III. Implementation of the Suspension of Direct Access

In D.01-09-060 we said:

"Accordingly, we issue this interim order in which we suspend the right to enter into new contracts or agreements for direct access effective today. This decision prohibits the execution of any new contracts for direct access service, or the entering into, or verification of, any new arrangements for direct access service pursuant to Public Utilities Code Sections 366 or 366.5, after the effective date of this order.¹. . .

"We direct the utilities not to accept any direct access service requests (DASRs) for any contracts executed or agreements entered into after the effective date of this decision. Steps that the utilities might take to ensure compliance with this order may include obtaining from each energy service provider a list of relevant identifying information for those customers that have entered into timely contracts, but for whom DASRs have not been submitted."

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"¹ All references in this order regarding the "suspension of the right to acquire direct access service" include the execution of any new contracts, agreements and arrangements for direct access service, or the verification of such contracts, agreements or arrangements pursuant to Public Utilities Code Sections 366 or 366.5." (D.01-09-060 at pp. 8-9.)

And we emphasized in Ordering Paragraph 8:

"8. Within 14 days of the effective date of this order, PG&E, SDG&E and SCE, by letter, shall inform the Director of the Energy Division of the steps they have taken to ensure that no direct access service requests are accepted for any contracts executed or agreements entered into after September 20, 2001." (D/01-09-060 at p. 12.)

In D.01-09-060, we recognized that our order to suspend direct access was not self-executing and would have to be implemented by procedures to be developed by the utilities. On November 7, 2001, at a prehearing conference called to discuss implementation, the presiding ALJ requested the utilities to propose implementation measures. Their joint proposal was filed November 16, 2001, comments on the proposal were filed November 28, 2001,¹² and reply comments were filed December 4, 2001.

The method by which a UDC is notified that one of its customers desires to be served by an ESP or desires to return to UDC bundled service is when the ESP (usually) or the customer (rarely) files a DASR with the serving utility. Similarly, a DASR is required to inform the utility that a contract has been assigned, or renegotiated, or terminated or extended, or has had additional locations incorporated. Merely suspending direct access on a date certain does not, by itself, notify interested parties how their contracts will be affected. Of course, when the Legislature suspended direct access and delegated to the Commission the duty to determine the effective date of the suspension, we had the discretion to suspend all direct access contracts as of a date certain, without exception. We did not do so. Rather, we permitted those contracts executed on or before the suspension date to remain in effect. However, to avoid substantial cost shifting, it would be unfair to bundled customers to permit direct access contracts to continue through renewals, assignments, and add-ons. Therefore, we find that direct access contracts executed on a before July 1, 2001 shall continue in force through their initial termination date and then be suspended until DWR no longer supplies power pursuant to Water Code § 80110.

The utilities shall implement the suspension as set forth below.

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

At the October 2, 2001 workshop, ESPs (including several AReM members) agreed that the October 5 date was reasonable for ESPs to submit names of eligible direct access customers, but that a longer period, until November 1, would be necessary to submit account specific details. Establishing a list of eligible customers within a reasonable time was suggested as an implementation step by the Commission in D.01-09-060. The October 5 date is fair - it is based on what ESPs said they could meet, and each utility notified ESPs in advance in writing that failure to submit names as of the deadline would lead to later DASR rejection.

AReM proposes that an independent third party, such as a CPA, would submit a DASR verification to the UDC only for customers who were not on the October 5^th list (but had a valid direct access contract) and for additional sites for customers already on the list. In turn, the UDC would be required, upon receipt of this verification, to process the associated DASR without delay in accordance with the standard procedures. A UDC would have no ability to delay the processing of a verified DASR.

AReM's suggestions for modifying the October 5 lists would render the use of customer lists practically meaningless. AReM's proposed exceptions for adding customers to the list invalidates the original purpose of the list - to establish a fixed pool of customers eligible to select direct access. In the UDCs' view it is simply not credible that any ESP's systems and records are so inadequate that a complete list of those customers who contracted for service prior to July 1, 2001 (let alone September 20, 2001) could not be provided in a timely manner.

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 July 1, 2001, and (2) ESPs serving small customers must have in effect as of July 1, 2001 valid Commission registration as required by law.

The justification for a July 1 suspension date is discussed elsewhere; the need for valid service agreements and registration is not disputed.

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 July 1, 2001 do not qualify as agreements for direct access service with end use customers.

LID/ACWA object strenuously to this rule. LID/ACWA argues for the eligibility of a master agreement executed September 5, 2001¹³ between LID and ACWA-USA (an association of water agencies), under which ACWA-USA members can elect direct access service with LID acting as the ESP. Each member must execute a further participation agreement before taking service under the terms of the master agreement.

Water Code § 80110 provides that "the right of retail end use customers . . . shall be suspended. . . ." The utilities argue that master agreements between ESPs and associations to provide service at the election of member retail end users do not meet the requirements of the statute since such agreements are not with the retail end users. We agree. A master agreement with an association is nothing more than a proposal to provide service to retail end users and is not a valid contract with any end user until the proposal is presented to the end user, and the end user accepts the offer by signing a participation agreement (required under the master agreement.) Any election by a member of an association to acquire direct access service under the master agreement after June 30, 2001, is therefore prohibited.

4. No customer is allowed to switch from one ESP to another after June 30, 2001. Such a switch would be a "new arrangement" for direct access service prohibited by D.01-09-060.

AReM and other commenters object to this requirement. They argue that it is onerous and does not promote the objectives of AB1X. According to AReM allowing customers unlimited switching between ESPs is consistent with AB1X since it doesn't increase direct access load. These commenters miss the point. The issue is not whether the switch increases or decreases direct access load. The issue is whether there is a new contract or agreement after the cut-off date. For a new ESP to serve a customer formerly with another ESP a contract is required by the new ESP to serve the customer. If that occurs after June 30, it is prohibited. We deal with a related issue - assignments - below:

5. No customer is allowed to add a new location to its direct access contract after June 30, 2001.

This would be a new arrangement prohibited by the suspension.

6. No direct access contract may be extended beyond its termination date as fixed prior to July 1, 2001.

This would be a new arrangement prohibited by the suspension.

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.

No party objects to this condition.

8. Direct access contracts may not be assigned after June 30, 2001, to either a new ESP or a new retail end use customer.

The direct access contracts which we have reviewed have clauses which permit assignment to another ESP or to another retail end use customer. AReM, and others, argue that if the contract permits assignment it must be honored even if the assignment takes place after the suspension date. We do not agree. First, the new ESPs agreement to serve the customer is a new arrangement for direct access service in violation of Ordering Paragraph 7 of D.01-09-060.

"PG&E, SCE, and SDG&E shall not accept any direct access service requests for any contracts executed or agreements entered into after September 20, 2001." (D.01-09-060 at p. 12.)

An ESP is barred from signing a new customer after the suspension date. From the ESP's perspective it matters not whether the customer was a direct access customer, a bundled customer, or a customer new to the territory. For the ESP this is a new contract.

Second, to permit assignment would frustrate the statutory imperatives to assure recovery of DWR costs from end use customers and to assure that those costs are recovered without discrimination between end use customers. This is essentially a zero-sum paradigm. The more load that leaves the UDC system the less load remains to cover DWR costs. When DWR long-term contract costs are above spot market the remaining UDC load absorbs those excess costs. Should DWR's long-term contract costs fall below spot market, direct access customers have every incentive to return to bundled service. In the first instance bundled customers lose and direct access customers win; in the second instance only direct access customers win. The Legislature recognized this inequitable result and so do we. Our obligation to secure for ratepayers the benefits of a reasonable cost recovery program without discrimination should not be defeated by direct access. The fluctuations in direct access load shown in the tables above are the clearest evidence that when California suffered an electricity crisis direct access customers abandoned ESPs and fled to the comparative safety of the UDC. Now that the crisis has subsided because of DWR purchases and contracts they seek to return to the now lower rates of the ESP, leaving, as we said earlier, the bundled customer to pay the freight. To protect the bundled customer we must adhere to our holding in D.01-09-060, that new agreements after the suspension date are prohibited: assignments are new agreements.

To permit the assignment of direct access contracts between customers has the same, if not greater infirmities, as assignment between ESPs. If a small commercial customer (a hamburger stand) can assign its direct access contract to a large industrial user (a cement factory) the direct access load would dramatically increases, the burden on bundled customers would dramatically increase, and the value of the contract to the small commercial customer would dramatically increase.

A hypothetical example illustrates the following results:

A small commercial customer with a valid (pre-July 1) direct access contract expiring in 2004, has an average usage of 1000 kWh/mo. It assigns its contract to a large bundled customer with an average usage of 10,000 kWh/mo. The results of the transaction are 1) the value of the small commercial customer's contract increases substantially; 2) 9,000 kWh/mo. go from bundled service to direct access service thereby shifting costs from the large user to the remaining bundled customers; and 3) the forecasts upon which DWR and the UDCs base their electric purchases are skewed, further increasing costs to be paid by bundled customers.

Some parties argue that the amount of direct access use is fixed by contract and will not increase other than by normal fluctuations in monthly usage. We do not agree. Contracts may be modified by consent of the parties and, although it might be unusual for a small commercial customer to become a large user overnight, it would not be unusual for a large commercial user assignee to renegotiate a direct access contract to cover increased load.

9. A customer who had direct access prior to July 1, 2001, but who became a bundled customer cannot return to direct access after June 30, 2001.

This would be a new arrangement, prohibited by D.01-09-060.

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

This is permitted.

11. Community Choice Aggregation Programs

Community aggregators shall serve only direct access customers who chose community aggregation prior to July 1, 2001.

Under the Public Utilities Code Section 366(b), community aggregation programs require an "opt-in" by the interested customers. The UDCs believe that the act of opting in after the suspension date constitutes a new arrangement for direct access service prohibited by D.01-09-060, and propose that customers who attempt to opt into a community aggregation program after the suspension date be rejected.

Community aggregators claim that because they had an existing community aggregation program prior to the suspension date, customers should be able to opt-in to direct access service even after the suspension date. Municipalities that are community aggregators assert that because the potential amount of load is small and because they have the legal authority to provide electric service to their inhabitants, they should have the right to switch their inhabitants to direct access after the suspension date.

We disagree. A customer who requests direct access service after June 30, is seeking a new arrangement prohibited by D.01-09-060. Whether the request is made to a community aggregator or directly to an ESP the result is the same: a shift of costs to the remaining bundled customers. The community aggregation program has been in effect since 1997. A community aggregator is part of direct access and should not be permitted to acquire new customers after June 30.

What we have done by the restrictions placed on direct access contracts is to limit direct access to those customers who had valid direct access contracts prior to July 1, 2001 and to permit those customers to retain their right to receive electricity under their contracts through the contract's first termination date. The contracts cannot be extended, assigned, or have separate facilities added on. In taking these actions, we have tried to assure a stable customer base.

One issue that requires special attention is that of the UDCs' ability to determine the termination date of the direct access contract. The utilities have proposed an elaborate mechanism which includes the services of an independent certified public accountant to certify to the terms of the direct access contracts. (See Joint Proposal of Utilities dated November 16, 2001, Attachment A.) All ESPs and customers who commented on this proposal objected on the grounds that it is unnecessary, costly, and violates confidentiality restrictions of individual contracts.

The utilities recognize the cumbersomeness of their proposal but claim it is necessary because the economic stakes are so high for the ESPs and their customers. They argue that third party verification will give comfort to the utilities (and the Commission) that the contract is being performed in accordance with Commission standards. The utilities do not wish to be placed in the position of reviewing ESP contracts. In our opinion, the third party verification progress is excessive, costly, and cumbersome. We prefer a simple affidavit to be signed by both the ESP and its customer stating under penalty of perjury the termination date of their contract.

Because of the large number of direct access contracts subject to this order, it is reasonable to allow sufficient time for the utilities, the ESPs, and the direct access customers to modify their electric service arrangements. Therefore, for those direct access contracts executed after June 30, 2001 and prior to September 20, 2001, under which electricity is flowing, the utilities are given 90 days from the effective date of this order to return the affected direct access customers to bundled service.