Word Document PDF Document

COM/CXW/mnt * * ALTERNATE DRAFT 7a

Agenda ID # 2074

Decision ALTERNATE PROPOSED DECISION OF COMMISSIONER WOOD

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking Regarding the Implementation of the Suspension of Direct Access Pursuant to Assembly Bill 1X and Decision 01-09-060.

Rulemaking 02-01-011

(Filed January 9, 2002)

(See Decision 02-11-022 for a list of appearances.)

ORDER ADDRESSING CONTINUATION of ARRANGEMENTS

FOR DIRECT TRANSACTIONS,

Including the "SWITCHING EXEMPTION"

Table of Contents

Title Page

ORDER ADDRESSING CONTINUATION of ARRANGEMENTS 22

FOR DIRECT TRANSACTIONS, 22

Including the "SWITCHING EXEMPTION" 22

I. Background 33

II. Implementing Direct Access Suspension under Water Code section 80110 1818

III. Rehearing and Judicial Review 3939

IV. Comments on the Alternate Decision 3939

V. Assignment of Proceeding 4343

Findings of Fact 4343

Conclusions of Law 4444

ORDER 4545

Today's decision reiterates and clarifies our rules regarding the rights and obligations of utility customers to engage in direct transactions1 or continue direct access (DA) arrangements following the Legislature's suspension of DA which the Commission made effective on September 20, 2001. This includes consideration of the legality of the so-called "switching exemption" pursuant to the rehearing of Implementation of the Direct Access Suspension Decision [Decision (D.) 02-03-055] (2002), ___ CPUC 2nd ___, granted by the Commission in Order Granting Limited Rehearing of the Switching Exemption Issue, Modifying the D.0-2-03-066 for Purposes of Clarification, and Denying Rehearing of the Decision, as Modified, on All Other Aspects ("Rehearing Order on D.02-03-055") [D. 02-04-067] (2002), ___ CPUC 2nd ____.

We confirm our prior decisions providing for continuation of direct access, including assignment and renewal involving designation of a new electric service provider (ESP), where a pre-September 20, 2001 contract provides for continuation. We specifically reject a proposed "switching exemption"2 which would permit certain customers to flip between bundled service and direct access, after the September 20, 2001 suspension date. That proposal does not comport with Water Code 80110, in which the Legislature suspended the right to acquire electric service from other providers. It would exacerbate the problems created by our decision in Direct Access Cost Responsibility Surcharge Decision ("DA CRS Decision") [D.02-11-022] (2002) ____ Cal.P.U.C.2d ___ to adopt a cap on the recovery of costs from DA customers at a level that severely impacts bundled electric customers. As we have previously ruled on three separate occasions,3 we will provide for continuation of DA service for customers of the utilities and DWR where those customers (1) had a pre-suspension contract with an express provision addressing renewal and/or assignment of the contract and (2) have not terminated direct transactions through a resumption of bundled service. We clarify that the resumption of bundled service terminates DA service, whether it occurred prior to September 20, 2001 or afterwards.

The right of electric customers to engage in direct transactions -- direct access -- is a statutory program that has been suspended by the Legislature upon the issuance of an order of the Commission pursuant to the legislative directive. Attempts to revive it or extend it should be addressed to the Legislature.

I. Background

DA service was authorized as part of California's electric restructuring program in the late 1990's, whereby retail electricity customers were permitted to choose the entity from which they purchase the energy portion of electric service. Customers could receive "bundled" service from the public utility authorized by franchise, statute and Commission order to serve them; or they could contract for DA service from an electric service provider (ESP). Customers who purchase bundled service pay an electricity charge to cover the utility's power supply costs. Bundled service customers' total bill includes charges for all utility services, including distribution and transmission as well as electric energy. A DA customer receives distribution and transmission service from the utility, but purchases electric energy from an electric service provider (ESP). (See generally, Re Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation ("Direct Access Decision"), [D.97-05-040], (1997), 72 CPUC 2d 441 and Re Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation ("DA Implementation Plans Decision") [D.97-10-087], 1997), 76 CPUC 2d 287.

The Legislature authorized acquiring electric energy through direct transactions reflecting to these arrangements, Pub. Util. Code sections 365(b) and 366, added by Chapter 854, Stats. 1996 (AB 1890 (Brulte), hereafter "AB 1890"). D.97-05-040, Conclusions of Law 1, 6, 12; 72 CPUC 441, 492 (1997).4 In AB 1890 the Legislature created a limited exemption from utility status for ESPs who offer direct transactions. Pub. Util. Code sections 216(h) (formerly numbered 216(i)), 218.3 and 394(f). The Commission's implementation of the relationships among customers, utilities and ESPs is generally contained in Rule 22 of the tariffs of Pacific Gas and Electric Company, and Southern California Edison Company, and Rule 25 for San Diego Gas and Electric Company, respectively.5 DA service became available on April 1, 1998 and was available to customers until suspended on September 20, 2001.

Pursuant to the Governor's Proclamation of January 17, 2001,6 Senate Bill No. 7 (Burton) from the First Extraordinary Session of 2001-2002 (S.B. 7X), Stats. 2001, 1st Extraordin. Sess., ch. 3, and Assembly Bill No. 1 (Keeley, et al.) from the First Extraordinary Session of 2001-02 (AB 1X), Stats. 2001, 1st Extraordin. Sess, ch. 47, the California Department of Water Resources (DWR) was authorized to procure electricity on behalf of the customers of the public utilities regulated by the Commission, as part of the State's response to the Energy Emergency. In AB 1X the Legislature also directed the Commission to set a date for the "suspension" of DA, at a point in time after the passage of the bill as determined by the Commission. Water Code section 80110.

That statute articulates a broad policy approach to rate recovery of DWR costs. It provides in pertinent part:


80110. The department shall retain title to all power sold by it to the retail end use customers. The department shall be entitled to recover, as a revenue requirement, amounts and at the times necessary to enable it to comply with Section 80134,8 and shall advise the commission as the department determines to be appropriate. Such revenue requirements may also include any advances made to the department hereunder or hereafter for purposes of this division, or from the Department of Water Resources Electric Power Fund, and General Fund moneys expended by the department pursuant to the Governor's Emergency Proclamation dated January 17, 2001. For purposes of this division and except as otherwise provided in this section, the Public Utility Commission's authority as set forth in Section 451 of the Public Utilities Code shall apply, except any just and reasonable review under Section 451 shall be conducted and determined by the department.... In no case shall the commission increase the electricity charges in effect on the date that the act that adds this section becomes effective for residential customers for existing baseline quantities or usage by those customers of up to 130 percent of existing baseline quantities, until such time as the department has recovered the costs of power it has procured for the electrical corporation's retail end use customers as provided in this division. After the passage of such period of time after the effective date of this section as shall be determined by the commission, the right of retail end use customers pursuant to Article 6 (commencing with Section 360) of Chapter 2.3 of Part 1 of Division 1 of the Public Utilities Code to acquire service from other providers shall be suspended until the department no longer supplies power hereunder. The department shall have the same rights with respect to the payment by retail end use customers for power sold by the department as do providers of power to such customers. (emphasis added)

Pursuant to this statute the Commission adopted a series of orders raising retail electric rates in March and April 2001 and apportioning revenues derived from electric sales among utilities and the department, including D.01-03-082 (raising rates), D.01-03-081 (apportioning revenues), D.01-05-064 (approving electric rate design that shields residential customers from certain rate increases.)

Specifically with respect to the underlined portion of the statute, on September 20, 2001 the Commission issued The DA Suspension Decision, D.01-09-060, setting the effective date for suspension of the right of customers to acquire service from providers other than DWR and the utilities at September 20, 2001. By that date, DWR had expended more than $9 billion in public funds providing electric service to utility customers, and had obligated the State to more than $43 billion in long-term contracts for future deliveries of electric energy. A principal concern of the Commission when it issued D.01-09-060 was to assure a stable customer base for payment of these obligations. The Commission was also concerned to prevent shifting of cost responsibility between customers as the result of migration by certain customers from bundled service to DA after adoption of the retail electric surcharges.

Governor Davis reiterated this concern in his veto message for Assembly Bill No. 9 from the First Extraordinary Session of 2001-2002 (A.B. 9X) issued on October 14, 2001:


"Last June, approximately two percent of the customer load in the territory served by the three investor-owned utilities (IOUs) were receiving power from direct access providers. The Public Utilities Commission (PUC) recently suspended direct access, but the percentage of load subject to direct access transactions grew to as much as 13 percent or more prior to the suspension. That growth creates a significant and unfair cost burden for those customers who continue to receive power from the IOUs and the Department of Water Resources.


"This rapid growth in direct access necessitates more concise cost-containment provisions for the remaining IOU customers than those contained in this bill, and those provisions should apply to all direct access contracts.


"Moreover, this bill does not clearly authorize fees to cover costs that may result when direct access customers return to service with an IOU, which would create new and unanticipated procurement obligations for the IOU. Those new procurement obligations could come about solely because the direct access provider no longer chooses to provide service to its customers because of rising electricity costs, and instead passes that burden on to the IOU and its customers.


Any efforts to allow direct access must be equitable for all stakeholders."

In D.01-10-036, issued on October 10, 2001 as the Commission's order addressing applications for rehearing of D.01-09-060, the Commission reiterated its intention that any DA- related actions by utilities continuing DA service for their customers after the suspension date must relate only to pre-September 20, 2001 contracts and arrangements. . (See Order Modifying Decision (D.) 01-09-060 and Denying Rehearing, As Modified [D.01-10-036], supra, at p. 21 [Fn. 10] (slip op.) & related text.).

In DA Suspension Decision [D.01-09-060], we reserved for subsequent consideration certain matters related to implementation issues concerning the DA suspension.9 Foremost among these was the question of when the suspension would be considered to have taken effect - on September 20, 2001, the date of the decision or on an earlier date. On January 14, 2002, we instituted the instant Rulemaking R.02-01-011 to consider the implementation issues. As an initial phase of that proceeding we issued Implementation of DA Suspension Decision [D.02-03-055], which confirmed the September 20, 2001 suspension date. That decision proposed to adopt a cost responsibility surcharge (CRS) applicable to the bills of the existing DA customers, to accomplish the objectives of assuring DWR cost recovery and to prevent cost shifting among customers that could result from the migration of customers to DA after the bulk of the costs had been incurred in the form of state expenditures and binding legal obligations to purchase energy.

In D.02-03-055 the Commission articulated a general "standstill principle" pursuant to which it would provide some flexibility for DA customers to preserve their DA service while assuring that over-all DA load would not increase, consistent with the statute.

The standstill principle was embodied in a set of twelve "rules" set out in the body of the order specifically governing utility and ESP conduct. These "rules" are:


1. ESPs shall have provided by October 5, 2001 a list of names of all customers with direct access contracts in place as of September 20, 2001.


2. To submit an ESP list, or to submit DASRs for its accounts, an ESP must (1) have in effect a valid ESP/UDC service agreement as of September 20, 2001, and (2) ESPs serving small customers must have in effect as of September 20, 2001 valid Commission registration as required by law.


3. Master agreements between ESPs and certain entities (other than the customers or end users of record) whose terms and conditions allow specific customers to elect direct access in the future (through execution of individual implementing agreements with customers), entered into on or before September 20, 2001 do not qualify as agreements for direct access service with end use customers.


4. Customers and accounts are allowed to switch from one ESP to another after September 20, 2001.


5. No customer is allowed to add a new location to its direct access service after September 20, 2001.


6. No customer is allowed to add a new or additional account to direct access service if that account involves installation of additional meters after September 20, 2001 or would require a new DASR to be submitted after September 20, 2001.


7. Direct access residential and small commercial customers may move from one address to another within the UDC service area and continue to be served by the ESP serving them prior to the move.


8. Direct access contracts may be assigned after September 20, 2001 to either a new ESP, or to a new retail end use customer representing approximately the same load at the same location.


9. A customer who had direct access prior to September 20, 2001, but who became a bundled customer before September 20, 2001 cannot return to direct access after September 20, 2001.


10. A direct access customer can change its identity (i.e., Jones Company to Acme Electronics) provided no other implementation restriction applies.


11. Community aggregators shall serve only direct access customers who chose community aggregation prior to September 20, 2001.


12. Returns to Bundled Service and Backbilling.

These "highlighted" statements were specifically adopted as part of the Commission's order by Ordering Paragraph 8. (See Implementation of Direct Access Suspension [D.02-03-055], supra, at pp. 18-25 (slip op.).) . In general they freeze the complement of ESPs at September 20 (Rule 2) and freeze the complement of DA customers and accounts at September 20 (Rules 1, 3, 5, 6 and 9). They do not abrogate or suspend the operation of "contracts in place" on September 20, 2001. Within the frozen complements of customers, accounts and ESPs as of September 20, changing ESPs by customers and accounts is permitted under certain circumstances. (See, Rules 4, 7, 8 and 10; and see, Findings of Fact 14 and 15, and Ordering Paragraphs 2 and 8 in id. at pp. 21, 22-23, 29 & 29 , & 31-32 (slip op.).)).

Among other things, the decision also purported to adopt an exception to the suspension order contained in D.01-09-060 by permitting contract renewals and assignments whereby DA customers could choose a new ESP and continue in a DA arrangement after September 20, 2001, even if they had terminated DA service by returning to bundled service after September 20, 2001. The language embodying this concept is found under Rule 4. Implementation of DA Suspesion Decision [D.02-03-055], p. 21 (slip op.), and is referred to as the "switching exception" in the Rehearing Order, D.02-04-067.

The Utility Reform Network (TURN ) filed an application for rehearing of D.02-03-055, arguing that the "switching exemption" was unlawful and challenged its basis. (TURN's Application for Rehearing, pp. 6-7.) In D.02-04-067, the Commission granted rehearing on this issue, and directed that the issue be made part of the phase of this proceeding addressing the DA cost responsibility surcharges (CRS).

The rehearing was granted in order to consider the "switching exemption" further in light of AB 1X and D.01-09-060, and to develop an adequate record. Pursuant to D.02-04-067, an ALJ ruling issued on May 2, 2002, directing parties to address the switching exemption issue within the scope of the evidentiary hearings scheduled on DA cost responsibility issues in this proceeding. Accordingly, parties addressed the switching exemption as part of the opening testimony on the DA CRS submitted on June 6, 2002, and reply testimony submitted on June 20, 2002. Evidentiary hearings were held from July 11 through July 24, 2002, which included the issue of the switching exemption. Post-hearing opening briefs were filed on August 30, 2002, and reply briefs were filed on September 6, 2002. In D.02-11-022, establishing the DA CRS, consideration of the switching exemption was deferred to today's order.

Active parties in this phase of the proceeding represented a range of interests including the investor-owned utilities: Pacific Gas and Electric Company and Electric Company (PG&E), Southern California Edison Company (SCE), and San Diego Gas & Electric Company (SDG&E); parties representing some classes of bundled service customers (i.e., Office of Ratepayer Advocates (ORA) and TURN); and parties representing DA customers, either through industry associations or as individual customers. The most active parties representing DA interests include the Alliance for Retail Energy Markets and the Western Power Trading Forum (AReM/WPTF), California Large Energy Consumers Association (CLECA), California Industrial Users (CIU), and California Manufacturers & Technology Association (CMTA). Other DA parties presented testimony or filed briefs.

The Commission's primary responsibility to assure recovery of DWR costs was made more complicated by the Commission's delay in implementing the suspension of direct transactions. As the Commission noted in D. 02-03-055, DA customers flocked to utility/DWR bundled service during January and February 2001, when the shelter of the statutory rate freeze was still in place for retail customers. On March 27, 2001 the Commission approved a 3-cent surcharge on retail rates, to take effective in June billing cycles. (See Interim Order in Rate Stablization Proceeding [D.01-03-082] (2001) ---Cal.P.U.C.2d -___.) . The Commission initially proposed to implement the Legislature's directive to suspend DA as of July 1, 2001.10 The Commission did not take that action.

After the FERC order of June 19, 200111 and the imposition of the Commission's 3-cent surcharge on retail rates,12 customers migrated back to DA and DA load increased rapidly until the Commission's suspension on September 20, 2001. Implementation of DA Suspension Decision [D.02-03-055], page 8, Chart 1 (slip op.). The delay in suspending direct access created a large group of customers who had taken utility/DWR service and who had thereby been the beneficiaries of frozen retail rates and DWR procurement activities, but who would not be paying the costs for which they were responsible, reflected in elevated retail rates, if permitted to remain DA customers.13

In D.02-03-055 the Commission was concerned to provide for appropriate and timely recovery of DWR costs when it confirmed the delayed suspension date of September 20, 2001. In lieu of a suspension when the matter was first placed before the Commission for Decision in June 2001, the Commission stated its intent to establish promptly a surcharge for DA customers, one that would assure that they paid their fair share of the costs of serving them during the time they were on bundled service during the height of the energy emergency. The Commission said:


"For all of these reasons, we find that California is better served by maintaining the September 20, 2001 direct access suspension date and considering a direct access surcharge or exit fee, in lieu of an earlier suspension date, to recover DWR costs from direct access customers. Based on the comments, we believe that such a surcharge or exit fee is a viable option and a more moderate alternative to an earlier suspension....


We emphasize that the direct access surcharges or exit fees to be developed in A.00-11-038 must alleviate any significant cost-shifting, and must be adopted in a timely manner, in order to ensure an overall equitable outcome. Should either of these conditions fail to develop, we will not hesitate to reopen this proceeding to reconsider the suspension date for direct access."

D.02-03-055, Implementation of DA SuspensionDecision, [D.02-03-055], supra at page 16, emphasis added.

In DA CRS Decision [D. 02-11-22], supra, rendered approximately eight (8) months after D.02-03-055, the Commission established the surcharge. In that decision the Commission reiterated its determination that DWR costs be recovered in an equitable manner from all customers, including customers who continue utilizing direct transactions. The Commission said:


"We emphasized in D.02-03-055 that bundled service customers should not be burdened with the additional costs that would otherwise shift to them due to the significant migration of customers from bundled service to direct access between July 1, 2001 (the suspension date originally anticipated in the ALJ Proposed Decision) and September 21, 2001 (the suspension date adopted by the Commission).


We noted that, in lieu of an earlier suspension date, DA surcharges must be considered as a means of preventing cost-shifting and the development of these surcharges must be timely. We later clarified that prevention of cost shifting meant that "bundled service customers are indifferent."7 Should timely implementation of such charges fail to occur, we stated in D.02-03-055 that the proceeding would be reopened to reconsider the suspension date for DA."

DA CRS Decision [D.02-11-022], , footnote 7 and related text.

The cap adopted in the DA CRS Decision [D.02-11-022], supra, could be considered a significant subsidy for DA customers. The cap reduces the payments of DA customers for DWR costs, utility procurement costs, and utility/QF contracts14 below the level required to defray the costs of the service provided to them and/or procured on their behalf.15 The cap requires bundled service customers to pay several billion dollars of DA customers' costs during the period between July 1, 2001 and 2008.16 That subsidy would be an attractive inducement for customers who have elected to take bundled service to "switch" to DA if we were to permit it, leaving the less fortunate bundled service customers to pick up an even larger share of the DA customers' unrecovered cost responsibility.

This has created significant problems of discrimination -- subsidy of one class of electric customers by another - and fairness which the Commission is in process of addressing in this docket. These problems would only be exacerbated by permitting additional customers - not in an active DA relationship on or after September 20, 2001 -- to migrate to DA to take advantage of the favorable cost recovery treatment, or by permitting customers to remain on the subsidized rate indefinitely by establishing new DA contracts or arrangements after their current contracts or arrangements expire or otherwise terminate, including termination by returning to bundled DWR/utility service. 17 As we discuss below, the statute does not permit it.

1 Pub. Util. Code section 331(c) defines "direct transaction" as "...a contract between any one or more electric generators, marketers, or brokers of electric power and one or more retail customers providing for the purchase and sale of electric power or any ancillary services." Direct transactions are the subject matter of "direct access" service. 2 The term was first used in D.02-04-067, the order on rehearing that gives rise to this Decision. 3 D.01-09-060, D.01-10-036 and D.02-03-055 4 Legal questions about the authority of the Commission to provide for retail wheeling , or direct access, were unresolved at the time AB 1890 was enacted, and were considered moot afterward. Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation, D.95-12-063, 64 CPUC 2d 1, 147 (1995); Order on rehearing, D.97-02-021, 71 CPUC 2d 18, 51-52. As against a federal pre-emption argument, the Commission asserted primary and exclusive state authority to provide for retail service, including retail direct access, and found the legislature's action in AB 1890 to be such an action. 71 CPUC 2d 18, 34-38 and footnote 6. 5 The DA Implementation Plans Decision, [D.97-10-087], 76 CPUC 2d 287 (1997) generally approved Direct Access Implementation Plans for the utilities, approved pro forma tariffs and established the Rule 22 Tariff Review Group to devise and implement the final form of Rule 22. D.97-10-087, Ordering Paragraph 11, 76 CPUC 2d 287, 335-36. The current texts of these rules for the respective utilities may be found at: http://www.sce.com/NR/sc3/tm2/pdf/Rule22.pdf (SCE, Rule 22); http://www.pge.com/customer_services/business/tariffs/pdf/ER22.pdf (PG&E, Rule 22); http://www.sdge.com/tm2/pdf/ERULE25.pdf (SDG&E, Rule 25). 6 On January 17, 2001, Governor Davis issued a Proclamation concerning a "state of emergency" within California resulting from dramatic wholesale electricity price increases. 7 This bill will be referred throughout as AB 1X. 8 Section 80134 specifies the categories of cost that are included in the revenue requirement. These are: "(1) The amounts necessary to pay the principal of and premium, if any, and interest on all bonds as and when the same shall become due. (2) The amounts necessary to pay for power purchased by it and to deliver it to purchasers, including the cost of electric power and transmission, scheduling, and other related expenses incurred by the department, or to make payments under any other contracts, agreements, or obligations entered into by it pursuant hereto, in the amounts and at the times the same shall become due. (3) Reserves in such amount as may be determined by the department from time to time to be necessary or desirable. (4) The pooled money investment rate on funds advanced for electric power purchases prior to the receipt of payment for those purchases by the purchasing entity. (5) Repayment to the General Fund of appropriations made to the fund pursuant hereto or hereafter for purposes of this division, appropriations made to the Department of Water Resources Electric Power Fund, and General Fund moneys expended by the department pursuant to the Governor's Emergency Proclamation dated January 17, 2001. (6) The administrative costs of the department incurred in administering this division." 9 DA Suspension Decision, supra, at pp. 8-9 (Slip op.); see also, Order Modifying Decision (D.) 01-09-060, and Denying Rehearing, As Modified [D.01-10-036, pp. 1-2 (slip op.)] (2001) ___ Cal.P.U.C. ___ (hereafter, "D.01-10-036").) 10 The Proposed Decision (PD) of Administrative Law Judge Robert Barnett was mailed on June 15, 2001. It was set for decision on June 28, 2001. 11 Order on Rehearing of Monitoring and Mitigation Plan for the California Wholesale Markets, Establishing West-wide Mitigation, and Establishing Settlement Conference, issued June 19, 2001. 95 FERC para. 61,418. 12 D.01-03-082 (March 27, 2001); D.01-05-064 (May 14, 2001). The rates were to take effect on June 1, 2001 for PG&E and June 3, 2001 for SCE. D.01-05-064, Ordering Paragraph 1. 13 One estimate of the magnitude of this "free rider" effect for the 2001-02 period is $1.377 billion. Dissent of Commissioner Wood to DA CRS Decision [D.02-11-022]. 14 Pursuant to PU Code sections 367(a)(2) and 368, added by AB 1890 (Brulte), the costs of utility generation-related obligations not recoverable in the market price are to be recovered over the life of the contract from all utility customers. 15 DA CRS Decision [D.02-11-022], supra, page 109 ff. . 16 D.02-11-022, Dissenting Opinion of Commissioners Wood and Lynch 17 The DA statistics published by the Commission on its website, of which we may take official notice, suggest a very disturbing trend in this regard. Direct access load has increased by over 20 % statewide since the "standstill" concept was announced in February 2002. http://www.cpuc.ca.gov/static/industry/electric/electric+markets/direct+access/dasrs_present.htm:

Top Of PageNext PageGo To First Page