1. Introduction

The Direct Access (DA) program provides for limited retail competition for electric power procurement¹ whereby eligible retail customers can choose to purchase electric power directly from an independent electric service provider (ESP) rather than through an investor-owned utility (IOU). This decision resolves Phase III issues in this proceeding relating to the rules and methodologies applicable to DA and Departing Load (DL) electric service.

In this decision, we adopt various updates and reforms in the rate setting methodologies and rules applicable to DA service in recognition of regulatory and industry changes that have occurred in recent years. In 2006, we last adopted major changes in methodologies to determine surcharges on DA and DL customers to ensure that cost responsibility continue to be accurately assigned, consistent with the principles of bundled ratepayer indifference. Regulatory and market changes since 2006 warrant updates to the adopted methodologies so that we continue to ensure that cost responsibility is appropriately assigned.

We thus adopt the following reform measures. First, we revise the methodology for the market price benchmark used to calculate DA customers' cost responsibility necessary to maintain bundled customer indifference. The same market price benchmark, as specified herein will continue to be used to compute the Competition Transition Charge (CTC) and the Power Charge Indifference Adjustment (PCIA). Specifically, we adopt a provision to recognize renewable resource attributes in the market benchmark. We remove from the total portfolio calculation load-related costs incurred by the independent system operator. We revise the total portfolio load profile calculation to better reflect time of use load variations. We also adopt conforming changes in the temporary bundled service rate to be consistent with the changes adopted in the market price benchmark calculation.

We also review the rules governing the rights and obligations for switching between bundled and DA service. We retain the existing six-month advance notice requirements for switching, but reduce the requirement for a three-year stay on bundled service down to only 18 months, applicable to DA customers seeking to return from bundled back to DA service. We also adopt provisions to meet the statutory financial security requirements applicable to Electric Service Providers (ESPs) to cover the risk of an en masse involuntary return of ESP customers to bundled service. This decision addresses the financial security issues pertaining only to ESPs and the DA/DL market. We make no prejudgment concerning how those issues may be resolved with respect to Community Choice Aggregators, which matter remains pending in Rulemaking (R.) 03-10-003.

We define the applicable re-entry fee and ESP financial security requirements for en masse involuntarily returned DA customers as generally being limited to the administrative costs of switching customers to bundled service. In order to prevent cost shifting to bundled customers, we require that involuntarily returned large commercial and industrial DA customers bear the risks of increased procurement costs through payment of the Temporary Bundled Service tariff. However, we also determine that the re-entry fee and ESP financial security requirements for involuntarily returned small commercial and residential DA customers should include a provision to cover their incremental procurement costs. For this purpose, we intend to limit this latter requirement to exclude small commercial DA customers that are affiliated with a large DA customer. We defer to the next phase of this proceeding the specific process by which to define small commercial customers for purposes of calculating the ESP financial security requirement.

While we conclude that our adopted re-entry fee and ESP financial security requirements meet applicable statutes, we recognize that evolving conditions over time may warrant a subsequent review of cost responsibility for involuntarily returned customers at a future date. The Commission may undertake such a future review as conditions warrant. The provisions we adopt advance the principles of promoting competitive choice for electric procurement within the limits permitted by statute and Commission rules while also continuing to protect bundled ratepayers from cost shifting.

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).