California regulators have issued a series of important rulings this spring as they continue to move forward with restructuring the state's electric utility industry.
On May 6, the California Public Utilities Commission accelerated the pace of its industry reform by ordering all electric utilities in the state to allow direct access to alternate electricity suppliers for all customers on Jan. 1, 1998. Other related rulings cover issues such as billing and metering, transactions with affiliates, the effect of restructuring on performance-based ratemaking measures and consumer education requirements.
Direct Access. After reviewing the direct-access proposals developed by the state's largest electric utilities (em Pacific Gas and Electric Co., Southern California Edison Co., and San Diego Gas and Electric Co. (em the commission found no technical constraint to an immediate start-up. It also noted that state legislation enacted while the commission was developing its restructuring policy permits all customers to choose suppliers; not just industrial customers or those served by the state's largest utilities.
The commission acknowledged the possibility of certain "commercial constraints," such as the ability of the utilities to process the initial round of direct-access requests. However, it found that market forces likely would limit the number of customers choosing the direct-access option during the formation of restructuring.
In addition, the commission concluded that immediate implementation of the direct-access option would limit undue influence by investor-owned electric utilities influence on prices in the new power exchange spot market. It said if spot prices were to rise because of market power by any entity, customers could decide to buy electricity through the direct-access market. To address market power concerns in both the power exchange and the direct-access market, the option to choose "cannot be merely a theoretical option for consumers, but must be a full developed and viable option," the commission said.
The commission also found the original
8-megawatt eligibility limit for participation was no longer appropriate. Since the adoption of the restructuring plan it had developed a process under which new entities known as "scheduling coordinators" would reduce the transaction processing burden on the transmission system. (It is anticipated that the new scheduling coordinators will reduce confusion on the system by aggregating various transactions and bundling them into a "balanced schedule" before submitting them to the independent system operator.) Such a system effectively substitutes for minimum-aggregation load levels, the commission said. Re Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation, R.94-04-031, Decision 97-05-040, May 6, 1997 (Cal.P.U.C.).
In its initial restructuring policy issued last year, the commission had said that the utilities could limit availability of direct access to larger customers or groups. It had planned to initiate restructuring with the formation of a wholesale spot market and an independent system operator for the state's transmission system. It also would have phased in direct access, with all customers eligible within five years. See, Re Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation, 166 PUR4th 1 (Cal.P.U.C. 1996).
Billing and Metering. At the May 6 hearing, the commission also ruled that competitors may provide their own consolidated billing, metering and other related services. Under the ruling, new market entrants who use consolidated billing will be responsible for all payments including new statewide surcharges for competition, transition costs and public goods services provided by electric companies. The commission said it would identify the costs those distribution utilities save when they no longer provide the billing and metering services for direct-access customers. It would then remove those costs from regulated rates.
The commission concluded that the competitive provision of metering services would expand the benefits of hourly pricing created in the new power exchange to as many customers as possible. Similarly, the commission decided to permit utilities to modify their existing meters system-wide with automated meter reading technology. The new technology would allow customers to learn about their hourly consumption patterns and to use the information with new hourly tariffs to lower their bills. Under the ruling, the decision whether to install the AMR technology is left to the utilities and only those customers who chose the new billing option will be required to contribute to the cost of the upgrades.
Southern California Edison had requested permission to provide AMR technology for 85 percent of its customers at ratepayers' expense. The commission rejected Edison's claim that a utility-sponsored AMR program would best aid in the development of the direct-access market. It found that ratepayer funding of the effort might discourage customers from investing in competing technologies. The commission also noted that load patterns could determine billing patterns for customers without AMR capabilities. Re Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation, R.94-04-031, Decision 97-05-039, May 6, 1997 (Cal.P.U.C.).
Consumer Education. In March, the commission had approved the recommendation of PG&E, SDG&E, and Edison to form a joint, statewide education program. Through the program, the companies would inform consumers about changes in the electric industry and give them information to compare and select among new products and services. The commission had already ruled as a matter of policy that consumer education efforts must be put in place "well before direct access is allowed to begin."
Under the approved plan, the utilities will cull a cross section of interested electric industry participants to form the Electric Restructuring Education Group. To ensure that the group furthers its restructuring goals, the commission identified a list of 14 categories of participants that must join the utility-sponsored group. The categories include investor-owned utilities, municipal utilities, nonutility service providers, and consumer, environmental and large-user advocates.
The commission also established an educational trust to take over the duties of the consumer education program once direct access is set up. The trust will target those customer classes "whose members have not generally availed themselves of the direct access option," the commission said. Re Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation, R.94-04-031, Decision 97-03-069, March 31, 1997 (Cal.P.U.C.).
Related Issues. The commission issued a series of rulings regarding its role in transmission system reliability and related market power issues. It also clarified its plan for cost recovery related to the operation of fossil-fueled generating plants under the industry restructuring program.
The commission found that the independent system operator, with oversight by the Federal Energy Regulatory Commission, would play the primary role in assessing system reliability needs. The commission described its own role as "a supportive one." It said its main duties in the area would involve consulting with the ISO and participating in FERC proceedings in a continuation of the "cooperative federalism that has characterized industry restructuring to date."
It also ruled that proponents of performance-based rate plans that include shareholder earnings incentive mechanisms must now show how such allowances are required to further the goals and objectives for electric restructuring.
The commission explained in April that its 1996 restructuring policy decision to allow utilities to retain profits up to 150 basis points above their authorized return on distribution rate base applies only to those fossil plants that are primarily needed for reactive power/voltage control. Re Southern California Edison Co., et al., Application 96-07-009, Decision 97-04-042, April 9, 1997 (Cal.P.U.C.).
The commission also initiated a rulemaking to establish standards of conduct governing relationships between the state's energy utilities (both electric and natural gas) and their affiliated, unregulated marketing companies. The rules will cover utility interactions with affiliates in energy or energy-related activities, but not those in areas unrelated to energy services.
Groups requesting the investigation, including Enron Capital and Trade Resources, and several consumer groups, also asked the commission to require the utilities to conduct all nonregulated activities through their affiliated companies rather than by utility personnel subject to the affiliate standards. The commission said that an investigation was needed due to fundamental changes under way in both the electric and gas markets. It found that market players including regulated utilities were taking responsive action and that several new ventures and mergers had been recently proposed.
The commission said that existing rules must be reexamined to determine whether they must be modified properly to address the potential for self-dealing and cross-subsidization issues that might arise from electric utility restructuring. Re Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation, R.94-04-031, Decision 97-04-041, April 9, 1997 (Cal.P.U.C.).
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