4.1 Methods of Governance

4.1.1 Public Oversight

While Direct Access makes electric service competitive and, therefore, an appropriate subject for market-determined rates, electric service continues to be an essential service and "affected with a public interest." Parties do not agree, however, on the extent to which private, competitive firms should be subject to industry-specific rules governing competitive behavior and contracts with customers. Some parties argue for a more laissez-faire approach, while others argue that market rules to ensure fair competition should be broadly applied, even to include energy efficiency providers because efficiency competes in the generation market. Consumer protection rules, some parties assert, should apply to all firms that deal directly with retail consumers. Some parties have also indicated a need for rules to govern relations between competitive firms and regulated monopolies, to ensure a fair competitive playing field with no special advantages for monopoly affiliates.

Appendix D of the August 30 DAWG Report provides some relevant portions of existing California statutes. This material is presented for information purposes only. No analysis has been performed to decide whether these provisions may be considered adequate to govern business practices in the electric services marketplace. Specific areas covered in these statutes include: prohibition of trusts and other forms of anti-competitive behavior; distinction between acceptable cost-based pricing and unfair discriminatory pricing; misleading advertising claims; equal treatment of customers with regard to credit and deposit policies; disclosure of credit terms; confidentiality of customer credit information; disclosure by businesses of their own financial status; fraud allegations against the customer; complaint resolution; and, consumer participation in rulemaking proceedings.

4.1.2 CPUC Authority Under AB 1890

Does the CPUC have jurisdiction, under existing California law, over all competitive providers of retail electric service, and if so, in what forms and to what degree? The following discussion begins to address these questions by reference to CPUC authority as expressed in the California Public Utilities Code and the provisions of AB 1890, enacted September 1996.

4.1.2.1 Entities Subject to CPUC Regulation

The CPUC has jurisdiction over "electrical corporations" as defined by California Public Utilities Code § 218: "'Electrical corporation' includes every corporation or person owning, controlling, operating, or managing any electric plant for compensation within this state . . ." (For the purposes of this discussion, the current statutory exemptions are ignored.) "Electric plant" is defined to include "all real estate, fixtures and personal property owned, controlled, operated, or managed in connection with or to facilitate the production, generation, transmission, delivery, or furnishing of electricity for light, heat, or power, . . . ." Cal. Pub. Util. Code § 217. "Electrical corporations" are defined to be "public utilities." Cal. Pub. Util. Code § 216.

Section 6.2.1 of the August 30 DAWG Report, which was written prior to the enactment of AB 1890, noted a few fundamental issues that needed to be decided to determine the extent of CPUC jurisdiction over competitive electric service retailers. These issues concerned the applicability of the terms "electrical corporation" and "electric plant" as defined in PU Code §§ 217-218. To be specific, the terms "electrical corporation" and "electric plant" are defined broadly enough in the Code to suggest that competitive retailers could be included in these definitions. At the same time, Section 216 of the Code says that all "electrical corporations" are "public utilities," which suggests that the definitions should not apply to non-utility entities, and therefore competitive retailers should not be subject to CPUC regulation.

In Decision D. 95-07-054 regarding regulation of local exchange telecommunications services, the CPUC extended its authority to cover competitive providers by defining its authority in terms of the services being provided, regardless of the type of entity providing the services or the type of physical assets (wire or wireless) used in providing the services. The DAWG parties speculated in the August 30 Report that an analogous argument for the electric industry could establish CPUC authority over competitive electric service providers. With the enactment of AB 1890, however, this option appears less likely, although the uncertainties are not yet fully resolved.

Section 9.5 of AB 1890 amends § 216 of the Public Utilities Code by adding subsections (g), (h) and (i). These subsections exempt certain entities from being considered "public utilities."

Subsection (g) provides:

Ownership or operation of a facility that has been certified by the Federal Energy Regulatory Commission as an exempt wholesale generator pursuant to Section 32 of the Public Utility Holding Company Act of 1935 . . . does not make a corporation or person a public utility within the meaning of this section, solely due to the ownership or operation of that facility.

Subsection (h) provides:

Generation assets owned by any public utility prior to January 1, 1997, and subject to rate regulation by the commission, shall continue to be subject to regulation by the commission until those assets have undergone market valuation in accordance with the procedures established by the commission.

The above is consistent with § 377 of AB 1890, which states that "non-nuclear generation assets owned by any public utility prior to January 1, 1997, . . . [shall] be subject to commission regulation until those assets have been subject to market valuation . . . ."

Subsection (i) provides:

The ownership, control, operation, or management of an electric plant used for direct transactions or participation directly or indirectly in direct transactions, . . . , sales in the Power Exchange . . . , or the use or sale as [otherwise] permitted, shall not make a corporation or person a public utility within the meaning of this section solely because of that ownership, participation, or sale.

As noted above, the term "electric plant" is broadly defined under existing law to include "all real estate, fixtures and personal property owned, controlled, operated, or managed in connection with or to facilitate the production, generation, transmission, delivery, or furnishing of electricity for light, heat, or power, and all conduits, ducts, or other devices, material, apparatus, or property for containing, holding, or carrying conductors used or to be used for the transmission of electricity for light, heat, or power."

No matter how broadly the terms "electrical corporation" and "electric plant" are interpreted, these new provisions make it clear that electric service retailers will not be public utilities. The provisions leave open, however, the possibility of following the lead of D. 95-07-054 and defining new retailers as "non-public-utility electrical corporations," over which the CPUC would have jurisdiction. Elsewhere in AB 1890, however, the term "electrical corporations" is used in a way that suggests that only the existing IOUs are electrical corporations. Thus AB 1890 appears to give the CPUC only very limited jurisdiction over "entiti[es] offering electrical service" and to stipulate that these entities are not "electrical corporations" as defined in PU Code Section 218. Under AB 1890, the CPUC will have jurisdiction with respect to registration and the information disclosure practices of entities offering electrical services, and will "accept, compile and help resolve" customer complaints regarding these entities. Each of these is discussed briefly below.

4.1.2.2 Registration

Section 394(a) provides that

Except for an electrical corporation as defined in Section 218, each entity offering electrical service to residential and small commercial customers within the service territory of an electrical corporation shall register with the commission. The registration shall include the following seller information:

(1) Legal name.

(2) Current telephone number.

(3) Current address.

(4) Agent for service of process.

Note that this language does not explicitly grant or deny the CPUC the authority to add to the list of registration requirements or to sanction a registered provider by suspending its registration. This is one question that is of great interest to the many DAWG Parties who have argued for stronger registration and enforcement provisions than those contained in AB 1890.

4.1.2.3 Information Disclosure

Section 394(b) provides:

Except for an electrical corporation as defined in Section 218, each entity offering electrical service to residential and small commercial customers with[sic] the service territory of an electrical corporation shall, at the time of the offering, provide the potential customer with a written notice describing the price, terms, and conditions of the service, . . . .

The notice must also provide the amount and applicability of the CTC and notice of the customer's right to rescind the contract. Section 394(b) also provides that

The commission shall assist these entities in developing the notice. The commission may suggest inclusion of additional information that would be useful to the customer.

The CPUC's authority with respect to the information disclosure practices of entities offering electrical services who are not electrical corporations stands in stark contrast with the CPUC's authority with respect to the information disclosure practices of electrical corporations.

Section 393(c) applies to "electrical corporations." Electrical corporations must: (1) identify the five unbundled charges on their bills; (2) and provide conspicuous notice that if customer purchases electricity from another provider that customer will continue to be liable for payment of the CTC. Moreover, 393(c) explicitly allows the CPUC to require electrical corporations to include additional information.

In addition, before implementation of the CTC:

electric corporations, in conjunction with the commission, shall devise and implement a customer education program informing customers of the changes to the electric industry. The program shall provide customers with information necessary to help them make appropriate choices as to their electric service. The education program shall be subject to approval by the commission.

4.1.2.4 Customer Complaints

Section 394(c) provides that the "commission shall accept, compile and help resolve consumer complaints regarding entities offering electrical service that are required to be registered pursuant to this section." AB 1890 does not, however, charge the CPUC with any authority or responsibility to fully resolve such complaints.

4.1.3 CPUC Regulation of Local Telephone Competition

CPUC Decision D. 95-07-054 (as revised by D. 95-12-056) establishes rules to govern local competition in telecommunications service. The decision authorizes prospective competitive local carriers (CLCs, which need not operate any telephone wires or other facilities required for providing telephone service) to request certificates of public convenience and necessity (CPCNs) to provide local exchange service under a set of specified rules. There are at least three elements of this decision that suggest analogies for the electric services industry: 1, the way the scope of CPUC authority over CLCs was determined; 2, use of the CPCN as the registration mechanism; and 3, the content of the market rules.

4.1.3.1 Determining the Scope of CPUC Jurisdiction

In D. 95-07-054 the CPUC defines the scope of its rules to cover all providers of a specific type of service. "These interim rules apply to the provision of local exchange telecommunications services by CLCs, and where applicable, LECs [the local exchange carriers Pacific Bell and GTE California, the existing monopolies]" [D. 95-07-054, Appendix A, p. 2]

In a discussion of the "Applicability of the CPUC Rules to Wireless Services" the CPUC makes clear that "the key distinction [in deciding whether a carrier shall be subject to CPUC rules] is what service is being offered by the carrier in question. ... We do not intend to restrict the type of technology a carrier may employ to offer local service. ... The adopted rules shall apply to any CLC irrespective of whether it uses wireline, wireless, or both to provide a service that is equivalent to the current wireline basic telephone service." [D. 95-07-054, pp. 23-24]

In making the above assertion the CPUC interprets quite broadly the definition of "telephone corporation" as stated in Public Utilities Code § 234: "'Telephone corporation' includes every corporation or person owning, controlling, operating or managing any telephone line for compensation within this state." The reader should note that this definition is much narrower than the definition of "electrical corporation" in Public Utilities Code § 218, since the former seems to hinge upon a specific type of asset, the telephone line, whereas the latter encompasses "all real estate, fixtures and personal property" (see Section 6.2.1).

Thus, direct investment in telecommunications infrastructure is not a prerequisite for a telephone company to be classified as a CLC. Indeed, the rules distinguish two types of CLCs:

"Facilities-based CLCs are those which directly own, control, operate, or manage conduits, ducts, poles, wires, cables, instruments, switches, appurtenances, or appliances in connection with or to facilitate communications within the local exchange portion of the public switched network.

"Non-facilities-based CLCs [also called 'resale CLCs'] are those which do not directly own, control, operate, or manage conduits, ducts, poles, wires, cables, instruments, switches, appurtenances, or appliances in connection with or to facilitate communications within the local exchange portion of the public switched network." [D. 95-07-054, Appendix A, p. 3]

4.1.3.2. The Certificate of Public Convenience and Necessity (CPCN)

The CPCN is traditionally a permit that a regulated utility must obtain from the CPUC prior to undertaking a major infrastructure project [see Public Utilities Code § 1001]. The process for obtaining a CPCN requires showing that the project is in the public interest, that it will comply with all applicable regulations, and that it will not interfere with the operation of any nearby or competing utility. Because of this essential association with construction of physical facilities, the CPCN as a certification vehicle for CLCs is a departure from its traditional use, especially when applied to non-facilities-based or resale CLCs.

To obtain a CPCN, a prospective CLC must demonstrate "the requisite managerial qualifications, financial resources, and technical competence to provide local exchange telecommunications service." [D. 95-07-054, Appendix A, p. 4] The decision then goes on to specify financial and other standards, including cash-on-hand requirements, and states that "All information furnished to the Commission for purposes of compliance with this requirement will be available for public inspection or made public, except in cases where a showing is made of a compelling need to protect it as private or proprietary information."

4.1.3.3 The Rules for CLCs

The rules specified in D. 95-07-054 (Appendices A and B)and D. 95-12-056 (Appendix C) can be divided into two main categories: rules governing pricing and business practices, and rules governing consumer protection. Appendix D Section D.2 of this report contains some excerpts from the CLC rules which suggest analogies for the electric industry.

In the area of pricing and business practices, there are rules applying to: prior customer notification of rate increases; nondiscriminatory service; limited obligation to serve; required Emergency 911 service; special services for deaf and otherwise disabled persons; prompt repair response; information disclosure to the Commission; review of Commission-mandated bill inserts; handling of customer deposits; and redlining.

In the area of consumer protection, there are rules applying to: formal and informal complaints; required disclosure of company information to customers; the process for entering contracts and initiating service; information required on customer bills; establishing credit; handling of customer deposits; notifications on rates; handling of bill disputes; discontinuation of service; change of service provider; slamming; and privacy of customer information.

4.1.4 Alternative Agencies Responsible for Consumer Protection

At this stage of DAWG's investigation, there has been no systematic investigation of the alternative agencies that might be charged with supervising the restructured industry. It is possible that several agencies might split various responsibilities. The following brief discussion is intended to provide a sense of the alternatives that have been identified.

[1] Expanded Authority of the CPUC. Clearly, the CPUC is a leading contender for expanded authority to regulate new entities within the industry. The CPUC has traditionally provided a consumer complaint function, and it is planning to devote greater portions of its resources to these efforts as a result of restructuring.

[2] State Government Agencies. One or more state government agencies with similar consumer protection authority could take on additional duties. The Department of Consumer Affairs is one appropriate agency. The Bureau of Weights and Measures might be appropriate supervisor of metering standards. The Department of Justice might be an appropriate entity for some activities. One advantage of non-CPUC agencies is that they would be received more favorably by municipal utilities who will have need of comparable consumer protection activities as they undergo their own version of restructuring in the future.

4.1.5 Private Civil Enforcement

4.1.5.1 Courts

The court system is a channel through which private parties may press grievances they have against other parties and seek redress. Breach of contract is one area where parties commonly seek resolution of disputes on a case-by-case basis. Private enforcement through the courts can be costly, however, so in practice it may not be a feasible option for smaller claimants. Whether it is prohibitively expensive has not yet been determined. At the same time, since the courts are widely used to settle disputes in most areas of commerce, this mechanisms is relatively familiar and well-understood.

4.1.5.2 Alternative Dispute Resolution (ADR)

Alternative dispute resolution (ADR) has become more popular in recent years. There are numerous types of ADR, the most common being early neutral evaluation of a dispute to try to settle it before litigation commences or progresses; mediation of a dispute; and arbitration of a dispute. ADR can be (but is not always) less costly than civil enforcement through courts. ADR very likely has a place in the new market in several areas, including disputes between customers and UDCís or energy providers, customers and scheduling coordinators, suppliers and scheduling coordinators, and scheduling coordinators and the ISO or PX. The Commission should carefully examine ADR to determine where it may be beneficial to enact regulations requiring its use in the new market. See Section 3.2.3.2 for a discussion of ADR in the context of billing disputes.

4.1.5.3 General Authorities

General authorities that will likely play an enforcement role in the restructured energy services market will include the Department of Justice and the Federal Trade Commission at the federal level, and the Attorney General and State Department of Consumer Affairs at the state level. These agencies can issue injunctions and/or impose fines on firms that violate their market rules. Appendix D presents some of the California business statutes that would apply to retail electric service providers.

4.1.5.4 Industry-Specific Regulatory Agencies

Industry-specific regulatory agencies typically use some combination of the four mechanisms mentioned above -- registration, licensing, bonding and continuing oversight. To give a specific example, some parties suggest that rate regulation under the PU Code be continued for retailers unless they can demonstrate that they do not possess market power. In this way the CPUC would be the enforcement agency for ensuring a competitive market structure. This regulatory function would entail requiring all retailers to show that they do not have market power in retail electric supply in order to obtain exemption from CPUC rate regulation (as FERC does with power marketers at the wholesale level). The CPUC would have continuing oversight to ensure that changing circumstances do not justify re-regulation of rates for retailers previously determined to be competitive.

4.1.6 Self-Enforcement via Industry or Stakeholder Associations

Some parties believe that the industry itself can offer its own policing or oversight, thus reducing the need for regulators to closely monitor complaint-handling. Industries in the United States have used self-policing models such as Better Business Bureaus for more common transactions. In complex transactions such as purchases of automobiles and homes, industries have established independent mechanisms such as arbitration boards to resolve complaints. Other countries have created public-private dispute resolution mechanisms, as will be discussed in greater depth below. Until such private oversight or enforcement is established, however, the Commission is obligated by law to provide for that oversight.

Self enforcement is an appealing idea that can work in certain contexts. A watchdog agency under the authority of an industry association or a stakeholder association (which may have members and directors besides the firms that make up the industry) can impose sanctions for violation of its rules, but it cannot legally enforce the rules. For example, when an association maintains a "list of approved providers" that it releases to potential customers, it can remove from that list any member firm that violates the industry codes of conduct. If it enacts a certification program, it can rescind the certification of an offending member. These actions may be effective deterrents of undesirable business practices. In some cases an association may require member firms to post a bond that can be used to compensate a party injured by a firm's actions.

4.2 Registration Requirements

[Note. DAWG parties disagree about whether the registration requirements specified in AB 1890 are adequate from a consumer-protection viewpoint. Among parties favoring strong registration requirements, the predominant view is that the CPUC should lead the effort to develop stronger requirements, including the ability to suspend registration where appropriate, and to seek such legislative authority as may be necessary to implement these requirements. The next two subsections, which were written before AB 1890 was enacted, present different proposals that convey the flavor of the alternative approaches. Section 4.2.1 sets forth a position favoring no CPUC registration, while 4.2.2. sets forth a position describing why and how the CPUC should perform strong registration and oversight.]

4.2.1 ALTERNATIVE: Minimal Certification Requirements

Private business transactions between suppliers and their customers should not be regulated. Although certification should not be a requirement for transactions that occur in the free market, suppliers may decide it is in their best interest to obtain an independent certification rather than demonstrate their capabilities to potential customers. However, suppliers may need to prove capability before interacting with the systems of the UDC, ISO or PX. Examples of such interactions include consolidated billing by the supplier or UDC, ancillary services bids to the ISO, and demand bids or purchase requests from the PX. Data exchange with those parties may require that suppliers demonstrate that they can provide the required information on a timely basis, with a compatible communication protocol, in the correct format and without error.

Rather than demonstrate capabilities to potential customers (e.g., financial solvency, technical competence, insurance, licensing), suppliers may prefer to join a "registry of qualified providers." The registry could be maintained by a free-market registry service, by scheduling coordinators, or by the ISO. It should be left up to the market to decide if there is a need and to develop the details. If a regulated entity desires to develop a registry service, the requirements and details should be reviewed by the regulating body to ensure fairness and prevent favoritism toward affiliates. Although pre-qualification by a registry may be needed to protect smaller customers and others without negotiating strength, it should not be a requirement for entry into the market.

Alternative 4.2.1 PRO

Minimal regulatory interference.

Alternative 4.2.1 CON

1. The proposal is not consistent with newly revised Section 394 of the Public Utilities Code, as revised by AB1890.

2. The proposal is not consistent with the way the CPUC and Legislature dealt with unregulated telecommunications providers. Subsequent telecommunications abuses affirm the need for regulatory oversight and enforcement powers.

3. As described above, electric service is a necessary commodity. It is required by law for habitability, in contrast to telephone service.

4. The proposal does not address the relative unsophistication of small business and residential customers in making electric purchase transactions.

5. The proposed registry is an acceptable self-policing effort by electric providers but it should not be exclusive of regulatory oversight.

6. It represents minimal protection of the public interest. In particular, it involves no retail regulation or oversight by an expert agency of market structure and allows retailers with market power to engage in abuses subject only to the antitrust laws, which are costly and slow and not preventative. It also assumes that the entire Public Utilities code is rendered moot with respect to retail generation ó which seems not to be the legislative intent.

4.2.2 ALTERNATIVE: Strong Regulatory Oversight of ESPs

4.2.2.1 Summary of the Proposal

The proposal described in this section is based upon two primary principles which are stated immediately below. The following subsections describe elements of the proposal and present PRO and CON arguments for several of these elements. There are no PRO and CON arguments offered for the proposal as a whole.

First, any energy service provider interacting directly with retail customers must be registered, licensed and bonded. This entails filing of corporate information and posting a bond with the CPUC. Upon satisfactory completion of these requirements, the provider receives a license.

Second, the CPUC is the logical lead agency for enforcement. The CPUC can revoke a license if violations of market rules are proved and, when timely action is needed, the CPUC can suspend a license or curtail solicitation of new customers if the likelihood of violations is established by staff or customers.

4.2.2.2 Retail Customer Interaction Compels Licensing and Bonding

Competition will engender the entry of a number of service providers. Some will offer brokerage, some aggregation services, some demand-side services and some will offer services that have not even been envisioned at the moment. Such is an unfettered market.

The issue is whether the retail market will be entirely unfettered. The answer is no. Like almost every other service in the United States, a certain amount of regulatory oversight is necessary to ensure consumers are not defrauded and the competitive market is functioning properly.

Because electric service is a necessity and because consumers are relatively unsophisticated in valuing and understanding electric services, the electric industry will require greater regulatory oversight than other standard retail services. Customer sophistication may develop over time, while the necessity aspect of electric service will become increasingly important as the telecommunications and computer industries mature.

Regulators must focus upon retail transactions between electric providers and retail customers, with an emphasis on small business and residential customers. As with long distance and local phone service providers in California, any provider offering electricity brokerage, marketing, aggregation or equivalent services directly to retail customers should be required to register, post a bond with and be licensed by the CPUC. That way, if any service provider interacts with a retail customer, that provider will fall under the jurisdiction of the CPUC.

Some parties believe, however, that while the smaller customers will need the safeguards of regulatory oversight by the CPUC of electric providers (registration, bonding, licensing and dispute resolution), the oversight required of electric providers, marketers, brokers, etc. in business dealings with larger customers should be much lighter. That is, those firms whose sole business activity is with large customers might only require some minimum registration with the CPUC. This is founded upon the notion that larger customers would have the resources to make their business decisions from a far more well-informed position than the smaller customers.

The purpose of licensing and bonding is to proactively ensure accountability by energy service providers and to ensure that customers have adequate recourse in the event that the provider fails to perform.

4.2.2.3 Providers Not Subject to Registration

Not all retail energy service providers will require registration. The purpose of registration is to ensure accountability and recourse where electric service is provided to retail customers. In some circumstances, accountability is inherent in some energy providers.

For example, municipal or other public entities providing service within their own franchise areas would not fall under CPUC jurisdiction and thus would not be subject to licensing. However, if any such entity were to offer services to non-franchise customers, the same accountability would not exist and then licensing and bonding would be warranted. Non-franchise customers cannot vote, they cannot easily appear at public hearings and they do not reap many of the tax-related benefits available to municipalities.

Energy service companies offering only demand-side management, on-site generation or other services unrelated to purchase of electric service would not need to be licensed so long as those providers are not participating in or benefiting from publicly-funded energy programs, such as DSM or renewable credits. If, however, they participate in a publicly-funded program or if they bundle other energy services with energy brokerage service, then licensing is warranted.

Finally, energy cooperatives should not be required to be registered so long as all cooperative members are owners of the cooperative, and thus enjoy the higher level of accountability and recourse enjoyed by owners.

Other providers, such as brokers interacting with aggregators, generators, companies offering ancillary services and scheduling coordinators are not required to provide a filing or bond with the CPUC so long as their interaction remains with other wholesalers. However, these providers may have to fulfill registration requirements established by the ISO.

Proposal 4.2.2.3 PRO

1. Municipalities that provide electric services in areas outside of their franchise must be treated the same as other private service providers. Customers who live outside of the franchise area of a municipality have none of the privileges or protections of customers who live in a franchise area and can vote new representatives to the municipal board. Moreover, there is no valid legal or policy basis to exempt municipalities doing business outside their franchise area from CPUC oversight. Any argument for exemption, as presented below, would also logically apply to any municipal utility from another state doing business in California. The Tennessee Valley Authority, for example, could begin selling energy services to California customers and claim exemption from CPUC oversight.

2. The purpose of CPUC oversight is to ensure that customers who have complaints against energy service providers have low-cost, adequate redress. A customer without a franchised voting right has no greater protection than any other customer. That is why CPUC oversight is necessary.

Proposal 4.2.2.3 CON

1. The purpose for registration and bonding is to protect the interests of retail consumers from fraud or failure of undercapitalized providers. Municipal utilities should not be required to post bonds in order to provide services to non-franchise customers as they do not pose the same level of risk that non-utility aggregators do. In fact, municipal utilities, like the IOUs, pose very little financial risk to retail customers. The rationale presented for registering municipal utilities who do business with non-franchise customers in this section does not take into account that municipal utilities are subject to rigorous oversight by their respective city councils and community member-comprised utility commissions, are required to conduct their businesses in an open public forum and therefore, do not pose anywhere the same level of risk that unregulated market participants pose. The oversight responsibilities of the city councils and community member-comprised utility commissions provide customers of municipal utilities with considerable opportunities for redress not available to customers of other energy service providers.

2. In the current monopoly electric utility structure, the reins of power are primarily in the hands of the utilities but in the competitive electric utility industry structure of the future, where customers will be able to choose their supplier of energy services, the reins of power will be held by the customers. In this type of business environment, both non-franchised customers and franchised customers of municipal utilities will be highly valued by the municipal utilities and non-franchised customers will receive services on equal terms as franchised customers. The likelihood that municipal utilities would not provide equivalent services and opportunities for meaningful redress to both franchised and non-franchise customers alike is insignificant, if not zero, considering that the non-franchise customers have a choice to walk and take their valued business elsewhere, as happens everyday in the deregulated telephone and transportation industries, if the municipal utilities discriminates against them.

4.2.2.4 The Nature Of and Rationales For Registration with the CPUC

In order to serve retail customers, non-exempt energy providers should be required to provide to the CPUC and keep updated, their legal name(s), business address, state where incorporated or associated, date of incorporation, articles of incorporation or association, name and title of each officer and director, name, title and phone number of a designated customer service contact person, name, title and phone number of the regulatory contact person, brief description of the nature of business being conducted and disclosure of any civil or criminal action taken against the company or any officer or director for any illegal acts related to the operation of any business for previous ten years. This information gives regulators and consumers the necessary information they need to judge the viability of the provider.

The rationales for this registration requirement are:

a. Retail customers must be able to learn about the owners, the location and financial viability of any prospective provider. In order to ensure uniformity, that information should be on file with a clearinghouse. The CPUC fills that role.

b. In order to guard against undercapitalized, fly-by-night or unethical companies, the CPUC must have a means of screening prospective energy providers. Retail customers, especially residential and small business consumers, will not have the wherewithal to screen prospective providers. The dissemination of misinformation and other abuses experienced in the solar hot water market and the long-distance telephone market have graphically demonstrated the need for the ability to screen providers.

c. Registration preserves the CPUC's jurisdiction over these entities

4.2.2.5 The Bonding Requirement

In addition to informational registration, a prospective provider must also provide either a bond or some alternative insurance that would give customers a fund against which to secure damages attributable to fraud or non-performance. The reasons for bonding are:

a. The up-front costs of entering the electric services market is fairly low. Retailers need only a computer and customer leads. A bonding requirement will therefore not put an undue burden on any prospective new entrant, as its start-up costs are relatively low.

b. Without a bond, it is likely that complainants and their attorneys or representatives will not be able to recover damages caused by failed service providers.

c. The bonding process itself serves as a useful screen against companies or individuals with questionable financial pasts who seek to enter the electricity market. Bonding services will either decline to bond or will require higher deposits from entrants with questionable records.

The amount of the bond would be established based upon the prospective number of customers to be served. For example, a local community provider planning to serve 50 residents could post a very modest bond, whereas a large provider planning to serve customers throughout the state would require a more substantial bond. Energy providers who also offer financial contracts for managing risk may need to be bonded as well, perhaps at an even higher level than the others.

The CPUC would be required to ensure that bonding costs do not become so prohibitive that they discourage new entrants. At the same time, bonds or other insurance mechanisms must be adequately secure to protect against anticipated claims by customers. The insurance companies that serve Californians are obligated to provide such assurances in order to offer service in the state. It is anticipated that the costs for energy service bonding should not exceed costs faced by insurers.

4.2.2.6 Why Electric Registration Must Be More Stringent Than Telephone

As discussed above, the registration process needs to be stringent enough to protect customers but not so onerous as to create a barrier to entry.

Proposal 4.2.2.6 PRO

For local telecommunications companies the CPUC has developed a non-dominant carrier registration process that is not overly burdensome. It requires filing with the CPUC the identities of the owners and officers of the corporation, a description of services to be provided and basic financial information to ensure the economic viability of the company.

Telecommunications registration does not require bonding, however. This is a precaution that is necessary for electric service for many reasons.

a. Electric service is generally is more expensive than phone service. Thus greater potential losses are likely and greater protection is warranted.

b. Electric service is a necessary commodity. State statute bans habitation of a residence that does not have electric service.

c. Small consumers will be very vulnerable to commercial exploitation during the transitional period of deregulation. Telephone service deregulation has been phased over a decade, whereas electric deregulation will occur more rapidly.

d. Long distance and OAS deregulation have led to significant consumer abuses and are among the most common consumer complaints in the 1990s.

e. Experience in other locations where direct access has been tried suggests that consumers may be attracted to fixed-price offerings. Such offerings represent an implicit financial hedge or a derivative security, and thus carry a significant degree of market risk. For instance, an energy retailer might offer fixed prices for a calendar year beginning in January, and while winter prices are lower than the annual average the retailer would accumulate several months of overpayment by the beginning of summer. If that retailer then fails to perform during the summer, the amount of overpayment is a loss to the customer.

Proposal 4.2.2.6 CON

While electric service is a necessary commodity, there is no agreement that electric service is more expensive than phone service. If one examines the portion of the electric industry that is being opened up to competition at this time, i.e., the energy costs, one finds that the cost is not greater than the phone bill. This comparison is perhaps misleading.

4.2.2.7 Revocation and Suspension of Licenses Are CPUC Responsibilities

The CPUC's ability to revoke, suspend or limit a license is absolutely necessary for adequate enforcement. In the initial 5 to 10 transitional years of electric competition, new entrants must be clearly noticed that questionable business practices, undue risks and shabby treatment of customers will not be tolerated. The potential for abuse and the serious ramifications of that abuse mandate adequate enforcement powers by the agency. The CPUC's staffing and its expertise on energy matters positions it as the only logical state agency that can be charged with enforcement.

Consumers might also be able to look to civil courts for contractual, tortious or statutory remedies (e.g., under Business & Professions Code Section 17200 et seq). However, these cases would be expensive to pursue and the civil courts are not equipped to handle the load of individual complaints that could occur with the advent of competition. Moreover, the courts will not be well-positioned to establish uniform industry rules where patterns of rule violations or shabby customer service are established. Thus, the CPUC should continue its role as lead enforcement agency for customer complaints about all retail energy services.

This enforcement power should be anchored by CPUC licensing of energy service companies. Without licensing, enforcement of CPUC rules would be ineffectual. The CPUC market rules would include a code of conduct and a set of specific minimum standards of service. Further discussion of such a code of conduct is contained in the next section, and an example with specific rules is given in Appendix D at the end of this report.

The CPUC should have the ability to suspend, limit or revoke a service provider's license depending on the gravity of provider malfeasance. Revocation would be invoked only where due process had been afforded to a provider. However, injunctive suspension or limitation of a license could be imposed upon a showing that CPUC rules had likely been violated by a service provider and that significant damage could be caused by a continuation of service by that provider.

Proposal 4.2.2.7 PRO

Will provide better consumer protection to have an expert agency with regulatory authority over all players.

Proposal 4.2.2.7 CON

1. It could overwhelm CPUC.

2. It does not address market structure issues.

4.2.2.8 Proposed Code of Conduct for Retail Energy Service Providers

The CPUC must require all registered energy service companies to adopt a minimum code of conduct.

Proposal 4.2.2.8 PRO

In the nascent energy services market, companies and customers will be unclear on their corresponding responsibilities and expectations. In order to facilitate smoother transition to a robust competitive market, the CPUC should specify a minimum code of conduct that would be adopted by all energy service companies registering with the CPUC. This code would provide guidance for companies and their employees for all retail transactions. It would be distributed to all employees of these energy service companies and provided to customers upon request. As a minimum code, it would represent the "floor" of what would be expected, but could be surpassed by companies.

Such a code could be used as a standard upon which company actions would be judged. It is neither likely nor desirable for regulators and lawmakers to devise rules and regulations for all possible forms of consumer problems. Thus, regulators would use the minimum code of conduct as a basis for determining the appropriateness of company conduct where a specific rule and regulation does not fit the conduct. Regulators may use the code as a basis for sanctioning a company.

A minimum code of conduct would address the following areas: provision of understandable and accurate information to customers; notification of change of service or intent to disconnect; explanation of denial of service; handling of deposits; handling of complaints; confidentiality of customer-specific information and customers' right of access to their own information; non-discrimination in availability and terms of service. See Appendix D.6 for an example of specific wording of such a code.

Proposal 4.2.2.8 CON

1. Some parties assert that such a code may add confusion rather than order to the retail market due to vagueness and unclear legal status of rules. For example, item 2 in the model code presented in Appendix D.6 requires "adequately reliable, safe, and affordable service." What do these terms mean? Such rules give no meaningful guidance. In addition, many of these conduct issues are already covered by existing provisions of law. Item 13, for example, is already covered by civil rights laws and general consumer protection statutes. The Commission would therefore have to carefully specify the relationship of any new rules to existing laws and regulations.

2. The market and existing laws pertaining to consumer protection and access to customer information can be relied upon to determine appropriate conduct. The explosion of customer options, product combinations and technological developments will occur too rapidly to be conducive to pre-established rules. The market will sort out appropriate behavior and practices. Default service will be available for those not wishing to participate in the competitive market.

4.2.2.9 Regulation of market structure by CPUC

Modeled on FERC's parallel regulation of the competitive wholesale electric market, this approach assumes that the CPUC still has an obligation under the PU Code to regulate retail energy markets to protect the public interest and ensure that electricity rates are reasonable. All retailers (aggregators, brokers, generators, marketers, etc.) would be "electric corporations" and "public utilities" per Section 216-218 of the PU Code. Each retailer would have to either comply with the PU Code's ratemaking requirements or demonstrate to the CPUC that it lacked market power. For most retailers who are also wholesalers, presumably this requirement could be met by simply showing evidence of FERC approval of wholesale market based sales, unless the retail market presents special circumstances.

Proposal 4.2.2.9 PRO

1. Protects against market power abuses.

2. Provides comprehensive parallel economic regulation of wholesale and retail energy markets.

3. Can be done by CPUC under existing law.

4. Avoids risks of deregulation followed by re-regulation if market proves to have structural problems.

Proposal 4.2.2.9 CON

It could be "overkill" and add unnecessary burdens to the new generation market (but has not slowed entrance of new players at wholesale level).

4.2.3 Permissible Retail Territories for Unregulated Utility Affiliates

Parties have offered two alternatives regarding the geographic areas open to the retail activities of competitive affiliates of monopolies. The first alternative says that such affiliates should be allowed to compete within their parent utilities' service areas. The second allows them to operate outside of their parent utilities' service areas.

4.2.3.1 ALTERNATIVE: Inside the Parent Utility's Service Area

An unregulated affiliate of an incumbent utility should be allowed to compete for customers within its parent utility's existing service area.

Alternative 4.2.3.1 PRO

1. An additional competitive provider of electric service means more competition.

2. Affiliates may be able to offer a wider range of services than the UDC. Some customers may want affiliate service as a matter of informed choice.

3. Inclusion of affiliates maintains the competitive status quo relative to out-of-state utility affiliates and other providers. For example, serving a regional or national chain account would not be possible for the UDC affiliate if it is excluded from serving in its affiliated utility service area.

4. The CPUC already has effective rules governing the conduct of utilities and their affiliates. In addition, the CPUC has enacted rules for behavior of utilities and affiliates in a holding company structure.

5. Some parties assert that favoritism by the UDC is virtually precluded by comparable open access transmission and distribution service and CPUC regulation of customer information access.

6. Allegations (below) that affiliate transaction guidelines have been ineffective are completely unsubstantiated and wrong. Annual audits of financial transactions have never uncovered a significant abuse. Furthermore, the provisions in the restructuring decision addressing affiliate issues are fully adequate to address potential concerns.

Alternative 4.2.3.1 CON

Allowing an unregulated utility affiliate to compete for customers in the utility's service area would substantially jeopardize the Commission's goal of an effectively competitive market for electricity. A critical condition for a competitive market is that all providers are on a level playing field. This condition is unlikely to be fulfilled when unregulated affiliates are cross-subsidized by the utility. While there is always the potential for cross-subsidization between regulated and unregulated enterprises, the likelihood of such actions is significantly increased when the utility and its unregulated affiliates are providers in the same market. Under such a scenario, it is easier for cross-subsidization to occur and more difficult to detect.

The opportunity to cross-subsidize is also facilitated by a holding company structure. All three IOUs either are already under or have applied for a holding company structure. The holding company has a fiduciary responsibility to its shareholders to provide the highest possible returns for a given risk level. The holding company that controls the utility has available to it market information which it can pass to its unregulated affiliates.

The Commission recognized the serious potential for self-dealing despite existing affiliate transaction rules and consequently prohibited any contracts between the distribution utility and its affiliated generating companies. [See D. 95-1-063, p. 71.] Consistent with its policy of preventing affiliate abuses and its goal of nurturing an electricity market in its infancy to a fully competitive market, unregulated affiliates of the utility should not be permitted to compete in the utility's service area during the transition period.

A competitive market will be most successful if monopoly power is mitigated. Allowing an unregulated affiliate to compete in the parent utility's service territory does not provide the proper assurances against monopoly power.

4.2.3.2 ALTERNATIVE: Outside the Parent Utility's Service Area

Unregulated affiliates of the incumbent utility should be allowed to compete for customers outside of the utility's existing service area.

Alternative 4.2.3.2 PRO

Unregulated affiliates should be allowed to compete to serve customers outside of their utility's service area. There is little potential for market abuses since it is unlikely that the unregulated affiliate would have access to the proprietary information of an outside utility. Thus the unregulated affiliate would provide customers with more choices and enhance competition.

Alternative 4.2.3.2 CON

1. California utilities' market power and brand recognition are so significant as to warrant prohibition of affiliate transactions within California until such time as the competitive market is well established. Moreover, it is politically untenable for the IOUs to be recovering 100 percent of their stranded costs while at the same time increasing stranded costs by pursuing direct access transactions.

2. Market power concerns remain, even when unregulated affiliates compete outside of a utility's service area. The CPUC must be vigilant in monitoring for informal reciprocal arrangements whereby an IOU-owned disco will be more preferential to another IOU's affiliate in recognition that IOU's disco may return the favor to its own unregulated affiliate doing business in the disco's service territory. For example, utility A's disco will likely give preferential treatment to utility B's unregulated affiliate doing business in A's franchise territory because of the ability of B's disco to create problems for A's affiliate doing business in B's franchise territory. In the event that such arrangements, informal or not, are detected, the CPUC must be empowered to revoke the right of an IOU affiliate to do business in California.

4.2.4 Reciprocity for Utilities and Affiliates Conducting Business Under Jurisdictions Other than the CPUC

Utilities that are not under the jurisdiction of the CPUC may have marketing affiliates desiring to conduct retail business in the CPUC jurisdictional area. Can and should restrictions be placed on the retail activities of such affiliates if their parent utilities do not face retail competition in their own service territories? Only one alternative was offered and discussed on this subject, but no assessment was made of the group's support for this alternative.

That proposal called for the Commission to require reciprocity to the extent that these entities do not allow similar access in their own utility service territories, they should be denied certificates to conduct retail transactions within the CPUC jurisdictional area. This would not preclude these entities from doing business in the wholesale market or with the Power Exchange.

The CPUC may implement this restriction by exercising its right to condition certificates to participate in the retail market. In the event that the CPUC may not exclude such entities from the retail market, it should condition the certificates to require that the affiliate provider disclose the fact that its affiliated utility does not provide the same opportunity for its own customers.

Alternative 4.2.4 PRO

This policy will facilitate the expansion of customer choice, because neighboring IOUs with marketing affiliates will more likely consider allowing their captive utility customers to have choice among competitive retailers if that is a requirement to participate in the California retail market. The issue is not that plants outside of California which have rate-based treatment and recovery from their own customers may sell at production cost into California. That would be a pure good for California consumers. The issue is the access to retail customers and the unfair opportunities for out-of-state utilities to engage in wrongful self-dealing and cross-subsidies at the expense of California utilities and other competitors. While individual customers would benefit in California, the opportunities for an expanded competitive electricity market in other states would be left to the whims of regulators and legislators in those states and the imagination of utilities in an effort to stifle competition in their back yards. It is the utilities that must make the commitment to a competitive market to facilitate real change in an expeditious manner.

Alternative 4.2.4 CON

There is an argument that the CPUC does not have legal authority to impose restrictions upon the retail certificates of providers if they are located out of California. This is based upon federal jurisdiction over interstate commerce.

There is also the position that a necessary condition for a successful Direct Access program is for competitive supplies to be available to end-users on a retail basis. Restrictions on a supplier based upon the need for reciprocity between the California IOUs and a supplier's territory would be a barrier to successful deregulation. Not only would these restrictions potentially prevent out-of-state utilities from supplying power at retail in the Direct Access market, it would give an unfair marketing advantage to retail providers with no service territories of their own. Out-of-state utilities have no control over their public utility commissions or legislatures so that they do not have the ability to influence the pace for retail customer choice. Further, even if these utilities suggested implementing such reciprocal access, there would be a significant delay before it could be implemented. The immediate impacts would be felt without an opportunity for the out-of-state utility to remedy the situation.

4.3 Right to Redress: Dispute and Complaint Resolution

Once markets begin to operate, there will be two problematic categories of activities. First, customer-specific complaints where services provided do not match the customer's understanding of what was offered. This requires some dispute resolution process. The principle of redress is applicable. Second, more systematic marketing abuses where whole classes of customers are being excluded from the market or where unfair or discriminatory practices are being applied. Systematic abuses will require enhanced regulatory oversight.

The Commission has provided the means by which redress for disputes has been available to individual customers and to advocacy groups. As the industry is restructured, everything must change to some degree. As a tightly regulated industry gives way to an increasingly competitive one, there will probably be a greater level of consumer disgruntlement over transactions issues, as opposed to CPUC-regulated price issues. As a philosophical approach, parties believe that consumers must be asked to act responsibly ó to "pay the price" for mistakes they make ó and hope that these mistakes contribute to consumer education about the industry. It would be a mistake to design a redress process on the presumption that the consumer was right and the supplier was wrong. Consumer ignorance will surely lead to many consumer misjudgments, but these should be resolved through education rather than specific complaint resolution.

For those disputes where a legitimate complaint exists, a mechanism for redress may have the following broad features:

(1) consumers should have no cost or low-cost access to redress;

(2) dispute resolution forums must be neutral;

(3) mediation should be encouraged;

(4) penalties imposed upon providers should be used to solve industry problems;

(5) complainants should be able to access CPUC-compiled market conduct data consistent with confidentiality requirements; and

(6) the CPUC should be able to refer patterns of abuses to other authorities.

Each of these features will be briefly explored in the following subsections.

4.3.1 Consumers Should Have Appropriate Access to Redress

Where complaints by consumers can not be readily resolved by a service provider, an individual consumer should be afforded access to regulatory redress. This is the status quo and it should be preserved during the transitional years, at the least. There are at least three versions of how such access might be provided.

[1] Prompt, No Cost, Effective Access. Regulatory oversight must continue to ensure that there are prompt, no cost and effective forums for receiving customer complaints against electricity providers, resolving the complaint satisfactorily, and instituting investigations where warranted. This access must provide complaint resolution for limited and non-English speaking customers. Consumers should have the right to petition for enforcement actions. Pending resolution of any investigations against providers charged with defrauding large numbers of consumers, the provider should be ordered to post a bond sufficient to satisfy any likely judgment if the provider's place of incorporation is outside of California or where there is evidence of financial instability.

[2] Low Cost Access. Access to low-cost regulatory relief means that the consumer should not be charged any filing fees to initiate the process and assessment of costs for pursuing regulatory relief should be reasonable. It does not mean that the time spent pursuing a case or travel and out-of-pocket costs will be necessarily recovered by the complainant regardless of the outcome. However, where a party prevails in a regulatory complaint, the damages awarded should include reimbursement of costs incurred in pursuing an action in addition to restitution normally awarded by the CPUC. This low-cost redress is essential if the Commission is to encourage consumers to bring complaints to their attention. It is also necessary to level the playing field advantage enjoyed by better-endowed providers.

[3] Balanced Redress Mechanisms. Consumer complaints should be screened to determine their merits. Consumer misinformation and confusion should not lead to excessive costs for providers. Dispute resolution mechanisms should focus redress on failure to deliver services, not consumer confusion about the service. Providers falsely accused should not have records compiled that commingle complaints dismissed with complaints settled.

4.3.2 The Forum Must Be Neutral

The forum in which complaints are resolved must be neutral. The arbitrators need not be administrative law judges, but they cannot be representatives of or affiliated with energy service providers. Ideally, the forum would use trained but local arbitrators to conduct formal hearings and render recommendations that would be reviewed by the decision authority. An evidentiary record should be kept, but it might be taped rather than transcribed.

The Commission's current expedited complaint process is an adequate process by which formal complaints can be cost-effectively heard and decided.

4.3.3 Mediation Opportunities for Complaints

Mediation and other alternative dispute resolution tools should be encouraged. However, they cannot be compulsory, nor can a consumer be penalized for not submitting to mediation.

As a means of encouragement, local mediation should be made available to an individual complainant within two weeks of filing a complaint. If mediation is chosen by both parties, the individual consumer should have available the presence of a trained, knowledgeable advocate or a qualified intervenor advocacy group representative at the mediation to assist on behalf of that individual.

If the parties do not choose mediation, then the expedited complaint process should be made available to the complainant.

4.3.4 Disposition of Penalties Collected

Not all complaints will result in penalties imposed upon service providers. Most complaints will either result in restitution to the complainant or will be found to be warrantless. However, some believe that where a pattern of abuses is discovered and proved, the regulatory agency should be empowered to impose penalties upon a licensed service provider. This may require new statutory authority. Severe, systematic violations may result in license suspension or forfeiture of bonds. Where a financial penalty is assessed, the proceeds should be applied to promotion of consumer education, advocacy and/or a damages pool which would be available to provide restitution for those who received judgments but were unable to collect from the provider.

4.3.5 Access to CPUC-Compiled Data

As part of its on-going market conduct oversight responsibilities and as part of its customer education duties, the regulatory agency will be compiling data about the complaint records, financial viability, prices and service quality of any and all service providers licensed to do business in California. Much of this data may be made available to consumers who are shopping for energy services. Some believe, in addition, that all of this data should be made available to complainants that have filed formal complaints to appropriate authorities about an energy provider. Others believe only relevant data should be made available and it should be subject to confidentiality restrictions.

Some believe that in assessing a complaint against an energy provider, the agencies must consider not only an individual isolated complaint, but also whether a pattern of inappropriate business practices is extant. Complainants must have access to such data and must be able to enter it into an administrative record in order for the data to be fairly adjudged by the Commission.

4.3.6 Resolution of Systematic Patterns of Abuse

Ongoing review of market conduct will lead to identification of patterns of abuse or misconduct by energy service providers. There are several alternative approaches to resolving systematic patterns of abuse. These have not been fully reviewed or assessed, and are presented to provide a sense of the range of options expressed by some within DAWG.

[1] Publicizing Market Abuses. In order to make maximum use of limited staff resources, the regulatory agencies should share their market conduct findings with appropriate public and private bodies. One of the regulatory agency's roles could be to facilitate public prosecution of misleading information. For example, when companies engage in inappropriate marketing transactions, the state attorney general, local district attorneys and consumer class-action attorneys can utilize the state's Business & Professions Code to discourage such behaviors and gain remedies for victimized consumers. A regulatory agency could serve as a clearinghouse for complaints.

A regulatory agency's public intake functions are essential, low-cost means of identifying such abuses. The prosecutorial authorities can expeditiously act once a regulatory agency makes public the fact that complaints to the regulatory agency indicates a pattern of deceit. While the regulatory agency would not be acting as a referral panel, the disclosure of complaint information will enable interested private parties to pursue remedies independent of the agency. Such an approach is now operative at the CPUC. A regulatory agency's resources are best utilized as a collector and distributor of information first, and a prosecutor second. However, where no private attorneys are willing or able to pursue a case, the regulatory agency is obligated to self-initiate regulatory action or to instruct its staff to pursue civil or criminal remedies, where warranted.

[2] Regulatory Sanctions. A regulatory sanction approach could be used when problems are isolated to specific firms or providers of services. As noted previously, the telephone "slamming" practices have been concentrated on particular language and cultural communities by a few operators. Such a problem is best resolved by regulatory agency investigation, prompt customer redress, and where warranted, by sanctions against such operators. For this to be workable, however, requires that the regulatory agency have remedies that are sufficiently strong to be effective deterrents. This might imply that all providers are certified to do business, or that bonds have to be posted for good performance relative to explicit codes of conduct, or both. Egregious practices might result in certificate revocation or forfeiture of the bond.

[3] Statutory Reforms of the Marketplace. If widespread patterns of abuse are found across multiple providers of energy services, this may be evidence that the market rules themselves are too weak or are ineffective. Legislative remedies may be required in this instance. Since a greater portion of the electricity industry may be operating outside of the CPUC's traditional corrective authority, it is feasible that legislative remedies may have to be sponsored by the CPUC or other regulatory agencies supervising the industry.

4.4 Customer Representation and Advocacy

Under the aegis of a fortified consumer department at the CPUC, as envisioned in the Vision 2000 report, the Commission should promote the intervention and advocacy of consumer representation of small electric customers. With the expectation that increased numbers of marketing abuses such as slamming and fraud will a likely by-product of an emergent competitive market, the public would be well-served by the existence of knowledgeable and capable consumer representation.

Over the past two years, utilities and consumer advocacy groups have met to improve the intervenor compensation system. Utilities are concerned that the current compensation system discourages alternative dispute resolution and that it may be unfairly saddling the regulated utility with costs that should be partially borne by competitors. Intervenors have pointed out how the current rules are unwieldy, difficult for new or emerging intervenors to use, and are not suited for an increasingly quasi-legislative process. Thus far the talks have failed to reach any consensus, and an impasse has existed since February 1996.

It is incumbent upon the Commission to review the intervenor compensation rules and to initiate a revision of these rules so that they encourage small customers to bring market abuses and market failures to the attention of the Commission in a capable and professional manner. Some parties assert that the Commission should look to supplemental funding devices, such as a licensing or registration fee for energy providers or a restitution bond posted by new entrants, as a means of providing intervenor compensation.

4.5 Market Monitoring and Oversight

The following subsections offer some proposals for market monitoring and oversight. These proposals represent the views of certain parties only, not the entire DAWG.

4.5.1 Proposal: Active Commission Role in Market Facilitation and Monitoring

Consistent with the AB1890 mandate, the Commission should play an active role in monitoring the nascent competitive marketplace. Faced with overarching regulatory objectives to make competition work and to make it work in accord with state policies to preserve equity principles as well as to prevent certain communities from being chronically under-served, regulators will need to ensure that consumers are provided the tools and opportunities to participate in a competitive market. Regulators will need to ensure that redlining does not occur, that non-discriminatory prices and terms are offered to similar customer classes, and that marketing abuses are met with swift action, including full redress to victims. With the new reliance upon the competitive market to provide basic electric and telephone services for small consumers, the Commission's new challenges are, in the simplest of terms, to:

1. promote a competitive marketplace with multiple buyers and sellers;

2. arm all consumers with the information needed to make informed choices; and

3. help to aggregate small customers, especially in traditionally under-served communities.

Active monitoring will require the Commission to increase its information gathering and dissemination activities. Adequate information to consumers, both for purposes of protection and education, should include the following:

ï Monthly listing of licensed energy providers;

ï Bi-annual listing of price comparisons and energy providers;

ï Bi-annual listing of consumer complaint information;

ï Annually-revised glossary of energy service terms and description of services;

ï Telephonically-accessed listing of service providers whose license has been revoked, suspended or limited and an alert about unlicensed providers; and

ï Representative service benchmarks for different types of customers upon which comparisons of service can be readily made.

This information should be made available to customers at little or no cost. It can be distributed though CPUC offices, community-based organizations, other state agencies and by all licensed energy providers. It could be provided in the form of a standardized matrix similar to that set forth in the Proposed Decision of ALJ Wong in the Commission's Universal Service docket.

Beyond simply providing price comparison information and evaluative services, the CPUC should monitor private consumer education by market competitors and non-profits to ensure the accuracy of the information. Detailed proposals for this activity are described in Section 5.3.3. Finally, small customers will need to be aggregated in order to gain adequate market leverage to benefit from electric competition. Section 5.3.4 discussed some ways the Commission could facilitate small-customer aggregation.

These concepts require no new bureaucratic structure, as the Commission's Customer Service Division and existing community-based organizations can monitor and oversee dissemination of such information. The incremental funding requirements are modest, and the information to be collected and disseminated is consistent with the Commission's continuing market conduct activities.

4.5.2 Proposal: ESP Information Disclosure Requirements

This proposal would require ESPs to provide each customer or applicant for service the following:

1. The California Public Utilities Commission identification number of its registration to operate as an ESP within California.

2. The address and telephone number of the California Public Utilities Commission to verify its authority to operate.

3. A copy of these Consumer Protection Regulations.

4. A toll-free number to call for service or billing inquiries, along with an address where the customer may write the service provider.

5. A full disclosure of all fictitious or DBA names.

6. The names of billing agents it uses in place of performing the billing function itself.

7. Rate information as required by the Commission.

8. Declaration of being bonded or not.

9. Service provider address or place of business.

4.5.3 Proposal: Uniform Disclosure of Pricing and Service Terms

Another proposal suggests that every retail electric supplier will provide a written contract to a residential or small commercial customer for the retail sale of electricity, which shall contain the following disclosures and minimum terms:

1. Recurring and non-recurring charges must be disclosed in a uniform manner to be determined by the Commission. The total monthly recurring price shall be disclosed on a total cents per kWh basis. Up front or non-recurring charges shall be totaled and the effect of these charges on the recurring price of electricity shall be disclosed.

2. The customer's right to redress will be explained in a uniform manner to be determined by the Commission, including low-cost and prompt complaint and dispute resolution. Some argue that redress should be at no cost to the consumer. The Commission will also specify mechanisms for oversight and monitoring customer complaints and energy providers against whom there are numerous complaints and/or disputes.

3. How the supplier handles customers' personal information, including an explanation of how the customer can control release of sensitive personal information.

4. Explanation of the customer's options and rights regarding switching of service to another provider or the UDC and any fees or costs charged under the contract for switching service.

5. Practices used by the ESP for determining creditworthiness, and disconnection practices when credit has been revoked by the ESP.

6. An explanation of the customerís obligation to pay CTC charges.

7. Explanation the ESPís adopted code of conduct and where copies can be obtained, or where a code of conduct has not been adopted by the ESP, and citation to that effect.