BACK IN DECEMBER 1995, THE CALIFORNIA PUBLIC Utilities Commission launched a two-year pilot program to test the idea of letting builders and contractors design lateral distribution facilities for residential gas and electric service. Private firms would consult with utilities, who would credit contractors for costs saved by outsourcing. More than 250 subdivisions participated.
Late last year, the PUC declared the program an unqualified success. "Builders, design firm, and the utilities have proven that they can coordinate the necessary resources¼ saving builders as much as two months on an otherwise seven-month design process." The commission then instructed the state's six major investor-owned gas and electric utilities to file tariffs to set out a bidding process for the private design of electric and gas distribution lines. (Decision 97-12-099, Dec. 16, 1997).
Nevertheless, the PUC worried that, in helping private firms design lateral lines, utilities might end up giving away transformers, meters or other services or line facilities (TSM) to construction firms at below cost. To address the problem, the commission issued a second decision, limiting the size of any free dollar allowances for TSM to the revenue the utility might expect to receive from the load to be served by the new distribution facilities. (Decision 97-12-098, Dec. 16, 1997).
Does this new program mark the beginning of the end of distribution as a regulated monopoly?
Recently, the PUC has taken a somewhat ambiguous position, hinting that distribution is a monopoly (em but only until customers decide otherwise: "We view distribution as a natural monopoly with respect to serving those customers who do not opt for self-generation or construct transmission and distribution facilities to serve their consumption." (See, e.g., Decision 95-12-063, Dec. 20, 1995, modified Jan. 10, 1996, 166 PUR4th 1, 40.)
Not one to mince words, California Commissioner Jessie J. Knight Jr. believes the end is near. He endorsed the new pilot program and cost-limiting rule, but gave it his own unique spin:
COMPETITION IS COMING to the provision of distribution services¼ It may be that there is no reason why the local utility distribution companies should be the only ones to construct and own line extensions¼ THIS IS PARTICULARLY POSSIBLE for industrial and commercial customers¼ IN MY MIND, it is appropriate to allow a customer to build, own and maintain a distribution plant that is wholly on the customer's property.
THE DESIGN OF DISTRIBUTION SERVICES is clearly not a natural monopoly. The pilot program proved that the design of distribution systems to serve residential customers can be performed by a wide variety of firms¼
IN MY OPINION, the construction of distribution facilities does not exhibit any of the characteristics of a monopoly function¼ This commission will have to revisit the concept that the provision of distribution service is a natural monopoly. We have taken the first tentative steps toward allowing distribution competition¼ THE INDUSTRY WAS SLOW to see the advent of competition in generation and retail provision of electricity. Now it is starting to grasp the eventual reality that competition in transmission services is coming¼ Soon [it] will have to come to grips with competition within the bastion of distribution. It is only a matter of time¼
THE TIME OF THE NATURAL MONOPOLY over distributions services will, in my estimation, be over much sooner than the conventional wisdom in this industry would have us believe.
Source: Excerpts from concurring opinions written by Commissioner Jessie J. Knight Jr., in Rulemaking 92-03-050, Decision 97-12-098 and Decision 97-12-099, Dec. 16, 1997. (Cal.P.U.C.).
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