NARUC Energy Regulatory Partnership Program

The Georgian National Energy Regulatory Commission and

The Vermont Public Service Board

by Ann Bishop

Vermont Public Service Board

July 2, 2008

Regulating Service Quality in Vermont

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Overview

Who should monitor service quality and why

Board’s authority for regulating service quality

Reasons for setting standards Methods for regulating service quality Measuring service quality Vermont service quality plans Enforcement

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Who Should Monitor Service Quality and Why

Utilities– Meet statutory requirements– Provide reasonable customer service and build

customer loyalty– Measure company performance, possibly tied to

employee and management incentive plans Regulators

– Enforce statutory requirements– Protect consumers

But, pressure on utilities to cut costs can result in inadequate service quality– Competition has not been an adequate substitute

for regulatory monitoring– Move to competitive markets increases the

importance of regulatory monitoring

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Board’s Authority for Regulating Service Quality

Companies must “furnish reasonably adequate service, accommodation and facilities to the public” (30 V.S.A. §219)

Board has jurisdiction over “the quality of any product furnished or sold” by regulated companies and must ensure utility operation is “reasonable and expedient” and “promote[s] the safety, convenience and accommodation of the public” (30 V.S.A. §209)

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Reasons for Setting Standards

Measurable standards give meaning to “reasonably adequate service” and thereby facilitate enforcement

Standards can:– Focus management attention on critical

indicators – Prevent service deterioration in an

environment with pressure to cut costs– Allow for comparison across companies

when standards are the same or similar– Provide public accountability if results are

published

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Methods for Regulating Service Quality

Statute – unusual, too specific Rules Generic standards by industry Company-specific service quality

and reliability plans Litigation of specific service

quality problems or inclusion of service quality issues in rate cases

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Standards Set by Rule

Advantages– Uniform across target industry or multiple industries– Easily communicated

Disadvantages– Relatively hard to provide variations by company– Relatively difficult to adapt to changing conditions– Many parties involved in adoption process so results

may be less fine-tuned, weaker than other approaches

Rulemaking most effective for codifying well-established standards on distinct topics– Example: electric reliability reporting

Board Rule 4.900 requires reliability reporting by electric utilities

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Standards Set by Generic Docket

Generic docket in which all industry participants can be parties

Advantages– Uniform within target industry– Relatively easy to communicate (one docket applies to

all) Disadvantages

– Relatively hard to provide variations by company– Relatively difficult to adapt to changing conditions– Many parties may make lowest common denominator

the result Vermont has generic service quality standards

and reporting for all wireline telephone companies

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Standards Set Through Individual Company Plans

Plans negotiated or litigated on a company-specific basis

Advantages– Permits tailoring of standards to each

company based on areas where improvement may be needed

– Permits tailoring of measurement protocols to each company’s systems, reducing the need for costly system changes

– Plans are more detailed (including data sources and measurement protocols), thereby increasing confidence in data quality

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Standards Set Through Individual Company Plans

Disadvantages– Lack of uniformity unless efforts are made to

develop consistency– Plans may need frequent amendment when

companies make changes to internal systems

All Vermont energy companies and the largest telecommunications company operate under individually negotiated service quality and reliability plans

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Standards Set Through Rate Cases or Other Litigation

Litigation of service quality problems either in the context of rate cases or as stand-alone cases– May be litigated or negotiated

Advantages– Highly targeted to specific, documented instances of

poor service– Expedient (and efficient) means of solving specific

problems Disadvantages

– Most effective for narrow and specific issues rather than broad, systemic approach to general service quality

– Generally a less collaborative approach than other models; companies may feel forced to come to the table by connection to rate issues

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Standards Set Through Rate Cases or Other Litigation

Recent example: – Customer raised reliability concerns at a public

hearing in a rate case for a large electric utility– Board asked utility to provide information

about the reliability of the customer’s service during the technical hearings

– Evidence showed that customer’s service was not reasonably adequate

– Board required utility to identify and implement measures to improve the customer’s service

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Measuring Service Quality -- Principles

Select what is most important to consumers

Keep it simple (limit number of measures) Prevent improvement gained at the

expense of something that isn’t measured If possible, work within existing utility

systems to minimize implementation costs Use industry-accepted benchmarks where

available and meaningful

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Measuring Service Quality -- Components

Performance area– What to measure

Performance threshold– Where to set the baseline

Sources of data– What utility systems or procedures

will provide the data to measure performance

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Measuring Service Quality – Data Collection

Different utilities collect different types of data, depending upon their systems– In Vermont, many smaller electric utilities do not

have automated phone answering systems, and therefore are unable to collect data on how many calls are answered within a specified number of seconds

Even when utility systems are capable of collecting the data, they might not have done so in the past– Initial electric service quality plans required utilities

to collect data related to a few performance standards for a year before baselines were developed for those standards

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Measuring Service Quality – Data Collection

When utility systems change, performance standards or baselines might also need to change– A large utility acquired a new system

for measuring outages that captured more information; the baselines for reliability performance standards were adjusted upwards to reflect the improved measuring capabilities

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Measuring Service Quality -- Baselines

Consider accepted national norms from industry groups

Consider individual utility’s historical performance– Where appropriate, standards can target service

improvement over time– Where utility is performing adequately, standards

should be set to prevent deterioration Consider reasonable customer expectations Remember:

– “Reasonably adequate” service is not the same as excellent service

– Cost of improving poor performance may be high and may be reflected in rates

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VT Service Quality Plans – What is Measured (Electric)

Customer service– Customer service answer time, abandon rate,

busy signals, outage call answering, blocked calls

– Billing accuracy, timeliness of billing and payment posting

– Meter reading (actual or estimated bills)– Field work (line extensions and other)

completed as promised, length of delay when jobs are late

– Customer satisfaction – transactional and overall as measured by surveys and complaints to regulators

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VT Service Quality Plans – What is Measured (Electric)

Reliability– SAIFI: System Average Interruption

Frequency Index– CAIDI: Customer Average Interruption

Duration Index Worker safety

– Lost time incident rate (incidents causing injury)

– Lost time severity rate (number of employee days lost)

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VT Service Quality Plans – Sample Performance Standards (Electric)

>75% of calls reach a company representative within 20 seconds

>99.9% of bills rendered within 7 days of scheduled billing date

>90% of meters read monthly >95% of customer-requested work completed

by promised date >80% of customers satisfied or completely

satisfied with utility (based on telephone survey of valid random sample)

Lost time incident rate of <3.5 SAIFI of <2.5, CAIDI of <3.5

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VT Service Quality Plans – Financial Consequences

Service guarantees (electric and gas only)– Utilities must give credit for service not

delivered as promised or on time $10 payment for inaccurate bill Waiver of installation charges for missed

appointment

– Consumer who suffered poor service is compensated directly

– Not all aspects of service quality are amenable to guarantees (for example, call answering performance)

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VT Service Quality Plans – Financial Consequences

Service quality compensation– Utilities must pay customers if miss certain performance

standards– Amount of payment increases based on how much the

utility missed the baseline– For investor-owned electric utility, maximum annual

payment is 0.75% of revenues (shareholders pay)– For municipal or cooperative utility, maximum annual

payment is considerably less– For telecommunications utility, maximum annual

payment is $10.5 million (approximately 8% of revenues) The maximum annual payment was deliberately set high to

counteract the cost-cutting pressures due to competition

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VT Service Quality Plans – Financial Consequences

Utilities may request a waiver of penalties, must demonstrate:– Circumstances causing the failure

were outside the utility’s control– Utility’s level of preparedness and

response was reasonable in light of the cause of the failure

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VT Service Quality Plans – Financial Consequences

Board has granted and denied waiver requests– Granted waiver of service guarantees when

error in electric utility’s billing software resulted in very small overcharge (approx. $0.38) in 10,500 customer bills

– Denied waiver of service quality compensation due by telecommunications utility as result of multiple missed performance standards (at same time, did grant waiver of one missed standard)

Did allow utility to use $6 million of $8 million penalty to invest in network improvements; remaining $2 million was credited to customers on their bills

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Enforcement – Vermont Service Quality Plans

Utilities report performance quarterly (reliability and worker safety measures are reported annually)

Regulators can audit a utility’s reporting anytime

Compliance is measured by 12-month rolling average to account for seasonal variation in performance

Action plans required for severely deficient quarterly results

Utilities report performance annually to their customers

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Enforcement – Other Mechanisms

Reduction in allowed return on equity Fines

– Vermont law permits fine up to $100,000 or 0.1% of gross Vermont revenue per violation

Imposition of performance conditions Probation Revocation of Certificate of Public

Good