As a context for addressing whether, or under what circumstances, the Commission has legal discretion to lift the direct access suspension, we review events leading up to this proceeding. We first implemented direct access in 1998, as an integral part of a restructuring program to bring retail competition to California electric power markets.2 Through the direct access program, eligible retail customers had the option to purchase electric power from an independent electric service provider (ESP) rather than through an investor-owned utility (IOU).
The electric industry restructuring program was cut short, however, by events of 2000-2001 which led to extraordinary wholesale power costs increases, threatening the solvency of California's major public utilities and the reliability of electric service. On February 1, 2001, Assembly Bill 1 from the First Extraordinary Session (Ch. 4, First Extraordinary Session 2001) (AB1X) was signed into law, implementing various measures to address the energy crisis. Among other measures to ensure the reliability of electric retail service, AB1X required the California Department of Water Resources (DWR) to step in to procure electric power supplies sufficient to meet the net short for customers of the IOUs.3
Pursuant to AB1X, DWR entered into a series of electric power supply contracts and also issued long-term bonds to support funding for the DWR power procurement program. DWR formally began procuring electric power for customers in the service territories of Pacific Gas and Electric Company (PG&E) and Southern California Edison Company (SCE) on January 17, 2001, and in the service territory of San Diego Gas & Electric (SDG&E) on February 7, 2001. AB1X authorizes DWR to recover its power costs from electric charges established by the Commission (Water Code § 80110). DWR also entered into servicing agreements with the IOUs to collect money on its behalf for power that DWR sells to the IOUs' customers.
To ensure that cost responsibility for the DWR procurement was assigned in a fair manner among retail electric customers and to assure a stable customer base, the Legislature instituted various measures, including the suspension of direct access. Pursuant to the legislative mandate of AB1X, the Commission suspended the right to enter into new contracts for direct access after September 20, 2001.4 We applied a "standstill approach," permitting no new direct access contracts, but allowing preexisting contracts to continue in effect. Direct access customers who departed bundled IOU service between January 17 , 2001 and September 20, 2001, were assessed a "cost responsibility surcharge" (CRS) for their fair share of DWR costs. We opened Rulemaking (R.) 02-01-011 to implement the necessary cost recovery mechanisms and billing processes to recover a fair share of DWR costs from direct access load as required by the statute. The suspension has continued in effect up until the present time.
On December 6, 2006, the Alliance for Retail Energy Markets (AReM) filed a Petition (P.06-12-002) pursuant to Pub. Util. Code § 1708.5 for a rulemaking to consider reopening electric retail markets to competition by lifting the direct access suspension. AReM argued that the electricity crisis of 2000-2001 which gave rise to the direct access suspension had run its course, and that the purposes of direct access suspension had been served, addressed through other means, or no longer applied. In response, parties expressed views ranging from strict opposition to full support for a rulemaking to address lifting the direct access suspension.
On May 24, 2007, the Commission granted the AReM Petition and concurrently issued the instant Order Instituting Rulemaking (OIR) to consider whether, when, or how direct access could (or should) be restored. The rulemaking is segmented into three sequential phases, as follows:
I - Commission Legal Authority to Lift the Direct Access Suspension in accordance with AB1X.
II - Public Policy Merits of Lifting the Direct Access Suspension and Applicable Wholesale Market Structure/Regulatory Prerequisites.
III - Rules Governing a Reinstituted Direct Access Market: e.g., Entry/Exit/Switching; Default Arrangements, and Cost Recovery Issues.
This decision resolves Phase I issues as to whether, or subject to what conditions, the Commission has (or may acquire) legal authority to lift the suspension on direct access. We also address whether, or to what extent DWR contract assignment or novation, would be sufficient to satisfy the legal conditions under AB1X to lift the direct access suspension.
Pursuant to the schedule in the OIR, comments on Phase I issues were filed on July 24, 2007. Comments were filed by AReM, California Alliance for Creative Energy Solutions (CACES), and Constellation NewEnergy, Inc (Constellation). PG&E, SDG&E, and SCE were the IOUs filing comments. Comments were filed jointly by The Utility Reform Network, the Division of Ratepayer Advocates, the Coalition of California Utility Employees, Consumer Federation of California, and the Natural Resources Defense Council (collectively "TURN"). DWR also filed comments in the form of a memorandum to the Commission.
As a basis for the instant decision, we have considered the comments filed in this OIR, as well as the pertinent comments that were previously filed by parties in reference to the AReM Petition for Rulemaking. No evidentiary hearings are necessary to decide Phase I issues.
2 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 AB 1890, Stats. 1996, ch. 854 (AB 1890).
3 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.
4 See D.01-09-060 and Pub. Util. Code §§ 366 or 366.5.