RATESETTING WORKING GROUP MEETING MINUTES June 26, 1996 Meeting Objectives: Further discussion of Track 1 vs. Track 2 components to unbundling. Several aggregators provided individual presentations and supported a panel discussion on their "unbundling" needs to facilitate electric restructuring. The three IOU's presented detailed information of their accounting systems and described their abilities to identify supported product and service costs which could potentially be targeted for unbundling. General Introductory Notes: The June 21 ACR on Unbundling is available on the CPUC Website. Presentation slides from today's meetings should be sent electronically, in Powerpoint or Abode Acrobat, to Jim Price - DRA, for posting. Aggregator Presentations: Destec - Relatively unique in that they have existing Control Area and Transmission Service Agreement (CATSA) with PG&E for providing unbundled services, effective since early 1995. CATSA provides for network transmission service down to 12kV. Details - call provisions for SO1 power, unbundled AGC, spinning reserve. Have scheduling requirements with IOU. Penalties for non-compliance within deviation band. Sees future need for VAR support unbundling. Retail rate structure, when available, would be flexible, customer specific, load factor based. Could base rates on customer's desired degree of reliability. Billing to customers would be structured to meet customer needs Working Assets - Clientele are small commercial and residential. Market niche is to make donations to non-profit organizations. Customers pay extra, or IOU subsidizes, increased costs based on specialized portfolio (i.e. renewables) Participating in New Hampshire pilot - 100 customers. 29 marketers in NH. 10% savings offered by IOU as a participation incentive; 10% participation credit to customers in pilot from IOU Marketing flourishes - economic development grants, energy efficiency incentives, cash payments Working Assets concerned about level playing field issue (see their hand-out for proposed solutions) New Energy Ventures - Focus as energy access agent for large customers primarily; intend to offer program for smaller customers Monopoly distribution services should just be those most cost effective for IOU's to perform. Believes billing and many other distribution services should be opened. Aggregators provide their value by repackaging these services to best accommodate customer needs. Need to know utility prices so they can be put to "market test" but understands concerns regarding "cherry-picking" Information management critical. Need information format, framework in place for speedy, electronic information exchange. Negative gas core aggregation experience. Concerned about market power issues with IOU subsidiaries, need level playing field on information What gets phased and when should be determined solely by accounting limitations Competitive market can exist when obligation to serve resides with one party, eg, telecom model, but will take time. Important to have timetable commitment for services to be unbundled. Aggregator Panel Discussion Four questions were posed to the representatives of 5 aggregation companies (EnSearch, SPURR/REMAC, Illinova, Southern Electric International, and Luce, Forward, Hamilton, & Scripps) to consider. Those four questions (paraphrased), along with a summary of responses, include: 1. Rate your interest in serving residential and small commercial customers without more extensive unbundling? More extensive unbundling of distribution services is important to entice these aggregators to serve residential and commercial customers in the California market. The more that is unbundled, the better the ability of the aggregator to compete. They are willing to use surrogate prices for services as a placeholder until the costs elements and methodologies could be litigated (since aggregators tend to work on small margins, surrogate prices need to be fairly accurate, if large investment to be made by aggregators). At very least, broad categories of services open to competition need to be identified and priced by IOUs. An analogy to gas service unbundling was made. While 80% of large customers are purchasing gas either directly or through aggregators, only 3% of smaller customers are purchasing gas in this fashion. Customer data, load profiles and information regarding the costs of unbundled services to utilities is needed to determine whether there even is a market. 2. If uncollectables are unbundled from IOU's, will there be a degradation of the credit risk among customers which continue to elect IOU service? Will IOU uncollectables increase relative to size of population served? Uncollectables are an issue with aggregators too. They would like the ability to "turn-off" for non-payment. There is no evidence to support that the aggregators get all the good, credit-worthy customers. Don't think IOU's would suffer. 3. Is the prepayment of CTCs suitable for unbundling? Aggregators generally indicated that they have strong financial resources and capital wouldn't be a problem. The idea of CTC pre-payment seemed like it was well supported by the aggregators. 4. Would pilot programs (partial implementation) be enough to encourage aggregators to begin dedicating resources to making restructuring work? Critical thing is to have elements in place, an identified endpoint for what would be unbundled and a timeframe to get there. The aggregators generally appeared to support pilots to get the ball rolling. Capabilities for Utilities to Support Cost Studies All of the IOUs provided hand-outs of their slides which should be on the Website. Summarizing each utility's position: SDG&E Presented framework for examining and evaluating costs associated with distribution services (akin to activity-based costing). By mid-1997 their billing system will have the capability to unbundle 21distribution service items. They feel that their cost studies can adequately identify "average" and "marginal" costs for these services and these services can be opened to competition. Critical point by SDG&E, and later from PG&E and SCE, was that these services and their discrete activities need to be clearly defined before they can be properly priced. PG&E Described the history of their billing system which was originally set up to meet FERC and SEC requirements. System was just replaced in May 1996 by a new system, SAP. Only one month's data. The new system can identify fairly discrete activities but isn't set up to price out products. This is because FERC doesn't functionalize the same way as the CPUC. One, or several, cost studies and analysis would have to be done for each service. There is also a problem with common or shared cost items between monopoly and potentially competitive services that must be addressed. Also a problem of reconciling the embedded costs within the billing system, to the avoided costs necessary to price services. SAP has the potential to support good cost figures for services once all the other issues (FERC vs. CPUC split, what are activities of delivered service, pricing methodologies, etc.) is decided and more information is collected. SCE Provided an abbreviated discussion on their system. It's similar to PG&E's but doesn't go into quite as much detail. Their efforts, like those of PG&E, have been in disaggregating the generation, transmission and distribution cost components. Bought up similar concerns to PG&E on needing clarity from FERC on functionalization, on identifying service elements, and cost studies. SCE, like PG&E, made the point that changes to the accounting process to identify discrete costs is extremely tedious, costly and time-consuming. Discussion of possible resolution of Track 1 and Track 2 items. There was no consensus on this matter, however there was agreement that four of the "undecided" services would go on a short list to serve as costing "test cases". These services are: 1. Billing 2. Metering 3. Customer Service and Support 4. Uncollectables/Collections It became apparent after group discussion that the discrete activities associated with the items on short list need to be specifically identified. This exercise would be required to attribute the appropriate cost elements to any pricing which may be done, and even more basically, see if some of these specific activities are competitive. Agreement was also made on the fact that this is an analytical exercise (without prejudgement) and shouldn't be assumed as an endorsement for inclusion in Track 1. It was suggested and agreed that the IOUs and others provide the activity lists for this items. Aggregators and others should input their views into what they see as the supportive activities of these services. General Discussion and Conclusion Unbundling group needs to identify implications of unbundling these items. There was no consensus on supporting SDG&E's request to delay their GRC filing. Probably more frequent meetings are needed if CPUC deadline is to be reached. Best approach may be sub-groups to meet weekly or bi-monthly. For a copy of the E Source paper on the impacts of information on bills, contact Sy Goldstein. Reference will by on Web. Next full group meeting is scheduled for July 26. Sub-groups will meet on the 25th. Both days will begin at 9:30 am.