2. Background

Through direct access (DA), eligible retail customers have the choice to purchase electric power directly from an independent electric service provider (ESP) rather than only through an investor-owned utility (IOU). DA was first instituted as an option for retail electric service in 1998, as part of an industry restructuring program to bring retail competition to California electric power markets.¹

The electric industry restructuring program was cut short, however, by the events of 2000-2001 which led to extraordinary wholesale power cost increases, threatening the solvency of California's major electric utilities and the reliability of electric service. On February 1, 2001, AB 1 from the First Extraordinary Session (Ch. 4, First Extraordinary Session 2001) (AB1X) was signed into law, implementing measures to address the energy crisis. Among other measures, AB1X required the California Department of Water Resources (DWR) to procure electric power supplies sufficient to meet the net short for customers of the IOUs.²

DWR formally began procuring electric power for customers in the service territories of the three major IOUs in early 2001. AB1X authorized DWR to recover its power costs from electric charges established by the Commission. (Water Code § 80110.)

To ensure that DWR procurement costs were assigned fairly and recovered from a stable customer base, the Legislature, among other measures, suspended the DA program. Pursuant to AB1X, the Commission suspended the right to enter into new contracts for DA after September 20, 2001,³ permitting no new DA contracts, but allowing preexisting contracts to continue in effect. The Commission opened this proceeding to investigate conditions whereby DA may be reinstituted in the future, although the suspension has continued in effect up until the present time.

On October 11, 2009, Senate Bill (SB) 695 was signed into law as an urgency statute. SB 695 adds Section 365.1 (b) to the Public Utilities Code, which states in pertinent part:

The commission shall allow individual retail nonresidential end-use customers to acquire electric service from other providers in each electrical corporation's distribution service territory, up to a maximum allowable total kilowatt hours annual limit.

Except for this express authorization for increased DA transactions under SB 695, the previously enacted suspension of DA transactions remains in effect until repealed by legislation, or until additional DA transactions are otherwise authorized.

Within six months from the effective date of SB 695⁴ or July 1, 2010, whichever is sooner, the Commission must adopt and implement a schedule to begin the phase-in of authorized increases in the maximum amount of DA transactions over a period of at least three years, but not more than five years. The allowable limit of DA power supplied by other providers in each electric utility's distribution service territory will be increased to the maximum allowable annual limit for that utility's distribution service territory as of the effective date of SB 695. The Commission may, if appropriate, modify its currently effective rules governing DA transactions, but such review shall not delay the phase-in schedule.

In order to expeditiously implement SB695, the assigned Commissioner initiated this sub-phase of the proceeding by issuing a ruling amending the scope of this proceeding to address issues as necessary for implementing the provisions of SB 695 relating to DA. By ruling dated November 18, 2009, the assigned Commissioner identified the pertinent DA provisions of SB 695 to be addressed in this proceeding, and established a schedule to meet the SB 695 timing requirements. Parties filed comments on the scope of issues to be addressed in this sub-phase on December 7, 2009. The assigned Commissioner issued a ruling modifying the scope of issues to be addressed by ruling dated December 17, 2009. The record was developed through the filing of written comments, with one workshop. No evidentiary hearings were necessary.

Substantive comments were filed on January 5, 2010.⁵ A workshop was convened on January 11, 2010, to facilitate discussion and seek consensus on issues in dispute. Reply comments were filed on February 1, 2010.

¹ See Decision (D.) 95-12-063, as modified by D.96-01-009 (1995) 64 Cal. PUC 2d 1, 24 (Preferred Policy Decision). The Legislature codified the Preferred Policy Decision in Assembly Bill (AB) 1890 (Stats. 1996, ch. 854) (AB 1890).

² The net short is the difference between customer loads and the power already under contract to the utilities or generated from a utility-owned asset.

³ See D.01-09-060 and Pub. Util. Code §§ 366 or 366.5.

⁴ SB 695 was chaptered on October 11, 2009 and as urgency legislation, took effect immediately. Six months from the effective date of SB 695 is April 11, 2010.

⁵ Opening Comments and/or reply comments were filed by the California Alliance for Choice in Energy Solutions and the Alliance for Retail Energy Markets (CACES/AReM), the Direct Access Customer Coalition (DACC), Pacific Gas and Electric Company (PG&E), BP America (BP), the California Large Energy Consumers Association (CLECA), California Manufacturers and Technology Association (CMTA), Commercial Energy of California (CEC), the Division of Ratepayer Advocates (DRA), The Utility Reform Network (TURN), the Natural Resources Defense Council (NRDC), Southern California Edison Company (SCE), the Safeway Parties (Safeway), San Diego Gas & Electric Company (SDG&E), Silicon Valley Leadership Group, School Project for Utility Rate Reduction, the California State Universities, and Customized Energy Solutions, LTD.