through a wire charge that will be the difference
between the cost of the VEPPI and small power producer contracts and the NU contract.
The NYPA preference power is cheaper than the NU contract. Members who
choose VEC as their retail electric supplier will see the benefits of this inexpensive power
through a “Preference Power Credit” on the first 100 kWh of usage for each month 3.
This credit will be equal to the difference between the cost of the NYPA preference
power and the NU contract.
The wires charge and “Preference Power Credit” will be discussed further in the
“Stranded Investments” and “Unbundled Bill” sections of this report.
II.
STRANDED INVESTMENTS
DISCUSSION
VEC’s contracts with VEPPI and the SPPs require VEC to purchase power from
these suppliers at prices that are above current market prices. The price of this power is
expected to remain above market prices for the foreseeable future.
As mentioned in the previous section, VEC will price its Basic Service Offer at
the cost of the NU contract. However, VEPPI and the SPPs will still require that we pay
them the contract rate for their power. In order to make our strategy work we must
collect from its members the difference in price between the VEPPI/SPP power and the
NU power.
VEC PLAN
VEC will continue to purchase power from these suppliers according to the
existing terms of the contracts, until other terms can be negotiated. The amount of power
that VEC will purchase from VEPPI will be based on the VEC distribution company load
as a percentage of total retail kWh sold throughout Vermont. This would be the same
proportion of VEPPI kWh as if VEC did not allow competition in its service territory.
This strategy will eliminate the need to redistribute the VEPPI power to retailload suppliers operating in the VEC territory.
The stranded costs will be collected through a “wires charge” (on a c/kWh basis)
applied to the total kWh consumed by the member. This c/kWh will be calculated by
dividing the total stranded cost dollars by the total kWh delivered by the distribution
company based on readings at the customer meters.
3
Only residential and farm members choosing to purchase their electricity from VEC will receive the
credit. It is the opinion of legal counsel that only those customers purchasing all of their retail supply are
eligible to receive the preference power.
19
DRAFT
For example, if the market price of power in 1997 was 3.79 cents/kWh, then using
actual SPP and VEPPI output along with actual VEC retail sales, VEC would have had
the following stranded costs for 1997:
VEPPI stranded costs:
10.69 c/kWh – 3.79 c/kWh = 6.9 c/kWh
6.9 c/kWh * 8,878,755 kWh = $612,634
SPP stranded costs:
7.51 c/kWh – 3.79 c/kWh = 3.72 c/kWh
3.72 c/kWh * 159,355 kWh = $5,928
Total stranded costs:
$612,634 + $5,928 = $618,562
Stranded cost charge (c/kWh):
$618,562/132,613,593 = 0.466 cents/kWh
A member using 750 kWh per month would have a monthly stranded cost
payment of $3.49.
As mentioned above, VEC plans to honor the contracts with VEPPI and the SPPs.
However, VEC believes it is in its members best interests to mitigate the stranded costs
associated with the contracts. VEC intends to pursue all legal and reasonable means to
lower these costs.
OUTSTANDING ISSUES

This calculation is fairly simple after the fact because all of the variables are
known, assuming you can agree on how to calculate the market costs. However,
the following variables are not static on a monthly basis:
a)
b)
c)
d)
VEPPI generation (not predictable)
SPP generation (not predictable)
VEPPI prices (predictable on a per-unit, per kWh basis)
VEC distribution company load at the customer’s meter

What do we assume as the market price? The price of our net requirements
contract, the New England Independent System Operator (ISO) clearing price for
the month, some other price?

How do we calculate the stranded cost charge on a monthly basis and bill it out to
customers in an understandable way;
How do we make sure that we are collecting the correct amount of money? We
don’t want to collect too little, nor do we want to collect too much.

20
DRAFT

How do we set up an internal process to calculate the stranded costs quickly,
easily and accurately?
III.
RENEWABLES PORTFOLIO REQUIREMENT
VEC will have no renewables requirement for suppliers at this time. However,
the absence of a renewables portfolio in VEC’s plan should not be viewed as a lack of
support for a statewide renewables requirement. VEC will support a well thought out,
statewide strategy, that is beneficial to ratepayers throughout the state, holds suppliers
adequately accountable for meeting the requirements, and can be reasonably expected to
have a positive impact on the environment.
VEC is taking this approach for the following reasons:
IV.
1.
Electricity generated with renewable resources is typically more expensive
than electricity generated with fossil fuels (coal, natural gas, oil, etc.). If
VEC imposes a renewables requirement on all electricity consumed in its
service territory, the total cost to members will most likely increase.
Without a similar requirement placed on all utilities in the state, whether
competition is allowed in their service territories or not, VEC believes it
will be putting its members in a position to be unfairly “penalized” if
suppliers are required to adhere to a renewables portfolio requirement.
2.
A renewables requirement without a system that holds suppliers
accountable for meeting it may increase costs to members without having
any impact on the environment. The development of a monitoring system
is a complex process. Based on research performed by other entities VEC
believes that developing an effective monitoring system is beyond the
capacities of its limited financial and workforce resources. VEC believes
a statewide solution is the most viable option.
3.
VEC is a small load relative to other areas of the Northeast (2.5% of
Vermont, 0.125% of New England). With a renewables requirement
imposed by VEC that is not imposed on a larger region may cause
suppliers to not attempt to sell electricity in the service territory. Should
this occur, the time and money invested into implementing customer
choice prior to the rest of the state could be wasted.
TRANSMISSION
DISCUSSION
VEC’s service territory is connected to the sub-transmission systems of Central
Vermont Public Service (CVPS), Citizens Utilities (Citizens) and Green Mountain Power
(GMP). These companies provide VEC with a path to the transmission facilities of the
21
DRAFT
Vermont Electric Power Company (VELCO). The VELCO facilities are directly
connected to the transmission system of the New England Power Pool. Through these
systems VEC is able to purchase power from virtually anywhere in the northeastern U.S.
and Canada.
Today, VEC pays for transmission services across all of the above mentioned
facilities, including the ISO. It pays the bills for the services through the rates charged to
its members.
With competition most power will still need to be delivered across these facilities,
and thus these expenses will continue to be incurred. The question is, who will bill
members for the transmission service? VEC or the entity providing the member’s retail
electric service?
VEC PLAN
VEC will continue to be responsible for arranging transmission services across
the CVPS, Citizens, GMP, VELCO and ISO facilities. Expenses incurred for arranging
these services will be billed to customers through the VEC distribution and transmission
rates.
This is a viable solution for the following reasons:
a)
There are currently no viable alternatives to transmission supply for VEC
or any customer. Costs will most likely be the same for whoever the
member’s supplier is. As a result neither customers nor suppliers will be
adversely impacted.
b)
Competition will be much simpler for customers, suppliers and
transmission providers if VEC assumes this responsibility, thus increasing
its probability of success;
c)
Requiring suppliers to pay for the transmission may require a renegotiation of the 1991 VELCO transmission agreement among all
VELCO members. A re-negotiation of this agreement, for the sole
purpose of allowing VEC to open its service territory, will most likely not
be a priority for other utilities in Vermont. Making the re-negotiation of
the agreement a pre-requisite to VEC opening up its service territory
voluntarily will most likely delay VEC’s implementation indefinitely.
d)
The method is consistent with the practices in other states in New England
that are allowing customer choice, the New England Regional
Transmission Tariff and ISO rules on billing for transmission losses on its
facilities.
22
DRAFT
In these cases the Distribution Company serving the interconnected load pays, not
the entity providing retail electric service.
OUTSTANDING ISSUES

Should we charge members who purchase from suppliers who do not use any ISO
or VELCO facilities? For example, people purchasing from units on the VEC
system.
VEC will bill these members the same transmission rates as all other members in
the rate class. These members benefit from VEC’s connections to VELCO and
New England facilities through voltage support, and they at least have the
opportunity to purchase from outside the VEC service territory.
Because the power members are purchasing in this case does not flow on the
VELCO and ISO lines, one can make a strong case that these members should not
pay as much for this service as other. However, whether or not a rate design
based on this argument is the best solution is unclear at this time. We will
investigate potential alternatives.
The fact that we do not have a definite long-term solution at this time will impact
few, if any, members. We should not delay choice for this issue while we
continue to investigate other options.

Will customers be billed for transmission based on whether they live in an area
served by GMP, CVPS or Citizens, or will everyone be billed the same rate?
VEC will bill all members of each rate class the same rates regardless of
geographic location. This is consistent with past and present practice.
It could be argued that the correct approach is to bill each customer based on the
cost of the transmission lines they are served by. However, whether or not a rate
design based on this argument is the best solution is unclear at this time. We will
investigate potential alternatives.
Either CVPS or GMP lines serve the majority of customers. Because there is not
a major difference in the cost of the service from each company, the impact of not
having a definite long-term solution at this time will be minimal. We should not
delay choice for this issue while we continue to investigate other options.
V.
DEMAND-SIDE MANAGEMENT
DISCUSSION
23
DRAFT
VEC currently offers a comprehensive set of energy efficiency programs for its
members. These programs encourage the efficient use of electricity in homes and
businesses by offering incentives for installing energy efficient equipment and processes.
VEC PLAN
These programs will continue to made available to VEC members either through
VEC or a statewide efficiency utility if, and when, that plan is implemented. In lieu of an
efficiency utility, VEC will continue to offer the programs it does now. The costs will be
collected through the distribution charge in the same manner costs are collected today.
OUTSTANDING ISSUES

Which division in VEC will perform DSM (RES, DS and CS)? For those
programs involving a customer incentive it may make the most sense to have
DSM reside in DS or CS since they will be funded there until a new strategy is
developed.

Also, because we will be offering the programs to all of our distribution
customers regardless of who they purchase power from it would make sense to
have the DS or CS do this.

The impact of this decision may be minimal from a practical standpoint.
However, depending on where DSM resides, there could be a perception of bias
on the part of members, suppliers and regulators that could make customer choice
appear less effective than it could have.

We should resolve this before moving forward. We should also make sure what
we decide is consistent with the PSB Order or, if different, be able to explain why.
VI.
SUPPLIER CERTIFICATION AND INFORMATION DISCLOSURE
REQUIREMENTS
DISCUSSION
Suppliers will be required to pass a certification process prior to being able to
market their services to any customer. VEC would have the right to revoke a supplier’s
certification if that supplier was found to be no longer adhering to the terms of the
certification.
The purpose of the certification will be to:


Provide reasonable comfort that only competent and financially stable entities are
operating in the service territory; and
Make sure that suppliers are providing fair and honest information to members.
24
DRAFT
The information provided to members should be easily understood, accurately
reflect the total cost to the customer and be easily compared to offers from other
suppliers.
To assure that all of these criteria are met Supplier Information Disclosure
Standards need to be developed. All suppliers in the service territory would be required
to meet these standards in order to acquire and maintain their certification to operate in
the state.
At a minimum the Disclosure Standards would address:
1.
2.
The format that pricing and total costs will be represented in; and
Fuels used by supplier.
Disclosure requirements are not in effect in New Hampshire and are under
development in Massachusetts. A committee established by the New England
Governors’ Conference has been discussing the development of region wide disclosure
standards. They have not yet agreed on what the disclosure requirements will be, or how
they will be enforced. However, their efforts have shown that the enforcement of the
standards is beyond the scope of VEC’s limited financial and labor resources.
One issue concerning disclosure that is important to many legislators, regulators,
suppliers and customers is the validity of information provided on the environmental
impact of the supplier’s power. This includes the fuel used to generate the power and the
emissions of each source.
This is a very difficult issue to develop standards for because of the difficulty in
monitoring the accuracy of the information being provided. The source a supplier is
using to provide power can change hourly based on trades it makes on the wholesale
market to lower costs. These trades are often not tied to a specific generator; they are
essentially being made with “generic” electricity.
The solutions being discussed are complicated and very involved. The financial
and workforce resources required to develop the tracking system are much more than
VEC can afford to assign.
VEC PLAN
VEC does not have a plan to address certification and disclosure standards. The
financial and labor resources required to implement the certification process and monitor
the performance of suppliers is greater than VEC can bear.
OUTSTANDING ISSUES

What financial standards will VEC require for certification?
25
DRAFT



What price information and format standards will VEC impose on potential
suppliers?
What emission information standards will VEC impose on potential suppliers?
How will VEC monitor and enforce the standards?
If members are confused, or misled, by information that suppliers are providing
them, the implementation of choice by VEC, by itself, could easily encounter a negative
perception. This perception by a few could overshadow any benefits.
VII.
UNBUNDLING/BILL DESIGN
DISCUSSION
The VEC bill will be made up of the following line items:
Customer Charge
T&D kWh
T&D kW (if applicable)
Power kWh
NYPA Credit (if applicable)
Stranded Cost Charge
$/meter
c/kWh
$/kWh
c/kWh
c/kWh (<= 100 kWh/month)
c/kWh
The “Power kWh” and “NYPA Credit” are the only line items on the bill that will
be dependent upon whom the customer selects as its retail electric supplier. The “Power
kWh” represents the cost of the power the customer’s retail electric supplier provided
them for the billing month.
The “NYPA Credit” is not a competitive charge, however only those customers
who purchase all of their power needs from VEC will be eligible for the credit. It is the
opinion of legal counsel that Federal law requires customers to purchase all of their
power needs from the municipal or cooperative in order to be eligible for NYPA
preference power.
VII.
METERING/BILLING
DISCUSSION
Metering and Billing is an extremely important part of the implementation of
retail choice. It is also a process that can easily be taken for granted. The customer must
be billed the proper usage and the proper rates. Each supplier must also receive the
correct amount of money based on their customers’ consumption and the payments their
customers actually made.
The following generic steps are involved in making this work properly:
Billing:
26
DRAFT









Member to provide notification to VEC of who their supplier is and as of what
date (VEC/member terms and conditions) and/or,
Supplier notifies VEC they will no longer supply the member, and as of what date
(conditions for not supplying must be in VEC/supplier terms and conditions)
VEC switch of member’s supplier and rates in billing data base
VEC remaining updated on rates of all suppliers who are selling in the service
territory (VEC/supplier terms and conditions)
VEC reads meter
VEC distributes all bills to customers
VEC notifies each supplier how much each customer they are supplying
consumed each month. (VEC/supplier terms and conditions)
Verification process between VEC and supplier must be established
(VEC/supplier terms and conditions)
Total for each supplier must match up with the hourly load estimation and
reconciliation that is done for the NEPOOL reporting.
Collection and Distribution of Money:






VEC receives money from members
VEC determines whether customers have paid the complete bill.
VEC determines how much of money received goes to VEC and how much to
suppliers. This is especially important if member does not pay full bill.
(VEC/supplier terms and conditions)
VEC wires money to supplier with breakdown by customer
VEC notifies supplier who is delinquent in payments and how much
VEC keeps running tab of member delinquency broken down by VEC and
supplier
Being the only supplier in the territory, VEC (or any other utility used to
operating as a monopoly) has never had to deal with these issues. It is unknown at this
time the work that will be involved to come up with methodologies to address these
issues. It is also unknown at this time the additional staff time that will be required to
address these issues on a day to day basis.
VEC PLAN
VEC will be responsible for metering, billing and collections for all customers
regardless of who they are purchasing their power from. We believe this is the easiest
and smoothest way to initiate retail choice at the present time. At some point we will
investigate allowing billing to be done by more than just VEC.
VEC will also be in charge of distributing money to suppliers, but will not be
responsible for collecting delinquent payments from customers of other suppliers.
27
DRAFT
OUTSTANDING ISSUES

See all bullets in “Discussion” section.
Customer choice will not be successful without all of these items addressed and
all processes thoroughly tested prior to implementation. Moving forward without these
issues resolved could put VEC in a legal mess that no one wants to see.
VIII. CODES OF CONDUCT BETWEEN VEC DEPARTMENTS
DISCUSSION
VEC has developed a draft set of codes of conduct, which will govern how the
various areas in VEC interact with each other.
The purpose of the Codes of Conduct is to assure that the VEC distribution
company is not financially subsidizing or providing the VEC retail company with any
favorable treatment with respect to any other competitive suppliers.
VEC established the “codes” based on those developed in Massachusetts and New
Hampshire, and the Vermont Public Service Board’s (PSB) order in Docket 5854. The
PSB order suggested that all utilities develop Codes of Conduct that provide:







“Transmission and Distribution pricing protections”
“Protections against discriminatory information flows”
“Deleterious financial impacts of competitive business on regulated operations”
“Discriminatory use of shared resources and regulated services” between the
distribution company and an affiliated retail service provider
“Discriminatory service and service quality protections” provided by the
distribution company depending upon the customer’s choice of a retail service
provider.
“Discriminatory planning and resource development” on the part of the
distribution company depending upon the customer’s choice of a retail service
provider
“Discriminatory marketing by the regulated entity”
VEC’s draft codes directly address each of the bullets except the first. However,
protections against transmission and distribution pricing are implicit in VEC’s plan that it
will secure transmission and distribution services for all customers, regardless of their
choice of supplier, and collect payments for these services through the distribution fees.
If any disputes arise regarding these codes, the parties shall attempt to resolve the
dispute on an informal basis. The dispute shall be referred to the PSB if the parties
cannot reach a resolution within 30 days.
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DRAFT
OUTSTANDING ISSUES

Refine - As written these codes do not address all steps that will be necessary to
make sure that the codes are not violated. This was intentional to allow all
utilities to develop their own solutions based on their internal structures, if these
codes are used as a framework for the rest of the state.
Moving forward with choice without an implementation plan for the codes is
possible. However it is not recommended. In failing to address the issue prior to
implementation VEC would be leaving itself vulnerable to complaints and
criticism for lack of preparation and competence if a violation does occur.
IX.
CUSTOMER PROTECTION
DISCUSSION
VEC has an obligation to make its best efforts to ensure the integrity of the
industry while implementing customer choice. This includes preventing, as much as
possible, suppliers from intentionally misleading customers, and protecting the
customer’s privacy with respect to information available through their local distribution
company.
The above paragraph is consistent with the PSB order in Docket 5854. In that
order the PSB mentioned customer specific load profile data and detailed billing histories
as information that must not be inappropriately distributed to retail service providers
without the member’s authorization.
In its order the PSB also refers to the Consumer Bill of Rights prepared by the
DPS. In summary the Consumer Bill of Rights states that all consumers shall have the
right to:
a)
know and control what they are buying;
b)
know from whom they are buying;
c)
know the full price of the goods and services that they are purchasing;
d)
reasonable payment terms;
e)
fair treatment by all providers including clear and stable divisions of
responsibility;
f)
join with other consumers for mutual benefit;
g)
impartial resolution of disputes;
29
DRAFT
h)
reasonable consideration for service failure or missed appointments;
i)
participate in the design and evaluation of restructuring;
j)
access to service regardless of disputes with other retail providers of
electricity as long as distribution charges are paid;
k)
Freedom from improper discrimination in price, terms, conditions, or
offers.
In addition to the items identified in the Consumer Bill of Rights, VEC is also
investigating the development of customer protections to minimize unwanted
solicitations, and prevent customers from being switched to a new supplier without their
consent, as has been reported in the phone industry
This should be addressed in the VEC/Supplier and VEC/Member Terms and
Conditions as much as possible.
VEC PLAN
Items (a), (b), (c), (e), and (k) can be addressed through an effective Supplier
Certification process and Supplier Information Disclosure Standards.
Items (d) and (j) will be addressed through VEC’s Standard Offer Service.
Regarding item (d) the Standard Offer will serve as the benchmark for members to
determine whether a supplier’s offer contains reasonable terms and conditions.
With respect to item (j), the Standard Offer will be available to all members on
the VEC distribution system. The offer will apply to all customers including those who
switch from VEC to another supplier, and eventually decide to come back. This is
different than the rules in Massachusetts. Under those rules customers who choose to
purchase their power from an entity other than the incumbent distribution company, and
then decide to come back to the incumbent distribution company must do so at market
prices, not at the Basic Service rate, as VEC has negotiated.
Item (f) will be satisfied through the fact that customers will have the right to join
with other customers to improve their purchasing power if they so desire. VEC sees this
as a basic right of customers, although joining together with other customers does not
guarantee that those customers will be able to find a better price than if they were to
purchase electricity individually. VEC does not see the need to include language in its
plan, which expressly provides customers with this right, however it will do so if
necessary.
Item (g), impartial resolution of disputes should be addressed in the Supplier
Certification Process.
30
DRAFT
OUTSTANDING ISSUES



Items (h) and (i) of the Consumer Bill of Rights.
Minimizing unwanted solicitations.
Preventing the unauthorized switching of a customer from one supplier to another.
X.
LOW INCOME PROTECTION AND ASSURANCES
DISCUSSION
Page 99 of the PSB Order states that “it is critical that any proposal for customer
choice directly addresses the needs of low-income consumers.”
It is possible that low-income customers may be perceived by suppliers as too
risky to enter into a transaction with. As a result these customers may not realize benefits
of competition as quickly as others may.
We must assure that low income customers will at least not be any worse off as a
result of customer choice than they otherwise would have been, and should investigate
ways to make sure that affordable electric service is available to them.
VEC PLAN
VEC’s contract with Northeast Utilities will act as a “default” service for any
customer that cannot find an alternative supplier. Because of the competitive nature of
VEC solicitation process and the fact that the prices negotiated are for all customers
regardless of income, the VEC Basic Offer will provide low-income customers with a
competitive option through the four-year term of the contract.
In addition, VEC will continue with its current low-income programs and
investigate new low-income assistance programs.
OUTSTANDING ISSUES

Will VEC offer any additional low-income assistance programs?
XI.
SWITCHING SUPPLIERS
DISCUSSION
When a customer decides to change suppliers, both the customer and new supplier
will want to have the switch implemented immediately.
The majority of customers are served with meters that do not record data on
hourly intervals. Instead they sum up the customers usage without recording when the
31
DRAFT
usage occurred. With these meters, the meter must be read prior to a change of supplier
to determine the kWh provided by both the old supplier and the new supplier.
As members switch suppliers in between their normal monthly meter reading
date, VEC must read some meters more than once per month. For one or two customers
this would not be a problem. However, as the number of customers switching in the
middle of the month increases, there will be less time available for reading all other
meters on the system.
The result could be any or all of the following:
1.
2.
3.
VEC would have to pay overtime to complete monthly meter readings,
thus increasing costs to the members;
VEC would have to hire additional meter readers to keep up with the pace,
again increasing costs to members; and
Meter readings would fall behind, thus angering all suppliers, causing a
detrimental impact on VEC cash flow, and destroying the morale of the
meter readers.
VEC PLAN
Customers will be able to switch suppliers as often as they wish. However it can
only be done at the member’s next scheduled meter reading date.
Although this solution may not be ideal from the perspective of the customer it is
the most practical solution. Costs to the member would be minimized because VEC
would not incur additional costs to cover the increase in meter readings. In addition,
meter reading would not fall behind as a result or customer choice and all suppliers will
be receiving on-time payments for the services they provide.
VEC considered the possibility of allowing customers who have hourly meters
installed to be able to switch suppliers in between their regularly scheduled meter-reading
dates. This is theoretically possible. However, due to the workload involved in
addressing other issues this is not a high priority at this time. VEC may change its policy
in the future as other issues regarding customer choice are addressed.
Installing an automatic meter reading system at VEC could also allow customers
to switch suppliers in the middle of the month. However, this strategy is not practical at
this time because of the cost. VEC may change its policy in the future if more costeffective solutions become available.
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DRAFT
OUTSTANDING ISSUES

How much notice will we need to require?
XII.
DISCONNECTION
DISCUSSION
A member choosing a supplier other than VEC for its retail electric service will be
required to pay for the services of two entities in a given month. The two entities will be
VEC for the distribution service, and the retail electricity supplier of choice.
In the event that the member cannot, or does not, pay its bill in full the retail
supplier of choice and VEC will want to have some rights to encourage members to pay.
In today’s industry structure the monopoly utility has the right to disconnect a customer
for not paying its bills.
In an industry structure with customer choice, when there are potentially two
entities that are not being paid, there needs to be some clarification regarding which
entity has the right to disconnect a customer.
VEC PLAN
VEC will be the only entity with the right to disconnect a customer for lack of
payment. VEC will only disconnect a member’s service for failure to pay bills owed to
VEC. VEC will not disconnect a member’s service for failure to pay bills to an
unaffiliated retail electric supplier.
Retail electricity suppliers will have the right to refuse further service of a
member. In this case the VEC Retailco will provide the retail electric service at the VEC
Basic Service rate. From that point forward VEC’s disconnection policy will be similar
to that which currently exists.
Some may argue that this is in violation of the Codes of Conduct because it
provides preferential treatment to the VEC Retailco by the VEC distribution company.
We feel this is a viable exception to the Codes of Conduct because, unlike retail
electricity suppliers unaffiliated with VEC, the VEC Retailco will have an obligation to
serve any member who is not served by another supplier. The unaffiliated Retailco will
continue to have the right to refuse service, therefore limiting its loses.
This method is consistent with the PSB order in Docket 5854. Page 43 and 100101 of the order explains that the PSB believes disconnection should occur only in
instances in which a customer fails to pay for service delivered through the Disco.
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DRAFT
XIII. PARTIAL BILL PAYMENT
DISCUSSION
In customer choice members will see several items on their electric bills. These
items can be placed into three general categories: Distribution services, which will be
owed to VEC; retail electricity supply, which will be owed to the retail supplier of
choice; and wires charges (charges imposed on distribution service customers. Examples
of the charges may include an energy conservation charge, stranded costs, taxes, etc.),
which will be collected through the Distribution Company.
In the event that the member cannot, or does not, pay its bill in full there needs to
be clarification regarding which charges are paid for first.
VEC PLAN
Money collected from the members will be applied to charges in the following
order:
1. Outstanding distribution fees;
2. Outstanding wires charges;
3. Outstanding retail electricity charges.
This methodology is consistent with the opinion of the DPS in Docket 5854,
VEC’s Disconnection Policy and each entity’s obligations to serve.
It is appropriate for the distribution fees to be paid first because these fees pay for
the reliability of the distribution and transmission system. Without adequate funding for
line construction and maintenance, all other aspects of the industry become almost
irrelevant.
In addition, the distribution company has the obligation to serve, whereas
unaffiliated retail suppliers do not. As a result the distribution company is in a more
financially risky position than the retail supplier is, thus it is appropriate to be first in the
payment order.
It should be noted that VEC will be responsible for notifying the retail supplier
which members are in arrears to them and by how much, but it will not be VEC’s
responsibility to collect back payments on behalf of the retail supplier.
OUTSTANDING ISSUES

How do we notify suppliers of who is in arrears on the retail services portion of
the bill for each month. This includes the development of a methodology to allow
suppliers to verify the information we are providing them.
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DRAFT
VEC should not implement retail choice without having this issue resolved and
the process thoroughly tested.
XIV. HOURLY LOAD REPORTING TO NEPOOL
DISCUSSION
The ISO assigns energy and capacity responsibilities to suppliers based on the
load of total load of their wholesale and retail customers in a given hour. When VEC is
the only supplier in its service territory this is a simple report to the ISO, because
VELCO meters the total load on the VEC system.
However, when there is more than one entity serving load in the system will need
to calculate the total load of each suppliers customers in each hour and report this to the
ISO. This process will require:




Knowing each customer’s load for each hour of the day;
Knowing each customer’s supplier for each month;
Combining the hourly loads of each supplier’s individual customers;
Reporting the hourly loads provided by each supplier, within 36 hours of the end
of each day.
This process will need to take place each day.
If all members had meters that recorded loads on an hourly basis Step 1 above
would be quite simple, except for the fact that we would need to read meters every day to
get the exact data. Virtually all meters on the VEC system accumulate data on an ongoing basis. As a result, we will never know the exact load of the majority of members in
any given hour.
To solve this problem we need to estimate each customer’s hourly for each day
and use this data as a proxy for the data required in Step 1. We do not have load research
data required to make the estimations.
Assuming we solve Step 1, we would then proceed with Steps 2, 3 and 4 each
day. This process works fine until the end of the month when the meters are read and the
hourly loads we estimated for each customer do not match the actual data for the meter
readings.
Several software vendors have already solved this problem to the satisfaction of
the ISO. However, this assumes we have hourly load shapes for each customer class.
VEC PLAN
Unresolved.
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DRAFT
XV.
VEC/SUPPLIER TERMS AND CONDITIONS
DISCUSSION
With members possibly switching suppliers there will be contacts between the
member and suppliers, the member and VEC, and VEC and the suppliers. For choice to
be perceived as being successful it will need to function smoothly. This will require the
suppliers and VEC knowing their respective responsibilities and expectations as well as
those of the other party.
Terms and Conditions between VEC and the supplier will provide the documentation
of the responsibilities of each party. We have begun establishing what issues the Terms
and Conditions will need to address. To date we have determined that the Terms and
Conditions should address at least the following:












Conditions under which a supplier can decide to no longer serve a member, and
how much notification must be provided;
Supplier keeping VEC updated on rates charged to customers;
How/when VEC will notify supplier monthly consumption by each customer
served;
How/when VEC will notify supplier that member has switched
Verification process for kWh billed member on supplier’s behalf
Meter reading and billing dates
How partial bill payments will be distributed to VEC and suppliers
Transfer of money between VEC and suppliers
Tracking of delinquent payments
It is supplier’s responsibility to go after customer’s who are delinquent in
payments.
VEC has the right to recommend the revocation of a supplier’s certification to
operate in the state if the supplier does not honor the terms and conditions.
Supplier must sign Terms and Conditions to be able to sell electricity in the VEC
territory.
VEC PLAN
Terms and Conditions will be developed. All suppliers wishing to do business in
the service territory must sign a “contract” agreeing to that they will abide by the Terms
and Conditions or suffer the consequences of not doing so.
OUTSTANDING ISSUES

Establishment of Terms and Conditions
VEC should not move forward with the implementation of choice until supplier
Terms and Conditions are finalized (including consequences of not honoring them) and
thoroughly tested.
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DRAFT
XVI. VEC/MEMBER TERMS AND CONDITIONS
DISCUSSION
With members possibly switching suppliers there will be contacts between the
member and suppliers, the member and VEC, and VEC and the suppliers. For choice to
be perceived as being successful it will need to function smoothly. This will require
members and VEC knowing their respective responsibilities and expectations as well as
those of the other party.
Terms and Conditions between VEC and the supplier will provide the
documentation of the responsibilities of each party. We have begun establishing what
issues the Terms and Conditions will need to address. To date we have determined that
the Terms and Conditions should address at least the following:




How often members can switch suppliers;
The switch to suppliers will only take effect as of the next meter-reading date;
Process through which VEC is notified that a member has switched suppliers;
Explanation of VEC’s responsibilities in serving the member if the member
purchases power from VEC or from another supplier, including who the member
should call if the power goes out.
OUTSTANDING ISSUES

Establishment of Terms and Conditions
VEC should not move forward with the implementation of choice until supplier
Terms and Conditions are finalized (including consequences of not honoring them) and
thoroughly tested.
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DRAFT
APPENDIX 2
DRAFT AGENDA
STRATEGIC WORKSHOP ON THE NUTS-AND-BOLTS OF CUSTOMER
CHOICE IN VERMONT
NEES Global
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DRAFT
DAY ONE: INTRODUCING THE CHALLENGES OF COMPETITIVE
INFRASTRUCTURE
8:00am
Introduction and Objectives
8:30am
Leveling the Playing Field: Strategic Lessons From Retail Access
Implementation Experiences: The Impact of New England, the UK and
California
9:30am
Understanding the Challenges & Risks of the Infrastructure for
Choice
10:00am
Break
10:15am
Planning for Predictable Success: Structures, Resource Requirements
and Collaboratives
11:15am
Overview of Competitive Boundary Issues: Understanding the Other
Infrastructures Critical to a Successful Outcome
 Standards of Conduct/Interaffiliate Transactions
 Customer Information Sharing
 Customer Education
 Terms and Conditions
12:00pm
Lunch
1:00pm
Defining the New Customer Processes and Information Flows:
Creating a Competitive Energy Market That Delivers Benefits For
Customers
2:30pm
Introducing Electronic Business Transactions (EBT): The Benefits of
Statewide Collaboration and Standardization
3:00pm
Break
3:15pm
Choice Essentials: Load Profiling and Other Key Settlement
Requirements; Opportunities for Cost Sharing and Risk Mitigation
4:15pm
Potential Implications of Distribution Services Unbundling Proposals:
Metering, Billing and Customer Services
5:00pm
Wrap-up of Day One
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DRAFT
Day Two: Mechanics of Customer Choice for Vermont –
Consensus Building for Joint Success
8:00am
Good Morning and Welcome
8:15am
Introducing the Process Definition Approach: An Orientation to
Exploring Business Processes and Challenge Templates
9:00am
Mindset Change Exercise: Customer Enrollment Process Alternatives
and Policy Choices
9:30am
Break
9:45am
Introducing the Foundation Issues: Vermont’s Unique Challenges and
Opportunities
10:45am
Exploring Options for Vermont’s Model: Customer Participation
11:15am
Exploring Options for Vermont’s Model: Billing
12:00pm
Lunch
1:00pm
Exploring Options for Vermont’s Model: Customer Inquiry
2:00pm
Exploring Options for Vermont’s Model: Supplier Participation and
Settlement
3:00pm
Exploring Options for Vermont’s Model: Data Collection and
Information Sharing Among Market Participants
4:00pm
Wrap-up and Next Steps
S:\Client Matters\v e c\71792\legal\6140 response.doc
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