Comments of SPURR/REMAC on DAWG Report Concerning the Phase-In of Direct Access

Introduction And General Comments

The following comments are submitted on behalf of the School Project for Utility Rate Reduction and the Regional Energy Management Coalition ("SPURR/REMAC") on the June 17, 1996 draft Direct Access Working Group ("DAWG") paper entitled Considerations Influencing Phasing of Direct Access ("Report"). SPURR/REMAC have been active participants in the DAWG and previously sponsored, in conjunction with other organizations, an "Implementation" Direct Access proposal. While our comments on individual issues are set forth below, there are two common themes that bear emphasis up-front. First, it is critical that the Report emphasize that the optimal outcome of the restructuring effort would be to provide the opportunity for Direct Access to as many customers as quickly as possible. The primary focus of the Report should be on finding ways to expand Direct Access opportunities rather than on identifying reasons to limit them. In fact, the Report should state that third-party suppliers of necessary metering equipment, information systems and billing engines already exist and are ready to serve the California Direct Access market. The perceived technological barriers to opening up Direct Access stem largely from utility hesitance to define fully their system requirements and to begin the necessary transition. The CPUC should scrutinize carefully arguments concerning technological limitations and require the utilities to work with customers and potential Direct-Access suppliers to expedite the competitive market. Second, two major goals of the CPUC's restructuring efforts are to empower customers to decide for themselves the necessary characteristics of their electricity services and to increase the range of options from which they may choose. There is no better time to start meeting these goals than the present. To the extent that customers choose to ready themselves for Direct Access, their choice should be accommodated and supported as much as possible. Consistent with the CPUC's overriding premises, customers themselves should be empowered to create their own solutions to the obstacles that might otherwise stand in their way towards Direct Access.

Particular Comments 1. Any Phase-In Of Direct Access Should Allow All Customer Segments To Participate During Each Phase.

In Sections II.C and IV.C of the Report, equity rationales concerning the phase-in of Direct Access eligibility are discussed. SPURR/REMAC believe strongly that equitable participation by all customer segments in all geographic locations is critical for the success of the Direct Access program. In particular, it is critical that geographically diverse residential and commercial customers, including those in public-sector market segments such as schools and hospitals, have the ability to participate in the Direct Access program at its inception. More than just equity is at stake in opening Direct Access eligibility to all customer segments; the legitimacy of the CPUC's restructuring process will depend, in part, on whether there is a perception that the process is being conducted in a way that does not unfairly benefit one customer segment over another. To this end, SPURR/REMAC believe that a strict MW size limitation on individual customers or aggregators for Direct Access eligibility is exactly the wrong kind of eligibility criterion to employ. Such size limits are bound to create a perception that there are arbitrarily designated "haves" and "have nots" even before the actual implementation of Direct Access begins. A phase-in system that allows customers themselves to choose whether or not to participate in Direct Access is far superior. Recognizing that technological and other constraints are being considered as potential barriers to full and/or equal participation by all customers simultaneously, SPURR/REMAC propose, if eligibility is to be restricted, that the CPUC adopt a baseline allowance of eligibility shares that are distributed equitably among all customer segments. In other words, each customer segment will be allocated a fair share of the Direct Access "pie." To the extent that individual customers within a given segment are willing and able to participate in the Direct Access market, up to the aggregate limitation on eligibility for their customer segment, they should be allowed to participate in the next available phase of Direct Access.

2. Eligibility Preference Should Be Given To Customers That Are Prepared To Participate. Sections II.B and IV.B of the Report focus on ways in which the current state of customer knowledge and capabilities can be used to justify limiting eligibility for Direct Access. SPURR/REMAC believe that the focus of the Report should be shifted positively toward a discussion of the possible methods of minimizing these concerns. In particular, SPURR/REMAC propose that if customers make the choice to participate in Direct Access and make themselves technologically capable of doing so, those customers' efforts should be rewarded. Within particular customer-segment aggregate limitations, customers that possess, or make the commitment to obtain, necessary metering, billing, nomination and other technology, should be given preferential eligibility to participate in a given phase of Direct Access. The rationales for this policy are simple. First, those that make a commitment to ready themselves for Direct Access, which could involve financial and contractual obligations, should receive all possible assurance that their commitment will not be in vain. Second, it would make no sense to allocate eligibility to customers that are not able to avail themselves of the program and prioritizing eligibility to those that can participate will more efficiently allocate such eligibility. Third, and perhaps most importantly, by empowering customers to control their own destiny, the CPUC will encourage the creativity and experimentation necessary to make Direct Access more widely available. In fact, as individual customers and their potential Direct Access suppliers strive to solve the technological issues, the CPUC may find that the barriers relied upon to justify a phase-in disappear.

3. The CPUC Should Develop A Direct Access Eligibility Template. Building upon our prior comment, the CPUC should adopt a template for customers that wish to participate in the Direct Access program. The template would set forth the necessary metering, billing, nomination and other technical requirements for participation. Once a customer satisfies the template, the customer should be considered to be eligible to participate (within the scope of any applicable customer-segment aggregate limitation). This would greatly facilitate the development of the Direct Access program. The template should be developed by utilities, customers and potential Direct Access suppliers. The CPUC should carefully scrutinize limitations and requirements imposed by the utilities, who have a natural incentive to obstruct competition. The more flexibility afforded customers and their potential suppliers, within the bounds of reasonable technical requirement, the sooner the CPUC's competitive vision will be realized.

4. Utilities Should Be Required To Facilitate Customer Direct Access Implementation Plans. Section IV of the Report discusses next steps for addressing the technological rationales for limiting Direct Access eligibility. SPURR/REMAC believe that the Report should identify key policies that the CPUC can adopt to minimize these barriers. For example, the utilities should be required to facilitate customer attempts to participate in Direct Access. This principle operates on two levels. First, customers must have access to the fundamental building blocks of a Direct Access program: usage and load pattern data and meter pulses. Without guaranteed customer access to necessary information and meters, Direct Access will fail. Second, The CPUC should encourage creativity and experimentation in connection with solving the various technical issues involving Direct Access. In order to do this, the utilities must be required to work with their customers. This will involve accommodating the installation of cost-effective equipment additions, such as meter recorders and telecommunications hookups, and cooperating with customers and their Direct Access suppliers on technical issues that arise. Recognizing that utilities may be able to frustrate competition from Direct Access suppliers by raising technical obstacles to Direct Access services, similar to utility practices widely recognized to exist in connection with independent generators, the CPUC will need to be vigilant in its efforts to ensure that the utilities adopt appropriate protocols for implementing Direct Access and cooperate fully with customers and their potential suppliers. Indeed, there should be a heavy burden on the utility to justify limitations on Direct Access services and any refusal to accommodate the requests of a given customer or its intended supplier.

5. The CPUC Should Ensure That Barriers To Competitive Entry Are Minimized. A great deal of emphasis is being devoted in this proceeding to utility market power as it relates to generation. Equally important to the success of the Direct Access market is the potential exercise of market power by utilities in connection with services necessary for competitive Direct Access suppliers. In other words, the CPUC should ensure that utilities are not able to restrict competition for the sale or marketing of Direct Access services to customers. Since the utility is, with limited exceptions, the only entity that currently may sell electricity to retail customers, the critical means of mitigating potential market power by utilities in the sale or marketing of Direct Access services is to prevent the utilities from erecting artificial barriers to entry. SPURR/REMAC believe that the best way to ensure that competitive Direct Access suppliers may compete with the utilities is to require that utilities price their sales and marketing services to customers on a strict cost-of-service basis. Thus, utilities will be prevented from cross-subsidizing competitive services from regulated services and, to the extent that a customer wishes to procure services from a competitor of the utility, its should be able to do so. This will expand the pool of suppliers providing service and increase opportunities for Direct Access. In addition, the utilities should be required (i) to specify, up-front, the type and format of data they need to bill customers for the services that will remain with the utility; (ii) to adopt audit procedures to ensure that the data collected and distributed is accurate; and (iii) to develop detailed protocols concerning access to existing meters, upgrading meters where necessary and the allocation of rights and responsibilities for performing necessary work. Clear statements of these requirements will greatly enhance customers' and competitive suppliers' abilities to participate in the market.Conclusion

Thank you for your consideration.

Do not hesitate to contact Jim Solberg at 5107431292 with any questions or comments.