BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Order Instituting Rulemaking on the ) R.94-04-031 Commission's Proposed Policies ) Governing Restructuring California's ) Electric Services Industry and ) Reforming Regulation ) _____________________________________________) ) Order Instituting Investigation on the ) Commission's Proposed Policies ) I.94-04-032 Governing Restructuring California's ) Electric Services Industry and ) Reforming Regulation ) _____________________________________________) REPLY COMMENTS OF JEFFERSON ELECTRIC INC. ON WHOLESALE MARKETS AND MARKET INSTITUTIONS Jerry R. Bloom MORRISON & FOERSTER 345 California Street San Francisco, CA 94104-2675 (415) 677-7533 Attorneys for Jefferson Electric Inc. August 18, 1994 TABLE OF CONTENTS Page I. INTRODUCTION: A MARKET MAY CREATE POOLS, BUT POOLING WILL NOT CREATE A MARKET . . . . . . . . . . . . . . . . 1 II. THE CONSUMERS' MESSAGE CONFIRMS THE COMMISSION'S ORIGINAL VISION . . . . . . . . . . . . . . . . . . . . 1 III. THE ADOPTED MARKET STRUCTURE SHOULD ALLOW FOR COMPETING INSTITUTIONS TO DEVELOP, RATHER THAN A MANDATED SINGLE POOL . . . . . . . . . . . . . . . . . . . . . . . . . . 3 IV. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . 3 i I. INTRODUCTION: A MARKET MAY CREATE POOLS, BUT POOLING WILL NOT CREATE A MARKET. This proceeding was initiated to enhance consumer satisfaction through greater responsiveness to consumer needs by California's electric services industry. The consumer interests have now spoken clearly about their needs. The electric industry should be restructured to maximize opportunities and meaningful choice for all consumers. Not a single consumer commenter, whether individual or group, has endorsed the notion that competitive forces in this industry should be channeled through a pool with monopoly control over dispatch and transmission. Consumers want a new relationship with the electric services industry, in which they may directly participate; they do not want another insulated monopoly at some remote point of the production and distribution chain, from which savings may - or may not - trickle down to the end-user. Using production efficiency as a proxy for consumer satisfaction has not worked before and should not be the basis for the new industry structure. Instead, the Commission should start with the consumer perspective and allow development of market institutions that meet consumer needs directly. The "right" market institutions will then evolve naturally and competitively. II. THE CONSUMERS' MESSAGE CONFIRMS THE COMMISSION'S ORIGINAL VISION. The consumers' message is clear. They want to be heard. They want real ways to save on energy bills now, and they do not want other people having control over what prices and 1 services suit their needs. What the Commission has started is the formulation of an Energy Consumer's Bill of Rights. Such a formulation is both timely and necessary because it helps focus this proceeding on the central problem: Energy consumers should have the same rights as consumers in other markets, and the current electric industry structure denies those rights, particularly the right to choose. In the order instituting this proceeding (the "Blue Book"), the Commission set forth "A Vision for the Future of California's Electric Services Industry." (Blue Book, p. 12 et seq.) The "fundamentals" of that vision are indeed the first principles of an Energy Consumer's Bill of Rights. The Commission speaks repeatedly of consumers having "direct access" to a variety of service providers, of "universal access" for "[a]ll Californians," of increased competitiveness in the electric industry and the need for consumers to "enjoy the benefits" of such increased competition. (Blue Book, p. 12, emphasis in original.) The designated vehicle for achieving these ends is consumer participation and choice in the marketplace: "In the policies we propose for California, consumer choice through direct access . . . represents the cornerstone of our vision for the electric services industry." (Blue Book, pp. 12-14, footnotes omitted, emphasis in original.) The consumer commenters have clearly endorsed the Commission's focus. The Commission should retain that focus. 2 III. THE ADOPTED MARKET STRUCTURE SHOULD ALLOW FOR COMPETING INSTITUTIONS TO DEVELOP, RATHER THAN A MANDATED SINGLE POOL. There are many ways to satisfy energy needs even now. More ways will emerge as consumers are allowed to make their own choices. Many consumers will want to lower their transaction costs and perhaps increase their buying power by utilizing pools and/or middlemen rather than dealing directly with producers. This intermediate, "merchant" function is itself competitive, i.e., a market is likely to develop several competing pools and attract many competing middlemen. Mandating a single POOLCO is not necessary and indeed would be counterproductive. In particular, POOLCO's alleged price transparency is achieved by (1) narrowly defining the product, and (2) establishing a set of auction rules that are highly susceptible to manipulation by producers. The resulting "spot" price will not provide real or meaningful choices for consumers. IV. CONCLUSION The consumer interests in this proceeding have spoken clearly about what they want. It is time for the Commission to clearly and emphatically adopt a policy of consumer choice, as the Commission proposed in the Blue Book. In the present debate over market structure, the lesson is that markets should be free to implement Commission policy. This lesson does not mean that the Commission has only a passive role. A fully competitive market for electric services will develop readily, but only if the Commission secures the 3 competitiveness of that market by (1) requiring the separation of generating, transmission, distribution and merchant functions; (2) ensuring nondiscriminatory access to the transmission and distribution systems by consumers, merchants and producers; and (3) limiting market power encouraging new market entrants, and policing obstructive behavior by utilities. Respectfully submitted, JERRY R. BLOOM MORRISON & FOERSTER By: Jerry R. Bloom Attorneys for Jefferson Electric Inc. 4