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California Rides the Tiger

Fortnightly Magazine - January 1 1995

requirements, in addition to resolving the overlapping jurisdictions between the CPUC and the California Energy Commission.

"This commission is phenomenally arrogant to think they could do this in such a short time," says Audrie Krause, executive director of TURN (Toward Utility Rate Normalization). Krause says the CPUC is "backpedaling in response to tremendous public outrage."

In response to California Assembly Concurrent Resolution (ACR) 143 and motions filed by TURN and other consumer groups, the CPUC scheduled a week-long evidentiary hearing in mid-December before an administrative law judge to examine stranded costs resulting from direct access as well as the impact of its performance-based rate-making (PBR) proposals. The consumer groups argue that the CPUC should resolve stranded cost issues first and create a "competition transition charge" to be allocated among the stakeholders before adopting any new policy. The California Assembly has asked to see a report on the hearing results by January 31, but the CPUC has requested more time to respond. The state legislature sets funding levels for the CPUC, and any restructuring plan will probably require enabling legislation.

The CPUC's Blue Book proposes a two-track strategy for restructuring the industry: Direct access, or retail wheeling, would be available to large customers (industrials at 50 kilovolts (Kv) or more) on January 1, 1996, and would be phased in to all consumers by January 1, 2002. Simultaneously, PBR would replace traditional cost-of-service regulation. Utilities will retain their traditional duty to serve consumers who still prefer bundled, tariffed utility service, including those customers who do not choose direct access. Understandably, the utilities have not embraced this safe harbor rule; they face growing competition from nonutility generators.

The Blue Book also calls for changes in the state's integrated resource planning (IRP) process, which many observers view as "government-sponsored central planning," inappropriate for a world in which vertically integrated utilities will no longer dominate the landscape. For low-income programs, the CPUC suggests that the state legislature consider alternative funding sources, such as an "end-user surcharge" on all customers or the state general fund. As a fundamental principle, the CPUC notes, costs will not be shifted from one customer class to another, no matter how the industry restructuring takes place.

As the hearings unfolded, a broad-based consumer alliance called upon the CPUC to order

a 25-percent reduction in rates over the next five years, charging that Californians were paying $6.4 billion over an idealized average of the nations' 30 best-performing utilities.

Consumer groups complained that the PBR proposals put forth by San Diego Gas & Electric Co. (SDG&E), Southern California Edison Co., and Pacific Gas & Electric Co. (PG&E) would not go far enough, and would yield reductions of only about 1.8 percent a year in base rates. PBR should be more than an opportunity to prune regulation while making only modest reductions to rates, they argued. They remain unconvinced that direct access will benefit small or residential customers, or that safeguards will prove adequate to avoid cross-subsidies.

The CPUC also must decide whether to call for a full-scale environmental review. Ralph Cavanagh, staff attorney for the