WRIGHT & TALISMAN
MICHAEL B. DAY
MARGARET A. ROSTKER
100 California Street, Suite 1140
San Francisco, CA 94111
Telephone: 415-781-0701
Facsimile: 415-781-1719

Attorneys for CUSTOMER CHOICE IN ENERGY SERVICES

December 20, 1996

I. Introduction

In response to the Commission's order of October 25, 1996, D.96-10-074, CUSTOMER CHOICE IN ELECTRIC SERVICES (CCES) hereby submits its comments in support of the Commission's unbundling of certain functions from utility distribution operations as an integral part of the restructuring of the California electric services industry. CCES is a coalition of parties formed for the express purpose of advocating the benefits of customer choice and competition in the metering, billing and information services ("MBIS") MBIS market within California and across the nation. CCES was founded upon mutual agreement on two basic principles:

1 Consumers should be allowed to choose their provider of utility metering, meter-reading, billing, and information services through open market competition for each of these unbundled elements of service.

2 Utility metering, billing, and information services should be implemented with an open system architecture, which allows the hardware, software, and data of multiple parties to interconnect and communicate with each other freely.

At the present time, the members of CCES include the California Retailers Association, Cogeneration Association of California, Diablo Research, Eastern Pacific Energy Corp., Energy Producers and Users Coalition, Enron Capital & Trade Resources, Environmental Defense Fund, Foresight Energy Company, California Department of General Services, California State University, Hewlett-Packard, New Energy Ventures, Inc., Office of Ratepayer Advocates, Robinsons May Department Stores, Science Applications International Corporation, University of California, Working Assets Green Power, Inc. and Xenergy Inc.

CCES spans the range from electricity customers to power marketers to meter manufacturers to utility affiliates to information systems providers. All of these entities see the value in allowing customer choice and competition in the MBIS market at this time, as part of the initial implementation of electric restructuring. Customers have a wide range of metering needs, and systemwide implementation of a "one size fits all" solution by the incumbent utility does not meet customers' needs. In addition, a large number of customers already have an array of metering, control and diagnostic systems in place, using cable, phone lines, power lines, and the Internet. These customers require the flexibility to integrate electric meter data into their existing data infrastructures. Again, it would be very uneconomic to establish a new systemwide data infrastructure just for electrical energy services. Finally, the single billing source for electrical energy service is both important to customers and achievable. Customers will not embrace a system that generates different bills for the generated power, transmission services, and other unbundled services and functions. This requires that the consumer have the power to choose which entity will conduct metering and billing services.

CCES applauds the Commission for its October 25th order addressing the benefits of competition for MBIS. It is important that the Commission make a policy decision in favor of a competitive market for MBIS in order to allow new entrants as well as the utilities the opportunity to plan for the introduction of competitive metering, billing and information services. It is not necessary for the Commission to resolve every technical decision required to implement a competitive MBIS market or to unbundle the comparable utility services, but it is important that the Commission confirm that its policy direction is firmly set toward the development of a competitive market for MBIS. Implementing competition in the provision of MBIS by the January 1, 1998 implementation date for Direct Access is clearly attainable, but, providing as much lead time as possible to customers and Energy Service Providers ("ESP") will ensure that customers are offered the full array of competitive alternatives in this market.

It is very important for the Commission to understand, however, that the effort to provide customer choice in metering, billing and information services will not impede the prompt implementation of Direct Access. On the contrary, the implementation of MBIS competition will accelerate participation in Direct Access. MBIS competition can provide metering, billing, and customer account services to consumers at significantly lower costs and with greater service and product variety than monopoly providers. There are viable economic models for metering, billing, and customer service businesses, as well as communications systems and technologies to implement open access MBIS competition now. CCES is prepared to demonstrate that both large and small customers will obtain substantial benefits from MBIS competition in the electric services industry, and that utilities will continue to be able to ensure that their distribution and transmission services are appropriately metered and billed. However, for the electric utilities, like a growing number of other industries, the most efficient means of billing customers and providing them other customers services may well by allowing California consumers the opportunity to turn to a third party Energy Service Provider (ESP) in the competitive market. The Commission has an unprecedented opportunity here to unleash the forces of innovation in the electric services industry.

II. Customer Choice in Metering, Billing, and Information Services Is an Important Component of Direct Access in a Restructured Electric Industry

The Commission's December 20, 1995 policy decision, D.95-12-063, anticipated the development of a competitive market for metering, stating that, "[s]o long as the meters installed meet the metering standards (technical specifications) of the distribution utility, customers could have meters installed by others (e.g., suppliers, aggregators or meter vendors)." D.95-12-063 at p. 79, fn. 28. The Commission also indicated that the utility would continue to provide metering service for customers pending the adoption of performance specifications and protocols which assure the functional quality of meters (Id. at 80.), thus clearly implying that metering would not be a monopoly function once meter quality was no longer an issue. The Commission also indicated that working groups should address the issue of metering standards. The Commission has stated that unbundled meter service is not mandatory for implementation for Direct Access but is, nonetheless, an important factor in achieving the Commission's goal of fostering competition wherever feasible within the industry. Consumers will benefit from competition in MBIS services just as consumers will benefit from other aspects of competition in the electric services industry.

Decision 96-03-022 even more explicitly stated that the parties and the Commission must identify those remaining utility distribution services which "are likely to be competitive". D.96-03-022 at 36. The Direct Access Working Group (DAWG) process launched by D.96-03-022 considered MBIS issues. However the DAWG report was unable to produce a consensus on these issues, instead proposing a range of distribution unbundling options, some of which provided for a competitive MBIS market. See "Design and Implementation of Direct Access Programs, A Report of the Direct Access Working Group", August 30, 1996, Chapters 8 and 9. In response to the DAWG report, many parties commented in support of the unbundling options which permitted customer choice for MBIS.

On October 25, 1996, the Commission issued D.96-10-074, which required the utilities and interested parties to address certain specific questions regarding the unbundling of metering, billing, and information services. CCES has two basic responses to D.96-10-074.

First, Direct Access will be immeasurably enhanced by the unbundling of MBIS functions, and the benefits of generation competition will be brought to customers more fully than otherwise would be the case. Indeed, to limit competition to the commodity of electricity risks the same program failure experienced by the Commission in its natural gas core aggregation program. See remarks of Michael B. Day on behalf of Enron Capital & Trade Resources at the Direct Access Forum, October 10, 1996, Tr. at 4754.

Second, the Commission should adopt a goal of promoting competition in metering and billing for its own sake because such competition will lower the costs of these services to consumers and stimulate innovative responses to customer specific requirements. There already is fierce competition in these areas, particularly at the wholesale level, and the MBIS market is not a natural monopoly. Moreover, if the Commission were to attempt to preserve the inefficient utility monopoly in metering and billing services, it would miss a dramatic opportunity to foster the growth of a technology and information-based industry which can bring substantial benefits to consumers and to the California economy.

A. The Relationship Between Direct Access and Customer Choice for Metering, Billing, and Information Services

It is not an easy task for a government to "create" a market, when, in fact, most markets spring forth spontaneously as the result of concerted and repeated human endeavor to accomplish a certain end. This is amply illustrated by the half-successful or failed attempts of government to manage the creation of new markets. One such example is the "old gas-new gas" partial price deregulation put in place by the Natural Gas Policy Act of 1978. Indeed, stable prices and a balance of supply and demand were not achieved in the gas industry until full price deregulation was implemented.

In California, the Commission unbundled natural gas transportation and procurement for non-core customers, but halted its unbundling efforts for core customers at the point where core customers only benefitted from competition for the commodity itself. The net result has been fewer competitors and less value for core customers. In response to gas price competition from marketers, the utilities reduced their cost of gas to meet the competitive market price. This left those same marketers with only extremely thin margins, and with no ability to create additional value for customers by providing better or less expensive service in other areas, such as transportation, or metering and billing. As a result, nearly fifty marketers entered the market and only three survive fitfully today. By shielding competitive markets within the protected utility monopoly, the Commission drastically diminished the chance for customers to reap the benefits that accompany new entrants successfully competing with established utilities. The Commission must recognize that it needs to allow competitors the flexibility to offer innovative packages of unbundled services in order to provide customers with the opportunity to fully realize the value added nature of these services. This is one of, if not the, primary means by which customers will see the direct benefits of new entrants and their innovations and cost reduction efforts carving out a place in an evolving market.

MBIS functions are a perfect example of this process, and the discussion below will illustrate that the introduction of competition in this area will bring customers substantial benefits which would not be obtained if competition is limited to the generation of energy. The success of Direct Access will hinge on the ability of customers to be able to chose among the service and product offerings of ESPs--the inability of ESPs to provide these additional MBIS functions will severely limit the effectiveness of ESPs in being able to meaningfully challenge the incumbent utilities and correspondingly will severely limit consumer benefits. If new entrants are limited from bringing all of their competitive offerings to consumers, consumers will see fewer benefits and the Direct Access market will be that much less competitive, that much less efficient, and bring correspondingly less service innovation and cost savings to consumers. On the other hand, permitting competition in all of the non-monopoly functions, including MBIS, will stimulate competitors to innovate and market lower cost and more efficient services to go along with the energy commodity, encouraging even more new entrants, and intensifying the competition which will ultimately benefit all California electric consumers.

As indicated above, MBIS functions are NOT a natural monopoly for the utilities. This should, effectively, end the debate. The Commission has in many different contexts espoused the fundamental policy that it should continue to regulate only natural monopoly services, such as the provision and maintenance of electric distribution lines, but should encourage competition in areas where there is not a rationale for maintaining a monopoly. Examples are everywhere: natural gas procurement, long distance telephone service, electric generation, and, we submit, the metering and billing of electric services.

Frankly, the Commission should welcome the arrival of competitive pressure on utility MBIS functions. To date, the regulatory process has been singularly ineffective in promoting cost-effective and efficient metering and billing by the utilities. It is most revealing that in the state which is the home to many of the high-tech companies leading the information and communication revolutions in this country that the utilities are still sending meter readers out to walk around and manually read meters. How many times has the Commission encouraged the utilities to examine remote meter reading, or even joint meter reading to increase efficiency? How many times has the utility merely "studied" the issue? Clearly, until competitive pressure is brought to bear, the utility MBIS functions will continue to be far less than "state of the art", and customers will suffer by paying more for less.

CCES will demonstrate that the history of other new technology based industries gives the Commission strong evidence that competition in MBIS will lower costs, increase innovation, improve service, and benefit consumers.

B. An Analysis of The Impact of Unbundling MBIS Functions in the Electric Industry

The unbundling of MBIS functions will create competition among ESPs and utilities to provide better, less expensive services to customers. If we assume that competition induced each electric utility in the country to adopt the "best practices" or the most efficient procedures and technology for MBIS functions, consumers nationwide would save approximately $14.2 billion. See Chart 1, Cost Reduction Potential in Distribution attached hereto in Appendix A. Additionally, we are confident that cost savings, in addition to the $14.2 billion achieved by meeting the "best practices" in the electric utility industry will be attained by the additional service innovation and cost savings that have occurred in other industries--savings from the "best practices" are only the starting point for quantifying additional consumer benefits. In telecommunications, for example, "the unbundling of the value chain", or the division of plain old telephone services into many separately provided services, has led to significant cost savings for consumers, better customer service, and the evolution of a host of previously unoffered services. See Chart 2, Price and Cost Experience Curves and Chart 3, Value Added Services (Telco Example). The deregulation of the electric utility industry provides an opportunity to improve efficiency and reduce costs to an extent at least equal to the gains made in telecommunications. If a competitive market is allowed to develop in the electric services industry, the experience in other industries would indicate that the price of services (or the cost per transaction) will decrease, the quality of service will rise, and more focused service providers will enter the market to compete. See Charts 4,5, and 6: Airline Industry and Merchant Services.

However, the deregulation process must avoid the primary mistake made in the deregulation of gas--the failure to fully unbundle potentially competitive merchant services. To allow effective competition, there must be Direct Access on a level playing field, and metering, billing and information services must be unbundled. In this way metering services and billing/customer accounts services can be managed and provided by one or more full service ESPs or by other companies which specialize in these services. In addition, unbundling places financial and competitive risks on the service providers, not ratepayers, as is the case in the current regulated bundled monopoly model. See Chart 7, Matching Risk and Benefits.

1. An Economic Model for Unbundling Meter Services

ESPs can compete along a continuum of services, from basic energy services to non-traditional customer services. See Chart 8, Metering: Continuum of Customer Services. Analogies from other industries include credit cards and the travel industry, e.g. airline, hotel and automobile rental reservations. The experience in other industries shows us that systems will be created to capture and manage customer information (such as the evolution of airline reservation systems into sophisticated yield management systems) and that customer information will provide value to customers in many new ways not originally envisioned.

Transforming the electric utility industry from a regulated monopoly to a competitive segmented market will require dramatically higher information levels than those available today, as well as direct access to and management of the consumer base. But as to the central question of whether the consumer benefits from these new "bells and whistles"--the answer is undeniably yes.

The existence of new sources of value have changed system economics so as to strongly encourage providers in other industries to absorb upfront customer acquisition costs with the result that products and services are more widely available. Consider the experience of credit card providers who no longer charge annual fees, or cellular carriers who bundle free or low cost phones with cellular service. See D.95-04-028; Chart 9, Metering System Economics. The result is that the services are less expensive to obtain and are more widely used. In exactly the same way, in the electric industry the creation of new sources of value through unbundled MBIS functions could induce metering companies to provide free real time meters to consumers. This would increase consumer access to Direct Access without burdening ratepayers with the cost of new meters installed by the utility. It is equally important to recognize that the provision of meters by the monopoly utility would invariably result in some mismatch of customer needs and the services offered by the systemwide utility metering system. One size does not fit all, and a competitive market will ensure the proper customization of MBIS functions to meet consumers' actual needs, not what the utility believes is an acceptable lowest common denominator for all consumers.

More importantly, AMR via competitive technology provides the platform or the means to offer other energy services which will reduce overall electric costs to the customer. See Charts 10A and 10B, Competing AMR Technology (Energy Services). These charts depict the various competing technologies and firms already competing in the electric markets and the services they are preparing to market to consumers.

The Commission should recall that MBIS competition already exists as in the case where PG&E meters installed to serve the University of California have been routinely replaced by those of the Western Area Power Authority (WAPA) under its contract with Pacific Gas & Electric Company (PG&E), which permits WAPA to install and read its own meters and pay PG&E the transmission charges indicated by those same meters. This is a living example of the model that all customers could follow in an unbundled MBIS market.

More importantly, the competition fostered by unbundling of MBIS services will generate substantial consumer benefits through economies of scale and scope. At current installed costs (for replacing the utility electric meter with a retrofit unit) the cost savings associated with better energy management have a payback period for consumers of approximately 18 months. See Chart 11, Metering: Break Even Analysis. However, as more AMR meter units are sold into the market, and the benefits of these technologies are more fully utilized by consumers and suppliers, the experience of other industries tells us we can expect that the price of AMR metering equipment will decrease sufficiently within 5 years to shorten the payback period to 7 months or less. See Chart 12, Metering: Experience Curve Effect. At this point, competition will have clearly brought substantial benefit to consumers and made new services and higher technology more affordable for many more customers. The combination of additional revenue sources and falling component costs could make AMR technology universally available--without charging ratepayers for the retrofit of utility systems. For examples of the value added services which ESPs could provide through unbundled customer accounts service, and an estimation of their value to customers, see Chart 13, Metering: Value Added Services Impact.

Edison and PG&E have argued to retain their own meters as a part of their bundled distribution service. Consumer benefits provide the most compelling argument against bundling meter services with utility distribution services. Consumers differ in their needs, and a regulatory solution of "one size fits all" tends to result in fitting none well. Residential consumers do not need or require the same type of meter service as do, for example, large commercial customers.

Further, competition is the proven method for driving down cost of service for customers. In the absence of competition, utilities have no incentive to reduce their costs, or the charges to consumers. This is especially true if utility installed meters are in the ratebase. On the other hand, consumers can directly benefit from the economies of scale available at production levels of only 100,000 units, thus eliminating any economic efficiency rationale for systemwide monopoly metering by utilities.

From an emerging competitive market perspective, if the Commission permits meter services to be bundled with utility distribution service, the Commission would actually limit access to the metering market for new entrants because the utilities would gain an unfair competitive advantage. This is because the utilities could retrofit the existing meter with their chosen version of new technology without having to construct new electrical facilities. On the other hand, a competitor would be forced to construct a new AMR gateway downstream of the utility meter, which requires entry to the customer's home, perhaps the modification or removal of portions of a wall or the movement of the circuit breaker box. All this construction results in increasing costs as well as delays, permitting difficulties, or simply aesthetic concerns for consumers. Such costs are estimated to average at least $191.00 per meter. The imposition of such costs on new entrants does not represent a level playing field. See Chart 14, Metering Level Playing Field.

2. An Economic Model for Unbundling Customer Account Services

Customer account services involve three distinct, but interrelated activities: billing; accounts receivables; and inquiry resolution. Competition in this market would involve all types of ESPs, fully integrated power marketers, separate subsidiaries of former regulated utilities, and new focused customer service companies, or combinations of any of the above. Two depictions of how these services will be provided, one from the customer's point of view and one from the perspective of the ESP attempting to assemble the elements to provide comprehensive service to the customer are illustrated in Chart 15, Electric Industry Structure Diagram with Unbundled Metering, Billing, and Information Services.

The compelling economics of this market are evidenced in other industries that underwent deregulation. Proliferation of cost reduction initiatives frequently results from the restructuring of customer account services, including process redesign, outsourcing, and offerings of new products and services. Based on past experience with deregulated markets, we expect that the unbundled market for billing and customer accounts service would exhibit major cost reductions and value added enhancements by third party customer service providers that focus upon one or a few services. Compare the experience of the telecommunications industry where local exchange carriers reduced their own billing and customer costs by 28%. See Chart 16, Customer Account Services: Billing System Opportunities. However, these same companies realized that utilizing third party billing companies who could concentrate on the specifics of the billing function could produce even larger savings, between 28% and 62% below their initial expense levels. See Chart 17, Customer Account Services: Third Party Billing Services.

As a result of competition and innovation in these customer service areas, the consumer will have expanded choice and enjoy the benefits of greater value at lower costs. Just as importantly the consumer will be offered new services which were not available even a short time prior to unbundling. See Chart 18, Value Added Services. Examples of these value added services include consolidated billing, electronic billing, foreign language billing, usage detail, flexible and variable billing formats, and, of particular interest to consumers, faster billing. See Chart 19, Billing Example of Internal Redesign Results, which depicts the dramatically accelerated bill preparation time for a new telephone customer's initial bill.

Another category of unbundled billing service is accounts receivable, which includes the collection of necessary taxes, CTC, and any other charges. By permitting the utilities to receive the CTC from the service provider, the customer will directly benefit from a reduced number of bills. This is only available if billing services are allowed to be competitively provided and customers can choose to receive a single bill.

Inquiry resolution will also be transformed with ESPs operating call centers that promptly resolve inquiries and dispatch service requests. Companies are clearly motivated by cost reduction to improve customer inquiry resolution in a competitive environment. See Chart 20, Inquiry Resolution, depicting exemplary telephone industry savings from the introduction of new customers inquiry resolution procedures in a competitive environment.

In other deregulated industries, companies have completely offloaded customer service without sacrificing customer quality. Indeed, an entire industry already exists that is geared toward managing other companies' customers. See Chart 21, Customer Account Services Outsourcing. We fully anticipate that account service providers will provide high quality billing services because customers will leave those providers who do not. Those companies who can retain customers through improved customer services will experience significant cost savings through outsourcing to specialized customer service customers. See Chart 22, Airline Outsourcing, depicting the experience in the airline industry. Increased choice will not lead to confusion, but will instead result in more carefully packaged products offered at lower costs. Consumers, while presented with new choices, will see economic and service benefits made available to them on a scale never before imagined.

C. Existing Technology Makes MBIS Competition Practical Now

1. Direct Access with Time-of-Use Metering

The technology for implementing open access to metering and billing currently exists. The actual implementation of such technology has been accomplished, to a limited degree, in the United States and California, in particular. As with the introduction of any new technology, pilot scale implementation of various Automatic Meter Reading (AMR) trials have been implemented by various utility companies, for both gas and electricity.

There is an information pathway from the electric and gas meter to the customer care and billing systems. The beginning portion of the meter reading information highway is a meter interface unit (MIU) which translates a measured quantity into a unit of physical measurements, e.g., pulse counts into Kilowatt hours, or pulse counts into cubic feet of natural gas at STP. At the MIU, these quantities are accumulated until read by some external application. There exists a wide variety of additional measurements that are made by the MIU or meter, depending on the sophistication of the device. The relay of this metering/usage quantity from the MIU to the next collection point of the AMR system is accomplished by a variety of means, including radio (short and long range) telephone, paging, cellular phone, etc. In some instances, the initial collection from the MIU is by manually keying data into a portable handheld computer. The reading of the information from the MIU is scheduled on a regular basis. In general, the access to this information at the MIU is protected by at least two levels of passwords and requires a third password to change or reset information from the MIU. As the MIU technology improves, we can expect a similar enhancement in the protection schemes for accessing the MIU. The communication protocols for accessing these MIUs are readily available from the MIU manufacturers. The manufacturers provide software for reading the MIUs. Either this software or software developed by third parties to read the information from the MIU can be used as part of a communications network, assuming that proper access to the protection and access passwords is available. The accuracy of each of the MIUs or meters is governed by national and international standards and adhered to by the manufacturers.

The next point along the information collection highway is some type of data collection unit (DCU), which is used to collect the data from a number of MIUs. The number of MIUs that are accessed by the DCU ranges from one to several hundred. The number of MIUs that interface with a single DCU for radio based systems depends on the range of the radio at the MIU and the actual topology of the area for MIU installation. Telephone base DCU's are limited by the capacity of the telephone switch, but may range as high as several tens of thousands of MIUs per DCU. At the level of the DCU, some processing of the data may occur to translate the MIU specific information to a more common framework, such as ASCII. Nevertheless, these data protocols are usable and the information can be converted to metering information, suitable for monitoring and billing, at this point. Thus, there is a second point where open access to metering information can be available, albeit with some degree of processing potentially having taken place. For the case of walkby or driveby radio frequency or wireless based systems, the data concentration unit is the computer carried by the meter reader or in the meter reader's vehicle. Here the protocols for storage of information in these computers are well established in the industry and available to interested parties. For radio and telephone based systems encryption schemes are available for securing the data from outside inspection.

For some AMR systems, the range of the RF devices from the MIU to the DCU is short and hence and additional data concentration unit (super DCU) is used to interface with several DCU's. For most manufacturers, the DCU and super DCU are the same type of device, with the DCU possessing higher powered transmitters. Thus a single super DCU may cover several DCU's in the same fashion of cellular telephone units. Again, these super DCU's provide a potential point of open access to metering information.

Finally, the DCU's are connected to a Wide Area Network (WAN) that is connected at high speed to the utility customer information or billing system (CIS) or energy management center. The protocols for transmitting and receiving this information follows widely used network protocols such as TCP/IP, SNA, etc. These protocols are widely documented by a variety of standards and are currently implemented in hardware and software that is being sold by mature industry with well known providers such as Novell, Microsoft, Cisco, Lucent, etc. to name just a few.

The final point from the WAN to the utility billing system is a simple interchange of the metering WAN to the CIS. Simply transferring the information in a delimited flat file is an uncomplicated method for moving information between systems. If EDI technology is in use, protocols and standards exist for this interchange. With handheld devices there may be a direct link by way of a small computer system that extracts the data from the handheld device and formats that data for registration on the CIS system. Recently one company, SAIC, has developed a prototype system that seamlessly reads information from meters equipped with modems or RS-232 interfaces, and provides this information seamlessly to an energy utilization/billing system. This system, called Energy MC³, might serve as a prototype for demonstrating the feasibility of providing open access to metering and billing information.

2. Direct Access with Existing Meters

Some consumers may wish to take advantage of Direct Access without prior installation of a time-of-use meter. This is likely to occur for residential and small commercial consumers, especially early in 1998. Regardless of which ESP the customer chooses, as currently envisioned in the protocols for the Independent System Operator (ISO), every entity scheduling power over the transmission grid in California will need to either be qualified as a scheduling coordinator, or enter into an agreement with one. ESPs will not be an exception.

The scheduling coordinator will be responsible for information exchange between the ESP and the ISO. For its small customers, the ESP can readily use utility residential load profiles to reserve capacity on the grid. Customers will be billed for actual power used, based upon the meter read information transmitted regularly by the utility (if the utility continues to operate its own metering system) to the ESP. The load forecasts will be compared and adjusted on a regular basis with the actual usage data to account for any balances and to ensure accuracy. PG&E, Edison, and SDG&E have agreed that a single load profile in each service territory is sufficient for all residential customers owing to the similarity of residential electric consumption patterns. This greatly simplifies load profiling for residential customers.

Market participants may make an economic decision to install real-time metering equipment at any later date. Critically, however, Direct Access would be available to consumers without requiring new meters at the outset.

3. Unbundled Billing Services

As happens under the current regulatory regime, the first step in the billing cycle will be to read the meter. The entity providing meter reading services (either an ESP or the incumbent utility) will read the customer's meter. If an ESP reads the meter, it will transmit the meter data to the utility, which will need access to the meter information because the utility will be assessing transmission and distribution charges based on the kilowatt hours used each month. This can be done by a variety of means, as discussed above: electronic data interface (EDI), by tape, phone line, etc. In retail pilots occurring in New England, meter read information is transmitted through a secure electronic mailbox. The information transmitted monthly will include the customer account number, date of last and current meter read, and kwh used. Historical customer usage information will have been transmitted when the customer switches energy providers.

With the meter read data, the ESP will generate a bill for the customer's entire electric service, including distribution, transmission, energy, other charges including public goods and CTC (stranded costs), and taxes. This is an important place where the ESP can add value to the customer in terms of information, opportunities to buy other products, and so on. In addition, cost savings and efficiencies will be created. The utility will send one invoice--to the ESP--instead of thousands to individual customers. ESPs may bundle their energy services with billing for other products, thereby reducing paper and simplifying customers' bill paying activities.

The ESP will have an established customer relationship with the utility, defined by a contract. The utility may require deposits, a line of credit, or other financial tools to assure payment from ESPs. Thus, the utility will replace payment processing, collection, and write-offs from thousands of customers with one secure transaction.

The ESP will pay the utility for distribution, transmission, and CTC, if relevant. The utility will have one secure accounts receivable and receive one wire transfer or check based on stringent credit standards. The ESPs also will remit any taxes, regulatory fees, or other required collections (i.e., public goods charge) collected from customers to relevant agencies. Again, this is a standard transaction that can be performed by any entity that is billing customers; it is not a monopoly function. Indeed, each and every one of the billing functions described herein can be efficiently performed by non-utility providers, frequently at lower cost.

D. The Unbundling of MBIS Functions Will Provide Economic Benefits for California

The Commission must not neglect the big picture issues which surround the decision to unbundle MBIS. The restructuring of the electric industry also heralds the start (or the evolution) of a new technology-based, information-based industry, which holds great promise for California. The new MBIS market would be halted in its early stages if the Commission adopted a systemwide implementation of a single metering or communications system, particularly one with low technology capabilities. The reasons in favor of unbundling MBIS functions are clear, consistent with the Commission's overall policy on restructuring, and persuasive. On the other hand, the natural gas experience provides clear evidence that trying to only partially unbundle energy markets results in a stifling of competition, thwarts new entrants, and significantly delays and diminishes the benefits of competition for customers. The metering, billing, and information service functions are not natural monopolies, and there is already active competition in this area, particularly amongst wholesale providers. To resist the development of competition in MBIS is ultimately futile--particularly when there are significant benefits to this competition. The experience in other industries provides persuasive evidence that more customers will have access to these enhanced services, as well as direct access services themselves, if the market is allowed to make use of the added value that competition will wrest from the provision of metering, billing and information services. The power of customer choice can transform the MBIS market, and the Commission should not stand in the way of this positive and beneficial transformation.

III. CCES Responses to the Commission's Questions

The Commission asked respondents to comment on seven specific issues in its October 25th decision. CCES responds as set forth below.

Issue 1 - Meter Ownership

Meter ownership should be open to whatever arrangements the market finds to be efficient, subject only to the requirement that all meters attached to the utility distribution system must meet accepted standards for meter performance to ensure accuracy. The American National Standards Institute already maintains such standards for electric meters. See ANSI Standard C-12. Other standards for meters include the IEEE 1377-Draft Standard for Utility End Use Devise Applications Layer Communications Protocol, prepared by the AMRA/IEE SCC 31 End Devise/TRU Subcommittee and Industry Canada Task Force for Data Communications, 1996; the IEEE 1390 and 1390.1, the IEE Standard for Utility Telemetry Service Architecture for Switched Telephone Network, September 1995.

Issue 2 - Access to Meter Data

The data from a customer's meter should be accessible to all ESPs whose services are metered by the meter, including the distribution and transmission utility. In addition, the customer's electric consumption data should be made available to anyone else with the customer's consent, so long as the additional access in no way interferes with the ability of the authorized ESPs or the utility to obtain the meter data through an electronic data interface.

Issue 3 - Systemwide vs. Individual Installation of Real

Time Metering

The installation of real time meters (RTM) should proceed as customers and the market desire. Clearly, systemwide installation is not required to commence Direct Access. Small commercial and residential customers can be adequately served using load profiles and after the fact settlement of energy charges, as all three utilities concede. Large commercial and industrial customers, on the other hand, will most likely choose highly individualized arrangements, which also argues against systemwide installation of any single type of RTM. In addition, systemwide installation by the utility carries with it the burden of huge costs for ratepayers. As explained above, the unbundling of MBIS will allow value added services to off-set some of the installation cost of RTM units, bringing them to more and more customers without any utility expenditure at all. Under no circumstances should the Commission burden all ratepayers with the costs of a systemwide installation of RTM through the old fashioned, and unnecessary mechanism of adding massive amounts of distribution plant to ratebase.

Issue 4 - The Conditions for Open Entry Into Metering,

Billing and Information Service Markets

As explained above, there are substantial existing barriers to entry into the MBIS markets. First, the utilities do not offer unbundled metering, billing, and information services at this time, so the development of such service elements and identification of costs will have to be done. Second, PG&E and Edison refuse to price MBIS on an unbundled basis, only SDG&E has committed to unbundle MBIS functions. In addition, unless other vendors' meters can be used to replace utility meters new entrants face substantial competitive disadvantages in the installation of duplicate meters, which is both wasteful of money and effort and may face serious practical difficulties in making changes to the electric system of customers' homes or businesses. These barriers are essentially insurmountable, thus necessitating a Commission order allowing competition in MBIS functions.

CCES advocates the following conditions for open entry:

1. The Commission should order the utilities and all other ESPs and vendors who install meter facilities to use an open system architecture, by which it is meant that such devices may be interconnected with the utility system, meet ANSI and other necessary standards, and can be integrated with a network or communications link to provide data readable to the utility and any other affected ESPs. The Commission should allow specific communications standards to develop through the marketplace, rather than by regulatory fiat. This is possible because in the early stages of competition in the market, the Commission can rely on integrators finding ways to communicate with the utilities--essentially testing out the best communications protocols. This sort of trial and evolution will result in the type of industry standards which the Commission seeks as its long term goal. See Decision at 16. In addition, there will not likely be immediate roll out of real time meters to all customers. As explained in response to Issue 3, industrial and commercial markets require the flexibility to use different systems. Load profiling removes the immediate need for meter standards for small commercial and residential consumers. Thus, there will be a natural phase in of new MBIS technology and communications protocols, during which standards will develop.

2. The Commission should allow open market competition for all MBIS functions. Customer choice, not the utilities' decisions, should govern who performs metering, billing, and related information services. The only requirement should be the technical compatibility described above.

3. One precondition is that the ISO must adopt settlement procedures with scheduling coordinators that do not require billing to individual customers on daily basis. As described in the Joint Comments of September 30, 1996, supra, there is no reason for the ISO to require customer billing on any basis more frequent than monthly. It is possible for the ISO to settle with scheduling coordinators on a more frequent basis and then allow the coordinators and customers settle bills on any mutually agreeable time frame.

4. Unbundling MBIS requires both that the Commission adopt a reasonable methodology for cost allocation to each MBIS function and that the utilities set unbundled prices for separate service elements.

Issue 5 - Meter Costs

Will systemwide meter retrofit provide the lowest incremental cost? CCES answers no. In large part this is because the PG&E and Edison proposals involve low-tech solutions without the ability to generate the added value which can allow more customers to take advantage of metering technology at low or no cost. A systemwide "one size fits all" solution will not meet the varied needs of the customers or the marketplace, and will result in enormous unnecessary expenditures.

CCES also challenges the assumptions contained in D.96-10-074 which state that all meter providers' incremental costs are the same for a given set of functions, and that the cost credit, or the "avoided" cost of metering is zero. Decision 96-10-074 at 15-16. The Decision appears to accept these assumptions if non-utility parties do not provide contrary information. CCES argues strongly that it is completely erroneous to conclude that all competitors face the same costs and that the utility should receive the same revenue for performing fewer MBIS services. With regard to the "cost credit", non-utility parties simply do not have the information to allow them to calculate unbundled rates at this time. Yet a presumption of zero avoided cost is totally unwarranted. Only the utilities have the necessary information to allow them to calculate and allocate the costs of MBIS services. It is completely unfair to ask parties for information they do not possess while constructing a presumption against their interests. Furthermore, the entire debate about "cost credits" is to a certain extent misdirected. CCES continues to advocate a full unbundling of distribution rates into the MBIS components. Such an unbundling would thus require no credits in the distribution rates, and customers would then only be charged for the specific unbundled services they purchase from the utility or other ESPs.

Issue 6 - Billing Costs and Data Confidentiality and Payment

Security

CCES does not agree that the incremental cost of billing services is the same for all providers as the Decision appears to assume. D.96-10-074 at 16. Nor does CCES agree that systemwide billing is best or cheapest billing system available. The presumption is unwarranted, and is, in fact, flatly contradicted by the development of such information systems in other industries, as described above in Section II.B.2. California electric utilities already utilize outside parties as payment offices to a certain extent. This is accomplished through contracts in lieu of the utility maintaining their own payment offices. The utilities do this because it is cost effective to use these outside parties.

Security and confidentiality have been adequately managed in these cases. Similarly California gas utilities have operated the core aggregation program under rules which permit the marketer to bill customers and settle with the utility for payment of the utility's intrastate transportation services. Again, security and confidentiality issues have been adequately managed while using third party billing arrangements. SDG&E made an extensive presentation on these issues in the DAWG process without contradiction from any other party.

Under an open access system, the information obtained from the meters require a type of validation. Because the meters will be accessed remotely, communications protocols to these meters have been established by each manufacturer. Actual access to the meter information requires some level of password knowledge. As the information moves along the meter information highway, there are various points where that information can be encrypted to a higher degree. Using public key encryption technology access to this data can be restricted. As an additional level of protection, the information contained in the metered data as well as the actual names, addresses, credit history, etc. would be protected in much the same way as National Security Information is protected and freely exchanged among those authorized to have access. Systems for providing such protection currently exist and are in common usage throughout the country. Physical access to the records, (existing mainly on computer data bases) can be controlled using similar methods. We note that these techniques are extreme, but could be implemented rather quickly.

As an additional mechanism for protection, those power marketers, power brokers, energy service providers, etc. that require access to this information would be required to sign strict non-disclosure documents to protect the information. Software and hardware monitoring of those accessing the metering and billing information can be instituted with current technology. Periodic audits by outside experts could verify that the integrity of the data has been maintained.

We believe there are methods currently available to protect the information that would be contained in shared metering and customer billing data bases. The technology exists to monitor those individuals accessing these data and proper protection could be implemented to restrict physical access to those data. All of these techniques can be incorporated into procedures for metering, billing, and other customer service programs to ensure that there is no additional risk to customer privacy or utility revenues by virtue of third party metering and billing providers.

Issue 7 - Communications Standards

As discussed above, CCES urges the Commission to require that parties install metering equipment and communications systems and networks which are capable of interconnection and communication with the utility and all other ESPs serving a customer. This Commission need do nothing more. Communications standards and protocols will develop, and will develop faster once there is substantial competition. History teaches that the choice of standards by regulatory decisionmaking is rarely the right answer. The experience of the Electric Power Research Institute (EPRI) is instructive here. The original EPRI communications standard UCA was developed by a committee of EPRI's utility members, but neglected to include the capability of communicating via protocols which function on the Internet. This was obviously an unacceptable result and the protocol had to be revised. The Commission should avoid finding itself in the same situation and should allow the marketplace to search the available alternatives and come to a consensus on standards after real-world experience in moving meter data and preparing customer bills. There need not be an initial Commission-approved standards for external devices or networks. As explained above, a defined standard is not required to either commence Direct Access or to commence the unbundling of MBIS functions.

Comments on the Commission's Alternative Strategy Proposals

With regard to the alternate strategies suggested by the Commission's decision, CCES is strongly in favor of a strategy which permits the replacement or retrofit of individual meters. No other strategy is fully consistent with the level of unbundling needed to achieve the customer benefits described herein. Clearly, the installation of duplicate hourly meters is hugely wasteful and inefficient. The Commission should simply drop the option of duplicate metering and billing because it is a barrier to competition.

It is important for the Commission to permit replacement of the utility meter because this allows both customer choice and avoids duplication. Both the utility and the ESP can meter and bill independently, if this is the option the customer prefers, because both parties will have communication access with the meter. Secure and confidential communications are possible and should be required through mutually acceptable EDI standards, as described above.

Clearly a strategy of system wide utility replacement or retrofit is wasteful of ratepayer funds, prevents the development of added value services, and stifles innovation in the market. In fact, such a system places the risk of advances in technology on captive ratepayers rather than on the market participants.

CCES believes that multiple provider access to single meter is not only the appropriate long term solution, as characterized by the Commission's October 25th decision, it is the current state of technology today, and it can be implemented as soon as the Commission agrees to unbundle MBIS functions.

IV. Conclusion: CCES' Recommendations

The Commission should order the utilities to make the necessary studies to allow an unbundling of MBIS costs. In addition, the Commission should announce a policy in favor of open architecture for MBIS functions and allow customer choice and open market competition for metering, billing and information services. This is all the Commission has to do to set the forces of competition and innovation in motion. These simple steps will allow competitors to make the necessary investments and start to develop options for customers so that unbundled services will be a reality in time to commence with Direct Access on January 1, 1998.

The Commission should order that all meter providers and network system providers make meter data available to the utility and all other parties, such as ESPs, who actually provide consumption-based electric services to the customer.

The Commission should encourage utility-industry workshops to discuss what standards/protocols can be tentatively identified to increase customer access to unbundled MBIS functions and to work out procedures for the sharing of meter data.

Under no circumstances should the Commission delay Direct Access implementation. Rather the Commission should make the policy decisions necessary to allow MBIS competition to evolve with the remainder of the restructuring process. There will be a gradual introduction of MBIS competition as customer choice will govern transition. CCES is firmly convinced that unbundling MBIS

functions will not delay Direct Access, and will provide tremendous benefits to customers in the short and long term.

Respectfully submitted,

CUSTOMER CHOICE IN ENERGY SERVICES

By______________________________

WRIGHT & TALISMAN

Michael B. Day

Margaret A. Rostker 100 California Street,

Suite 1140

San Francisco, CA 94111

Telephone: 415-781-0701

Facsimile: 415-781-1719

Attorneys for Enron Capital

& Trade Resources

GOODIN, MACBRIDE, SQUERI, SCHOLTZ

_________________________________

Jim Squeri Attorney for

California Retailers Association

505 Sansome Street, Ste 900

San Francisco, CA 94111

415/392-7900

415/398-4321f

ATER, WYNNE, HEWITT, DODSON & SKERRITT

_________________________________

Evie Elsesser, Attorney for

Cogeneration Association of California

One Embarcadero Ctr., Suite 2420

San Francisco, CA 94111

415/421-4143

415/989-1263f

DIABLO RESEARCH

_________________________________

Bob Russ, COO

Diablo Research

825 Stewart Drive

Sunnyvale, CA 94086

408/730-9555

408/738-0931f

EASTERN PACIFIC ENERGY CORP.

_________________________________

Anthony Wayne

President

Eastern Pacific Energy Corp.

8055 West Manchester Avenue

Suite 455

Playa Del Rey, CA 90293

310/574-8163

310/823-8734f

ATER, WYNNE, HEWITT, DODSON & SKERRITT

_________________________________

Evie Elsesser, Attorney for

Energy Producers and Users Coalition

One Embarcadero Ctr., Suite 2420

San Francisco, CA 94111

415/421-4143

415/989-1263f

WRIGHT & TALISMAN

_________________________________

Michael B. Day

Margaret A. Rostker

Attorneys for Enron

Capital & Trade Resources

100 California Street, Suite 1140

San Francisco, California 94111

415/781-0701

415/781-1719f

ENVIRONMENTAL DEFENSE FUND

_________________________________

Daniel Kirshner

Senior Economic Analyst

Environmental Defense Fund

5655 College Avenue, Suite 304

Oakland, CA 94618

510/658-8008

510/658-0630f

FORESIGHT ENERGY COMPANY

_________________________________

Eric L. Miller, CEO

Foresight Energy Company

6210 Elderberry Drive

Oakland, CA 94611

510/531-8029

510/986-0384f

GRUENEICH RESOURCES ADVOCATES

_________________________________

Jeanne Sole, Attorney for

California Department of General Services

582 Market Street, Ste 407

San Francisco, CA 94104

415/834-2300

415/834-2310f

GRUENEICH RESOURCES ADVOCATES

_________________________________

Jeanne Sole, Attorney for

California State University

582 Market Street, Ste 407

San Francisco, CA 94104

415/834-2300

415/834-2310f

HEWLETT-PACKARD

_________________________________

Robert H. Lanning, Energy Manager

Hewlett-Packard

3000 Hannover Street, MS 2DX

Palo Alto, CA 94304

415/857-3674

415/598-8108f

NEW ENERGY VENTURES, INC.

_________________________________

Nancy I. Day

Vice President-Customer Service

New Energy Ventures, Inc.

35 North Lake Avenue Suite 520

Pasadena, CA 91101

818/666-0900

818/666-0909

OFFICE OF RATEPAYER ADVOCATES

_________________________________

Irene Moosen, Attorney for

Office of Ratepayer Advocates

California Public Utilities Commission

505 Van Ness Avenue, Room 5033

415/703-2726

415/703-2262f

ROBINSONS MAY DEPARTMENT STORES

_________________________________

Joseph Venne

Vice-President, Facilities

Robinsons May Department Stores

6150 Laurel Canyon Boulevard

North Hollywood, CA 91606

818/509-4950

818/509-5312

SCIENCE APPLICATIONS INTERNATIONAL

CORPORATION

_________________________________

G.L. Simmons,

Corporate Vice President

Science Applications International

Corporation

545 Shoup Avenue, Suite 200

Idaho Falls, ID 83402

San Diego, CA

619/753-7192

208/528-2156

GRUENEICH RESOURCES ADVOCATES

_________________________________

Jeanne Sole, Attorney for

University of California

582 Market Street, Ste 407

San Francisco, CA 94104

415/834-2300

415/834-2310f

WORKING ASSETS GREEN POWER, INC.

_________________________________

Laura Scher, CEO

Working Assets Green Power, Inc.

701 Montgomery St., 4th Floor

San Francisco, CA 94111

415/732-2056

415/788-7572

XENERGY INC.

_________________________________

Shelly Fust, Principal

Xenergy Inc.

1304 East Pine Avenue

El Segundo, CA 90245

310/322-1403

510/891-0440

Chart 1: Cost Reduction Potential in Distribution

Chart 2: Price and Cost Experience Curves

Chart 3: Value Added Services (Telco Example)

Charts 4,5,6: Airline Industry and Merchant Services

Chart 7: Matching Risk and Benefits

Chart 8: Metering: Continuum of Customer Services

Chart 9: Metering System Economics

Charts 10A,10B: Competing AMR Technology (Energy Services)

Chart 11: Metering: Break Even Analysis

Chart 12: Metering: Experience Curve Effect

Chart 13: Metering: Value Added Services Impact

Chart 14: Metering Level Playing Field

Chart 15: Electric Industry Structure Diagram with Unbundled Metering, Billing, and Information Services

Chart 16: Customer Account Services: Billing System Opportunities

Chart 17: Customer Account Services: Third Party Billing Services

Chart 18: Value Added Services

Chart 19: Billing Example of Internal Redesign Results

Chart 20: Inquiry Resolution

Chart 21: Customer Account Services Outsourcing

Chart 22: Airline Outsourcing