II. The Effective Date of Suspension

For the reasons set forth below, we find that the direct access suspension date should remain September 20, 2001. Direct access contracts executed prior to September 20, 2001, are not suspended, but are subject to the implementation restrictions imposed by this decision.

A. Facts

DWR has been buying electricity on behalf of the retail end use customers of the California utilities (Southern California Edison Company (SCE), Pacific Gas and Electric Company (PG&E) since January 17, 2001, and San Diego Gas & Electric Company (SDG&E) since February 7, 2001. It has spent over $10 billion to date and is estimated to spend an additional $8 billion through December 31, 2002. DWR has entered into long-term contracts with various generators to supply electricity to the customers of the three utilities.

TABLE 1

All DWR purchases to date, including interest, plus the cost of future purchases under the long-term contracts and on the spot market, are the obligations of the ratepayers of the three utilities.² These purchases also included those made by DWR on behalf of direct access customers who returned to bundled service and those bundled service customers who later entered into direct access contracts or arrangements. These purchases were necessary to keep the lights on so as to alleviate the "immediate peril to the health, safety, life and property of the inhabitants of the state. . . ." (See Water Code, §80000; see also, PG&E's Reply Comments, dated November 8, 2001, p. 1.) Between July 1, 2001 and September 20, 2001, approximately 11% of the total electric load of the utilities has shifted from bundled service to direct access service. As Table 1 shows, by comparison, between September 1999 and January 2001, direct access levels hovered between 12% and 16% of total electric load before dropping to about 2% by June 2001. Thus, by September 2001, direct access service was still slightly below earlier levels. Nevertheless, this shift means that some percentage of the DWR revenue requirement will become the obligation of the remaining bundled customers of the utilities should direct access suspension remain fixed at September 20, unless the Commission implements direct access surcharges or exit fees, on direct access customers that allocate certain DWR costs to them. This cost-shift potential is the major argument TURN, SCE and others make in calling for a retroactive suspension date.

On November 5, 2001, DWR submitted to the Commission its revenue requirement of $10,003,461,000³ representing the amount to be allocated by the Commission among the three major California utilities covering the period January 17, 2001 through December 31, 2002. On February 21, 2002, DWR submitted a letter identifying several adjustments which could be made to its revenue requirement.. (See D.02-02-052, p. 3.)⁴ We concluded that these adjustments could be made and revised DWR's revenue requirement. in our recent DWR Revenue Requirement Decision [D.02-02-052], pp. 2-3. Also, in this decision, we determined that DWR will collect its revenue requirement through charges remitted from billings to retail customers in the service territory of the three major electric utilities based on cents per-kWh charges. (DWR Revenue Requirement Decision [D.02-02-052], p. 2.) Although the direct access suspension date has no bearing on whether DWR will receive all of its revenue requirement, there is a question of which end user customers will pay, so that the costs incurred by DWR in response to the energy crisis confronting California will be recovered. More importantly, the question is how the Commission will prevent cost-shifting of a significant magnitude.

In their comments, TURN, DWR and the State Treasurer support an earlier suspension date of July 1, 2001, to alleviate this serious concern of cost-shifting. (See TURN's Comments, dated November 2, 2001, pp. 1-2; TURN's Comments, dated December 4, 2001, p, 1; State Treasurer's Letter, dated November 2, 2001, pp. 1; DWR's Comments (as a nonparty), dated November 2, 2001, p. 3.)

However, other participants in this proceeding have proposed or supported a non-bypassable direct access surcharge or an exit fee, as an alternative to an earlier suspension. (See e.g. California Manufacturers & Technolgy Association and California Large Energy Consumers Association's (CMTA/CLECA's) Joint Motion of for Leave to File a Supplemental Proposal, dated December 10, 2001, p. 5; ORA's Comments, dated January 4, 2002, pp. 2-3; SCE's Comments, dated January 4, 2002, p. 7; CMTA/CLECA's Supplemental Comments, dated January 4, 2002, p. 6; PG&E's Coments, dated January 4, 2002, p, 6; Sempra Energy Solutions, dated January 4, 2002, pp. 6; PG&E's Reply Comments, dated November 8, 2001, p. 3; Jack-In-the-Box's Comments, dated November 2, 2001, p. 10; PG&E's Comments, dated November 2, 2001, pp. 3-7; CLECA's Comments, dated November 2, 2001, pp. 2-3. ⁵ (A.98-07-003, et al.)

On December 10, 2001 a "Motion of the California Manufacturers & Technology Association, California Large Energy Consumers Association, for Leave to File a Supplemental Proposal" (CMTA/CLECA Proposal) was filed. The CMTA/CLECA proposal is that the Commission should grandfather those customers (or their accounts) who had signed direct access contracts as of September 20, 2001 and whose names appear on the UDC's direct access DASR lists of October 5. The CMTA/CLECA proposal also states that "in the absence of retroactive suspension, the issue of responsibility of direct access customers for payment of utility and DWR procurement costs must be addressed promptly and fully." We agree that the Commission should consider the questions of direct access timing issues and exit fees in an integrated manner.

ORA argues that backbilling customers for DWR costs (e.g., exit fees) may be an effective way for the Commission to mitigate the cost-shifting that would otherwise occur. ORA provides some guidance concerning how an equitable exit fee would be calculated, with an assumption that otherwise about $700 million of DWR costs could be shifted to bundled customers (based on a 10% revenue in total IOU load going to direct access between July 1 and September 20, 2001)⁶. PG&E and others agree that a reasonable non-bypassable charge is the least intrusive way to deal with the cost-shifting that would occur if direct access customers are not returned to bundled service.

On December 24, 2001 the question of cost responsibility of direct access customers for DWR revenue requirements (e.g., exit fees) was transferred from this docket to the Rate Stabilization docket. A Prehearing Conference on this topic was held for February 22, 2002. We will determine the level of direct access surcharges to be imposed in that proceeding. At this time we will state that direct access surcharges, exit fees or similar charges should be imposed,⁷ and it is our intent that such fees or charges be fully compensable so that direct access customers pay their fair share of DWR costs.⁸

B. Discussion

At this time, we will not adopt an earlier suspension date for direct access. In lieu of an earlier suspension date, we determine that it is appropriate to consider the adoption of a direct access surcharge or exit fee. We reserve the right to revisit this decision should an equitable surcharge or exit fee not be adopted by this Commission in a reasonable timeframe. We explain our reasoning below.

ORA, Alliance for Retail Energy Markets & Western Power Trading Forum (collectively, AReM), CIU, CMTA/CLECA, and others argue against changing the suspension date of direct access from after September 20, 2001, to July 1, 2001. These parties argue that because the Commission never acted formally to suspend direct access until September 20, 2001, the Commission allowed the direct access program to remain effective and, accordingly, customers continued to execute direct access contracts up until September 20, 2001. Thus, those customers who executed direct access contracts during this period were doing exactly what the Commission allowed them to do.

As a matter of public policy, they believe it is critical that the Commission adhere to a stable set of rules which affect customers, ESPs, and the utilities. They claim it would be extremely disruptive at this juncture for the Commission to attempt to establish a direct access suspension date earlier than September 20, 2001. Customers have bargained for their direct access contracts and if those contracts were to be nullified by establishing an earlier suspension date, customers would lose the benefit of their bargain, primarily in the form of lower electric costs.

We find these arguments persuasive. As several parties point out, the Commission has an obligation to employ regulatory consistency in its decisions. Consumers, regulated utilities and the economy as a whole benefit when the Commission maintains a regular and consistent regulatory program, as this provides the predictability necessary to plan investment and budgetary decisions. Direct access has existed in concept since 1995 and in practice since 1998. The suspension date of September 20, 2001 was adopted on a forward-going basis, allowing predictability for the future. The continuing uncertainty surrounding an earlier suspension should be resolved at this time. Regulatory consistency clearly calls for maintaining the date chosen in D.01-09-060, as modified by D.01-10-035.

Many parties argue that changing the suspension date to July 1, 2001 is an impairment of contracts entered into between July 1, 2001 and September 1, 2001. Because we are not changing the suspension date in this decision, we need not address impairment issues here.

ORA, CMTA/CLECA, AReM and others raise other policy arguments against an earlier suspension of direct access. We find these policy arguments convincing for the reasons discussed below.

AReM and others contend that an earlier suspension will negatively affect California businesses, and thus, affect the California economy. With increased electricity costs resulting from an earlier suspension, California's economy may suffer if firms relocate or choose not to enter the state. Further, as University of California & California State Universities (collectively, UC/CSU) and the Los Angeles Unified School District (LAUSD) point out, such increased costs also affect important state functions, such as the delivery of quality education. In addition, ORA points out that choosing an earlier suspension date of July 1 could well have long term detrimental consequences to existing bundled ratepayers if, for example, spot market prices spike in the summer of 2002 and this "new" returning load to bundled service incrementally increases the average for bundled ratepayers. Further, ORA states "direct access is a means of diversifying the California electric power market, and therefore helps to protect California against uncertainty." Moreover CMTA/CLECA notes that the growth of direct access load in summer 2001 contributed substantially to a $2.6 billion reduction in the level of the DWR revenue requirement estimate for the period through December 31, 2002. We agree with ORA and CMTA/CLECA that there are significant risks associated with an earlier suspension date as well as benefits associated with retaining a viable direct access market.

We are also persuaded by arguments by ORA and others for a direct access surcharge or an exit fee as a means to a legally simpler and more equitable solution to the cost-shifting problem. For example, ORA provides a convincing argument that assessing direct access customers for DWR costs (e.g., exit fees) may be an effective way for the Commission to mitigate the cost-shifting, and discusses how an equitable exit fee might be calculated. (See ORA's Comments, dated January 4, 2002, pp. 2-3.)

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.

Although a few parties have offered some suggestions as to how an equitable surcharge or fee might be calculated (see, e.g., ORA's Comments, dated January 4, 2002; PG&E's Comments, dated November 2, 2001, pp. 3-7), we do not address any issues concerning such a calculation in this decision today. (See generally; TURN's Comments, dated November 2, 2002, pp. 4-7.) We have reserved this question of cost responsibility of direct access customers for the DWR revenue requirements (direct access surcharges or exit fees) for future consideration.

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.

Upon the delivery of power to them, the retail end use customers shall be deemed to have purchased that power from the department. Payment for any sale shall be a direct obligation of the retail end use customer to the department.