II. Basis for the Switching Exemption

A. Parties' Positions

TURN renews its assertion that the switching exemption is contrary to law, and cites § 80110 of the Water Code which provides in relevant part:

After 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 § 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. (Emphasis added)

TURN contends that by allowing a customer that has returned to bundled service subsequent to the September 20, 2001, suspension date to thereafter select a new ESP and resume DA service, the Commission violates the plain language of § 80110. TURN interprets the statute as forbidding any bundled service customer from selecting a new ESP, regardless of whether the customer was previously served via DA. TURN maintains that such an action constitutes acquiring service from another provider, and is precisely what the statute forbids. TURN argues that the law does not provide for a "standstill" in the amount of load on DA as of the suspension date, but absolutely bars a customer from acquiring service from another provider after the suspension date. In the event that the Commission chooses to consider permitting the switching exemption to continue over its objections, TURN proposes terms and conditions to govern the switching of customers back and forth between bundled and DA service.

SCE agrees that DA customer migration in and out of bundled service should be curtailed and specifically advocates elimination of the switching exemption and/or a requirement that returning customers remain on bundled service for a full five years.⁴

Other parties, however, dispute the contention that the switching by a DA customer into or out of bundled service after September 20, 2001, violates AB 1X. AREM argues that the prohibition on acquiring service from an ESP only applies to a new arrangement or agreement for DA. AREM contends that customers with a valid DA contract in place on or before September 20, 2001, had already "acquired" DA before the suspension took effect, and maintains that the renewal or assignment of such contracts under the switching exemption only involves the continuation of an existing contract right, rather than a new arrangement or agreement. Other parties representing DA interests also oppose the elimination of the switching exemption, particularly if applied on a retroactive basis. Various DA parties argue that existing DA customers that have previously used the switching exemption should be grandfathered and entitled to retain DA service, or propose various methods to clarify how the exemption should be administered.

SDG&E believes it would be consistent with the Commission's "standstill" principle to continue the switching exemption. SDG&E offers a proposal to permit the switching exemption to continue in a manner designed both to protect bundled service customers and maintain the viability of DA. PG&E and ORA likewise both propose restrictions on switching to protect bundled customers and to preserve DA customer choice, rather than advocating an outright elimination of the switching exemption.

B. Discussion

In D.02-03-055, we discussed the principles underlying our approach to implementation of DA suspension as follows:

Generally, we favor a balanced approach which allows existing direct access customers to continue in the direct access market, but limits additional load moving to direct access to load changes associated with normal usage variations on direct access accounts in effect as of September 20, 2001. This standstill concept is consistent with the provisions of AB 1X and D.01-09-060 that direct access be suspended and there be no new arrangements.

Under the standstill approach described below, we will permit assignments and renewals, but not add-ons of new load. This approach is consistent with our policy reasons for imposing direct access cost responsibility surcharges or exits fees, in lieu of an earlier suspension date, as an appropriate way to alleviate the significant cost-shifting of DWR costs on to bundled service customers.

We are not persuaded by TURN's argument. We lawfully exercised our discretion in implementing the suspension of DA mandated in AB 1X. Accordingly, we did not violate AB 1X in adopting the "standstill" principle as articulated in D.02-03-055. The provisions of AB 1X relating to DA suspension do not prohibit us from adopting the switching exemption for customers who had received DA service prior to the DA suspension date. These customers had already acquired DA and the switching is no more than a resumption of DA service. A customer can only "acquire" DA where it did not previously have such service. In contrast, the customer who previously took DA service is merely resuming a service option that the customer already possessed, albeit with a break in service.

In D.02-03-055, our goal was to ensure that the DA load would not increase beyond the levels that existed on the September 20, 2001, suspension date. Customers with a written and executed contract in place on or before September 20, 2001 had already "acquired" DA before the suspension took effect.⁵ Merely allowing DA customers with valid contracts in place or customers verified per § 366.5 on or before September 20, to switch ESPs does not impair the suspension of the rights of customers to acquire new DA load.

Nothing in AB 1X prohibits the switching between bundled service and DA service after the suspension date so long as the customer had a written and executed DA contract or had been verified under § 366.5 prior to September 21, 2001. Thus, such customers that switch back to DA from bundled service are merely resuming service and are not "acquiring" new service. Although switching ESPs may require a new written contract, there is no increase in DA load. This is similar to how we view the renewal or assignment of such ESP contracts as discussed in D.02-03-055, where there is no change in load, and thus, no cost shifting.

TURN's interpretation of the law would mean that DA was not only suspended at levels existing as of September 20, 2001, but actually set up to decline from those levels. By creating a one-way-only exit, with no reentry, the result would be not merely a suspension, but would purposefully cause a decline in DA load every time a DA customer reentered bundled service.

Not to permit the switching exemption would place all DA customers who have already switched ESPs in a position of substantial uncertainty, and could place the continued viability of the DA program in further jeopardy. Such action would be contrary to our previously stated policy in D.02-03-055 that there is value in maintaining DA. In D.02-03-055, we noted that DA diversifes the California electric power market, and therefore helps to protect California against uncertainty. (D.02-03-055, pp. 14, 15; (slip op.).) We further observed that the growth of DA load in summer 2001 contributed to a substantial reduction in the level of the DWR revenue requirement estimate for the period through December 31, 2001. (Id.) Eliminating the switching exemption would not advance the viability of DA.

We thus conclude that the switching exemption is consistent with the applicable law, is beneficial, and should be permitted. We also recognize, however, that reasonable limitations on the exemption must be adopted, both with respect to DA customers returning to bundled service, as well as switching back to DA service, to ensure that bundled customers are not adversely impacted. The Commission must separately decide the terms under which a DA customer may return to bundled service, and upon such return, the terms under which the customer may switch back to DA service. We address the necessary terms and restrictions in the following section.

We remind parties that all customer changes in status between bundled and DA service as provided for in this order shall continued to be determined pursuant to the Direct Access Service Request (DASR) process. Nothing in this order is intended to allow either customers, or ESPs acting on their behalf, to switch customers between bundled and DA service by any process other than through a properly executed DASR pursuant to adopted tariff rules.