PSC staff pact sharpens O&R's competitive edge, OKs retail choice "PowerPick"

Business Wire, April 10, 1996

PEARL RIVER, N.Y.--(BUSINESS WIRE)--April 10, 1996--Orange and Rockland Utilities Inc. and the NY State Department of Public Service staff have signed an agreement that dramatically sharpens the company's competitive market edge by approving a revolutionary O&R pilot program -- one of a handful in the U.S. -- that allows participating customers for the first time to choose their electric energy supplier.

The innovative experiment, dubbed "PowerPick", if successful, could serve as a model for the transition to how electric energy is bought and sold in the future across the nation.

The agreement also permits the utility to reduce its overall electric base rates by another 2.3 percent -- the third time it has cut base rates in less than a year -- making the overall base rates 6.4 percent lower than this time last year.

And, the agreement approves O&R's plan to achieve higher consumer satisfaction through a new program that offers cash or credit rebates to customers if O&R doesn't meet specified service guarantees such as keeping service appointments.

The agreement, which was also signed by the state Consumer Protection Board and the Industrial Energy Users Association, both of whom were key parties to the negotiations, still requires a vote of the New York State Public Service Commission (PSC) before it becomes effective.

O&R vice chairman and chief executive officer D. Louis Peoples said, "This agreement provides O&R with the tools to rapidly and effectively build an industry leadership position of unparalleled strength."

PowerPick, called the Retail Access Pilot Program in the agreement, represents a significant step in the transition to a competitive electric industry and is the first of its kind in New York, New Jersey and Pennsylvania.

As the competitive market becomes a reality for the electric industry, there is a great deal of uncertainty about the timing and scope of any program that would provide retail customers on a large scale with access to providers other than the incumbent utility. PowerPick, the pilot program, devised by the parties to this agreement, represents a fundamental, yet controlled, change in the way the industry has operated for at least the past 80 years.

PowerPick is designed to provide participants from all classes of customers with the choice to select an energy supplier other than O&R. It is also designed to minimize any potential adverse impacts on non-participants and to maintain the company's generation system reliability.

As a result, on June 1st, pending the PSC's approval, O&R's largest industrial customers will have the option of buying their energy from O&R or any alternative suppliers. Beginning Jan. 1, 1997, that option will also be made available to small commercial and industrial customers and about 1,500 residential customers. Enrollment for that part of the program is due to begin in October so that an extensive consumer outreach and education effort can be made.

At the same time, program participants will continue to buy capacity and to take delivery from O&R, thereby protecting the interests of the utility's shareholders and all its non-participating customers.

Today's agreement also provides for a major new commitment by O&R to its customers -- a Service Guarantee Program -- beginning June 1.

Peoples said, "We are literally putting our money where our mouth is to back up our service guarantees that for residential customers would provide a refund or credit of $25 every time we don't meet our goals."

O&R promises include: keeping all scheduled appointments on time, respecting its customers' property, reading meters accurately, and repairing dusk-to-dawn lights and streetlights within five working days.

When it comes to customer satisfaction, few program improvements compare to lower prices, so O&R has cut its prices for the third time in less than a year, totalling a 6.4 percent overall electric base rate reduction since last May.

The agreement, which still requires a PSC vote, lowers O&R's overall electric base rates 2.3 percent, with large commercial and industrial customers receiving a somewhat greater portion of this reduction than residential customers. That distinction is drawn in order to bring these customer classes closer to a true cost of service and encourage economic growth. Under this proposal, no change to base rates is permitted until May, 1999.

Peoples said, "We achieved this goal by cutting our operating and maintenance and other expenses, trimming our capital spending, and slashing interest on our long-term debt."

In addition to charging lower base rates, the agreement would allow the company:

o An opportunity to earn a return on equity of up to

10.9 percent.

o To recover all non-utility generator contract termination

costs.

o To be held accountable for newly established customer

satisfaction and service reliability performance standards.

If the PSC votes to adopt today's settlement agreement, a typical residential customer using 500 kwh per month who now pays $66.57 per month during the winter months will pay $65.85.