CONTACT: Dianne Dienstein August 1, 1997 CPUC - 93
415-703-2423 (A.97-12-009)

CPUC UNBUNDLES UTILITY SERVICES AND RATES IN PREPARATION FOR COMPETITIVE ELECTRICITY MARKET IN 1998

Key to facilitating customer choice in California's coming competitive electricity market in 1998 is 'unbundling' utility services and rates so that competitors can step in to provide one or more of them, and consumers have information they can use to choose among providers and services. The California Public Utilities Commission (CPUC) today took this key action by ordering separation - unbundling - of what traditionally have been services only provided by utilities.

The three major components of electric service are generation, transmission, and distribution. Additional components are public purpose programs [research, development and demonstration programs; energy efficiency programs; operation and development of renewable resource technologies; low-income energy efficiency services; and the California Alternative Rate for Energy (CARE) program], the competition transition charge (CTC), and nuclear decommissioning. Currently, customers simply see the total charge for all the components on their bills. In the competitive electricity market set to begin in 1998, each component will be separately identified on customers' bills so they can see exactly how much they are paying for each. Except for the cost of electricity (because this may vary depending upon who they purchase electricity from), customers will pay the same rates for all of the other components.

In January, one component - the cost of electricity (generation) - will be separately identified on customers' bills. Because it will take utilities time to adequately identify the charges for each of the other components, and to reprogram their computer software billing programs, they will have until June 1, 1998 to create bills which show all components, and the costs for each, itemized.

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Utilities can continue to sell electricity but, for the first time, they will be competing with other sellers of electricity. An independent entity - the Power Exchange (PX) - will set the price of electricity depending upon supply and demand. The price will be the weighted average of the day-ahead and hour-ahead prices, adjusted for administrative costs, settlements, ancillary services, and congestion fees, and it will fluctuate as often as hourly. The price of electricity shown on a customer's bill will be an average of the PX energy prices for the month, subject to a true-up the following month. Showing PX price information and reminding customers on the bill that they can purchase electricity from a different supplier is intended to educate customers about their new energy options.

Utilities will continue to own their transmission systems but will turn operation of them over to an independent entity, the Independent System Operator (ISO). The Federal Energy Regulatory Commission will regulate the ISO and set transmission rates. Any ISO costs that are assigned to utilities for services provided on behalf of all customers will be recovered from all customers, regardless of who supplies their electricity.

Utilities will continue to 'distribute' - deliver electricity to a customer's home or business no matter what supplier supplies that electricity. The CPUC will continue to regulate utilities, and set rates for distribution. In its order today, the Commission reduced utilities' distribution revenue requirements from what the utilities proposed because they included various costs that should instead be recovered through their generation revenue requirement. The approved distribution revenue requirements for the utilities are: Edison $1.67 billion, PG&E $1.95 billion, and SDG&E $501.6 million.

The Commission is now reviewing San Diego Gas & Electric's performance-based ratemaking mechanism. Pacific Gas & Electric must file a general rate case with the CPUC in late 1997. And the Commission will evaluate Southern California Edison's performance-based ratemaking mechanism in 1999. Therefore, the Commission deferred adjusting the utilities' total authorized revenue requirements or additional adjustments to their distribution revenue requirements, until these cases have been decided. - more -

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The costs for public purpose programs will be allocated according to system average percentages. CARE program costs will be allocated first on an equal cents/kilowatt-hour basis, and the other programs' costs allocated according to the percentage share of each program's current revenue requirements relative to the utility's total current revenue requirement.

Current electric rates, in part, reimburse utilities for their costs of building power plants and buying electricity from independent power producers to serve their customers. The CPUC reviewed and approved these costs as reasonable, and authorized utilities to recover them in rates over many years. To ensure utilities recover these costs during the four year transition (1998 - 2002) to a competitive electric industry, all utility customers, whether they buy electricity from the utility or not, will pay a competition transition charge.

Utilities will calculate the competition transition charge residually by individual rate class using an averaged energy cost on a monthly basis. Customers who choose an energy supplier other than their utility will pay the same competition transition charge as utility customers. Assembly Bill 1890 (Stats. 1996, ch. 854) requires a 10 percent reduction in residential and small commercial (up to 20 kV peak demand) customers' bills beginning January 1, 1998; customer bills will reflect this decrease.

Separate ongoing CPUC proceedings will address issues related to transition costs which have not already been resolved, load profiling, mobilehome park tenants' eligibility for direct access, utility requests for performance-based ratemaking, and utility requests to issue revenue bonds to finance the rate reductions mandated by AB 1890.

Throughout the remainder of this year, the Commission will make more decisions specifying how California's competitive electric services market will work. The best way to follow these developments is to access the CPUC Internet website at http://www.cpuc.ca.gov and check these categories: Electric Restructuring, News Releases, Commission Meeting Agenda, Daily Calendar, and Energy Division.