Establishment of pilot programs is not mandated in Idaho. The currently established plans were sponsored by the utilities operating in the State.

Two proposals submitted by the Washington Water Power Company (WWPC) were approved. The Direct Access Delivery Service (DADS) pilot covers extra large general service customers who can exercise their option of securing up to a third of their load from alternate suppliers. The total maximum load of this program is 33 megawatts. Participants are required to pay about 1.4 cents per kilowatthour for delivery service and would stand to gain if power from alternative sources can be obtained below a price of 1.6 cents per kilowatthour. This 2-year program began July 1, 1996, and runs through August 31, 1998. The second program, known as More Options For Power Service (MOPS), includes all customer classes and is expected to run from July 1, 1997, through June 30, 1999. The pilot was planned to include about 1,900 customers in Washington and Idaho. The distribution rates that WWPC charges vary depending on the rate schedule. However, due to lack of interest on the part of suppliers, all parts of the pilot (including Idaho's eligible customers) outside of two towns in Washington were deferred.

In January 1998, a MOPS II proposal was approved. This pilot allows WWPC customers to choose between several energy service alternatives without changing providers. The pilot will be available to 5,570 residential, commercial, and agricultural customers in Hayden and Hayden Lake, Idaho. Customers in Deer Park, Washington, are also eligible. Idaho's portion of the pilot accounts for 11 megawatts of load. This 2-year pilot begins May 1, 1998. It offers customers different pricing options to choose from besides the traditional pricing mode from the incumbent provider. This includes "green" resource pricing where the customers choose to pay an incremental amount to support the development and operation of renewable resources. The energy service prices for transmission and distribution in the traditional energy service option range from 2.2 to 2.3 cents per kilowatthour, depending on customer class. Customers choosing options with lower costs will save on their electric bills.

Idaho Power Company's (IPC) pilot provides optional market-based service to large industrial customers who contract for 5 to 10 megawatts of firm demand at one point of delivery. A distinguishing characterization of this pilot is that customers remain with IPC and are not permitted to opt for another supplier. Electricity prices for participants are, however, determined by the Dow Jones-California-Oregon Border (DJCOB) index or by futures contracts traded on the New York Mercantile Exchange (NYMEX) for the California-Oregon border delivery point. Customers select what increment (by percentage) of energy will be priced according to the market. Approximately 10 customers are eligible to participate, and with each contracting for between 5 and 10 megawatts, the total load of this pilot could potentially reach 100 megawatts. Customers had until December 31, 1997, to sign agreements. Each agreement lasts for 3 years.

Illinois:

In August 1995, the Central Illinois Light Company (CILCO) voluntarily filed two retail access pilot programs, known as Power Quest, with the Illinois Commerce Commission (ICC). Along with Illinois Power Company (IPC), CILCO became one of the first utilities in the country to make such an offer.

CILCO's pilot programs started on May 1, 1996. Its first pilot program--Rate 33--was designed exclusively for industrial customers. The aggregate load that can be acquired from outside suppliers is fixed at 50 megawatts of capacity (on the utility's transmission and distribution system). CILCO's eight largest industrial customers having a demand of 10 megawatts or more are eligible to participate. This pilot has a duration of 2 years and is planned to expire in May 1998.

CILCO's second pilot program--Rate 34--is designed for commercial and residential customers located within "open access sites" or specially designated areas of the utility's service territory. This pilot runs for a 5-year period through 2001. Customers, limited to about 5,500, can acquire a maximum load of 50 megawatts from off-system suppliers.

For both pilots, CILCO proposed unbundling the rates for its transmission and distribution services. Revenue losses resulting from these pilots are absorbed by the utility's shareholders. During the first year of the pilot programs, Rate 33 was fully subscribed even though the subscribed load was not being fully utilized. Rate 34 had a participation rate of about 25 percent. Total net revenue losses by CILCO averaged about 1.95 cents per kilowatthour during the first 6 months of 1997. CILCO claims that its shareholders will absorb the lost revenues, stating that it views this loss as an investment to bring consumer choice to the State. IPC's pilot, Direct Energy Access Service (DEAS), includes 21 large customers eligible for a total of 50 megawatts of IPC's system load. Eligible customers maintained a minimum load of 15 megawatts during the 24-month period ending in September 1995. The program began on April 25, 1996, and will continue through December 31, 1999.

Participants in the pilot will pay IPC for its unbundled transmission and distribution services. The utility reports that 16 of the 21 eligible customers have been participating in the pilot. IPC estimated a net annual revenue loss of $3.1 million to $7.5 million. Actual revenue losses have not been made public, but were filed with the ICC in March and in September 1997. These losses are being recovered jointly from shareholders and participating customers.

Massachusetts:

In August 1995, Massachusetts Department of Public Utilities (currently known as the Department of Transportation and Energy or the MDTE) released its order outlining principles and guidelines for electric utility restructuring in the State. The MDTE embraced the notion of competition in generation to achieve its primary goal of reducing costs, over time, for all electricity customers in the State.

With a view to meet the above goal, utilities in the State were ordered to file restructuring plans by February 1996. In response to this requirement, the Massachusetts Electric Company (MECO)--a subsidiary of New England Electric System--filed its proposal to establish a pilot program in its service territory.

Choice: New England--as MECO's plan was called--includes two pilots, one for large technology companies with the collaboration and participation of the Massachusetts High Technology Council (MHTC) and the other for residential and small business customers. Both plans give the customers the option of choosing their electricity suppliers.

The MHTC pilot started on July 9, 1996. Proposals for a total of 200 million kilowatthours per year were solicited from suppliers. Twelve suppliers submitted bids in this pilot. The MHTC made its selection taking into account factors that included economic and non-economic considerations. Fifteen members of the MHTC joined the pilot.

The residential and small business pilot started on January 2, 1997. The program was designed to provide for retail choice for up to 10,000 residential, small business, and industrial customers or up to 100 million kilowatthours per year. This pilot drew 15 suppliers who submitted 42 proposals. The proposals included the options of price, "green energy," or energy combined with other valuable services. Each supplier was required to be a member of the New England Power Pool (NEPOOL) or have a contract with a NEPOOL member for inclusion of its load in the member's load.

The residential and small business pilot is expected to run for a year or until retail choice becomes available in Massachusetts. During the pilot, customers can return to get service from MECO. However, they cannot rejoin the pilot if they choose to leave. This provision applies to the MHTC pilot as well.

MECO was required to implement a functional separation of generation from transmission and distribution services. Based on this functionalization of costs, the utility bills the customers in both pilots for transmission, distribution, and access charges (which include the cost of its stranded investments). In addition, rules for affiliate involvement in the pilot were also finalized. Two other utilities in the State--Boston Edison Company (BECO) and the Commonwealth Electric Company (Com/Electric)--also filed pilot programs. BECO's pilot, part of its E-Plan, was filed in January 1996 to include 10 large customers (that use at least 1 megawatt of electricity at any given time) subject to a maximum load limit of 30 megawatts for all customers.

Customers were required to pay a customer charge (a variable charge depending on use characteristics), a demand charge (a fixed amount per megawatt discounted by 10 percent), and an access charge. Availability of pricing information, for each hour, on a real-time basis enabled customers to adjust their consumption patterns and secure further savings. Absent such changes, unbundled charges retain revenue neutrality. BECO's retail pilot expired on January 31, 1997. No evaluation of the program is available.

COM/Electric filed a retail choice pilot program in August 1996 and was approved to begin in October 1996. The plan offered two choices to participants: Subscription A and Subscription B. Subscription A allowed a total of 10 customers to obtain generation from alternate suppliers subject to a maximum of 15 megawatts of aggregate load. Subscription B allowed customers to take electric service from the utility based on a market-price proxy (determined a day ahead) and open to customers not electing to participate in the Subscription A option. Twenty accounts, made up of 18 customers, comprised the group of eligible customers with an aggregate load of 50 megawatts. Subscription A, however, was canceled due to a lack of suppliers. Subscription B continued through the originally planned January 31, 1997 end date.

Missouri:

A task force created by the Missouri Public Service Commission (MPSC) released its final report dealing with retail competition in May 1998. There are no requirements in the State to establish pilot programs at this time.

UtiliCorp United Inc., an investor-owned utility in the State voluntarily filed a proposal in 1996 to initiate an Electric Transitional Aggregation Experiment to allow a subclass of commercial customers the opportunity to gain experience in securing power at competitive rates. The objective of the experiment is to gather information about the aggregation of customer loads and the infrastructure required to serve the loads together with the electric power delivery service.

Demand to be served under UtiliCorp's program is limited to a total of 25 megawatts subject to the ability of each customer to receive service at a minimum of 20 points of delivery with a demand in excess of 2.5 megawatts. Qualified customers will be given the opportunity to buy their electricity from other suppliers while continuing to use the transmission and distribution system already in place. They will also receive a credit of about 0.02 cents per kilowatthour representing energy cost, implying that the utility may not currently be required to unbundle its rates.

The pilot, which began in February 1997, runs until the end of 1998. The utility will provide an evaluation of the program at the end of 1997 and 1998.

The utility currently serves a total load of about 10 megawatts under this pilot. Note that the State laws preclude power sales from outside suppliers directly to end-users. The utility, therefore, acts as a conduit to facilitate such sales in an attempt to promote competition until appropriate legislation is enacted in the State.

The MPSC, however, did ask the Union Electric Company (UEC) to establish a pilot program as a part of its approving UEC's merger application with Central Illinois Public Service Company (CIPSCO). UEC submitted its proposal in September 1997 to test two market structures: one that gives customers a direct access to a group of qualified power suppliers and the other which enables customers to enroll in a power exchange program authorizing the utility to shop for the best electric prices. Approval from the MPSC is still awaited.

New Hampshire:

Legislation enacted in New Hampshire in June 1995 (NH RSA 374:26-a) mandated that the New Hampshire Public Utilities Commission (NHPUC) undertake the establishment of a pilot program for the purpose of determining the implications of retail competition in the electric industry. In response to this mandate, the NHPUC initiated and finalized guidelines for the proposed pilot in early 1996.

Guidelines issued by the NHPUC laid out the basic pilot design and monitoring and evaluation procedures to be followed. The pilot program would enable the NHPUC to determine interest among customers and suppliers and scrutinize whether all customer classes benefit from its implementation. In addition, the financial impact of the pilot on utilities could also be evaluated. Directing the utilities to develop unbundled rates would be another plus.

Prior to the commencement of the proposed pilot for a 2-year term in May 1996, the NHPUC incorporated additional provisions in its design. The program planned to include customers of any one of the six franchised utilities in the State. Issues raised by a rural cooperative--the New Hampshire Electric Cooperative--precluded its participation. Customers of public power utilities were also excluded. The program has since been extended beyond May 1998.

Participants were to be randomly selected from the pool of volunteers to be limited to a total of about 17,000. Subject to this limit, residential and small customers could also participate in the pilot either individually or as a part of a "geographic area of choice." Suppliers could have access to 3 percent of each designated utility's existing retail load approximating about 51 megawatts. This total does not include new business and commercial load that may be served under the pilot program.

Utilities in the pilot program were required to disaggregate their bundled retail services into various cost components: customer service, transmission, distribution, conservation and load management, and power supply. The power supply function would be further split between market price and stranded cost components. In billing the customers, the utilities would show these items separately but would reduce the energy cost by the estimated market price for power. The offset for energy costs for residential customers was estimated to be 3.7 cents per kilowatthour, implying that the customer benefitted if power could be secured at a rate lower than the offset. In addition, participating customers were also given a credit equal to 10 percent of the customer's total bill, reflecting an incentive credit for participation.

During the duration of the pilot, suppliers and utilities had to abide by conduct rules specified by the NHPUC. To ensure reliability, every supplier was required to be a member of the New England Power Pool (NEPOOL) or have a contract with a NEPOOL member. Registration with NHPUC was also required. Utilities could not compete directly but could do so through their affiliates in the pilot.

In February 1997, the NHPUC released results of a survey of its pilot program conducted by the New Hampshire Institute for Policy and Social Science Research. According to NHPUC, the survey substantiates the value of pilot programs as a valuable tool and confirms the technical feasibility of retail competition. Critics contend that the New Hampshire experiment (with its own unique set of conditions) postponed consideration of certain critical issues to a later date and that its success in the pilot may not smooth implementation of retail competition to all customers. Its experience may also be difficult to transfer to other States.

New Jersey:

The New Jersey Central Power and Light Company, doing business as GPU Energy (GPU), voluntarily filed a petition with the New Jersey Board of Public Utilities (BPU) to establish a pilot program in Monroe Township, New Jersey. GPU's first plan (submitted in December 1996) proposed retail competition for all 11,900 residents of Monroe Township on an energy only basis. This plan, however, could not be implemented due to a lack of an acceptable supplier's bid.

Based on securing an acceptable supplier, the GPU filed a revised petition on August 15, 1997, for establishing the pilot program. The pilot incorporates a three-tiered pricing for residential, commercial, and industrial customers. The utility is not required to unbundle its rates. Instead, it will continue to bill each participating customer at prevailing tariff rates. At the same time, the participating customer will receive an energy credit not exceeding 2.7 cents per kilowatthour. The customer would also pay the energy charge claimed by the supplier and would benefit if the price was lower than the energy credit of 2.7 cents per kilowatthour. In the event that a supplier's energy charge exceeds the 2.7 cents per kilowatthour energy credit, GPU will absorb the resulting loss.

The BPU has taken care to ensure that cross-subsidization among different customer classes will not occur as result of implementing the pilot. The pilot commenced on September 15, 1997, and runs for a period of 1 year, but it can be extended until October 1998, when the first phase of competition is slated to begin in New Jersey.

New York:

The New York Public Service Commission (NYPSC) issued a decision in May 1996 seeking to promote competition in the electric utility industry in the State. To meet this goal, utilities in the State were directed to file restructuring and rate plans. In complying with this requirement, utilities crafted details of pilot programs to be established by them.

The State's first pilot, a two-part retail access pilot project called PowerPick, was approved as a result of an electric rate settlement for the Orange and Rockland Utilities, Inc. (O&R) on May 3, 1996. Phase I of this program, involving the larger industrial and commercial customers, went into effect on July 1, 1996. The amount of energy that customers in the Phase I program could purchase from alternative suppliers was limited by the minimum off-peak load requirements of the utility. This phase was fully subscribed. Its implementation was successful and resulted in savings to the participating customers. Phase II of the program, for residential and smaller commercial and industrial customers, commenced on January 1, 1997. Participation in this phase was lower than expected, and potential savings to customers were small.

Customers in PowerPick had to commit to remain in either program for 1 year. They could leave but could not rejoin for the next year. Load offered in Phase I was limited to 30 megawatts of off-peak demand and about 10 megawatts in the Phase II program. Extending the duration of this pilot beyond the initial 1-year period hinges on the results of review by the NYPSC.

In June 1997, the NYPSC approved a new 2-year retail pilot program. About 17,100 farmers and 600 food processors in the service territories of Niagara Mohawk Power Corporation, New York State Electric and Gas Company, Rochester Gas and Electric Company, and Central Hudson Gas and Electric Corporation were given the option to shop for electricity and other energy services. Customers in the territory of Orange and Rockland utilities could choose to participate in the utility's existing PowerPick program.

Subject to meeting specified eligibility criteria, participants could seek alternative sources of supply. While specifics differ among utilities in the pilot, they generally proposed to subtract from their bundled rates the market price of energy and capacity. Only one utility--the Central Hudson Gas and Electric Corporation--indicated that it will recover 50 percent of its lost revenues associated with nonfuel production costs. In addition, utilities will back out an additional amount to include costs other than energy and capacity. Thus, delivery rates offered range from 2.2 to 3.8 cents per kilowatthour (exclusive of the backout amount). Recovery of strandable costs is embedded in these rates.

Information on loads is not readily available and depends on the aggregate number of participants. (By the end of December 1997, nearly 5,000 participants had joined the pilot.) Utilities in the program have an obligation to provide initial reports 3 months after the start of the pilot to the NYPSC. Since all utilities (except Rochester Gas and Electric Company) had to start their pilots no later than November 1, 1997, data on loads and other issues will become available sometime in 1998 for evaluation.

The Consolidated Edison Company of New York also established a pilot program, called Retail Choice, due to start June 1, 1998. The program was originally filed to serve approximately 63,000 customers, for a total load of 500 megawatts. However, customer demand for the program was strong and the pilot expanded to a load of 1,000 megawatts. Additional loads of 1,000 megawatts will be offered in 1999 and 2000. Pilot programs of other utilities are also subject to changes due to the announced policy of NYPSC to implement full retail access by December 2001.

Oregon:

Portland General Electric Company (PGE) voluntarily filed a direct access pilot program in August 1997. The Customer Choice Pilot Program, approved October 21, 1997, runs from December 1, 1997, through December 31, 1998. The pilot allows 50,000 retail customers in four Oregon towns to choose their electric suppliers. In addition, all industrial customers throughout Oregon having a load greater than 5 megawatts will also be eligible to participate. Under this pilot program, approximately 15 percent of the utility's system load will become eligible for retail choice.

The pilot introduces seven Energy Service Providers (ESP) in the program. Customers have the option to aggregate their demands and secure a better deal with an ESP. PGE will continue to bill for distribution services (made up of a basic charge and a usage charge). These charges are derived by subtracting PGE's energy cost from the total bundled costs. The ESPs bill customers for energy.

Another Oregon investor-owned utility, Pacific Power and Light Company (PacifiCorp), filed an Experimental Customer Choice Program in January 1998. The pilot was approved April 1998 and includes residential and small commercial customers in Klamath County who will be able to choose from a "portfolio" of pricing options offered by the utility. Also included in the filing are schools and large industrial customers located in PacifiCorp's territory in Oregon. Pricing configurations under the "portfolio" approach include market-based pricing and renewable energy options. The utility plans to participate in the pilot as an energy service provider through an affiliate.

Pennsylvania:

On December 3, 1996, the Pennsylvania legislature passed into law the Electricity Generation Customer Choice and Competition Act of 1996. The legislation opens electric utility generation in the State to competition. The Pennsylvania Public Utility Commission (PPUC) is authorized to order electric utilities to submit proposals for retail access pilot programs as a prelude to testing the full impacts of competition. The legislation also outlines a set of procedural requirements in establishing pilots.

In compliance with the legislative directive, the PPUC first established goals to be achieved and guidelines for the State's pilot program. Next, the PPUC directed all major jurisdictional utilities in the State to file pilot proposals consistent with these goals and guidelines by March 1, 1997.^a

In response, eight investor-owned jurisdictional utilities filed company-specific pilot programs. The PPUC issued preliminary opinions and orders in May and June 1997 which became the subject of further comments and hearings. A joint settlement applicable to all utilities, announced on August 21, 1997, paved the way for establishment of eight retail pilot programs starting on November 1, 1997, and continuing until December 31, 1998.

Requirements for the eight pilots are similar for each utility. Each utility's pilot provides choice for approximately 5 percent of its non-coincident peak load for each customer class. Estimated loads, however, vary among utilities from a low of about 11 megawatts for UGI Utilities Inc., to a high of about 422 megawatts for PECO Energy Company, totaling over 1,300 megawatts of load. About 250,000 customers are expected to participate in these pilot programs. Since the pilot programs were oversubscribed during the open enrollment process, utilities selected participants by conducting a lottery.

Participating customers are entitled to a generation credit and a customer participation credit, depending on their customer class category and their location. The generation credit for residential and commercial customers is 3.0 cents per kilowatthour. Industrial customers will receive a 2.4 cents per kilowatthour credit. The customer participation credit, which is based on the utilities' delivery charge, is 13 percent for residential and commercial customers and is reduced to 10 percent for industrial customers. Some variations in these rates are permitted to accommodate special circumstances of specific utilities. For example, the customer participation credit for all customers classes of UGI Utilities Inc. is somewhat lower (5 percent for residential and commercial customers and 8 percent for industrial customers). Customers save money when they can purchase energy at a rate lower than the generation credit.

Although the utilities did not fully unbundle their rates except for the limited purpose of the pilot, customers still contribute to the recovery of stranded costs. The total rate chargeable to customers by utilities includes unbundled distribution and transmission rates, as submitted by utilities. In addition, a competitive transition charge (based upon a 75 percent recovery of utilities' generation costs in excess of the State-wide market rate for energy and capacity estimated at 3.0 cents per kilowatthour) is also included.

The PPUC requires utilities to abide by requirements in other operative areas. Customer education and protection programs are mandated, along with provisions for service, safety, and reliability. Billing and metering procedures are specified. A quarterly evaluation procedure aims to fine tune the program.

Washington:

Pilot programs were filed by two investor-owned utilities in Washington State--the Washington Water Power Company (WWPC) and the Puget Sound Power and Light Company (PSP&L).

WWPC voluntarily filed three pilot programs. The first pilot program, the Direct Access Delivery System (DADS), was approved to begin in August 1996 and to continue through August 1998. DADS is limited to large commercial and industrial customers. Eligible customers can transfer up to a third of their current load. In total, about 27 megawatts of the utility's load will be eligible. Customers will pay approximately 1.5 cents per kilowatthour for transmission and distribution costs. WWPC will absorb all transition costs during the pilot.

WWPC's second pilot, More Options for Service Providers (MOPS), is smaller in scale, with 981 customers in two towns eligible for a total load of 2 megawatts. The pilot began July 1, 1997, and will conclude June 30, 1999. The pilot's size was reduced from the originally proposed 8.2 megawatts of load and 2,800 customers due to a lack of interest by suppliers. Rates for transmission services vary based on type of service. Stranded costs are split evenly between WWPC shareholders and customers in the MOPS pilot.

The third customer choice pilot program--MOPS II--was approved in February 1998. The primary difference between MOPS II, and the MOPS and DADS pilots is the availability of energy service alternatives to customers without their having to change energy service providers. To facilitate the implementation of MOPS II, eligible customers (consisting of about 7,800 residential, small commercial, large commercial, and agricultural pumping service customers in Washington and Idaho States) would have access to a menu of energy service alternatives at market prices reflecting actual competition among suppliers. The utility asserts that the MOPS II model would extend economic benefits of competition to the customers. The pilot is for a 2-year duration from May 1, 1998, through April 30, 2000, with a total eligible load of about 16 megawatts between the two States.

As part of the approval of its market transition plan, the Puget Sound Power & Light Company (PSP&L) was required to file a retail pilot program. The pilot runs from November 1, 1997, through December 31, 1999. All customer classes may participate in selected geographic regions. The maximum number of participants is 10,321, with a total load of about 32 megawatts. The largest loads are subject to a 5-megawatt cap. Customers participating in the pilot will be offered rate discounts that vary according to customer class, with residential customers receiving the largest discounts. Separate distribution rates were also established. PSP&L will absorb or defer the costs of the pilot.