Decision 97-12-088 December 16, 1997
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Order Instituting Rulemaking to Establish Standards of Conduct Governing Relationships Between Energy Utilities and Their Affiliates. |
Rulemaking 97-04-011 (Filed April 9, 1997) |
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Order Instituting Investigation to Establish Standards of Conduct Governing Relationships Between Energy Utilities and Their Affiliates. |
Investigation 97-04-012 (Filed April 9, 1997) |
OPINION ADOPTING STANDARDS OF CONDUCT
GOVERNING RELATIONSHIPS BETWEEN UTILITIES
This order adopts rules governing the relationship between California's natural gas local distribution companies and electric utilities and certain of their affiliates. For purposes of a combined gas and electric utility, these rules apply to all utility transactions with affiliates engaging in the provision of a product that uses gas or electricity, or the provision of services that relate to the use of gas or electricity, unless otherwise exempted by these rules. For purposes of an electric utility, these rules apply to all utility transactions with affiliates engaging in the provision of a product that uses electricity or the provision of services that relate to the use of electricity, unless otherwise exempted by these rules. For purposes of a gas utility, these rules apply to all utility transactions with affiliates engaging in the provision of a product that uses gas or the provision of services that relate to the use of gas, again unless otherwise exempted by these rules.
Our adopted rules are quite detailed and are attached to this order as Appendix A. The rules address nondiscrimination, disclosure and information, and separation standards. They also address to what extent a utility should be required to have its nonregulated or potentially competitive activities conducted by its affiliate.
On April 9, 1997, the Commission issued its Order Instituting Rulemaking/Order Instituting Investigation (OIR/OII) to establish standards of conduct governing relationships between California's natural gas local distribution companies and electric utilities and their affiliated, unregulated entities providing
energy and energy-related services. This Commission directed that this proceeding should also determine whether the utilities should be required to have their nonregulated or potentially competitive activities conducted by their affiliate companies.
The Commission issued the OIR/OII together with Decision (D.) 97-04-041. In this decision, we granted the motion of Enron Capital and Trade Resources Corp. (Enron), New Energy Ventures, Inc., the School Project for Utility Rate Reduction and the Regional Energy Management Coalition, The Utility Reform Network (TURN), Utility Consumers' Action Network (UCAN), and XENERGY, Inc. for such a rulemaking. The purposes of this proceeding are discussed more fully below.
In the order, we identified the rulemaking and investigation as candidate proceedings to be processed under the Commission's Resolution ALJ-170, which sets forth an experimental implementation of procedures that will become mandatory for our proceedings effective January 1, 1998, pursuant to Senate Bill (SB) 960 (Ch.96-0856).1 In the OIR/OII, we also preliminarily categorized the rulemaking as "quasi-legislative," and the investigation as "ratesetting," as those terms are defined in Experimental Rules 1.e and 1.d, respectively.
On April 21, 1997, Assigned Commissioners Bilas and Knight, and Administrative Law Judge (ALJ) Econome, held a prehearing conference. On May 1, 1997, the Assigned Commissioners issued a ruling and scoping memo (scoping memo) as required by, inter alia, Experimental Rules 2.e and 5. The scoping memo determined that the rulemaking and investigation will be included in the sample of proceedings handled by the Commission under the Experimental Rules. The scoping memo also categorized the rulemaking as "quasi-legislative" and the investigation as "ratesetting" as those terms are defined in Experimental Rules 1.e, and 1.d and 4.e, respectively. The scoping memo also confirmed that the scope of the proceeding is as set forth in the OIR/OII and D.97-04-041. Finally, the scoping memo set forth an aggressive procedural schedule leading to a Commission decision by December 31, 1997.
The OIR/OII encouraged the parties to work cooperatively to develop proposals for our consideration, and recognized that there are a number of good models from the Federal Energy Regulatory Commission (FERC) and other states for California utility-affiliate transaction rules.
On June 2, 1997, various parties submitted proposals and comments on those proposals pursuant to the OIR/OII. Parties filing proposals or comments include the Joint Utility Respondents (sometimes referred to as Respondents);2 the Joint Petitioners Coalition (sometimes referred to as Petitioners);3 the National Association of Energy Service Companies (NAESCO); the Office of Ratepayer Advocates (ORA); Texaco Inc. and Texaco Natural Gas Inc. (Texaco); and TURN. Additionally, Pacific Enterprises, Enova Corporation, SDG&E and SoCalGas jointly (SDG&E and SoCalGas) and Edison submitted comments.
On June 2, 1997, several parties filed separate motions or petitions addressing their concerns. PacifiCorp, Washington Water and Power Company and Sierra Pacific Power Company (PacifiCorp et al.) jointly filed a motion for exemption from general rules on utility/affiliate standards of conduct. Southern California Water Company (SCWC) also filed a motion seeking exemption from the affiliate transaction rules. Additionally, the Joint Petitioners Coalition filed a Petition for Modification of the OIR/OII to expand its scope to cover all utility affiliates instead of only affiliates providing energy and energy-related services.
The scoping memo required parties to file comments on the proposals by July 2, 1997. Upon the request of both the Joint Utility Respondents and the Joint Petitioners Coalition for an extension of time, and upon the representation that the parties appeared near agreement on many issues, the Assigned Commissioners and ALJ extended the due date for comments until July 31. We appreciate the time and effort the parties expended in an attempt to achieve consensus, and their ability to reach agreement on some less contentious issues. The July 31 comments demonstrate that, even with the additional month of negotiation, the parties were unable to agree on many controversial issues.
On July 31, 1997, many parties submitted comments to the June 2 proposals and responded to the motions and petitions. Proponents of proposed rules also used the July 31 comments to modify their proposed rules in response to the parties' negotiations. Several proponents also proposed some new rules. We address these items more specifically in the discussion below. On August 15, 1997, the parties filed replies. In addition to the parties who filed the June 2 proposals, the following parties filed comments or replies: The California Association of Plumbing-Heating-Cooling Contractors (CAPHCC); the California Energy Commission (CEC); Cogeneration Association of California (CAC); Department of General Services, University of California, and California State Universities, jointly (DGS/UC/CSU); Edison Electric Institute (EEI); Mock Energy Services; PG&E; PG&E Energy Services (PG&E ES); Pacific Gas Transmission Company (PGT); and the Southern California Utility Power Pool and Imperial Irrigation District (SCUPP/IID).4
On August 14, 1997, SDG&E and SoCalGas filed a joint motion requesting the Commission to immediately clarify that this proceeding excludes transactions between utilities and utility affiliates and between utilities and their parent companies, except to the extent that parent companies directly engage in the marketing of products and services to customers. On September 3, ORA filed a motion requesting the Commission to consider in this proceeding a PG&E audit prepared by ORA in PG&E's holding company case.
Pursuant to Experimental Rule 9, several parties made timely requests for oral argument. Experimental Rule 9 gives a party to a ratesetting or quasi-legislative proceeding the right to make final oral argument before a quorum of the Commission if that party so requests within the time and in the manner specified in the final scoping ruling or later ruling. The Commission held oral argument on September 4, 1997, at which all Commissioners were present.
In the OIR/OII, the Commission recognized that the fundamental changes underway in the California electric and gas markets create a need for these rules.
"We acknowledged in our Updated Roadmap decision (D.96-12-088) [in our Electric Industry Restructuring proceeding] that it may be appropriate to review our affiliate transaction rules to determine whether they must be modified given potential self-dealing and cross-subsidization issues that may arise as a result of electric utility restructuring. We recognize that the existing rules governing utility relations with affiliates differ among the companies, and that the present rules may not address the manner in which electric and gas utilities and their affiliates may market services and interact in a marketplace now characterized by increasing competition. Utility entities competing to provide energy services should face uniform rules so that no advantage or disadvantage accrues to a player simply because of differing regulations. It is therefore necessary to develop new rules or standards of conduct which will govern energy utility relations with their energy affiliates. We open a rulemaking and companion investigation for this purpose. The standards of conduct or rules should (1) protect consumer interests, and (2) foster competition." (OIR/OII, slip op. at p. 2.)
The purpose of the rulemaking and investigation is to establish standards of conduct for utilities and their affiliates providing gas and electric services, both those affiliates in existence today and those that may be created after the adoption of final rules. In the OIR/OII, we intended the standards of conduct to cover interactions between utilities and their affiliates marketing energy and energy-related services. Examples of covered activities listed in the OIR/OII include utility interactions with an affiliate that (1) markets gas or electric power, or that provides (2) power plant construction and permitting services, (3) energy metering services, (4) energy billing services, (5) energy products manufacturing, or (6) demand-side management services.
The OIR/OII also directed that parties could address whether energy utilities should be required to conduct unregulated or potentially competitive activities through affiliate companies and if so, under what rules and criteria.
The OIR/OII also set forth basic standards that the rules should contain.
"Nondiscrimination Standards The proposed rules should provide that preference should not be accorded to customers of affiliates, or requests for service from affiliates, relative to nonaffiliated suppliers and their customers.
Disclosure and Information Standards The proposed rules should prohibit disclosure of utility and utility customer information with the exception of customer-specific information where the customer has consented to disclosure. The proposed rules should address whether the utilities should be prohibited from providing leads to marketing affiliates, and whether there should be a prohibition on affiliates trading upon, promoting, or advertising their affiliation with utilities.
Separation Standards The proposed rules should provide for the utility's and the affiliate's operations to be separate to prevent cross-subsidization of the marketing affiliate by the utility customers. The proposed rules should require the utility and affiliate to maintain separate books of accounts and records." (OIR/OII, slip op. at p. 5.)
In addition to the above standards, we also gave the following additional policy guidance.
"Uniformity of rules is appropriate in a competitive market. It is in the public interest to establish rules which ensure utility affiliates do not gain unfair advantage over other market players, and to ensure utility ratepayers are not somehow subsidizing unregulated activities. Utility affiliates competing with other utility affiliates to provide energy services should face substantially uniform rules so that no advantage or disadvantage accrues to an affiliate simply because of differing regulations.
Utility affiliates should not be disadvantaged relative to competitors. The purpose of the standards of conduct is to ensure utility affiliates do not gain unfair advantage over other market players, and to ensure utility ratepayers are not somehow subsidizing unregulated activities. Within this framework, the rules should foster confidence among market players that competitors have equal opportunities to gain market share.
Proposed rules should be within the power of the Commission to enforce. We recognize that enforcement is critical to fostering competition. The Commission should not be asked to adopt rules which it is not lawfully able to enforce.
Proposed rules should not conflict with the Federal Energy Regulatory Commission's (FERC's) standards, and, when taken together with the FERC's rules, should create seamless regulation. FERC has adopted rules applicable to energy companies and their affiliates consistent with its jurisdictional responsibilities. Any rules proposed for this Commission's consideration should not conflict with these FERC standards. Rules proposed to this Commission should pick up where FERC's rules and jurisdiction leave off so that the federal and state rules applicable to affiliate transactions leave no gaps in regulation. Rules proposed for this Commission's consideration should also create no overlap with or duplication of the FERC's standards." (OIR/OII, slip op. at pp. 6 - 7.)
The rules we adopt are attached to this decision as Appendix A. The following sections summarize the parties' positions and discuss the reasoning behind our conclusions. Since the filings in this proceeding are quite voluminous, we concentrate on the chief points of contention and do not try to summarize every nuance in individual positions. In that regard, we concentrate on the proposals of the Joint Utility Respondents and Joint Petitioners Coalition, since most parties focused their comments and replies on these two competing sets of proposals. For ease of reference, we attach a comparison exhibit jointly prepared by the parties for the oral argument as Appendix B. This exhibit summarizes the various parties' proposals.
1 The Experimental Rules and Procedures adopted in Resolution ALJ-170 establish the rules and procedures for the experiment and the creation of the sample of proceedings to which the experimental rules will apply. All further references to the Experimental Rules are to these rules.
2 The Joint Utility Respondents include Pacific Gas and Electric Company (PG&E), San Diego Gas & Electric Company (SDG&E), Southern California Edison Company (Edison), and Southern California Gas Company (SoCalGas). The Joint Utility Respondents filed their recommendations in the form of a motion requesting adoption of a settlement, presumably because the OIR/OII stated that the proposed rules should be developed pursuant to the Commission's settlement and stipulation rules, and should be filed accompanied by a motion. By so stating, we did not require that each June 2 filing be in the form of a settlement, but rather that the parties follow the procedural structure of our settlement rules in working cooperatively in attempting to reach an agreement involving a wide range of interests. The all-utility "settlement" represents a narrow, rather than wide-range, set of interests. These respondents also fail to agree on key elements of the "settlement," such as the definition of affiliate. We therefore treat the Joint Utility Respondents' filing as a joint proposal, similar to that of the Joint Petitioners Coalition and of other parties filing jointly.
3 The Joint Petitioners Coalition includes Enron; New Energy Ventures, Inc.; The School Project for Utility Rate Reduction and the Regional Energy Management Coalition; TURN; UCAN; XENERGY, Inc.; Amoco Energy Trading Corporation; the Southern California Utility Power Pool, whose members include the Los Angeles Department of Water and Power and the Cities of Burbank, Glendale and Pasadena, California; the Imperial Irrigation District; the Alliance for Fair Energy Competition and Trading, whose members include the California Association of Sheet Metal and Air Conditioning Contractors National Association, Calpine Corporation, the Institute of Heating and Air Conditioning Industries, the Electric & Gas Industries Association, H2O Plumbing & Heating, Inc., Mock Energy Services, NorAm Energy Services, Inc., and the Plumbing, Heating & Cooling Contractors of California; the City of San Diego; Pan-Alberta Gas Ltd.; and the City of Vernon.
4 The following motions to accept comments out of time are granted: (1) Edison's June 2 motion to accept its June 2 supplemental comments one day out of time; (2) SCWC's August 20 motion to accept its reply comments out of time; and (3) PacifiCorp's August 14 motion to accept its reply comments out of time.
