October 8, 1996 (with revision 10/16/96; see Oct 22 meeting info below)

To all Direct Access Working Group Participants

Who Requested a Copy of the First Draft of the October 30, 1996

Report of the Consumer Protection and Education Committee

From Lynn Maack, Co-coordinator, DAWG-D

Consumer Protection and Education Committee

Subject: Schedule for Preparation of the October 30 DAWG-D Report

This letter accompanies the first draft of the report of the Consumer Protection and Education Committee that you requested. Now that you have received the draft, here is what to do next:

1. Send your comments and/or alternative proposals to the chapter authors AND to Lorenzo Kristov by October 15;

1. Attend the meeting on October 22 in San Diego to discuss the October 8 draft as modified since October 15.

The following is the exact procedural schedule to accomplish the production of the final report, which is to be filed and distributed on October 30, 1996:

• October 8 -- first draft of the October 30 DAWG-D report distributed;

• October 15 -- cutoff date for sending comments/alternatives to draft chapter authors and editor-in-chief (Lorenzo Kristov, CEC); chapter authors are indicated on the report outline (table of contents), and at the top of each chapter; all material is to be submitted via email or on diskette, in MS Word format, Times New Roman font, 12-point type; faxes will be accepted if the material is only a paragraph or two;

• Prior to October 22 -- chapter authors will attempt to distribute in advance of the October 22 meeting via email and DRA website the chapters revised from October 15 comments;

• October 22 -- DAWG meeting in San Diego at:

San Diego Gas & Electric

101 Ash Street

Downtown San Diego

Auditorium 3

Meeting time is 10:00 a.m. to 4:00 p.m.

(New note: Rich Jarvinen advises that the meeting room will be open and documents will be available for review at 8:30 a.m. The meeting will begin at 10:00 a.m., as previously announced. - L. Maack, 10/16/96)

The 10/22 meeting will be held to discuss the draft report as revised incorporating the October 15 comments; (hard copies of revised chapters will be available at the meeting).

• By October 25 -- all revisions received and incorporated into final draft chapters and submitted to editor-in-chief;

• October 28 -- all chapters incorporated into camera-ready report document;

• October 30 -- Final Report filed and distributed.

Of course, all parties may file Comments on the October 30 report. Filing date for formal Comments is no later than November 26; Reply Comments are to be filed no later than December 11, 1996.

(Edition of October 8, 1996)

1. Introduction

1.1. Market Rules

2. Consumer Principles for Restructuring

2.1. Right to Know

2.2. Right to Choice

2.3. Fair Dealing

2.4. Right to Redress

2.5. Customer Participation in Industry Oversight

2.6. Right to Privacy

2.7. Quality of Service

2.8. Required Codes of Conduct and Oversight

2.9. Right to Universal Electric Service

2.10. Transaction Costs

2.11. Improvement over the Status Quo

3. Potential Unfair Trade & Marketing Practices

3.1. Fraudulent Trade & Marketing Practices

3.2. Other Trade & Marketing Practices Which Could Be Harmful

4. Access to Customer Information

4.1 CPUC Direction

4.2 Overview of Issues and Viewpoints

4.3 Policy Issues for the Near Term (1/1/98) and the Mature Market

4.4 Types of Information

4.5 Proprietary Issues

4.6 Parties Eligible for Access to Information

4.7 Rules Requiring Utilities to Disseminate Information

4.8 Obtaining Customer Consent

4.9 Mechanisms for Information Release

4.10 Business Conduct Issues

(XX) 4.11 Price Charged by Utilities for Customer Information

4.12 Options for the Near Term

4.13 Considerations for the Mature Market

5. Registration & Oversight

5.1. Regulatory Authority, Existing Statutes and Examples from Other Contexts

5.2. Registration Requirements

6. Dispute and Complaint Resolution

6.1. Right to Redress

6.2. Customer Representation & Advocacy

7. Energy Service Provider Business Practices

7.1. Methods of Governance

7.2. Current & Potential Future Requirements

8. Consumer Education

8.1 Educational Needs and Objectives

8.2 Consumer Education Plan

8.3 The CPUC's Consumer Advocate Role

8.4. Restructured Electric Service Education Trust (RESET)

9. Implementation

9.1 Implementation Objectives

9.2 Legislative Issues and AB 1890

9.3 Implementation Timelines

1. Summary

(Readers Note: This chapter will be written by Lorenzo Kristov after October 15, 1996. It should be available for review at the October 22, 1996 final review meeting in San Diego)

This report addresses specific activities explicitly designed for consumer protection and education. All consumer principles described in Chapter 2 are applicable to consumer protection and education issues. Broadly, there are two categories of these activities: (1) design of the market rules to minimize conflict and potential for problems, and (2) mechanisms to resolve customer-specific disputes and redress for systematic problems encountered as markets operate.

1.1. Design of Market Rules

Design of market rules should address consumer protection concerns from the outset. The expected magnitude of problems should be reduced if intentional efforts are made to resolve likely problems before they take place. These actions can aid both consumers and suppliers, and society in general, by making markets operate more efficiently.

Chapter 7 of this report discusses market rules for the various entities that will operate in the restructured industry. Several of the consumer principles have been addressed there. Chapter 4 addresses the issue of consumer privacy along with facilitating market efficiency in the context of access to customer information.

The broad policies of D.95-12-063 and the overarching goal of societal economic efficiency must be translated into more tangible operational principles if they are to provide practical guidance to the restructuring proceedings. Although some parties have referred to these as the "Consumer Bill of Rights," not all parties agree that these are "rights" and therefore believe the term is misleading. Because all parties agree with the term "principles," that term is instead used here, without prejudice as to whether these are consumer rights.

DAWG participants developed eleven principles which could be supported by most participants. Each of them can be agreed upon in general terms, but efforts to interpret them by defining terms and elaborating the details led to controversy that could not be resolved.

This report provides a description of the generally accepted principle, illustrates additional interpretative language sponsored by one or more parties, and states "pros and cons" for this additional language. Despite lack of unanimity concerning the detailed implementation of these principles, they were forwarded to the various technical committees and used by them in developing specific proposals and options. These principles provide considerable guidance to the assessment of alternatives through the "pros and cons" discussion of each alternative throughout the report, but especially in the market rules chapter and in the final chapters of this report.

The remainder of this section will present each of the eleven principles, any interpretative language that has been suggested, and then provide "pros and cons" to understand why that interpretation is supported or opposed.

2.1. Right to Know

Customers must be assured of access to affordable, accurate, and multilingual informational and educational materials which enable comparison of price, quality, service record and terms of service offered.

2.1.1. ALTERNATIVE: Suggested Interpretation

Such materials must be readily available to all customers, at no cost, and must be disseminated in various languages through multiple media intended to reach different customer groups. The materials must contain all basic information necessary for customers to make informed decisions about electricity suppliers, including different suppliers' previous experiences in the market and track records. The market offerings of all market participants should be included in these materials.

Alternative 2.1.1. PRO:

In order for a competitive market to function, customers must have adequate information upon which to make choices. This information must be readily accessible, understandable and adaptable for comparison purposes.

Alternative 2.1.1 CON:

1. Requiring that every customer has access to materials at "no cost" creates a potentially large burden on those responsible for funding informational and educational activities. Creating that burden at this time is unreasonable, without first understanding who will be burdened, and the extent of the Commission's informational and educational policy decisions. Instead, the Commission should recognize that the intent of the term "affordable" means that for those who cannot afford to pay for information and education, and where the Commission determines it to be necessary for all, "no cost" materials should be made available.

2. Materials developed to help customers (e.g. large industrials) make direct access decisions should be provided at affordable prices.

3. It will not be possible, nor should it be desired, to create a bureaucracy to collect, interpret, and then in a timely fashion disseminate the constantly changing set of market offerings available from market participants. The burden placed on market participants to provide information about all new offerings will be too costly; the bureaucracy that can handle such a data collection and dissemination process does not, and because of cost exceeding value, should not exist; and confusion created by the myriad of materials generated will be greater for customers than without such a system. Instead, consumers should be educated on how to evaluate options by themselves, or with the assistance of organizations that have been established to help those with special needs. As product offerings are presented to consumers, those educated consumers will then be able to effectively compare them with other product offerings.

2.2. Right to Choice

Customers should have choices involving real tradeoffs of quality or quantity versus cost.

2.2.1. ALTERNATIVE 1: Suggested Interpretation

All customers should have the ability to aggregate efficiently on a non-discriminatory basis. Customers should have choices which offer substantial savings and identifiable value.

Alternative 2.2.1. PRO:

Choice must be meaningful, i.e. offering true differentiation and sufficient value for which making a choice is deemed desirable. For small customers, market choices will be limited unless they can exercise some market leverage. This leverage will come only through aggregation. Moreover, vigilant supervision of the nascent market will be necessary to ensure that barriers to competition have not been intentionally or inadvertently constructed by market players or by regulatory policy.

Alternative 2.2.1. CON:

1. Electric industry restructuring will not and should not be expected to provide substantial savings and identifiable value to all customers. For some, choices will be limited, with default service provided by the UDC quite possibly the best choice available. In fact, as inter- and intra-class subsidies are attacked by retailers, those who have traditionally received the greatest subsidies may well find an increase in service costs. The Commission should therefore not saddle itself with a principle requiring all customers to receive substantial savings and identifiable value. Instead, it should make policy decisions to improve the societal economic efficiency of the electric industry overall.

2. Aggregation is unlikely to result in better prices that those from the power exchange, and therefore savings beyond those from the power exchange market should not be anticipated.

2.2.2. ALTERNATIVE 2: Suggested Interpretation

It is insufficient that choice be provided to customers at large, because this excludes communities that are traditionally under served. Where competitive services are not available to certain customer groups, barriers to competition that prevent access by these customers must be eliminated. This may require affirmative efforts outside of normal market forces. Monitoring mechanisms, analogous to the anti-redlining regulations currently in place for large insurance companies operating in California, should be instituted and analyzed annually for enforcement purposes. Discrimination by providers based on race, gender, ethnicity, and other unlawful categories must be discouraged through appropriate sanctions and penalties.

Alternative 2.2.2. PRO:

As opposed to outright discrimination, more subtle exclusions from a full range of choices may be made for various under served communities. An affirmative effort to ensure that a full range of choices is offered throughout California should be undertaken.

Alternative 2.2.2. CON:

1. As discussed in several DAWG meetings, it is unrealistic to expect all competitive providers to offer services everywhere in the State. Providers will target customer groups that they seek to serve.

2. As with any new start up businesses, the initial market activity could be quite limited, therefore all customers will not be reached with new options.

3. Because of the metering and data communication issues, it may be substantially more expensive to serve customers on a piecemeal basis than on a geographic area basis.

4. Affirmative efforts suggest funding of programs which may divert attention from developing the market itself.

2.2.3. ALTERNATIVE 3: Suggested Interpretation

Right to Choice in the 8/30 report explicitly includes right to choices involving tradeoffs of quality versus cost, which, for electricity, primarily means the time at which power is consumed. Thus, Right to Choice implies an access right to hourly or time-of-use metering, since, without such metering, consumers have no ability to benefit from choosing when they use their energy.

Alternative 2.2.3. PRO:

Alternative 2.2.3. CON:

2.3. Fair Dealing

All classes of customers should have access to choices and pricing options without discrimination.

2.3.1 ALTERNATIVE: Suggested Interpretation

Affordable service options must be responsive to customer needs and performance must be verifiable. Slamming, excessive rates, over-billing and other marketing abuses which exist in the telecommunications area must be prohibited and met with severe sanctions, including license revocation, penalties, full restitution to the customer, and a fund for community education. Energy providers must be made responsible for the actions of their agents or representatives. Some parties believe that rate deaveraging must be prevented, that is, that low-income customers should not be charged higher rates than other customer groups, unless knowingly and voluntarily entered into in exchange for additional services and/or value. Credit terms, including compliance with the Equal Credit Opportunity Act and Fair Credit Reporting Act, must be required, and a provider of last resort, or default provider, should be mandated at fair and reasonable rates for all customers.

Alternative 2.3.1. PRO:

1. Current California statute requires nondiscriminatory pricing for electric service. There are reasons to suspect that unscrupulous operators will attempt to abuse some customers as has been the case in telecommunication deregulation.

2. Electric service, as a necessary commodity, must be available universally and equitably. Electric service is among the few necessary commodities, e.g. housing, water, basic foodstuffs, necessary for persons to participate in society. And, because electricity is a prerequisite for participating in the increasingly necessary information services sector, electricity must be affordable so that citizens can remain part of the nascent information network.

Alternative 2.3.1. CON:

1. Not all service choices need be affordable to all customers in a deregulated industry. For example, improved levels of service quality may be valued more highly by some customers than others. Those who value it highly should be willing to pay the premiums to offset costs retailers incur to provide it. Those who value it less should make purchase decisions not by comparing their expected value to a regulated, subsidized price created especially for them, but by comparing the value they will get to the true cost of service. For them, that cost of service may not be affordable. Instead, they should choose other alternatives which may be basic, regulated electric service.

2. Protecting against discrimination is sufficient to address "fair dealing" issues. Creating a new regulatory framework to establish acceptable bounds for competitive market prices will hamper the creation of new products and services, and limit the success of deregulation. The Commission should not establish policies that create barriers to the introduction of new and creative ideas. Instead, policies should be developed to monitor market activities, and implement strong corrective actions where retailers have acted against the Commission's express written conditions of market participation. The additional suggested language addressing discriminatory practices is therefore redundant, unnecessary, or overly burdensome for a competitive market.

3. In an unbundled environment, those who have traditionally been subsidized by others will loose that subsidization. If low-income groups, because of their energy usage characteristics, on average experience a rate increase, the Commission should not arbitrarily constrain that result without good economic justification, which has yet to be presented. The same is true if low-income customer usage patterns cause their rates to be lower on average; they should not be forced to subsidize all other customers.

2.4. Right to Redress

Regulatory oversight must continue to ensure that there is a neutral, prompt, no cost or low-cost and effective forum for receiving customer complaints against electricity providers.

2.4.1. ALTERNATIVE: Suggested Interpretation

The forum must be no cost, allow for instituting investigations where warranted, and provide complaint resolution and redress for all customers, including those from limited and non-English speaking communities. Regulatory powers must include enforcement, oversight and levying of penalties. Regulatory agencies must be able to suspend or revoke a provider's CPCN or license, and to impose monetary sanctions and full restitution to consumers, including penalties being paid into a fund for consumer education. Consumers must have the right to petition for enforcement actions. Pending resolution of Commission investigations against providers charged with slamming or defrauding large numbers of customers, the Commission may order the provider to post a bond sufficient to satisfy any likely judgment where the provider's place of incorporation or association is outside California or where there is evidence of fiscal instability.

Alternative 2.4.1. PRO:

1. The competitive market will not develop equitably or quickly unless there is a continuing regulatory presence. Regulators must support their commitment to a robust competitive market with oversight to ensure that complaints are addressed, abuses are prevented and barriers to entry are minimized. Without enforcement power and adequate staff, effective enforcement will not be practical.

2. Rapidly escalating complaints of fraud and slamming in telecommunications in California since telephone deregulation have highlighted the necessity for effective and meaningful mechanisms for prompt, no cost consumer redress to be built in to any electric deregulation model. Both Pacific Bell and the CPUC's Safety and Enforcement report enormous increases in customer complaints, particularly with small, out-of-state newcomers to the market. Reputable companies should support consumer redress and protections which will discourage "quick buck" artists and fly-by-night scam operations from coming to California for ill-gotten profits.

3. While the CPUC appears to be the best entity to provide such consumer protections, augmented staffing and resources would be necessary to provide prompt investigation and resolution for California customers. Existing statutory language provides for significant penalties (P.U. Code section 2107), but there may be the need for specific statutory language analogous to the anti-slamming language of section 2889.5 for telecommunications carriers.

Alternative 2.4.1. CON:

1. Instituting a no cost forum for redress will over burden the system with malicious and mischievous complaints against retailers and UDCs. The Commission should want to avoid creating that environment to the detriment of fulfilling the balance of its responsibilities. Instead, a low-cost forum should be used. Customers who cannot afford the low-cost forum should be provided with redress at no cost, once they prove to an assigned Commission representative both (a) that they have a complaint which is not mischievous nor malicious, and (b) that they are not able to afford the normal forum costs.

2. These implementation suggestions would be very costly, and would suggest a major increase in the consumer protection activities of the CPUC and/or other government agencies.

2.5. Customer Participation in Industry Oversight

Customers must be able to participate in regulatory oversight of the restructured industry, which should be on-going during and after competition commences.

2.5.1. ALTERNATIVE: Suggested Extension

Participation should include the above specified right to petition the Commission for redress.

Alternative 2.5.1. PRO:

In order for regulators to establish policy and monitor the emerging electric marketplace, it must have continued input from organized consumers. This input should be solicited and should be on-going throughout the oversight period.

Alternative 2.5.1. CON:

Since the Right to Redress has already been addressed, it is redundant to include it here. To add clarity and simplicity to all principles, redundancy should be avoided.

2.6. Right to Privacy

Consumers should be able to control release and use of sensitive personal information and records. Marketing should not be unduly intrusive.

2.6.1. ALTERNATIVE: Suggested Interpretation

The qualifier "sensitive" should be construed liberally as a means to ensure protection of privacy. Further, this information in question should have limited distribution to UDCs, their affiliates, and qualified energy service retailers for marketing and delivery of electricity services. It should not be resold to other businesses for competitive, marketing purposes.

Alternative 2.6.1. PRO:

1. California state law places protection of personal information at a higher level than most other state or the Federal law. The emergence of competition in the telecommunications market has imposed significant privacy intrusions upon the California citizenry. Electric deregulation should guard against similar intrusions by placing release and use of personal information squarely in the hands of the customers, not the market competitors.

2. The information that the market will need to promote competition can be made available to competitors at low cost and in an aggregated form so that individual consumers cannot be revealed. Also, government can play a useful role of getting necessary information to the market so that competition can flourish while still preserving the privacy rights of Californians.

3. Customer information should be made available only to a limited set of qualified competitive parties. Perhaps businesses must be certified to be eligible to receive it. Violations of limited usage may be grounds for decertification.

Alternative 2.6.1. CON:

Resolution of the information access issue balances facilitating competition and minimizing transactions costs versus personal privacy. This topic is so crucial it has its own chapter 7 with a detailed discussion.

2.7. Quality of Service

All choices offered to customers must meet minimum safety and service criteria, and advertised terms and conditions.

2.7.1. ALTERNATIVE: Suggested Interpretation

Service must be safe and in accord with specified service criteria. Customers should be offered a choice of differentiated levels of service. Service limiters should not be imposed upon low-income customers.

Alternative 2.7.1. PRO:

1. Quality of service must be maintained at current levels to ensure that the expected price reductions from competition represent improved value to consumers. Also, the emergent information services upon which society increasingly relies requires high quality and reliable electric service. However, not all customers demand high reliability, so differentiated service levels should be made available. Those customers must knowingly choose among those different levels.

2. The use of service limiters or other technologies that ration service may not be imposed upon any customers as a precondition for providing service.

Alternative 2.7.1. CON:

1. Prevention of discrimination is addressed in the "Fair Dealing" principle and need not be added here.

2. The role of service limiters should be addressed in the context of mechanisms to achieve "Universal Access" and not tied to quality of service.

2.7.2. ALTERNATIVE: Suggested Interpretation

Competitive supply of generation services is the first of a series of changes in which bundled electricity will be unbundled and the service components offered to customers in degrees of quality and quantity from which the customer makes a choice of differentiated levels of service. To assure that this consumer choice paradigm operates, service providers must delivered the quality of service that they promised. Holding providers to their advertised terms and conditions of service is essential to ensure that a market based on trustworthy information can flourish.

Alternative 2.7.2. PRO:

Quality of service delivered by providers must closely match that which was advertised. Regulatory agencies should ensure that marketing information is accurate. Consumers can ultimately learn how to make choices if they are provided accurate, realistic information.

Alternative 2.7.2. CON:

Enforcement of this interpretation suggests substantial resources. Many truth in advertising problems exist in other markets, so these negative aspects of competitive markets can never be fully avoided.

2.8. Required Codes of Conduct and Oversight

All providers must meet minimum standards for certification or registration as a condition of entry.

2.8.1. ALTERNATIVE: Suggested Interpretation

As a condition of registration and continued service rights, all providers must either accept an industry standard code of conduct or offer a comparable alternative code specifying standards upon which their customer service policies and business practices will be based.

Alternative 2.8.1. PRO:

In the emerging energy services market, the expectations and responsibilities of providers and retail customers will be poorly defined absent some establishment of "game" rules by policy makers. Rather than establishing specific rules for all possible transaction scenarios and potential problems, the Commission should require adoption of a minimum code of conduct as a precondition for registration. These codes can serve as a basis for service design, for customer service practices and for regulatory oversight of those practices.

Alternative 2.8.1. CON:

An industry standard code of conduct is likely to be too weak and difficult to enforce. Stronger controls over businesses are likely to be required, as can be seen from telecommunication "slamming" practices.

2.8.2. ALTERNATIVE: Suggested Interpretation

All market providers must meet minimum fiscal responsibility standards or provide a bond, and top management and officers must disclose to the CPUC and keep updated at all times: (1) their legal name(s); (2) business address; (3) state where incorporated or associated, including the date of organization; (4) articles of incorporation or association; (5) the name, title and address of each officer and director; (6) name, title, and telephone number of customer contact personnel; (7) name, title, and telephone number of the regulatory contact person; (8) brief description of the nature of the business being conducted in California; and (9) disclosure of any past civil or criminal actions taken against the company or any officer or director of the company for illegal acts related to the operation of the business in the past ten years in any state or federal jurisdiction.

Alternative 2.8.2. PRO:

These details are necessary to pursue actions against companies and to provide an awareness on the part of companies that the CPUC is prepared to take action against the company or its officers if warranted.

Alternative 2.8.2. CON:

1. These details provide a basis for taking regulatory or legal action should they become necessary, but they do not instill in the company a positive incentive to do right.

2. Industry codes of conduct can be used in conjunction with "Better Business Bureau" methods of providing information to customers about whether companies adhere to such codes of conduct, whether actions have been taken against them, and the nature of dispute resolution available.

2.9. Right to Universal Electric Service

Electricity is a universal service which government must ensure is accessible to all residents of California.

2.9.1. ALTERNATIVE 1: Suggested Interpretation

Because electricity is a necessary service, electric restructuring must result in no significant cost increases for any identifiable group of customers. To the extent that savings result from the restructured market, customer classes with relatively fewer options should still reap comparable savings to those with more options.

Alternative 2.9.1. PRO:

As a necessary commodity, the price and availability of electricity will prove to be primary focal points for policy makers. The premise of restructuring is to bring lower prices through market-based efficiencies. However, customer classes with fewer options (which represent the majority of electricity users) will lose the market leverage that they enjoyed as monopoly-aggregated customers. Thus, a goal of restructuring must be to bring market efficiencies to those customers who are likely to be overlooked by the competitive market. Otherwise, restructuring will result simply in windfall price reductions for a select number of large electric consumers at the expense of the majority of Californians.

Alternative 2.9.1. CON:

Electric restructuring may result in cost reductions to some customers, and perhaps cost increases to others. Those who have traditionally been subsidized through price averaging will see relative price increases as lower cost customers drop off the UDC full service system. Adopting this proposed principle will tie the hands of the Commission either by (a) significantly reducing the list of good policy alternatives available to the Commission to enact restructuring; or (b) placing a huge financial burden on the utilities to subsidize remaining full service customers, thereby undermining the financial integrity of the California electricity industry. The Commission must therefore determine in advance whether or not it wishes to protect the status quo for those few customers who have been heretofore greatly subsidized by all others. That decision will significantly impact all other decisions.

2.9.2. ALTERNATIVE 2: Suggested Interpretation

Right to Universal Electric Service explicitly includes a right to generation, transmission, and distribution services. The Commission should determine whether the right to distribution services includes a right to universal hourly or time-of-use metering, since such metering is required for customers to participate fully in California's power market, in which prices will fluctuate hourly.

Alternative 2.9.2. PRO:

Alternative 2.9.2. CON:

2.10. Transaction Costs2.1.10 Transaction Costs

Market processes should be designed to avoid unnecessary transaction costs.

2.10.1. ALTERNATIVE: Suggested Interpretation

Regulatory policy should be focused upon lowering barriers for market entry. Essential elements of electric service should be non-proprietary and customers without or with modest market choice should be responsible for no more than an equitable share of costs arising from restructuring.

Alternative 2.10.1. PRO:

Transaction costs, or the avoidance of them, will prove to be a determining factor in whether competition develops for the majority of California consumers. They represent a market barrier that could undo regulatory efforts to promote competition. Where transaction costs are incurred for anything other than promoting market information, protecting customer privacy, or preserving social equity objectives, then they should be discouraged by the Commission. Discouraging proprietary systems and guarding against interclass cross-subsidies are important means of limiting unwarranted transaction costs.

Alternative 2.10.1. CON:

None yet identified.

2.10.2. ALTERNATIVE: Suggested Interpretation

The complexities of the restructured electricity industry will place major burdens on consumers which requires that they obtain and assimilate general background information about "new" products and services, as well as make specific decisions. All of this contributes to so called transactions costs, and really cannot be avoided. What can and should be avoided is the further step of evaluating the merits of the information itself. Is it accurate? Is it complete? Regulatory policy and enforcement action should be designed to ensure that consumers have market information which is trustworthy, so that the transactions cost burden is not expanded unnecessarily. Accuracy of information should be ensured by a standard of veracity. Marketers and other market participants that violate accuracy standards should be punished severely.

Alternative 2.10.2. PRO:

1. Trust is difficult to obtain, and mistrust in one perpetrator can be readily extended to other market participants, even when unwarranted. The loss of trust will reduce market participation and reduce benefits of competitive choice.

2. Regulatory agencies should be visible in asserting that market information is trustworthy.

Alternative 2.10.2 CON:

1. Developing complete and accurate information about market offerings will be difficult and must be repeated frequently. This will cause it to be expensive.

2. Innate skepticism leads many to a laissez-faire attitude, which will be hard to overcome.

2.11. Improvement over the Status Quo2.1.11. Improvement over the status quo

No agreement has been reached on the general principle for improvement over the status quo.

2.11.1. ALTERNATIVE: Suggested Interpretation

Competition must support, rather than jeopardize, existing and evolving social and environmental policies and programs. Special "lifeline" rates and services and safeguards for low-income customers, the elderly and disabled should be preserved in a restructured environment.

Alternative 2.11.1. PRO:

During this century, California has established certain social and equitable goals that it deemed as necessary components of electric restructuring. The move to a competitive electric marketplace is supposed to enable those social goals to be achieved at lower costs than the regulatory paradigm, as practiced by California, has been able to accomplish. However, these social programs and objectives must be preserved, lest restructuring devolves into a pretense for abandoning 100 years of equitable policies established by the people of this state.

Alternative 2.11.1. CON:

The Commission has assigned to the Low-Income Working Group the task of identifying low income customer related electric restructuring impact issues. The Commission, as a result of that process, may determine that some of the existing social and environmental policies and programs are due for a change. If that is the case, the Commission would not want to be bound to old policies as is dictated through this proposed principle.

Unfair trade and marketing practices can be classified as: (1) those that are illegal, and (2) those that are not illegal, but could cause harm to an unsuspecting populace. This chapter describes the specific practices within each classification which should be considered when establishing education plans and enacting new regulations.

Using these two classifications to categorize trade and marketing practices helps simplify the task before the Commission. Typically, laws and regulations already governing illegal practices also address the path consumers can take for redress. Therefore, the Commission's primary concern is to determine how best to minimize the potential for consumer harm arising from legal trade and marketing practices. As will be discussed in later chapters, the Commission's primary tools to address this concern are (1) establishing effective consumer education and awareness programs, and (2) creating an accessible forum in which consumers can resolve complaints.

It is expected that most abuses will be perpetrated against small customers who will be targets for marketers due to their relative lack of knowledge and sophistication in the area of electric service. Larger customers generally have the resources and expertise to do their own market analysis and "shopping" and will not be the attractive targets of disreputable firms. Therefore, the types of abuses and the possible safeguards below may be considered primarily in connection with smaller customers and those who provide service to them.

3.1. Fraudulent Trade & Marketing Practices

Fraudulent practices will typically occur within three distinct periods: (1) during marketing; (2) at time of enrollment, or the process leading up to enrollment; and (3) during the revenue cycle (metering, billing, and collections). Examples of fraudulent activities, though not all encompassing, are provided here to illustrate the extent of illegal practices within each period.

3.1.1. Marketing

3.1.1.1. Misrepresenting services to customers

There are three examples of how service providers could misrepresent themselves to consumers:

Using another firm's names or trademarks - Service providers could represent that they are another, reputable firm. If well known company names are used by a disreputable firm, customers may be misled into believing they are establishing service with that well known company.

Using another firm's product names, descriptions, or copyrighted materials - Substandard service providers may use names for products which consumers associate with higher quality products than what is actually being provided.

Inaccurate or misleading information about services, terms, and conditions of sale - Service providers may use marketing materials which describe services, terms, and conditions of sale that the service provider has no intention of providing.

3.1.1.3. Misrepresenting prices

Service providers may fraudulently promote prices in marketing materials which do not accurately reflect actual prices consumers will pay.

3.1.2. Enrollment

Two of the most significant types of fraudulent behavior encountered within other industries are (a) slamming, and (b) redlining. Recent legislation (AB1890) has established regulations protecting electric customers from slamming practices (PUCode Section 366). Redlining is prohibited under existing California law embodied in the Unruh Act.

Slamming - Slamming is the unauthorized, unwanted, unsolicited switching or connection of a customer to a service provider without the knowledge or approval of the customer. Techniques used by disreputable service providers include (a) forged authorizations to switch (by a "prospective" service provider), and (b) use of promotional schemes and written materials or forms that consumers sign without the knowledge that they are actually authorizing a switch.

Redlining - Redlining is the practice of offering the same services at different prices based solely upon illegal discriminatory criteria, such as geographical locations when geographical location is not a factor impacting the cost to provide service.

3.1.3. Revenue Cycle

3.1.3.1. Meter Tampering

Tampered Meters - The sale or use of tampered meters which report higher than actual energy consumption is a form of fraud.

Defective or Non-Performing Meters - Service providers who knowingly use defective or non-performing meters with the intent of defrauding customers are committing a crime.

Energy Theft - The intentional diversion of electric current to an alternate meter with the intent of billing customers for higher than actual usage is a form of fraud.

3.1.3.2. Other Intentional Billing Inaccuracies

Service providers who intentionally bill for energy services without ever expecting to deliver those services is committing fraud.

3.1.3.3. Billing for Unsettled Disputes with Other Retailers

Customers could be billed by a current service provider an unpaid balance from a previous service provider without the knowledge or consent of the customer, or without the opportunity to settle under legal channels the previous account and any outstanding disputes. Where this practice is prohibited by law, the service provider doing the billing has committed a crime.

3.1.3.4. Illegal Collection Activities

Illegal collection activities include actions taken by service providers which do not comply with laws and regulations governing the discontinuance of service to collect unpaid bills.

3.2. Other Trade & Marketing Practices Which Could Be Harmful

Under a restructured electricity industry, customers may be exposed to complex products and services whose price differences are not easily distinguishable. In most cases the trade and marketing practices identified below exist within every industry. However consumers in most industries have the understanding and resources available to make rational, logical decisions to avoid making bad choices.

3.2.1. Marketing

There are numerous marketing practices that could be considered by some to be harmful if unleashed upon an unknowing populace. Enabling consumers to make good purchase decisions will protect consumers from these and other potentially harmful practices.

Aggressive Sales - Service providers who aggressively pursue customers may become intrusive in their sales approach. Customers who are unaware of the recourse available to them to prevent continued aggressive practices may feel intimidated into purchasing the suppliers services. An educated populace, with resources available to it to stop such sales tactics provides the usual counter balance.

High Priced Services - Some service providers will charge more than others for the same or similar services. That is a natural consequence of a free market and should not be prevented. However if customers have no means to compare prices and other service offerings, a less than efficient market will evolve.

Unsolicited Marketing - It is reasonable to assume there will be unsolicited marketing in the restructured electric industry. In most markets, this is an effective tool toward economic efficiency.

Target Marketing - Marketing to a specific group of customers who have an identified set of needs met by the service provider's products is a form of target marketing, and is practiced in every industry. As long as the marketing practices are not

3.2.2. Enrollment

High Cost Exit Terms - Some service providers may offer contracts which require lump sum payments upon either the consumer's or retailer's termination. Although some may consider these contracts to be unreasonable, they may provide the greatest value to others. When comparing these types of contracts with others, consumers must have the knowledge and resources available to them to make rational decisions.

Long Term Contracts - Length of contracts is a consideration consumers have to make when acquiring many products.

Landlord / Tenant Restrictions - Currently, electric service is often provided to the property owner, not the property tenant. Tenants, of course, enjoy certain rights in billing if they, in fact, are specifically charged for electric service used. But owners exercise reasonable control over the nature of that electric service, including the decision whether they or their tenants are to be the Electric Service customer. Therefore, in many cases, property rights in a premises tend to determine control over goods and services appurtenant to the premises, regardless of whether those appurtenant facilities are owned or not. In some cases, landlords may limit the options available to tenants as a result of decisions landlords have already made.

3.2.3. Revenue Collection

3.2.3.1. Metering

Service Limiters - In countries where energy services have been deregulated, some energy service providers have moved to service limiting meters as a means of reducing delinquencies and collection costs. These meters come in different variations and have varying cut-off mechanisms, but all have one common characteristic: they facilitate pre-payment for electric service.

Unintentional Metering & Billing Inaccuracies - Chronic bad meter readings or billing inaccuracies cause consumers to incur higher monitoring and correction costs.

3.2.3.2. Billing & Collections

Volatile Prices - Some service providers may provide energy services at prices which appeared to be stable when the contract between customer and supplier was signed, but because of changes in the environment become volatile. These services are analogous to variable rate mortgages sold to homeowners in a time of stable interest rates. Those homeowners may find their mortgage payments changing significantly if there is a significant rise or fall in the index rate. Energy service contracts tied to historically stable energy price indexes may experience similar volatility. Consumers should have access to information allowing them to make informed decisions when choosing between variable and fixed energy service contracts.

Service Disconnection Practices - Legally prescribed disconnection practices for non-payment of utility bills are already in place, though some may consider them to be too strict, and others too lenient.

(This chapter has been included in its entirety from the August 30th "Design & Implementation" report. However for the "Consumer Protection and Education" report, it is recommended that only those sections pertinent to consumer protection and education issues be retained. Those sections that deal with design and implementation issues should be removed, and have been so noted with a preceding "(XX)." They primarily address information cost and revenue treatment issues. In your comments, if you believe a section so noted should be retained, please note that.)

4.1 CPUC Direction

4.1.1 CPUC Decision D. 95-12-063 (Decision)

The Commissionís Decision 95-12-063 recognizes that a "utility has access to considerable information about its customers" which creates "a major marketing advantage that could allow it to target and sign up preferred customers before its competitors can." [Decision pp. 71, 108.] To neutralize that advantage, the Commission ordered that "Customer-specific information necessary for the distribution functions of the utility shall be made available to all competitors in the generation sector, on terms that are fair to all competitors." [Decision, Ordering Paragraph 20, p. 224.]

The second sentence of Ordering Paragraph 20 addresses the need to prevent potential misuse of customer information. It states: "All generation providers, including the monopoly utility, shall obtain a customerís consent before accessing any proprietary information about the customer." Language in the body of the Decision refers to "customer confidentiality concerns" as driving a requirement to obtain customer consent. [Decision, p. 108.] Some customer-specific information may have been obtained by utilities only upon their acceptance of specific conditions governing how that information may be used. Other information may have been given to utilities in confidence. Before using or releasing either type of information for purposes other than specified by the those who originally provided it, utilities and other generation providers must first obtain customer consent.

Given the foregoing concerns, the central issue of this chapter is how to balance the needs and rights of customers to protect their privacy against the needs of the marketplace for information. In other words, how to define the boundary between private control of information and the public domain. The Decision recognizes that to go too far in either direction could undermine the goal of restructuring. Adequate flow of market information to all competitors is necessary for efficient market operation, but inappropriate use or release of customer information could have a harmful effect on customers. In reading this chapter, the reader should bear in mind the central problem of finding the proper balance.

4.1.2 Joint Assigned Commissionersí Ruling of May 17, 1996 (Ruling)

Item seven in the Rulingís section on consumer choice issues expanded the list of customer information access issues which Commissioners Neeper and Knight wished to address. First, the assigned commissioners directed the working group to consider "what customer information can be provided." This requires assigning types of customer information into categories for which potentially different rules of access may apply.

Second, confidentiality concerns referred to in the Decision were further clarified in the Ruling. In addition to proprietary issues, the assigned commissioners directed the working group to consider "customer privacy." Whereas proprietary information has a foundation based on ownership, customer privacy is much broader and more complex. Privacy is not so much a function of ownership as it is control over information. Control is usually determined to be important if information about individuals could potentially be misused in a way that causes harm to the individual, which in turn is not outweighed by societal benefits. At issue is which specific customer information is protected by the right to privacy, and what kind of consent mechanism is appropriate to ensure adequate protection of privacy.

Finally, neither the Decision nor the Ruling addresses access to other utility-held proprietary information. Both refer only to information on utility customers. Therefore, information that does not describe customers is excluded from consideration at this time.

4.2 Overview of Issues and Viewpoints

4.2.1 Useful Terminology and Concepts

We may think of a system of information flows in terms of the following parties: (1) sources or subjects of the data, i.e., electric service customers; (2) collectors ó meters and meter readers, as well as surveys, energy audits, service sign-up and payment procedures; (3) custodian of records, or just custodian ó the entity that maintains the data and makes it available for authorized uses; (4) users or audience ó parties that use customer data for various private, public or commercial purposes, which may include creating and disseminating value-added information products and services as well as providing energy services. For the purposes of this report, the users will be mainly electric service providers.

Figure 4.1 illustrates the flows of customer energy-usage data under the present integrated IOU, the bundled UDC, and a fully unbundled distribution company model. The supply of electricity requires certain information on customers and their energy usage for the purposes of rendering an accurate bill for services, collecting for services and operating the system. In addition, IOU sales and marketing departments use customer data to support public policy programs and customer retention efforts. These purposes and some others ó regulatory oversight and system planning, for example ó are the primary uses for which customer data is collected.

IOUs and bundled UDCs collect customer data through metering, customer research surveys and energy audits. Thus the IOUs and the UDCs are simultaneously collectors, custodians and users of information. As restructuring progresses and UDC functions are further unbundled, a wider variety of entities ó unbundled discos, metering firms and billing firms, for example ó are likely to be collectors and custodians of customer data.

We use the term customer record to refer to the entire set of data associated with a given utility account number (see Section 4.2.4 for a list of specific variables and categories of data). The entity that collects the data and retains it becomes a custodian of the data or custodian of records (with no implications to be drawn about ownership of the data; that issue is discussed in Section 4.2.3). At present the IOUs are the principal custodians of customer records and are therefore the focus of the CPUC order on information access. In the mature competitive marketplace, the custodial function may be performed by another party or parties (see Section 4.4 for some ideas about the restructured future).

Customer data collected for various primary uses may be valuable to competing energy service providers, including commercial divisions or affiliates of franchise utilities, for developing new services and for marketing those services. As noted above, the IOUs already use customer data to support customer retention efforts where there is a possibility of bypass. In the more fully competitive environment, however, such commercial activities would be considered secondary uses of the data, i.e., uses beyond those for which the data was originally collected. In essence, then, the problem we must address is how to govern the secondary uses of customer data that is collected for legitimate primary uses. A major component of this problem is to specify the rules governing the custodian(s) of such data.

4.2.2 Principal Viewpoints Regarding Access to Customer Information

Although we have characterized the central problem as the needs of the market versus protection of customer privacy, there are actually four principal viewpoints or interests that parties have expressed about customer information, all of which we must recognize and address in a proposal to implement D. 95-12-063. The four viewpoints are: the privacy rights of customers, the information needs of the competitive marketplace, the rights of information custodians to be compensated for costs imposed upon them in making information accessible to other parties, and any legitimate proprietary rights accruing to the UDCs or other parties to customer information.

4.2.2.1 Customer Privacy Rights

The concept of customer privacy needs to be framed a bit differently for residential customers than for business customers. As private individuals, residential customers have certain privacy rights which are protected by federal and state laws and regulations, and which aim to prevent harm to individuals resulting from unauthorized release or use of certain types of personal information. For example, in the opening of long-distance telephone to competition, residential customers have experienced some intrusive or unethical marketing practices, which need to be prevented in the present context. The Commission needs to carefully weigh resulting benefits to society against costs to customers from releasing customer names, addresses, phone numbers, energy usage histories or any of the other variables contained in the records the utilities routinely maintain on their customers.

The laws and regulations that embody the individual right to privacy do not, however, apply universally to business entities. Business names, addresses and telephone numbers are generally thought of as public information. Energy may be a significant component of a firm's production costs, however, so uncontrolled release of its usage data may provide a competitive advantage to the firm's competitors. Such data may therefore be subject to protection as a trade secret, which is a form of protection against disclosure although not formally a privacy right. As later sections will discuss, the somewhat different concerns of these two broad classes of customers will imply some different policy considerations.

4.2.2.2 The Needs of the Competitive Marketplace

The second main interest is the competitive marketplace, which consists initially of suppliers of generation services under direct access as ordered in D. 95-12-063. A fundamental assumption of restructuring is that customers will benefit from competition, an assumption that is based on the economic theory of competitive markets and requires that market participants have ready access to information about the market. Specifically, for markets to function efficiently customers need information about the products and services available, and providers need information about the demands of potential customers. An obvious problem, however, is that a release of customer information intended to reduce the barriers to entry and enhance competition may result in undesirable marketing practices or competitive harm to businesses. The rights of customers to information privacy must not be compromised in the effort to stimulate competitive markets.

(XX) 4.2.2.3 The Rights of Custodians to be Compensated for Costs

The third main interest is the class of custodians of information, most notably the IOUs at present. The information proposed to be made available to competing providers has been collected and maintained by the utilities, and the process of making it available would impose some costs on them. At the very least, there will be some costs associated with obtaining customer consent to release information and with preparing the data and delivering it to eligible providers. The implementation of information access must assess the nature and magnitude of all relevant costs, and provide means to recover those costs and compensate the appropriate parties.

4.2.2.4 Proprietary Rights to Customer Information

At least one party argues that customer information is the property of the IOU. According to this argument, investors have taken a risk by investing in the facilities to provide service under a regulatory authority. The customer information that is collected by the IOU is a consequence of the utilization of the utilityís physical assets in the provision of service, and is therefore the property of the IOU. In general, information such as a customer list of a private business is protected as a proprietary trade secret, which means that the business cannot be required to disclose the information unless an overriding public benefit necessitates disclosure.

Other parties argue that customer information is owned by the customers themselves, and that if any monetary return is realized from the economic value of the information that return should be shared with customers. The subject of proprietary rights is discussed further in Section 4.2.4.

4.2.3 Summary Statement of the Problem

By way of summary, implementing access to customer information as ordered in D. 95-12-063 entails two main tasks:

1. Establishing rules and mechanisms to ensure fair or comparable access by competing retailers, which requires answering these questions:

a. What kinds of customer information should be made available?

b. Which parties should be eligible for access to customer information?

c. By what mechanism should it be made equally available to all qualified parties?

d. How can we prevent privileged access by some competitors?

e. How much will information access cost, on which entities will costs be imposed, and how should costs be recovered?

2. Protecting customer privacy, which requires answering these questions:

a. How should informed customer consent to release information be obtained?

b. What rules should govern appropriate use of customer information by retailers?

c. How can rules be enforced and complaints be quickly and fairly resolved?

These tasks and the associated questions will be addressed in the remainder of this chapter.

4.3 Policy Issues for the Near Term (1/1/98) and the Mature Market

Our tasks are complicated by the need to address two distinct time frames. First is the near term, which requires that we devise information access policies to support the opening of competition on 1/1/98. Second is the long term, which requires that we address information flows in the mature retail marketplace. The near term problem is in one sense the simpler one, for it focuses on the customer data bases held by the existing utilities. Our near-term objective, quite simply, is to implement Ordering Paragraph 20 of D. 95-12-063. In contrast, the mature marketplace may feature a variety of entities that collect, maintain custody of, disseminate and utilize customer data. The long-term thus requires that we try to envision an information management regime that may be much more decentralized than the present one, yet must still support the integrity of the electricity system and the energy policy objectives of California.

Most of the discussion to follow is equally applicable to the near term and the mature market. Where material applies specifically to one or the other we try to make that clear. In particular, we provide summaries of options and recommendations in separate sections for the near term (Section 4.12) and for the mature market (Section 4.13).

4.4 Types of Information

Customer information may be classified in a number of ways. First, various types of customer information variables have different commercial value to qualified retailers. Customer information will be useful to competitive retailers for three purposes: (1) research and product development; (2) marketing and sales activities; and (3) customer service and operational functions. Second, consumers will regard some pieces of information as inherently more confidential or sensitive than others. The relative sensitivity of different data items may also vary by type of customer (e.g., business vs. residential) and by the manner in which the information is to be used. Also, whereas some information collected by utilities is available for a price from other sources, much of the higher-valued information for electric service providers is available only from the utility. This section provides a simple scheme for classifying customer information that will be helpful in addressing the issues of privacy and usefulness to competitive providers.

4.4.1 Basic Customer Information Variables

Utilities now possess ó and competitive providers may in the future possess ó data bases of information on individual residential and business customers. The information has been acquired from meters, market research instruments, energy audits and other data bases. Customer records in utility data bases include the following types of information variables:

1. Customer ID: name, service address, billing address, phone number, utility account number -- basic information required for obtaining electric service. Also known as directory information.

2. Demographic: personal, census and related data for both residences and businesses -- from market research and other data bases.

3. Usage: customer's historical metered information as recorded (monthly, TOU, load profile or real-time), plus prices and bill amounts -- part of customer's service history.

4. Credit: record of customer's promptness of payments, unpaid bills, etc. -- part of customer's service history.

5. Programs: participation in DSM programs, low income assistance, specific tariffs, etc. -- part of customer's service history.

6. Energy Audit: end uses, specific appliances or equipment, etc. -- from market research and customer participation in programs.

4.4.2 Categorizing Information for Privacy Considerations and for Usefulness to Competitive Electric Service Providers

For the purposes of this chapter, we use two criteria to categorize types of information that may be candidates for release to competitive providers. The two criteria are: Personal/Non-Personal (P/NP), i.e., whether the customer is identified or not; and Individual/Aggregate (I/A), whether the data contains individual customer records or just aggregate or statistical values. In this report the terms Personal and Non-Personal are used synonymously with Customer-Specific and Non-Customer-Specific, respectively.

These two criteria give rise to four categories of customer information as follows.

Personal-Individual (P-I)

P-I data contain Customer ID (item 1 above) connected to all, some or none of the other variables listed above. A release of P-I data may be quite limited, such as a complete customer list which has only item 1 for all customers, or a categorized customer list which has item 1 for a subset of customers grouped according to specific variables, perhaps usage > 10,000 kWh/yr, good credit, rate class, and county. Or it may be more inclusive and contain customer IDs with associated usage records, DSM program participation and credit history, for example.

P-I information tends to include the most sensitive information from a customer-privacy viewpoint, because it enables the provider to contact the customer directly and allows him to know a great deal about each customer before making contact. The potential for intrusive marketing, unauthorized uses or other undesirable outcomes is therefore very great, and customers will rightfully expect to have a great deal of control over the release of such information.

Personal-Aggregate (P-A)

P-A would contain, for example, a categorized customer listing with an associated average or typical usage history or load profile for the category, plus statistics on any of the other variables, but without any identified individual data from items 2-6.

P-A information would likely be quite useful to potential competitive providers, for it would contain contact information for certain well-defined categories of customers. As the customer category is more narrowly defined, the information becomes both more valuable to competitive providers and possibly more sensitive from the customer-privacy viewpoint.

Non-Personal-Individual (NP-I)

NP-I would contain individual records of items 2-6 without Customer ID or the customers being otherwise identifiable. Because of the absence of customer contact information, this type of data release is not useful for targeting specific customers and does not raise privacy concerns. It can still be quite useful to providers, however, for market research and business planning.

Non-Personal-Aggregate (NP-A)

NP-A would contain only statistical data. It may represent a narrowly-defined group of customers, but none of the customers would be identified or identifiable, and none of the item 1 data would be provided in any form. This type of data is probably the most readily available from a variety of sources and of less value to competitors than the other categories of data. Like NP-I information, NP-A information does not raise privacy concerns.

As the foregoing suggests, personal information (P-I and P-A) may be further distinguished by whether or not it is sensitive. Sensitive personal information is "information that if disclosed or used inappropriately, creates the potential for harm to an individual." (See Privacy and the NII: Safeguarding Telecommunications-Related Personal Information, National Telecommunications and Information Administration (NTIA) under the U.S. Department of Commerce, October 1995, p. 6.)

At a minimum, sensitive information includes social security numbers, passkeys, and information related to health care, political and religious affiliation, sexual matters and orientation, credit and personal finances. (Adapted from Privacy and the National Information Infrastructure: Principles for Providing and Using Personal Information, Privacy Working Group, Information Policy Committee, Information Infrastructure Task Force, U.S. Department of Commerce, p. 3.) Also in this category would be unlisted telephone numbers, which have been provided to utilities to perform billing and service functions but nothing further.

In contrast, non-sensitive personal information is information which if disclosed would create little potential for harm to the individual either under specific provisions of use or when the probability of misuse is very low and reasonably controlled.

4.4.3 Candidates for Release to Competitive Providers

The Commission should consider establishing information access protocols, including procedures for obtaining customer consent and mechanisms for implementing access, for the following four types of customer information. Items 1 through 3 represent increasing usefulness to competitive providers as well as increasing sensitivity regarding customer privacy. All three may require some type of customer consent (see Section 4.8). Item 4 avoids the problem of obtaining customer consent, but may not do enough to level the playing field for the competitors to the incumbent utilities.

1. Customer lists. Lists of customer names, addresses and utility account numbers, and perhaps telephone numbers, with no additional information. To make this information more useful to providers, customer lists may be categorized or grouped by specified characteristics, for example, usage above10,000 kWh/year and good credit history. Release of telephone numbers should be considered carefully, however, for it may be impossible for utilities to tell whether a customer's telephone number is unlisted.

2. Enhanced customer lists. Customer lists with some electricity consumption data, perhaps the previous year's metered usage. Privacy concerns may, of course, be greater for this type of data release than for the previous type. Alternatively, privacy concerns may be lessened somewhat if the release of this information enables qualified retailers to conduct limited marketing efforts aimed at those customers most likely to benefit from the retailers' offerings, rather than more diffuse telemarketing campaigns aimed at the general public.

3. Complete customer energy records. Customer lists with all associated information except for non-energy-related information such as credit history and other personal data. While this type of information release presents the greatest privacy concerns, it would be of maximum value to competitive providers and many customers might wish to have their energy records released to suitably qualified providers. A crucial element would be to specify procedures for obtaining informed customer consent for such a release, if such consent is determined to be necessary. Some parties argue that, except for unlisted telephone numbers, none of this information is sensitive and therefore could be released without customer consent.

4. Non-personal energy data. This could include complete individual customer records with all customer identification removed, and would be useful for market research and business planning. With customer identification absent, customer privacy would not be an issue.

4.5 Proprietary Issues

4.5.1 Proprietary Nature of Utility-Collected Customer Information

Two opposing positions on ownership of customer information have been advanced in the working group. Some parties assert that customer data is the property of the utilities that have collected and maintained it. Since the utilities collect this data as a matter of necessity and incur business expenses in so doing, they own the data. Others disagree with this viewpoint, arguing that the business expense is borne by ratepayers with little or no risk borne by shareholders in the process, and that the necessity of data collection confers upon the utilities a custodial or fiduciary responsibility, but not ownership. In a similar vein, the same parties tend to assert that customers themselves own the information that the utilities have compiled ó and that UDCs and retailers will compile in the future ó regarding them and their energy usage.

A third position in this argument is that ownership ó i.e., legal title ó is too narrow to be useful without defining specific ownership rights and responsibilities. Ownership would not imply an unlimited right to use or disseminate the data in any way the owner sees fit. For example, if we were to agree that utilities own the customer information they hold at present, would this mean that they have unrestricted rights to:

1. give the information to their competitive affiliate, to benefit their shareholders?

2. sell the information for profit, without customer permission?

3. refuse to release the information to the customers themselves?

4. transfer ownership to another, possibly unregulated, entity?

At least one party to the working group process would answer "yes, subject to existing statutory restraint," to all of the above questions, arguing that the activities 1 through 4 represent the free exercise of the rights and privileges of ownership of property, which is fundamental and cannot be lightly abridged or disregarded. Utility ownership of the information is, of course, essential to this argument.

Decision D. 95-12-063 seems to have already come out against exclusive utility rights concerning customer information, at least for the near term problem of facilitating competition in generation by 1/1/98. At the very least, the CPUC decision says that possession of the information does not imply unrestricted use by the utilities. Rather, it requires them to implement fair access to all generation competitors, subject to protection of customer privacy. Looking toward the mature marketplace, the way in which the Decision is implemented will establish important precedents concerning the rights and responsibilities associated with possession of customer information, regardless of whether and how the narrow ownership question is resolved.

4.5.2. Proprietary information positions

4.5.2.1 ALTERNATIVE: Personal information compiled by the utility is owned by the customer.

As used here, customer "ownership" means the following: (1) control over the dissemination of individual customer information; and (2) the right to the monetary value from provision of personal and impersonal customer information to others. Customer ownership rights would be exercised via a standardized set of authorizations, with individual negotiation of contracts being the exception. Because customer information is integral to the operation of the monopoly distribution company functions, the monopoly would have an unlimited right to use that information in the conduct of its business operations.

Alternative 4.5.2.1 PRO

All utility collection of information from customers has occurred in a special historical context. The electric utility is a monopoly provider of an essential service. The only way for customers to obtain this essential service has been to provide information to the utility, or to allow the utility to collect information (through meters). As noted in the historical overview, the legal oversight of release of customer-specific information is extensive. Because of these social conditions, customers who have provided information should be understood to have conditioned use of that information. Conditional use should be understood to apply even in the absence of explicit individual restrictions. The distribution monopolyís right to use maintains the conditions under which customers provided information ó as a monopoly provider of essential services.

The issue of customer ownership is partially, but not completely, severable from the issue of customer control. Strong means of customer control are essential to maintain privacy. Ownership further strengthens the protection of privacy, and the California Constitutionís right to privacy. Customer ownership also honors the Decisionís commitment to "...the broadest possible array of choice in which the former ëratepayerí can function as an intelligent, self-interested ëcustomerí (D,96-10-009 at pp.5-6)." The broadest possible array of choice must include the customerís disposition of information about the customer.

Additionally, joining ownership and control reflects common understanding. Furthermore, current practices regarding customer control over information have clearly not prevented the widespread development of extensive demographic and lifestyle characteristics of individuals. Ownership of the monetary proceeds for information provided to others is a means of replacing corporate dissemination. It will also provide a first hand explicit indicator to many individuals of the vast volume of personal information that is exchanged between businesses without customer knowledge.

Customer ownership goes beyond generally prevailing business practices. Expanded privacy protection of the electric services industry is consistent with, and expands upon the Commissionís precedent treatment of caller ID service election. Setting a higher standard for the electric services industry is appropriate unless current privacy protection is determined to be fully adequate. Given apparent widespread concern and unease over privacy, it is extremely unlikely that the adequacy of privacy protection would be empirically validated.

The consequences of this higher standard are twofold. First, customers are likely to demand that competitive providers of electric services match the regulated monopolyís practices for customer ownership of information. Secondly, this step to instituting a "rising tide" in privacy protection could result in similar changes in other industries.

Alternative 4.5.2.1 CON

1. Customer information is the property of the investor-owned utility. It is not a public good. Investors have taken the risk and made the investment in the facilities to provide service under a regulatory authority. The provision of that service may be regulated under state authority to ensure market fairness. But the customer information that is developed by the investor owned utility is a consequence of the utilization of the utilityís physical assets in the provision of service. It is thus the property of the investor owned utility.

Utility customers do not share ownership rights of investor owned utility property. Customers are renters of the system, paying in rates the cost of using the system for the services they receive. Investors, as shareholders, are owners of the system, holding the ownership rights of property, with exclusive rights to the value of such property. Information which develops through the use of property becomes property itself and inures to the owner of property, the shareholders.

2. If the Commission were to conclude that customers own the information compiled by utilities and maintained in utility databases, unanticipated problems could result. For example, if a customer was deemed to own the customer information, that might imply that law enforcement agencies would be required to serve search warrants seeking access to customer information on the customers, rather than on the utilities, a situation which might frustrate the legitimate goals of law enforcement. Similarly, deeming customer ownership of customer information could thwart many of the legitimate uses of aggregated or non-personal information that might otherwise support restructuring efforts.

3. Ownership should not be confused with regulatory oversight over the use of an asset dedicated to public utility service. It is not necessary for the Commission to reach any resolution of the ownership issue in order to impose reasonable public interest requirements on the use of customer information by the utilities. Thus, the concerns raised by proponents of customer ownership, as stated above, are immaterial to the issue of ownership. The Commission does not need to resolve the issue of ownership as part of its resolution of direct access issues.

4.5.2.2 ALTERNATIVE: Customer-specific information compiled by the utility is owned by the utility.

Alternative 4.5.2.2 PRO

1. Customer information is the property of the investor-owned utility. It is not a public good. Investors have taken the risk and made the investment in the facilities to provide service under a regulatory authority. The provision of that service may be regulated under state authority to ensure market fairness. But the customer information that is developed by the investor owned utility is a consequence of the utilization of the utilityís physical assets in the provision of service. It is thus the property of the investor owned utility.

2. Utility shareholders own databases of customer information in the same manner that they own distribution systems, or any other asset associated with a regulated monopoly service. These databases were created by the utilities, at shareholder risk. That is, in general rate cases, the Commission authorizes utilities to recover a certain amount of revenue to carry out their obligations as providers of monopoly services. To the extent that recorded costs are higher or lower that that which was authorized, the difference is a shareholder responsibility. Thus, the cost of acquiring customer information is ultimately a business cost, which is the responsibility of utility shareholders.

3. Clearly, where the public interest requires, the Commission may impose reasonable restrictions on the use of customer database information; if usage results in revenues, the Commission may regulate the profits arising from such revenues. Thus, utility ownership of customer information is completely consistent with the Commission being able to achieve its legitimate public interest objectives regarding usage of customer information assets.

Alternative 4.5.2.2 CON

The PRO argument suggests that recorded costs in excess of authorized costs represent private business ventures, that is, risky uses of shareholder funds to develop assets whose economic value should accrue to shareholders. In some instances that may be true. In the case of customer information, however, there are some exceptional points to be noted.

Collection of certain types of customer information ó such as the customer ID data needed to establish service, and metering and billing data ó is covered under authorized costs for monopoly services. It is only the excess costs, which could result just as easily from inefficient operations as from entrepreneurial activity, that may have to be borne by shareholders. Ultimately the cost of acquiring and maintaining customer data is paid by ratepayers.

In some cases, value-enhancing innovations to customer data bases were results of government intervention and were resisted by the utilities when they were introduced. For example, the CEC introduced the requirement to attach SIC codes to the records of utility business customers, to facilitate load forecasting, research, etc. In the competitive environment, SIC codes on business customer records clearly adds economic value to customer data, but should shareholders enjoy gains from expending funds, whether ratepayers' or their own, to resist this innovation?

4.5.2.3 ALTERNATIVE: Customer-specific information compiled by the utility which is linked to express agreements of use is customer proprietary; all else is utility proprietary.

Alternative 4.5.2.3 PRO

Electrical corporations, like businesses in every industry, collect information to perform business functions which enable them to survive. For all businesses, collected information can, at the time it is collected, be classified as belonging to either the collector or source of information. When the source of information places conditions upon the collector of information, dictating how collected information is to be retained and/or used, ownership and control over that information remains with the source. Otherwise, ownership resides with the collector who has made the investments to acquire, store, and maintain the accuracy and reliability of the collected information.

As with other property rights, ownership of information property does not in itself allow for unrestricted use of that information. Rather, use of that information is subject to all laws, regulations, and professional rules of conduct applicable to its use, including those specific to consumer privacy as discussed in the balance of this chapter.

Following is a list of the information collected by electrical corporations which, when collected, have had conditions of use attached to them:

1. Information obtained through customer research surveys where participants were told their responses would only be used for specific purposes, and individual responses would never be disclosed for marketing purposes.

2. Information obtained through energy surveys or audits where participants were informed the information collected would not be used for marketing purposes.

All other information collected by electrical corporations is proprietary to them.

Alternative 4.5.2.3 CON

1. This distinction ignores the fact that the customers can have an interest in any customer-specific information that the utility has acquired since the customers reimbursed the utilities for the collection of that information through their rates. It may be that, if the customer specific information is used by the utilities for revenue generating purposes other than for which the data was collected, the customers should be compensated for such use.

2. Customers should be able to designate which information they want to release, in the same way that they are able to designate whether their telephone number is private or published. Additionally, customers should be able to authorize their energy service provider to release such information as is needed in the conduct of providing energy to the customer.

4.5.2.4 ALTERNATIVE: Customer specific information for an individual account ó i.e., raw data ó is owned by the customer. Aggregated, compiled or manipulated data of more than one account, even though they may be accounts of a single customer, belong to the UDC.

Alternative 4.5.2.4 PRO

(PG&E) UDCís may have established their own databases, and used their own resources, to forecast loads, make rates, plan system operations, or determine customer competitiveness in market. As long as sufficient barriers are in place as to not allow uncompetitive affiliate behavior (i.e. equal information distribution between energy service provider and affiliate companies), manipulated information should be the property of the utility. The utility should be allowed to charge a fair and reasonable price for the work done in manipulating the data and for its distribution. Shareholders and core customers shouldnít be burdened with this restructuring cost.

Alternative 4.5.2.4 CON

This creates a bottleneck for information flow with the UDC, thereby maintaining its monopoly power. New entrants should at least have access to the raw data, so they can manipulate it as they wish. In addition, see the arguments under Alternative 4.5.2.1 CON.

4.5.2.5 ALTERNATIVE: Ownership of customer information does not need to be fully resolved to accomplish the objectives of competitive restructuring.

Alternative 4.5.2.5 PRO

1. The customer and utility both have an ownership interest in customer specific information compiled by the utility. The ownership of customer information is shared by both the customer and utility, and is indivisible. However, the customer specific information in aggregate form is probably not constrained by ownership rights as such information doesnít identify specific customers.

2. Restructuring implementation efforts should instead focus on specifying the rights and responsibilities of all parties that collect, maintain, and use customer information, specifically as regards commercial uses of such data and protection of customer privacy. The notion of "ownership" by itself ó i.e., without specifying the bundles of rights and responsibilities that comprise ownership ó is too simplistic to be useful to the present restructuring process, yet its debate could absorb a lot of CPUC and stakeholder effort that would be better spent on practical implementation problems.

There is a need to spell out what the holders of customer data must, can and may not do with that data. As the last few sections should have made clear about this issue, positions of parties differ according to their relative emphasis on facilitating competition, protecting customers from possible harm, and protecting proprietary claims to the data. Depending on how the CPUC assesses and balances these three somewhat conflicting interests, it will need to define certain required, permitted, and prohibited activities for the collectors and custodians of customer data.

3. Resolution of ownership questions may take a long time. Fair access to customer information with adequate protection of customer privacy will have to be implemented in time to facilitate competition beginning in 1998, which means that practical details may have to be specified before all the ownership questions can be fully resolved. To look at it another way, specifying the rights and responsibilities of all parties is practically equivalent to specifying ownership. Taking this approach, the package called "ownership" may be distributed over a few different parties, rather than accruing to any single type of entity as it might if we tried to resolve ownership first.

4. A previous CPUC investigation raised the question of ownership of customer information, but did not need to resolve to accomplish its objective. In OII. 90-01-033, which was motivated by competition in telecommunications, the CPUC asked parties to address the question of ownership to determine "who can have access to the information, at what price it can be sold, and what should be done with the profits" (pp. 14-15). Parties' responses dealt mainly with specific rights and responsibilities and did not lead to attribution of ownership in general to any one type of entity. Nevertheless the important practical questions of the investigation were resolved.

Alternative 4.5.2.5 CON

Attributing rights to and responsibilities over data is tantamount to determining who owns it under which circumstances. In establishing access, pricing, and revenue assignment policies, the Commission should give consideration to ownership rights to determine how best to allocate the value created by opening access to customer information. Ignoring clear ownership rights may otherwise lead the Commission to establish precedents which can be carried over into other areas of utility asset ownership rights.

4.6 Parties Eligible for Access to Information

4.6.1 Access Equality

According to the order contained in D. 95-12-063, utilities should provide qualified retailers with access to all customer information under the same terms and conditions used by utilities when providing access to themselves or their affiliates for marketing purposes. To prevent misuse of customer information, only qualified retailers should have equal access to it. Qualified retailers will be operating under codes of conduct specifically dictating how customer information is to be used, and misusing information should result in appropriate disciplinary actions. Retailer qualifications and codes of conduct are discussed in Chapter 6.

4.6.2. Recipient Eligibility

The issue raised in this section is whether or not each type of qualified retailer has the same access to customer specific information, and if not, what different protocols will govern each retailer class. For example, one retailer may qualify to provide generation brokering, another to provide energy efficiency services using PGC funding. Should each have the same protocols governing access to customer specific information? (See also the related discussion in Section 6.2.1 on CPUC jurisdiction over "electricity corporations.")

POSITION: The same customer information access protocols should apply to all classes of qualified retailers.

PRO

Access to customer information should apply equally to both (1) generation retailers, and (2) energy service retailers using public goods charge (PGC) funding to promote energy efficiency market transformations. As has been successfully argued in past resource planning proceedings, provision of subsidized, market transforming energy efficiency services to reduce customersí energy use is as much an electric service option as is the provision of the commodity itself. Information access on an equal basis is necessary to meet the Commissionís desire to neutralize natural advantages created from utilitiesí past monopoly roles in both facets of the industry. Any Commission decision pertinent to accessing customer specific information should therefore be applicable to the broadest definition of qualified energy service retailers.

CON

None submitted.

4.7 Rules Requiring Utilities to Disseminate Information

[Editors' note. Section 4.7 appears redundant, as it asks the Commission to consider a decision it has already made, namely, to require utilities to allow access to the customer information they possess. Some parties, however, wanted to make statements in this area, so in keeping with the policy of not deleting any controversial material we decided to let it stand.]

The Decision requires equal access to customer-specific information. What remains is the need to decide whether to require or possibly just allow utility dissemination of customer information to qualified retailers. Rules governing dissemination of customer information to other than qualified retailers, though not addressed by the Decision, should also be considered. Key factors affecting the Commissionís selection of rules should include the effects they will have on competition, customers, and the health of the utilities and their competitors.

4.7.1 ALTERNATIVE: Rules should require utilities to release information to qualified retailers.

Alternative 4.7.1 PRO

1. In a restructured world, where either competition already exists or UDCs have no vested interest in protecting generation market share, an easy solution to creating equal access to customer information would be to prevent its release to any generation or energy service company. All competitors would then be treated equally. However the Decision clearly states that "some utility generation assets will remain under the ownership of the utility." (Decision, p. 85.) Under that condition, regulatory control over which information is made available to utility personnel representing both distribution and generation business interests at the same time becomes virtually impossible. Utility personnel will by default have access to information otherwise unavailable to both generation and energy service competitors. For that reason, the Commission has made it clear that valuable information available to the utility as a generation competitor shall likewise be made available to all other generation competitors.

2. Potential UDC advantage is not eliminated by the requirement that utility generation sell into the PX and that the new UDCs buy from the PX for their full-service customers. The advantage is created by the competitive affiliate of the utility, or the UDC acting as a retailer or aggregator in competition with other non-affiliated retailers, having access to resources like customer information that enable them to unfairly retain customers.

Therefore, to neutralize the UDCís potential competitive advantage, the Commission must require UDCs to release the customer information to qualified retailers. Simply encouraging utilities to release information, even with incentives or rewards, does not guarantee information will be released. Instead, the decision will still be left with the utility. Rules and procedures for information release are therefore necessary to address how, not whether information is to be released, and should be developed in the early part of 1997.

Alternative 4.7.1 CON

1. Ordering paragraph 20 only requires the UDC to provide information to generation providers. UDCs should not be mandated to sell this asset but rather allowed to maintain ownership and control of this asset including the decision whether to sell. This information is not necessary, and is otherwise commercially available from other sources, for parties wishing to provide non distribution related services to customers.

2. In general, information which is considered non-personal (i.e., for which there are no privacy concerns), and which is gathered or developed by the utility in the course of performing its UDC functions, should be considered for release to all market participants. Rather than imposing a specific obligation on utilities to provide any non-personal information , the Commission should carefully develop guidelines governing the scope and procedures by which such information is released. Information release policies should take into account the value of the information, and the degree of administrative burden associated with its release. Guidelines are necessary to insure that neither marketers nor utilities abuse the process of releasing information. By developing guidelines, the Commission can deal with information release affirmatively, rather than as a result of protests by parties.

Once the Commission approves such guidelines, information which qualifies should be released to all parties, not just those who are qualified retailers. Once the Commission has concluded that a particular kind of information can be released without privacy concerns, and that it is reasonable for utilities to accept the administrative burdens of making such information available, there can be no legitimate reason to limit the release of such information in any manner.

3. Statements made by proponents regarding UDC s natural competitive advantage are not true, and should not serve as a justification for adopting the stated position. Under the terms of the CPUC s Restructuring Decision, utility generation must be sold into the Power Exchange. UDCs must buy all the generation they provide to their non-direct access customers from the Power Exchange, subject to continued Commission regulation at the price charged by the Power Exchange. Thus, there is no competitive advantage that can be exploited by utility generating assets. Regarding unregulated utility generation affiliates, information transfers are addressed in utility holding company decisions and affiliate transactions manuals, and are subject to regulatory audit.

4.7.2 ALTERNATIVE: Rules should encourage utilities to release information.

Alternative 4.7.2 PRO

1. With regards to non-personal information which is gathered or developed by the utility in the course of performing its UDC functions, pricing and revenue ratemaking procedures that provide reasonable encouragement for utilities to participate in releasing information are likely to work better than command and control oversight.

2. Utilities may wish to develop business activities that involve aggregating, or otherwise processing customer information in ways that remove privacy concerns, yet are valuable to retailers. These activities go beyond the scope of the utilities regulated monopoly function, and they involve up front expenditures which, depending on the utilities business acumen, may or may not be recoverable from the sale of such aggregated information. In light of the associated business risks associated with such ventures, but recognizing that the customer information on which such activities derive results from the utilities monopoly activities, any profits from such activities should be subject to sharing between the utilities and their customers.

Alternative 4.7.2 CON

The Commission must require UDCs to provide customer information to all qualified retailers. Absent that requirement, UDCs would retain the option to choose to whom they provide information, and under which circumstances. Should a retailer be considered a threat, the UDC would be able to minimize that threat by denying access to valuable information. Allowing UDCs to retain control over the dissemination of information will prevent the Commission from achieving its desired objective of moving to a competitive market for both generation and energy services.

4.8 Obtaining Customer Consent

4.8.1 Introduction

The issue of customer privacy is founded on the claim of individuals, groups, or institutions to determine for themselves when, how and to what extent information about them is communicated to others. It has no foundation in ownership of information. Rather it addresses the degree of control that can be exercised by an individual over othersí use of information about him or her.

Currently, utilities release customer data under various circumstances. Thus, the issue here is not whether utilities will make customer information available, but the procedure by which customer consent should be obtained. A procedure that requires a customer action to authorize release of information, for example returning a signed postcard, is called an "Opt-In" form of consent. A procedure that requires a customer action to maintain confidentiality is called an "Opt-Out" form of consent. In essence, these forms differ with respect to the default, i.e., the situation where the customer takes no action. Under an Opt-In mechanism, the default is not to release the information; under an Opt-Out, the default is to release it. The Opt-In is thus the stronger form of privacy protection, and typically generates much lower access rates than the Opt-Out.

Under some circumstances, customers need not be notified at all in advance of the release of information, and therefore no explicit or implicit prior consent is necessary. This procedure can be called the "No-Consent" approach. Obviously No-Consent will generate the greatest amount of customer information for potential electric service competitors.

In D. 95-12-063 the Commission has recognized that when information is used in ways other than originally expected by the customer, an invasion of privacy could result. It has therefore ordered that customer consent be obtained prior to release of proprietary or confidential customer information. For data requiring privacy protection, the Commission has stated that a customer must be notified in advance of the intention to release information to electric service providers, and be given an opportunity to deny consent. This principle rules out the No-Consent approach, but allows either an Opt-Out or an Opt-In to be used.

4.8.2 Procedures for obtaining customer consent to release information

There is a wide spectrum of possible procedures available to garner customer consent to release customer information. At one extreme is the No-Consent approach (no customer control); at the other extreme is the No-Access approach (no information release). In between are shades of consent that generally fall into either the Opt-Out or the Opt-In categories. Within each of these two categories there are implementation issues that could either foster or discourage customer responses. Following are the main procedures identified by the Direct Access Working Group, and discussions of advantages and disadvantages associated with each.

4.8.2.1 ALTERNATIVE: Non-personal customer information should be accessible without requiring customer consent.

Alternative 4.8.2.1 PRO

Non-personal information includes both individual and aggregate information that is not identifiable to an individual, business, or distinct group of individuals. Because customers cannot be identified from non-personal information, privacy and trade secret protections are not needed.

Non-personal information is useful to retailers for both planning and marketing purposes. Absent access to UDC compiled information, retailers would either incur higher costs to acquire the information through other means, or be forced to compete without the same level of customer knowledge enjoyed by the UDC when no other source of information is available. The price qualified retailers should pay for non-personal information is addressed in Section 4.11.

Examples of non-personal information useful to qualified retailers include appliance or equipment stock saturation and average load profiles for customers with specific appliance or equipment characteristics. Aggregation of small customers may be substantially boosted if aggregators have access to typical load profiles for various classes and subclasses of customers. In fact, at the June 26, 1996, meeting of the "Ratesetting Working Group" (formerly the "Unbundling and Rate Design Working Group"), some potential aggregators claimed the market would not be conducive to small customer aggregation without substantial customer data being available.

Alternative 4.8.2.1 CON

None submitted.

4.8.2.2 ALTERNATIVE: Non-sensitive personal information should be released to all qualified retailers without requiring customer consent.

Alternative 4.8.2.2 PRO

If the Commissionís intent is to create an environment under which competition can best flourish, all non-sensitive personal information should be made available to qualified retailers without first having to get customer consent. Qualified retailers will be using non-sensitive personal information to perform the same services traditionally only available through electric utilities. Customers gave non-sensitive personal information to utilities with the expectation that it would be used to perform those services. Therefore it is not necessary to again require customer consent before releasing it to service providers who qualify to compete under the Commissionís standards and regulations.

Use of sensitive personal information for the express purposes for which individualís originally intended eliminates the need to classify it as sensitive. Its use will not, when used for those purposes, seriously invade the privacy of individuals. It therefore can be categorized along with all other non-sensitive personal information.

For example, a retailerís use of personal information to market both energy management products and services (DSM) and electricity contracts (quantities, rates, and terms) is no different from the use of personal information by utilities today. There has been little objection by customers over the utilities' use of their names, addresses, account numbers, and usage history for those purposes, for example, in connection with DSM bidding programs. The Commission should therefore continue to classify those data elements as non-sensitive when used in ways previously open only to utilities, and should not require prior customer consent to release it to qualified retailers.

Alternative 4.8.2.2 CON

There is no example of non-sensitive personal information, i.e., personal information that would not compromise a utility customer's privacy. The customer's name is very compromising, especially if it is a full name which discloses the gender of that customer. An address is also sensitive. For example, many do not list their address in telephone directories and others only use PO Boxes to receive correspondence. But most importantly, any information given to the UDC in the past was so given with the expectation of full protection of the confidentiality of that information. And it was given to the monopoly because there was no choice in the matter, as there are no reasonable alternatives to monopoly electric service. Thus, the implicit contract with monopoly customers dictates that the personal information given to them should be treated as if it were sensitive.

4.8.2.3 ALTERNATIVE: Sensitive personal information may be released using an Opt-Out form of consent.

Sensitive personal information should be accessible to all qualified retailers with only tacit consent of the customer. An adequately noticed Opt-Out procedure, where the customer is given an opportunity to object to release of sensitive personal information, is sufficient to gain customer consent.

Alternative 4.8.2.3 PRO

1. As was pointed out in a February 1996 draft report from the Information Access Study Team (p. 20), legal control over information use by others is typically granted when resulting societal benefits are outweighed by the existence of all three of the following criteria: (1) there is a legally protected privacy interest; (2) there is a reasonable expectation of privacy; and (3) the expected invasion of privacy is serious in its nature and impact.

When determining which data meet these criteria, it is useful to focus on the third criterion first. If specific use of data does not create a serious invasion of privacy, it does not meet the last and therefore the full set of three criteria necessary to exercise control. Information that could potentially create a serious invasion of privacy has been classified as "sensitive personal" information. Other customer-specific information that when used does not create a serious invasion of privacy is classified as non-sensitive personal information.

Unless information is determined to be sensitive personal information, there are no legal grounds that can be used to give individuals control over the use of othersí information about them. Any establishment of such controls would therefore be strictly a matter of policy implementation.

2. In a restructured industry, unlisted telephone numbers collected by utilities have the greatest potential to be used in ways which (1) were specifically prohibited by individuals providing information to electrical corporations, or (2) could seriously invade the privacy of individuals without providing counter benefits to either the customer or society: The concern expressed by some is that unlisted telephone numbers acquired by qualified retailers would be used for intrusive telemarketing purposes. Providing customers with an opportunity to prevent their telephone numbers from being used in such ways would be adequate protection of individual privacy, where utilities and qualified providers are the only entities with access. All other personal information, when used by qualified retailers, is considered non-sensitive personal information. (Note that the specification of "qualified retailers" makes this situation different from a release of unlisted phone numbers to all parties.)

3. This mechanism will result in higher participation by customers than an Opt-In mechanism.

Alternative 4.8.2.3 CON

1. As a practical matter, Opt-Out is simply not good enough to assure that all customers have a meaningful opportunity to protect their privacy. Proponents of Opt-Out clearly recognize that more consumers will lose their privacy protections under this procedure than under an Opt-In procedure, because of how non-respondents are treated. We need to be sensitive to the reasons why consumers do not respond to a solicitation for information release. While there may be some consumers who do not care about privacy, yet would decline to respond to an Opt-In procedure, there are other consumers who, due to language barriers or inattention might inadvertently waive privacy protections that they consider important. With Opt-Out, nobody can really be sure.

2. The proponents inappropriately suggest that only telephone numbers should be considered sensitive. It should be noted that some consumers have their mail delivered to a post office box to retain the confidentiality of their address. Also, some consumers limit their telephone directory listing to their initials and last name, to disguise their gender. The Commission should not make any blanket generalizations about what information is considered sensitive, without considerable reflection on consumer needs.

3. With this mechanism, there is the potential for negative customer reaction. An Opt-Out mechanism maximizes the potential for inadvertent release of sensitive personal information.

4. A non-action by a customer should not be construed as an action in itself. There are many things that might not allow or compel a customer to send in an objection to information release, including: (1) time - the customer may not have the time or inclination to read the opt-out notice; (2) effort - customer may be too busy to respond; (3) delivery - customer may never even get the notice, it may be lost in mail; and (4) understanding - customers may not grasp the ramifications of the opt-out notice, and electric service providers may not have the incentive to educate them of the ramifications.

4.8.2.4 ALTERNATIVE: Sensitive personal information should require an Opt-In procedure for obtaining customer consent.

The UDC shall not release sensitive personal information to electricity retailers, energy service providers, or other agents of the customer without express authorization by the customer.

Alternative 4.8.2.4 PRO

1. A proactive action by a customer is clearly indication of interest in a program. Customer education is critical to stimulate this interest and a opt-in notice will encourage energy service providers and other participants to actively educate the market. With an opt-in notice, there is verification that the customer has read, and presumably understands, that personal information will be released, because a person will generally not sign a consent without understanding what it means.

2. The opt-in notice is also consistent with the philosophy that the customer owns its own account information. Nobody should be allowed to dispense information owned by another without specific authorization to do so.

3. As the Commission affirmed in its CNEP program, utility customers have the right to expressly release personal information. Opt-out or "negative check-off" arrangements exploit most consumers inability to process all information provided to them. For this reason, such arrangements are generally discouraged in state law.

4. An opt-in procedure should be designed to elicit maximum customer response. The maximum amount of customer information should be available to competitors in order to facilitate the transition to a competitive retail market. At the same time, customers must knowingly consent to provide personal customer information to competitors (opt-in).

5. Most customers are unlikely to respond to a privacy designation process, and specifically to opt-in. This lack of response does not necessarily mean that customers would be unwilling to provide information to competitive electric service providers. It simply means that inaction and inertia are the predominant response to utility communications, particularly if those communications fail to establish awareness and understanding.

6. The objectives for the $33 million Customer Notification and Education Plan (CNEP) for Pacific Bellís caller ID program are instructive. Caller ID required affirmative customer action in order to select the option that provided greater privacy protection, that of per-line blocking to prevent number identification. In contrast, an opt-in procedure allows the customer to do nothing, and maintain maximum privacy protection. Hence, it is likely that caller ID would elicit greater customer response than an opt-in procedure for electric restructuring. The Commissionís consultant framed a 30 percent objective for customers taking action as realistic, but aggressive. In other words, we can expect that upward of 70 percent of customers will not opt, either in or out. (See "Evaluation of the October 11, 1995 Pacific Bell Customer Notification and Education Plan on CPN Delivery," Brenda Dervin, p. 22.)

This has two implications. First, the characteristics of the default option are the most important. Secondly, to achieve an objective of maximum informed customer consent will require resources and creativity.

7. Although aggregate customer information is an imperfect substitute for individual information, aggregate information can provide significant knowledge of potential target markets to competitors. The dividing line between aggregate and customer-specific information is still under discussion and needs to be carefully defined. While there should be broad disclosure of aggregated customer information, individual customers should be able to control contacts as a result of that disclosure. Specifically, customers could designate their willingness or lack thereof, to entertain mail and/or telephone marketing material.

8. It appears that the CNEP gathered a significant amount of baseline material to assess what customers already knew, and how customers might respond to communication. Since electric restructuring involves both privacy considerations, as well as widespread industry change, the privacy designation process merits a comparable effort.

9. This effort could overcome several obstacles to customer response. Some reliance on bill inserts will probably be necessary. Customers tend not to respond to bill inserts for several reasons. Historically, inserts provided information that was difficult to understand; if customers could even act upon the information, it has often been unclear how they could do so. These obstacles can be overcome by designing simple, clear inserts, and testing those inserts for customer response.

10. An education effort should also consider means other than bill inserts. For example, a separate mailing may elicit a higher response rate in general. Alternatively, a separate mailing might be considered for non-respondents to an initial bill insert.

11. The more value an action has, the more likely people are to take action. Some of the recommendations in the consultantís CNEP report are for various inducements for those who respond. (Dervin, op cit., p. 31.) There are several ways to enhance benefits. One is addressed in section 5.8.1, and pays customers for the value of information about those customers. Since privacy is a significant concern of many people, increasing the privacy benefits of taking action is attractive. The Mail and Telephone Preference Services of the Direct Marketing Association allow customers to inform many sellers at one time that they do not wish to receive mail and telemarketing calls respectively. Since millions of Californians requested per-line blocking, but national enrollment in the Telephone Preference Service is under a million nationwide, privacy options that extend beyond electricity could increase response rates.

Alternative 4.8.2.4 CON

1. The Opt-In mechanism will result in lower customer access to competitive alternatives than any other mechanism. Far fewer customers who would benefit from competitive alternatives will take the time to investigate what it means to Opt-In, and then proactively respond to the Opt-In procedure. It takes time to investigate alternatives, especially those which by the very nature of the Opt-In mechanism indicate that there must be something potentially harmful with responding. If responding isnít potentially harmful, why would the Commission require this process?

2. It is also unnecessary to require customers to give their consent to release and use information for purposes specific to an industry which is heavily regulated. The electric industry is one which has regulatory oversight of existing utilities. If the Commission also establishes regulatory oversight of qualified retailers performing traditional utility services, the Commission will retain control over how utility collected information, used by all competitors for the provision of electric services, can be used.

3. Asking customers to provide explicit consent is only appropriate when the Commission discharges its regulatory responsibilities, which it should not. By retaining its regulatory responsibilities over these facets of the electric service industry, the Commission will be able to ensure only reputable companies have access to sensitive personal information. Also, the Commission will be able to take corrective actions should any party misuse sensitive personal information. These controls are the same in place today for overseeing utility service, so little will change if the Commission chooses instead a less restrictive procedure for customer consent for sensitive personal information.

4.9 Mechanisms for Information Release

For the sake of concreteness, this section will focus on the near-term problem of releasing utility-held customer information to eligible retailers to facilitate meaningful competition by 1/l/98. The near-term involves release of only utility-held data. It does not consider a later stage in which the custodians may be more diverse parties; the mature market scenario is discussed in Section 4.13.

This section lays out options for the actual transfer of customer information from utilities to retailers. Whatever options are selected, they all have in common the need for utilities to create from their existing data bases a new data base that will be accessible by retailers. Such a data base could contain all categories of data discussed in Section 4.4 ó personal and non-personal, and individual and aggregate.

Criteria which should guide the choice of an information release mechanism include: prompt release to all qualified retailers; user-friendly data format; implementable in 1997; cost effective; and, compatible with appropriate customer privacy protection.

4.9.1 One-Time or Continuing Release

For implementation in 1997 the Commission might consider a one-time window of access, to begin in the latter half of 1997 and last for a well-defined period of time, perhaps as short as a month or as long as a year. Any electric service provider who was qualified before the end of that period would be eligible to receive customer data. Under this option the utility would prepare a data file from its records only once, and that file would be given to all providers.

Alternatively, the Commission might wish to specify an open-ended period to continue during the transition to a mature market. One objective might be to create incentives and conditions at the beginning that would stimulate the evolution of societally efficient information-management arrangements for the mature market. Under this option the utility would design its accessible customer data base to be updatable.

These two ideas are conceptually not mutually exclusive. A finite window of access could be an experiment to inform the design and implementation of later phases of information access. It would enable the Commission to assess the satisfaction of all parties with the process and to correct problems. To be really useful as an experiment, however, it would probably require that the accessible utility data bases be updatable.

4.9.2 Electronic Bulletin Board (EBB) or Standard Floppy Disk

The features of an EBB include: updatable monthly with easy dissemination of updates; retailer access by password; retailer who accesses EBB leaves a footprint; near zero marginal cost per additional EBB user.

Standard Disk is perhaps the simplest option from the viewpoint of data distribution. The utility would create a standard data base for one-time release to qualified providers, and all providers would receive that data base on disk. No updates would be required for this phase of the information access regime.

4.9.3 Energy Service Fulfillment House

The mechanisms discussed above all involve direct release of information to eligible retailers. An alternative would be to create an information intermediary, a fulfillment house similar to the kind used in direct mail retailing. The fulfillment house option places greatest emphasis on customer privacy by being the sole authorized entity to have possession of customer data bases. Retail providers would deliver their promotional material to the fulfillment house to be mailed to a set of customers with specified characteristics. The fulfillment house would identify the desired customers from the data bases and send them the material. This option is discussed more fully in Section 4.12.

4.9.4 Combined Arrangements

Because of the variation in sensitivity of customer information, it may be desirable to develop a combination approach to customer information. Non-personal information, for which privacy is not an issue, could be released to eligible providers on disk or through an EBB. This kind of data would be valuable for market analysis, but would not be helpful in identifying customers the retailer might wish to contact. Customer contact could be performed by the fulfillment house, so that customer ID is never released in combination with usage, billing, or other personal data. See Section 4.12 for further discussion of specific options for near-term information access.

4.9.5 Utility or UDC Role in Administering Information Access

Like other aspects of information access, the utility or UDC role needs to be assessed in terms of both the near term (to facilitate competition by 1/1/98) and the long term (information access in the mature market). For the near term it makes sense to give utilities a substantial role, as the data in question are in their possession. However, it is not obvious how large their role should be. For example, if the utilities are required to release customer data to competitive retailers, and if they are to be responsible for obtaining necessary customer consent for such release, then should they also be responsible for educating customers about their privacy rights and the implications of consenting to data release?

Although consumer education is not the topic of this chapter, it is clearly intertwined with the problem of consent to release information. For any particular consent mechanism, there may be vastly different numbers of consenting customers depending on the style and format of the education materials. The Commission should therefore consider the utility role in information access from a systems viewpoint, to include customer education, obtaining consent where necessary, formation of the data base to be released, and actual turnover of information to eligible recipients. Section 4.12 discusses some more comprehensive scenarios.

For the long term, the utility or UDC role cannot yet be determined. One could imagine a large role for the UDC if that entity is the only custodian of information that has comprehensive data on all customers connected to the distribution network. Alternatively, it may be desirable for industry participants to develop an entirely new information management regime in which the central custodian of customer records is an independent entity that collects all metered data and provides information services to the ISO, PX and UDCs for operations and settlements and to competitive retailers for billing, product development and marketing. These ideas are developed more fully in Section 4.13.

Following are different utility administration role options identified by the Working Group.

4.9.5.1 ALTERNATIVE: Utilities should not be required, but instead should be encouraged to administer customer notification and selection of applicable consent choices.

Alternative 4.9.5.1 PRO

The opt-in or opt-out procedures suggested by some workshop participants place upon the utility a responsibility to serve as a form of market information clearinghouse. That is, the utility would need to add information to its existing customer information database regarding whether individual customers consider their information to be confidential, and then develop procedures to extract information from this database on request. Procedures would need to be developed to gather and validate confidentiality information from both existing and new customers, to update records, and correct errors. Carrying out this responsibility could be expensive, and may require customer support (in distribution rates), since there is no assurance that the resulting product would be cost effective for marketers to purchase.

Maintaining an ongoing opt-in or opt-out procedure should be distinguished from a one-time solicitation of customer interest in being included in a customer list provided to retailers. Such an approach, which could be undertaken by the utility prior to the commencement of direct access, would involve a "snapshot" extract of customer information for consenting customers, and would be administratively simpler than an ongoing process.

It would be better to leave the development of an information clearinghouse function to the market. Once the direct access marketplace has developed, there is no reason why retailers can't perform their own confidentiality waiver procedures, and turn the information they gather over to a third party. Utilities may wish to be involved in such a function, but if so, this involvement should be at shareholder risk.

Alternative 4.9.5.1 CON

None submitted.

4.9.5.2 ALTERNATIVE: Utilities should be required to administer customer notification and selection of applicable consent choices.

Alternative 4.9.5.2 PRO

As a default (absent any other solution), utilities, and later UDCs, should be responsible for administering any applicable customer consent procedures. However they should not be responsible for the costs associated with this process. The Commission should consider alternative sources of funding to reimburse utilities for their efforts.

Alternative 4.9.5.2 CON

Although the utility has information on where to send its bills and to whom, this address and addressee may not be appropriate for this distribution. For example, for a chain account, the individual store owner may not be authorized to make this decision for the company and may not be able to get a response timely enough from its corporate office to prevent the release of information.

The utility should not be saddled with either the administrative or cost burden, and the potential negative customer perception, that will go along with an some consent procedures. Depending on the procedure selected, an intensive customer education effort may be required. The energy service provider should also take responsibility to provide this education to the market.

4.10 Business Conduct Issues

4.10.1 Marketing practices of retailers who receive customer information

Competition in telecommunications has seen the occurrence of a number of intrusive or unethical marketing practices, including aggressive telemarketing and slamming. In anticipation of similar tendencies in the electric services industry, the Commission should identify those practices to be limited or prohibited, and impose appropriate rules upon recipients of customer information. Any violation of the rules may be punished by loss of license and punitive damages. For a full discussion of market rules and their enforcement see Chapter 6 of this report.

4.10.2 Guaranteed access by customers to their own data

4.10.2.1 ALTERNATIVE: Customer information collected by competitive retailers must be made available to the customers themselves, or to their authorized agents, promptly and in a usable format.

Alternative 4.10.2.1 PRO

Customers must have access to information from their own data records, for at least two reasons. First, that information may be useful to them for making decisions to change their energy usage patterns, to install new equipment, or to change suppliers. Second, they must have the right to ensure that their credit histories and other sensitive records are error free. In addition, customers must have the right to authorize access to some portions of this information for any other party they deem appropriate.

At the request of a customer, a retailer or UDC shall provide the customerís usage information (for a reasonable historic period) to another retailer, the UDC, or energy service provider. The price of such information, if there is such a charge, shall not exceed the reasonable cost to the provider of supplying such information.

Alternative 4.10.2.1 CON

Only customer information which both the customer and retailer agree is transferable should be available to customers or their assigned agents. Retailers will be compiling information about their customers that will become trade secrets to the retailer. If given to other retailers or the UDC, a retailerís competitiveness could be compromised. It will be important for customers to identify, before signing any retailer agreement, which data will be transferable to others.

4.10.2.2 ALTERNATIVE: Retailer-collected information must be made available only upon both customer and retailer consent.

Alternative 4.10.2.2 PRO

Retailer collected information is proprietary to the retailer. Customers choosing direct access and other energy services from retailers should work with their retailers to determine what information, upon termination, is transferable to others. Because retailers in the early stages of restructuring will be at a competitive disadvantage, the rules applicable to utilities and UDCs should not be applicable to retailers. Rather, the Commission should recognize and protect the proprietary rights of retailers to enable them to flourish.

Alternative 4.10.2.2 CON

Just as one would reasonably expect the UDC to provide historic information about a customer transferring service to a retailer for use in load forecasting, there should be a similar expectation when a customer transfers from one retailer to another. The Commission should not foreclose the option for developing retailer-to-retailer information transfer requirements.

As long as the customer doesnít enter into an agreement with the retailer giving up his rights to his customer data, the customer data belongs to the customer.

Retailer-collected information about a given customer or account should not be seen as proprietary to the retailer (or for that matter to the UDC). Such collected information includes names, address, and periodic energy usage. Retailer-manipulated information (such as analyses of usage patterns, multiple customer or account databases, or any other product requiring analysis beyond mere collection of data) should be seen as proprietary, and should be available only upon retailer consent.

4.10.2.3 ALTERNATIVE: The UDC should provide personalized energy use profiles to its customers.

In order to effectively comparison shop, customers will need to understand their energy consumption patterns and history of usage. Customers essentially want to know "how much money will I save?" However, the answer is not arrived at easily. In order to answer, the electric customer needs energy usage history, data from comparable periods of the current and at least one previous year, adjustment for weather fluctuations, adjustment for price changes, comparison to other customers' energy usage and breakdown of expenses for major appliances. (See: W. Kempton, Improving Residential Customer Service Through Better Utility Bills, ESource SM-95-1, August 1995). It is unreasonable to expect that customers have saved their bills over the previous three years in order to secure this information. However, UDCs have collected a certain amount of historical data about its customers that can be used.

The UDCs should be ordered to provide, upon request, an energy usage profile for an individual customer. Costs to provide this information should either be reimbursed by the customers or through cost recovery mechanisms that encourage UDCs to perform this function proactively. Profiles could include a chart and breakdown of monthly data for energy consumption and price paid for energy over the previous 12-24 months, depending upon the information storage practices of each UDC (typically, utilities save 13-18 months of customer usage data. It should be adjusted for weather and price changes. It should also include a comparison to other representative customers' data so as to provide a benchmark against which to a customer can compare his/her usage. The first energy profile should be offered at no cost to customers. Modest charges may be applied to subsequent profile requests.

This profile will be the basis upon which customers can gauge their historical energy consumption patterns, better assess their energy needs and gain a sense of the cost of that electricity. This profile could be released by the customer to retail energy companies to better enable them to choose appropriate services for that customer. Or it could be the same information provided without prior customer consent to enable retailers to effectively compete against in the market.

Alternative 4.10.2.3 CON: Forces the UDC into a business - creation of usage profiles - that it may not want to be in. It may be better for customers to obtain raw data from the UDC and then have a third party create its usage profile. The customer should pay the costs of obtaining its raw usage data.

4.10.3 Dissemination or sale of customer information by retailers

Competitive retailers who collect and maintain customer information should be subject to rules of custodianship that protect customersí privacy and trade secrets. However questions remain as to (1) the precise consent requirements to impose on private retailers, (2) the authority of the CPUC in such matters, and (3) the means of enforcement. At one extreme, the Commission might require only that retailers send customers notice of their intent to disseminate information, with a reasonable time period for the customer to respond and opt-out. At the other extreme, retailers may be required to obtain explicit customer consent to release information to another party. Following are positions identified by the Working Group.

4.10.3.1 ALTERNATIVE: A retailer's release of personal information would only be allowed if the customer has given a meaningful waiver of privacy protections.

Alternative 4.10.3.1 PRO

A retailerís intent to release personal information must be adequately disclosed to the customer, to prevent unauthorized or abusive use of personal information.

Alternative 4.10.3.1 CON

None submitted.

4.10.3.2 ALTERNATIVE: Retailers receiving customer information from UDCs must utilize an opt-in method for determining which information may in turn be released or sold.

Alternative 4.10.3.2 PRO

Utility customers must expressly choose to have any protected information released by the utility. Such affirmative control of personal information should also pertain to other energy service providers, but it may exceed the Commission's jurisdiction to so require. However, if an energy service provider takes advantage of access to utility-held information, then that provider must, as a precondition to such access, agree to obtain explicit customer consent to use that information for any non-energy matters such as release or sale to another entity. Providers may periodically offer customers an opportunity to opt-in to a release of their information, and may offer incentives to opt-in. However, under no circumstances may the retailer release protected information if a customer fails to respond.

Alternative 4.10.3.2 CON

None submitted.

4.10.4 Privileged Access to Utility Customer Data by Competitive Affiliates

This section has two parts. The first contains a position statement on the need for market rules to prevent privileged access to customer data. Such rules may be incorporated in the general set of Market Rules discussed in Chapter 6. The second contains a position statement on the need for up-to-date, formal statements by the utilities on their policies and practices in this area.

4.10.4.1 ALTERNATIVE: The Need for Market Rules to Prevent Privileged Access

A competitive electric services market needs enforceable rules to prevent privileged access to data maintained by a regulated utility.

Alternative 4.10.4.1 PRO

In a now familiar passage of the Decision, the CPUC observed: "As a monopoly provider of integrated generation, transmission and distribution services, the incumbent utility has access to considerable information about its customers, including individual load profiles and billing histories. In a competitive arena, access to such information is quite valuable for marketing purposes. Because this information is not automatically available to the utility's competitors, the incumbent utility has a major marketing advantage that could allow it to target and sign up preferred customers before its competitors can."

Earlier sections of this chapter have discussed the principal mitigation for this utility advantage, namely, a fair access regime that will allow all competitors to have access to the same information on the same terms. The present section raises a parallel concern: how to prevent competitive divisions or affiliates of the utility, or any other party for that matter, from having privileged access to customer information.

Potential UDC advantage is not eliminated by the requirement that utility generation sell into the PX and that the new UDCs buy from the PX for their full-service customers. The advantage is created by the competitive affiliate of the utility or the UDC acting as a retailer or aggregator in competition with non-affiliated retailers for the same customer base, having access to resources like customer information that enable them to unfairly target and market to choice customers. (This possibility could, of course, be mitigated if utility-affiliated retailers were precluded from operating in their affiliated utility's service territory, as argued in Section 6.5.3.)

There are at least two reasons why this issue needs explicit attention and is not adequately mitigated by implementing a fair access regime. The first has to do with the proposed schedule of restructuring. Rules of fair access being developed now are still far from implementation. Meanwhile the marketing departments or retail affiliates of the utilities may have privileged access to customer information which could give them a head start over competitors. If competition is to be meaningful in 1998 then head starts to incumbents need to be minimized.

Second, it is likely that only a portion of the data contained in utility customer data bases will be made available to competitive providers. Even after the transition to a mature market, the utility will continue to maintain other customer data which is not released to other providers but which could still be useful for marketing and product development. The potential thus exists for unfair advantage to the utility's own retail activities.

So long as utilities are permitted to transfer personnel from their regulated to their unregulated businesses, there will continue to be unfettered transfer of competitive information that is not accessible to the utilities' competitors.

Alternative 4.10.4.1 CON

Section 4.2.5.1, which is a consensus position, establishes a principle that UDCs will provide equal access to customer information used for marketing purposes to all retail entities. UDC transactions with affiliated retailers are governed by "holding company" standards and subject to audit by regulators. Thus, the proponents' statement that "rules of fair access ... are ... far from implementation" is simply not true.

The proponents express concern that a UDC's "competitive divisions" will somehow gain a head start in competing with unregulated retailers as a result of using confidential customer information for marketing purposes. This ignores the restrictions imposed on utilities by the Restructuring Decision, particularly a requirement that distribution utilities meet the energy requirements of their full service customers entirely from Power Exchange purchases. (See the Restructuring Decision, p. 51; also pp. 71 and 97, which restricts contracts between the distribution utility and affiliated generation. These are requirements that apply during a transition period.)

4.10.4.2 ALTERNATIVE: An Immediate Need for Formal Utility Statements

To facilitate competitive direct access beginning in 1998 the CPUC should, as soon as possible, require the incumbent utilities to file statements of their policies and practices regarding access to customer information in their possession.

Alternative 4.10.4.2 PRO

An open CPUC order issued in D. 90-12-121 requires that energy utilities notify the Chief of the Energy Branch of CACD 90 days in advance of an intended change of policy regarding use and dissemination of customer information. That decision dismissed the energy utilities from OII. 90-01-033, which had been opened to address access to customer information in the competitive long-distance telephone market. The CPUC dismissed the energy utilities on the assessment that, first, their stated policies and practices were appropriate for a non-competitive environment and, second, precluded commercial use of the data by the utilities themselves or their subsidiaries and affiliates.

Now that the electric services environment is becoming competitive there is ample motivation to revise the practices stated by the utilities in 1990. In fact, the customer retention activities of utility sales and marketing departments (see Section 4.2.1 and Figure 4.1 of this report) may be indicative of utility use of customer data for commercial purposes. Accurate, formal statements of current utility policies and practices, and any intended revisions to them, are needed now.

Alternative 4.10.4.2 CON

Energy utilities were respondents to I.90-01-033, and filed statements regarding their policies and practices. One utility presented its current practices to the workshop. The issues raised in this chapter directly address utility practices regarding customer information. It is unclear what proponents of this statement are seeking to achieve. At this point, making formal statements appears superfluous, and inconsistent with the use of workshop processes.

(XX) 4.11 Price Charged by Utilities for Customer Information

As access to customer information increases, UDCs may seek to charge for the service of supplying such information. Going beyond basic access to metering and billing data, UDCs, competitive electric retailers, and non-profit entities may want to develop a business of performing studies that aggregate or analyze customer data in a manner that protects individual confidentiality, yet provides insights into customer characteristics, that are useful to competitive electric retailers. It is not clear what ratemaking practices would govern the disposition of proceeds from such a business venture. Following is a discussion of the options identified by the Working Group.

4.11.1 ALTERNATIVE: Customer information should be sold at a price equal to the incremental cost of providing the information, as determined by the CPUC.

Alternative 4.11.1 PRO

To encourage efficient competition, information should be made available to all competitors at the lowest possible cost. However providing information to competitors at a price below the incremental cost of producing it would place an unnecessary burden on the provider of information, and may actually cause the provider to be less effective in disseminating information to avoid the negative consequences. Therefore, to encourage the greatest dissemination and use of valuable information, and consequently maximize the opportunity for competition, the Commission should require UDCs to provide information at a price equal to their incremental cost of production. The Commission should determine how to calculate the incremental cost of information production by ruling on options provided to it by future working groups tasked with defining costing alternatives.

Alternative 4.11.1 CON

Pricing at incremental cost may be appropriate in some circumstances. However, where there are substantial fixed costs associated with information systems, pricing at incremental cost may result in unnecessarily subsidizing retailers.

4.11.2 ALTERNATIVE: Customer information should be sold at no higher than fully allocated costs, unless the CPUC determines that sufficient competitive alternatives exist to allow market pricing.

Alternative 4.11.2 PRO

This position is not necessarily inconsistent with using incremental cost as the basis for pricing, but provides greater flexibility for the Commission to set pricing policies based on factual circumstances unique to the information markets in question. While it may not be likely that competitive information markets will develop, as a general proposition, price regulation by the Commission should be relaxed or eliminated if retailers or third parties develop ways to obtain and market customer information.

Alternative 4.11.2 CON

There are two scenarios: 1) the release of account specific raw data to a customer, and 2) the release of the manipulated or compiled data of more than one account. Under the first scenario, the information belongs to the individual residing at the account location. Currently, the customer does not pay to have its account usage history released to it. This practice should continue, excepting the possibility of a premium being paid to the UDC for short turnaround of its request. (Its very possible that the UDC will be inundated with such requests. To provide such turnaround would likely require the UDC to operate outside its normal course of doing business. This service should require an added cost to the requesting party.)

Under the second scenario, the UDC owns the secondary or refined information that has resulted from its manipulation of the data. The UDC should be allowed to charge a fee for providing this processed information.

4.11.3 Disposition of Revenues from UDC Sale of Customer Information

4.11.3.1 ALTERNATIVE: Any revenues resulting from UDC provision of customer information should be returned to the individual customer whose information was provided.

Alternative 4.11.3.1 PRO

This revenue treatment logically follows from customer ownership of information. However, even if customers are denied ownership, customers are entitled to the revenue from the provision of customer information. Finally, a logical implication of customer control of information is that providing incentives to customers to make information available will benefit competition.

Restructuring will lead to the expansion of competitive markets for electric services. Expanded markets increase the monetary value of marketing information, such as customer information. The claim of customers to increased value is superior to that of utilities. First, customers have been assigned the full cost of the transition to competition in the form of competition transition charge (CTC). The CTC is likely to dwarf the increased monetary values of information. There is no apparent justification for customers to bear only liabilities, and not any corresponding assets of the transition competition.

Some utilities claim at least a potion of information provision proceeds due to their significant efforts to store and maintain accurate and reliable information. However, any utility investment in order to carry out monopoly utility functions has already been included in revenue requirement. To the extent that utilities have invested in customer information systems for business activities beyond traditional regulated utility activities, then rates to carry out regulated activities were too high.

Assignment of information revenues to customers also benefits competition and should enhance the success of Commission restructuring efforts. The more information which is available to competitive providers, the more that providers can tailor their products to customers. Providing monetary inducement to individual customers should increase the quantity of customer information available, relative to alternatives.

The assignment of information revenues to individual customers should also affect broad attitudes to changes in the electric industry. Assignment to individual customers provides at least one positive answer to the common question of "whatís in it for me?" The provision of a customer specific benefit is also far more noticeable to customers than a revenue credit embedded in rates. In contrast, under the present phase-in schedule, many customers may not recognize any choice or benefits, at least during the first year.

Direct provision of information revenues to customers is something new, and attention-getting in a way that the ability of select different generation providers is not. Customers already have choice for almost every product. In that sense, electric choice is simply an extension of an existing, broadly practiced concept. Customers rarely receive payment for information. That new concept should draw greater, and more favorable, customer attention and awareness of electric restructuring.

If the customer information is sold at a price that is above incremental cost the net revenue should be returned to the customer. But since such a reimbursement would result in added transaction costs, it is probably more efficient to deduct the net revenue from the customerís bill than to return the net revenue.

Alternative 4.11.3.1 CON

The proponents are certainly correct in observing that direct customer payments for information usage is something new. The administrative burdens of implementing a regulated program for providing direct customer payments are likely to be daunting, and the associated administrative costs might very well overcome the proceeds from selling customer information. There were a few examples of telephone retailers providing inducements to customers to waive confidentiality, discussed in the workshop. It is best for the Commission to leave such market experiments to the unregulated market, and not attempt to use regulation to force the development of such mechanism on the UDCs.

4.11.3.2 ALTERNATIVE: Net revenues from the sale of customer information should be retained by the UDC, subject to the net revenue sharing and any periodic reviews of Performance Based Ratemaking mechanisms.

Alternative 4.11.3.2 PRO

Traditionally, utilities have engaged in miscellaneous business activities, such as leasing land under transmission lines to nurseries. Revenues from such activities are booked as "other operating revenue", and serve to reduce utility rates. (Other Operating Revenues are forecast in GRCs, and shareholders are at risk for achieving the adopted forecast.) Under PBR, utilities have substantial flexibility to develop creative opportunities to improve the utilization of utility assets. PBR mechanisms typically allow shareholders to retain all other operating revenues so long as overall earnings remain within a net revenue sharing dead-band, and a and a portion of such revenues outside the dead-band. This provides strong incentives for the utilities. In the short-term, customers benefit from net revenue sharing. In the long-term, such opportunities allow the Commission to establish more aggressive "productivity targets" for the utilities, so such benefits are ultimately passed on to customers.

Alternative 4.11.3.2 CON

If the customer information is sold at a price that recovers the UDCís cost, there should be no net revenues to be retained as a result of the sale of customer information. Allowing the sale of customer information that results in large net revenues is inconsistent with the Commissionís goal of facilitating competition.

4.11.3.3 ALTERNATIVE: Net revenues from the sale of customer information should be returned to customers, via ratemaking procedures that reflect recorded, rather than forecasted, net revenues.

Alternative 4.11.3.3 PRO

The justification for customers receiving revenue is the same as for Section 4.2.10.3.1. Ratemaking credits are a well-established ratemaking procedure. The provision of customer information is similar to the category of "other operating revenues", i.e., revenue not strictly related to the provision of regulated services. Many such revenues are forecasted based on historic trends. The provision of customer information is a new service, for which there are no historic trends.

While ratemaking credits are well established, the Commissionís Decision introduces new ways of setting rates, including the rate cap. Since information revenues have never been part of bundled service rates, the information credit should be a further deduction from otherwise applicable rates.

Alternative 4.11.3.3 CON

Using flow-through ratemaking for information revenues represents a return to the kinds of "command and control" ratemaking practices that the Commission is seeking to avoid by encouraging utilities to develop PBR mechanisms for those portions of utility activities which will remain under regulation.

4.12 Options for the Near Term

4.12.1 Options for a One-Time Release of Customer Information Prior to 1/1/98

CPUC Decision D.95-12-063 recognizes the marketing value to competitive electricity suppliers of the customer data presently in the custody of the investor-owned utilities. To support the objective of facilitating healthy competition, the Commission orders the utilities to make that data available to their competitors. At the same time, the Commission expresses concern for the privacy of customers and orders that customer consent be obtained prior to the release of such data to competitive suppliers.

Implementing the CPUC's order requires that we strike a societally efficient balance between the needs of the emerging marketplace and the privacy rights of utility customers. This section offers two feasible approaches for achieving such a balance. The options described below should be thought of as "one-time releases of" or "windows of access to" utility customer data. As such they have two major objectives: 1, to facilitate a direct access market that will reach

all classes of customers on 1/1/98; and 2, to assess the importance of customer data in this market and evaluate the strengths and weaknesses of whichever option is implemented.

4.12.2 ALTERNATIVE: Release Data Directly to Qualified Providers

Under this option, customer data would be provided to qualified energy service providers during a specific time period or window which begins prior to 1/1/98. The utilities would produce a standard data base including, for those customers who give the necessary consent, customer name, service address, billing address, phone number, rate class and the last 12 months energy consumption in whatever form the utility possesses for each customer (i.e., monthly totals, time-of-use subtotals, or load profiles).

(Note: Release of telephone numbers may be controversial. The opening of competition in long-distance phone service has seen abundant complaints about intrusive telemarketing. Also, it may be impossible for the utilities to tell which of their customers have unlisted telephone numbers. Customer consent may therefore be more of an issue if telephone numbers are to be released.)

The certification or registration procedures established for generation service providers or other energy service providers would confer eligibility for access to customer data. Access to customer data would carry prohibitions on further dissemination of the data and undesirable marketing practices. Any party who felt a violation had occurred would have ready access to an impartial venue for resolution, and providers who obtained the data would be required to demonstrate insurance or post a bond to cover assessed damages. These mechanisms would constitute one aspect of customer privacy protection. The other main aspect would be the customer consent procedure.

Once the CPUC determines the numbers of customers in each class that may participate in direct access in 1998, some form of solicitation of customer interest will need to take place. Following an education campaign, customers could be asked to return a signature card that would express both their desire for direct access and any necessary consent to release data. Once the final pool of eligible customers was selected, only those customers would be part of the data release no matter how many more might have returned the signature cards.

Alternative 4.12.2 PRO

1. Customer data essential for aggregation of residential and small commercial customers would be available to potential aggregators of those customer classes.

2. The data would be released only to qualified energy service providers who would be liable for damages resulting from misuse of the data.

3. Release of consumption data would benefit the residential and small commercial customer classes as a whole by facilitating aggregation of load for these classes.

4. The release of consumption data would promote efficient marketing practices by enabling providers to target specific customers who match their marketing profile and avoid those who do not.

Alternative 4.12.2 CON

1. Some customers might actually have their privacy compromised by inappropriate use of the data, thus provoking lawsuits against the firms involved.

2. The data could be used by some firms to avoid customers in areas or with usage patterns they did not wish to serve, thus increasing the possibility of "redlining."

4.12.3 ALTERNATIVE: Release Data to a Fulfillment House

Under this option, which is a variation of a standard practice in the direct mail industry, customer data is not released directly to competing providers. Instead it is released only to a special type of entity, a fulfillment house which performs a marketing function for competing providers and which is governed by the same use limitations and bond requirements discussed in the previous section. The energy service providers would be given only impersonal data, such as aggregate consumption and typical load profiles without customer identification. The firms would then develop marketing literature for a target customer group and turn this over to the fulfillment house which would, in turn, mail the literature to the target group.

The energy service providers would not have any personal customer data until such time as the customers responded to the marketing literature and authorized the fulfillment house to release their data to the energy service provider(s) they designate. Energy service providers and the fulfillment house would have to work together to determine how the marketing strategy of the potential provider would interact with the customer data to identify the specific customers to which the mailing of literature would be made.

Alternative 4.12.3 PRO

1. Customer privacy would be maximally protected since customers can select those providers they wish to receive their customer-specific data.

2. The fulfillment house, as a specialist in sorting customers into target groups and mailing out marketing literature, would develop efficiencies and economies of scale that would enhance the efficiency of information flows and of the marketplace in general.

3. The fulfillment house created to support the 1/1/98 opening of direct access would be a useful prototype for a stand-alone clearing house for customer data, which is a potentially attractive information management institution for the mature, competitive marketplace. (See Section 4.13 for a discussion of this idea.)

Alternative 4.12.3 CON

1. This option requires the design, creation and oversight of a new entity, the fulfillment house.

2. Some energy service providers would find their analysis capabilities more limited and their marketing much slower than what they might accomplish without the fulfillment house as an intermediary. For example, because they would have information only about customers who responded favorably to their literature, they would find it hard to develop useful databases of electricity consumers, or to cross reference these customers to other data sources or to data they had developed from other services they offer.

4.13 Considerations for the Mature Market

ALTERNATIVE: The CPUC should sanction a stakeholder working group to develop a practical model for a cooperatively owned and operated information clearing house.

A main theme of this entire report is that information flows of various kinds are essential to the success of a competitive electric services marketplace. A theme of this chapter is that different parties have different needs for and concerns about information flows, not all of which are fully compatible. One way to balance the needs of all parties is to create an information clearing house that is designed, owned and operated by all of them. The clearing house would be a not-for-profit company owned by those participants in the California market who intend to rely on its services. Its board of directors would be structured to contain a fair balance of all stakeholder groups, including the ISO, the PX, UDCs, schedule coordinators, consumer organizations, competitive providers, etc. Its operations and management would be structured to perform the information flows required for system operations and for healthy competition, while protecting the privacy and other rights of customers.

The clearing house would not perform metering activities. It would acquire metered usage data, via the UDCs or other metering entities, from all customer premises and other points as needed for system operations and settlements. It would dispatch this data to the appropriate parties in a timely fashion. It would maintain a data base of all metered data, for which it would perform a custodian function. That is, it would disseminate the data to eligible parties on agreed terms and conditions, it would implement safeguards to prevent unauthorized access to data and it would provide a process to investigate and resolve any complaints. Under cooperative direction, it would modify its activities to adapt to the changing needs of parties as the market evolves.

Alternative 4.13 PRO

1. The needs and concerns of all stakeholders are built into the design, creation and operation of the clearing house.

2. Achieves the economies of scale and scope of a monopoly, but without requiring regulatory oversight or government management.

3. Cooperative control would enable the clearing house to adapt to changing market arrangements and conditions.

4. Many of the relevant parties already understand information issues quite well by virtue of their participation in the DAWG and other working groups, and could therefore participate in creating the new entity with small start-up costs.

5. Successful models already exist, such as the VISA bank card system. VISA is a not-for-profit company owned and operated by its member banks, i.e., banks that issue VISA cards. It serves primarily as an information clearing house, allowing its members to compete in whatever entrepreneurial ways they choose while providing a necessary common resource that is managed cooperatively for the benefit of all. Member banks have immediate access to information on their own clients, but have access only to statistical (aggregate, non-personal) information on the other banks and their clients.

Alternative 4.13 CON

1. Requires creating a new entity that has some features of a monopoly.

2. Requires creating a cooperative governance structure for the new entity.

3. Similar entities already exist. If this is deemed to be a major need, it should be determined whether existing entities can be used.

4. It is not clear whether the benefits generated by this new entity will justify the costs of creating it. Regulators should not fund such an effort. If it has value, then electricity retailers and other participants in the market should be willing to provide the required resources.

The following sections discuss different registration and oversight mechanisms that will ensure energy service providers are behaving appropriately in markets, and where not, identifying those inappropriate behaviors for correction (see Chapter 6. - Dispute & Complaint Resolution). The selection of mechanisms provided here is neither prescriptive nor exhaustive, nor should they be seen as either redundant or mutually exclusive.

5.1. Regulatory Authority, Existing Statutes and Examples from Other Contexts

5.1.1 CPUC Jurisdiction Over "Electrical Corporations"

Does the CPUC have jurisdiction, under existing California law, over all competitive providers of retail electric service, and if so, to what degree? The following discussion begins to address this question by reference to CPUC authority as expressed in the California Public Utilities Code.

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.

(Reader Note: The following section may require modification as a result of AB1890)

It is not clear whether new types of generation providers, such as aggregators and marketers, who may not be directly in the business of generating electricity, would be "electrical corporations" as intended by § 218. Since they would be using their assets "in connection with or to facilitate the production, generation, transmission, delivery, or furnishing or electricity for light, heat, or power" as per § 217, logic would suggest that these new providers could be held to be "electrical corporations" and hence subject under this Code to CPUC jurisdiction. At the same time, these new electric retailers would not likely be considered "public utilities" as per § 216, so a new type of "electrical corporation" may need to be defined in the Code, one that is not considered a public utility for certain purposes such as ratemaking. Draft legislation to that effect is, at the time of this report, under consideration by Senator Peace's committee in the California Legislature. In the next section we discuss the CPUC Decision D. 95-07-054 on local telephone competition, which suggests an analogy for the electric industry.

In determining the legal basis for CPUC jurisdiction over retailers, some issues to be addressed include the following.

1- Should all retail generation providers be subject to uniform regulation?

2- If so, should all retail generation providers be defined as "electrical corporations" and therefore subject to CPUC regulation, or should they be expressly exempted from the definition of "electrical corporation?"

If all retail providers are defined as "electrical corporations" subject to CPUC jurisdiction, the CPUC may have the discretion to exempt them from ratemaking and other strictures of the PU Code that would normally apply to public utilities, if these retailers can demonstrate to the CPUC that they are competitive, i.e., that they do not possess market power in retail energy markets. If the CPUC does not have this discretion, then statutory changes to the PU Code may be necessary. Appendix D Section D.1 provides a list of Code sections that would probably not apply to competitive retailers in the new marketplace, including an extended discussion of the power of eminent domain.

Alternatively, generation providers could be explicitly excluded from the definition of "electrical corporation" and therefore not subject to CPUC regulation as the Code presently stands. This would not mean that they would be completely unregulated. Competitive generation providers, like participants in other competitive markets, would be subject to various statutes and regulations that govern the marketplace. For example, the California Cartwright Act, California Business and Professions Code §§ 16600 et seq., codifies California's anti-trust law and prohibits various unfair trade practices (see Section 7.1.3 of this chapter). Market participants would also be subject, of course, to federal anti-trust laws and would face civil liability for breach of contract and tort causes of action.

Whether generation suppliers are defined as electrical corporations or not, there will likely be a need for some new industry-specific market rules, as Sections 7.3 to 7.5 should demonstrate. In particular, the facts that electric service is a necessity and its provision has serious system-wide considerations comprise a strong rationale for such rules. The question then is whether to change the California Public Utilities Code to extend CPUC authority to competitive retail providers, perhaps by statutorily defining a new entity called a "non-utility electrical corporation," or to vest enforcement of industry-specific market rules in another public agency. The proponents of widely applicable market rules, as discussed in Sections 7.2 and 7.5, express a preference for the CPUC as the enforcing agency. Again, telecommunications decision D. 95-07-054 provides an instructive example (see next section).

3- If the answer to question 1 is no, what kinds of distinctions should market rules make? Should the rules distinguish between firms that operate assets to physically produce electricity from those that do not? Should there be specific rules for generation providers affiliated with regulated utilities or utility distribution companies (UDCs)? Should there be specific rules for each type of generation provider, i.e., generators, marketers and aggregators? Should there be specific rules for generation providers that pursue physical bilateral contracts, in contrast to ones that operate exclusively through the Power Exchange?

The answers to the last set of questions will vary depending on the specific types of activities to be regulated. As regards system operations, each specific type of entity will undoubtedly need some specific rules. But in the areas of fair competition and consumer protection, marketplace participants would probably be best served by common rules for all parties.

5.1.2 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.

5.1.2.1 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.

"Nonfacilities-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]

5.1.2.2. 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 nonfacilities-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."

5.1.2.3 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.

5.1.3. 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.

a. 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.

b. State Government Agencies. One or more state government agencies with similar consumer protection authority could take on additional duties. The Department of Consumer Affairs has been discussed. 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.

5.1.4. Private Civil Enforcement

5.1.4.1. 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.

5.1.4.2. 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 UDC's 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.

5.1.4.3. 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.

5.1.4.3. 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.

5.1.5. Self Enforcement via Industry or Stakeholder Associations

Self enforcement is an appealing idea and 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.

5.2. Registration Requirements

[Note. There is disagreement about whether regulators should impose registration and other requirements on electric service retailers. Among those favoring registration, the predominant view is that the CPUC should be the principal state agency responsible for registration and oversight. The next two subsections present different proposals that convey the flavor of the alternative approaches to the problem. Section 5.2.1. sets forth a position favoring no CPUC registration, while 5.2.2. sets forth a position describing why and how the CPUC should perform registration and oversight.]

5.2.1. ALTERNATIVE 1: 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 5.2.1. PRO:

Minimal regulatory interference.

Alternative 5.2.1. CON:

1. 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.

2. As described above, electric service is a necessary commodity. By law, it is required for habitability, in contrast to telephone service.

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

4. The proposed registry is an acceptable self­policing effort by electric providers but it should not be exclusive of regulatory oversight.

5. Minimum protection of the public interest. In particular, involves no retail regulation or oversight by an expert agency of market structure allowing retailers with market power to engage in abuses subject only to the antitrust laws which are costly and slow and in any event not preventative in the first instance. Also assumes that the entire Public Utilities code is rendered moot with respect to retail generation -- which seems not to be the legislative intent.

6. May require re-regulation of industry if this approach fails to protect public.

5.2.2. ALTERNATIVE 2: Regulatory Oversight of Electric Service Providers

5.2.2.1. Summary of the Proposal

The proposal described in this section is based upon two primary principles stated below, the arguments for which are presented in the subsections that follow.

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.

5.2.2.2. 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. As a proposition, this large customer size could initially be set at 100 kW per meter, or alternatively, a customer with smaller load but business revenues exceeding $5 million per year.

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.

5.2.2.3. 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 5.2.2.3. PRO:

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.

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 5.2.2.3. CON:

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.

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.

5.2.2.4. 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

5.2.2.5. 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 upfront 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.

5.2.2.6. 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 5.2.2.6. 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 5.2.2.6. 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.

5.2.2.7. 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 5.2.2.7. PRO:

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

Proposal 5.2.2.7. CON:

1. It could overwhelm CPUC.

2. It does not address market structure issues.

5.2.2.8. 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 5.2.2.8. 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 5.2.2.8. 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.

5.2.2.9. 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 5.2.2.9. 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 reregulation if market proves to have structural problems.

Proposal 5.2.2.9. 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).

5.2.3. 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.

5.2.3.1. ALTERNATIVE 1: 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 5.2.3.1. 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 5.2.3.1. 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.

5.2.3.2. ALTERNATIVE 2: 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 5.2.3.2. 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 5.2.3.2. 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.

5.2.4. 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.

5.2.4. 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.

5.2.4. 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.

(Readers Note: The following text appears to be redundant to all that has gone before. Unless the original author specifically identifies how to incorporate this following text into the above discussion, the following text will be deleted in its entirety in the next draft.)

5.x.x. Continuing Market Oversight

Continuing market oversight entails the periodic or continuous disclosure of information by the firm about its activities and its condition. The information would be disclosed to a public entity that would review it for conformance with required standards. The oversight entity may be required to keep the information confidential, unless it is required as evidence in investigating a potential problem. The oversight entity would have the authority to order a full audit of the firm if the disclosed information suggested a possible violation. Such market oversight is sometimes referred to as "light-handed regulation," and implicitly contains the potential for heavy-handed regulation if firms do not cooperate with disclosure requirements or other problems occur.

5.x.x. Enforcing Authorities

The following types of authority are not mutually exclusive alternatives. In fact, they often represent different levels of enforcement that complement each other.

The problem of specifying the enforcing authority is highly intertwined with the problem of specifying the entities to which the rules should apply. For example, some parties argue against industry-specific market rules that govern contractual arrangements between private parties, asserting that civil enforcement and general public authorities such as the State Department of Consumer Affairs and the Attorney General are adequate to enforce appropriate business practices and to provide recourse for breach of contract or violations of general business codes.

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 either being excluded from the market, or where discriminatory practices are being applied. The principle of fair dealing applies here. Each of these will be briefly reviewed. Further effort should be expected as part of DAWG's report scheduled for October 30.

6.1. Right to Redress

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, consumers must be asked to act responsibly, and to "pay the price" for mistakes they make, and hope that these mistakes contribute to consumer education about this 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 items will be briefly explored.

6.1.1. 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.

a. Prompt, No Cost, Effective Access. Regulatory oversight must continue to ensure that there is 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.

b. 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 an individual 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 better­resourced providers.

c. 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 complied that commingle dismissals of complaints with settlement of complaints.

6.1.2 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 use of 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 can 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.

6.1.3 Mediation Opportunities for Complaints

Mediation and other alternative dispute resolution tools should be encouraged. However, they can not 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.

6.1.4 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.

6.1.5 Access to CPUC-Compiled Data

As part of its on-going market conduct oversight responsibilities and as part of its customer education duties (as discussed under Chapter 11. Consumer Education) 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. However, some believe all of this data should be made available to complainants that have filed formal complaints to appropriate authorities about an energy provider(s). Others believe only relevant data should be made available 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.

6.1.6 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.

a. 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 and 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.

b. 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.

c. 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.

6.2. Customer Representation & Advocacy

(To be completed by UCAN & Green Lighting)

7.1. Methods of Governance

7.1.1. Government 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 for most, and "affected with a public interest".

However parties do not agree on the extent to which private, competitive firms should be subject to industry-specific rules dealing with competitive behavior or 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 B itemizes 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.

7.1.2. Private Industry Oversight

To be completed, if necessary, by the next draft.

7.2. Current & Potential Future Requirements

The following sections focus on the practices of both UDCs and other service providers when marketing, enrolling customers into, providing, and discontinuing direct access services. As a general principle, under restructuring the provision of UDC service will remain subject to the terms and conditions specified by the Commission and incorporated in utility tariffs and service agreements. These terms and provisions will apply to all UDC customers, whether full service or direct access. As a result the UDC will maintain an operational relationship with all customers to ensure continued quality of service for customers and assure integrity of the distribution network.

This relationship, which should be delineated in an operational agreement with direct access customers, will include functions and mutual obligations regarding metering, meter-reading (for UDC purposes), notification of changes in customer load and so on. This relationship should be maintained regardless of the billing relationship between the UDC and the customer, i.e. regardless of whether a retailer or billing agent provides a consolidated bill to the customer.

Furthermore, a customer will only be physically disconnected (according to Commission-approved procedures) for violation of its obligations to the UDC -- not to a third-party energy provider. The UDC should not have to be the disconnection agent for disputes between customers and non-UDC providers. Those providers should merely be allowed to cease providing energy services after following Commission-specified procedures and providing adequate notice to the UDC, the default provider.

Another key principle is that standards for credit, deposits, billing disputes, cessation of service etc. should be the same for the UDC and for other ESPs. This is necessary to prevent red-lining and other undesirable selection or rejection of customers by non-UDC providers.

7.2.1 Non-Discriminatory Marketing Practices

Generation service providers should not be permitted to engage in discriminatory marketing practices. In the past few years these practices have become widespread in the telecommunication industry and there is reason to believe that these practices might arise in a competitive generation services industry as well.

Of special concern are marketing efforts addressed to limited-English communities that require special materials to be understandable to residents. Cultural differences combined with language limitations make these communities subject to abusive marketing practices. The telecommunication practice of "slamming" is a possibility for generation services marketers.

Electric service, by any ESP, should be equally-available to all similarly-situated potential customers. The CPUC has an interest in controlling "cherry-picking" and preventing "redlining". This would not prevent customers from bearing the appropriate costs of capacity expansion for relevant customer information activities.

An advantage of registration or certification of energy service providers is that evidence of abusive marketing practices could be grounds for decertification. The mere existence of such a penalty might minimize the extent of the problem, which would be a far better solution than hundreds or thousands of customer-specific dispute resolution efforts.

7.2.2. Enrollment

AB 1890 establishes the procedures for service enrollment. Service may be initiated based on a written agreement between the service provider and the Customer. Customer and Energy Service Provider (ESP) must provide written notice to the Utility Distribution Company (UDC) of change in supplier. Prior to the agreement, the customer shall be informed, in writing, of customer's rights to change back, all rates and charges for the services customer desires, other conditions of service, material terms and conditions, required service provider information listed below, and any other rates or charges which will appear on the customer's first bill.

Potential customers who are denied service for failure to establish credit or pay deposit as described in Rule X must be given the reason for the denial in writing within X days of service denial.

7.2.2.1. Applications

One parties proposed rules for both the ESP and UDC to follow would include requiring each prospective customer to sign an application for the service desired, and also to establish credit.

1. Requirements for application of service from a UDC shall remain as they are now or as directed by the CPUC.

2. Requirements for application of service from an ESP may include:

a. Legal name of applicant.

b. Location of premises.

c. Date applicant will be ready for service.

d. Whether service was previously supplied to the premises and by whom.

e. Purpose for which service is to be used, with description of appliances.

f. Address to which bills are to be mailed or delivered.

g. Whether applicant is owner, agent, tenant of premises.

h. Rate schedule desired when optional rate is available.

i. Such other information as the service provider may reasonably require for service.

7.2.2.2. Protection Against Redlining

Existing California law embodied in the Unruh Act prohibits all business establishments from engaging in any form of arbitrary discrimination whatsoever, and the intent of the law has been liberally construed both as to types of prohibited discrimination and protected groups. Vulnerable consumers, including the poor, small residential and language and racial minorities, have been found to fall under Unruh's purview.

There is concern that certain new providers to the market may choose not to offer energy services to residential and small commercial customers with load demands less than 20 kW, who are in certain geographical areas. Similar circumstances were experienced in California's insurance industry. While it is permissible to limit services to large industrial customers, for example, it is not legal to exclude certain classes of customers because of geographical areas, coinciding with racial/ethnic concentrations.

Thus, the Commission should require providers to submit data both at the time of their registration with the Commission, and on an annual basis, on customer applications for service and the basis for credit determination. Further, the Commission should promulgate regulations analogous to those adopted by the Insurance Commissioner, or the federal Community Reinvestment Act, which require all providers whose business revenue in California exceeds a given amount to file information by zip code, including: the number, percentage, race or national origin, and size of customers (residential, small business or industrial) served in various communities accompanied by a map showing those customer concentrations, including the rates being offered each; the number and percentage of direct mail and telephone solicitations for new business in various communities, including zip code and racial/national origin identification of the customer; and the number and percentage of applications, with zip code and race or national identification, for which the energy provider declined to provide direct access service.

This data would enable the Commission to ensure that all customers benefit from deregulation through access to choices about their electricity provider and/or aggregator. Additionally, it will ensure that certain geographical locations are not charged higher rates than others for like services. Finally, it will minimize the likelihood that certain groups of customers, such as the poor or racial minorities, will by necessity be "captive" customers of the local utility by virtue of not having access to similar choices offered to other like customer groups. Requiring providers upon initial licensing to specify what types of customers they intend to serve will assist the Commission in monitoring that unlawful redlining does not occur. Additionally, retail energy suppliers must maintain with the Commission written policies on applications for service and the basis for its determination of credit. The policy must describe the criteria for becoming a customer of the supplier, and the criteria must be filed upon application for license/registration and kept updated at all times.

A retail energy supplier, including aggregators and meter suppliers, may hold themselves out as serving customers with a particular set of end-uses or load curves, or who meet other criteria related to the generation source and pricing policy of the supplier, so long as such criteria do not have the effect or intent of discriminating among customers on grounds prohibited by the Unruh Act or Equal Credit Opportunity Act. (See previously submitted discussion of fair credit and terms.)

7.2.2.3. Protection Against Slamming

7.2.2.3.1. Solicitation of customer authorization for non-UDC supply or energy service termination and transfer.

Solicitations by service providers, or their agents, of customer authorization for termination of service with an existing service provider and the subsequent transfer to a new service provider must include current rate information on the new service provider and information regarding the terms and conditions of service with the new provider. Solicitations by service providers, or their agents, must conform with the appropriate California Public Utilities Code Section XXX. All solicitations sent by service providers or their agents to customers must be legible and printed in a minimum point size of type of at least 10 points. A penalty or fine of up to $XXX.XX may apply for each violation of this Rule.

7.2.2.3.2. Unauthorized service termination and transfer

A service provider will be held liable for both the unauthorized termination of service with an existing provider and the subsequent unauthorized transfer to their own service. Service providers are responsible for the actions of their agents that solicit unauthorized service termination and transfers. A provider who engages in such unauthorized activity shall restore the customer's service to the original provider without charge to the customer. All billings during the unauthorized service period shall be refunded to the applicant or customer. A penalty or fine of up to $XXX.XX payable to the Commission may apply to each violation of this Rule. As prescribed under PU Code Section XXX, each day of a continuing violation shall constitute a separate and distinct offense. The service provider responsible for the unauthorized transfer will reimburse the original provider for reestablishing service at the tariff rate of the original service provider.

7.2.2.4. Non-Discriminatory Credit and Deposit Rules

Direct access and retail restructuring in general will create confusion about appropriate credit and deposit rules. The unusual feature of electric and natural gas service of appropriate payment for consumption being determined after the fact of consumption suggests, properly, that deposits have been a reasonable practice. This is likely to be the case in the restructured industry as well. Deposit practices should not, however, be a means of discriminating against communities. Personal credit histories may be a legitimate consideration, but cultural or language affiliation are not. Two alternative views of appropriate mechanisms to govern terms and conditions are shown below as illustrations of the disparity of views that have not yet been resolved.

Discrimination in the granting of credit based on race, sex, marital status, religion, national origin, age, handicap, familial status, or public assistance status must be illegal. Discrimination in the terms of granting credit must also be prohibited (i.e., based on different deposits, payment terms, meter requirements, credit limits, amount of deposits, etc.). See, Equal Credit Opportunity Act (ECOA) 15 U.S.C. section 1601 et seq. Fair Credit Reporting Act mandates, as set forth in 15 U.S. C. sections 1681 et seq., do not resolve the problem of a past, unrelated credit problem, such as failure to pay a store bill, precluding an electricity customer from receiving service or subjecting him/her to onerous terms to secure it, such as prepayment or adverse terms.

a. CPUC Supervision of ESP Offerings. All ESPs should be required to offer publicly-supervised, non-discriminatory Terms and Conditions of service. For UDCs, subject to high standards already for regulated monopoly activities, such Terms and Conditions would be subject to significantly less regulation than regulated monopoly services since they are voluntary contractual agreements.

b. Reliance on the Marketplace. Except in the areas of public safety, terms and conditions of service between an ESP and customers need not, and for competitiveness reasons, should not be publicly-supervised. In an open market, there is no need to regulate what services are packaged with the electricity commodity sale, and the terms and conditions surrounding that sale. Regulation will only stifle the emergence of creative customer solutions and diminish the competitiveness of those with new ideas.

7.2.2.5. Specific Credit and Deposit Rules

Following are one parties proposed credit and deposit rules. The are founded on the assumption that the same credit and deposit requirements shall apply to all Energy Services Providers and UDCs, alike.

7.2.2.5.1. Credit Requirements

Each applicant for service shall provide credit information satisfactory to the service provider or pay a deposit.

Deposits shall not be required if the applicant:

1. Provides credit history acceptable to the service provider. Credit information contained in the applicant's account record may include, but shall not be limited to, account established date, "can-be-reached" number, name of employer, employer's address, customer's driver's license number or other acceptable personal identification, billing name, and location of current and previous service. Credit cannot be denied for failure to provide social security number.

2. A cosigner or guarantor may be used providing the cosigner or guarantor has acceptable credit history with the service provider.

3. UDC has the ability to use back payment record with aggregator (service provider) against customer upon return to bundled service.

7.2.2.5.2. Deposits

1. In the event the customer fails to establish a satisfactory credit history, deposits are a form of security that shall be required from customers to ensure payment of bills.

2. Each energy service provider can require a deposit.

3. Deposits are not transferable when changing from ESP to UDC service or from a UDC to ESP service.

7.2.2.5.3. Return of Deposits

1. The UDC will refund the supply portion of a customer's deposit upon customer change from UDC to ESP as a provider of supply subject to conditions in Rule X. The UDC may refund a customer's deposit by draft or by applying the deposit to the customer's account and the customer will be so advised. If the customer establishes service at a new location, the UDC may retain the deposit for such new account, subject to the conditions following.

2. Upon discontinuance of service, the UDC will refund the customer's deposit or the balance thereof which is in excess of unpaid bills for service furnished by the UDC.

3. When the customer's credit is otherwise established in accordance with the Section concerning Establishment and Re-establishment of Credit, the UDC will refund the deposit either upon the customer's request for return of the deposit or upon review by the UDC.

7.2.2.6. Landlord/Tenant Issues

Electric Service is regarded as an absolute necessity for all persons by the law. Real property owners are legally required to have electric service installed at their property before it may be occupied, whether by the owner or by any other person. (Civil Code Sec. 1951.5) However in a restructured industry, there are legitimate questions as to who would own the electric meter or be responsible for the meter in a rental arrangement.

Currently, electric service is often provided to the property owner, not the property tenant. Tenants, of course, enjoy certain rights in billing if they, in fact, are specifically charged for electric service used. But owners exercise reasonable control over the nature of that electric service, including the decision whether they or their tenants are to be the Electric Service customer. Therefore, in many cases, property rights in a premises tend to determine control over goods and services appurtenant to the premises, regardless of whether those appurtenant facilities are owned or not.

With the deregulation of telephone maintenance, customers were put in a position to choose whether to own the phone, and type of phone service. The landlord is responsible only for the inside wiring, but nothing else. Similarly, choice of electric service brings with it the opportunity for the customer to choose the type of electric service and the meter to be used. In master-metered arrangements, clearly this choice will be limited. However, in individually metered arrangements, it would seem that each customer should have the choice of meter and the responsibility for maintenance of that meter. The landlord should not be able to impede this choice. For example, with communal ownership properties, such as condominium complexes, individual owners or tenants of units should be able to select a different ESP than the one chosen by the majority ownership for the communal property. Although the majority will have control over communal areas, individuals must maintain control over the property only they use.

This issue is a compelling one due to the possibly illegal tie-in arrangements that have developed in the provision of Cable TV service and other telecommunications services. Telecommunications providers have entered into arrangements where they install wiring and infrastructure for a residential or small business complex in such a way as to preclude other providers from offering service to those residents. In fact, many providers have entered into written contracts expressly excluding other providers from serving the complex and requiring property managers to enforce this provision. Such arrangements are probably illegal and should not be tolerated in the nascent electric industry.

Thus, the operation of an electric metering or communications system can be specified along any appropriate performance standard.

7.2.3. Information Disclosure

7.2.3.1. Mandated

AB 1890:

The legislation recently enacted (AB 1890) lists specific information elements which must be conveyed to customers solicited by energy service providers. The are...

D.95-12-063 and Subsequent Rulings:

Previous Commission Rulings:

UDCs shall be required to provide information as obligated under current tariffs on file with the CPUC.

7.2.3.2. New Proposals

7.2.3.2.1. Alternative 1 - ESP Information Disclosure Requirements

Following are one parties proposal for ESP information disclosure requirements. It proposes that ESPs shall provide each applicant for service or customer the following:

1. The California Public Utilities Commission identification number of its registration to operate as an energy service provider 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, i.e. 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.

7.2.3.2.2. Alternative 2 - Uniform Pricing & Service Terms Disclosure

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:

a) 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 as a total centers per kWhr 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.

b) 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.

c) How the supplier handles customers' personal information, including an explanation of how the customer can control release of his or her sensitive personal information.

d) 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.

e) Practices used by the ESP for determining credit worthiness, and disconnection practices when credit has been revoked by the ESP.

f) An explanation of the customer's obligation to pay CTC charges.

g) Explanation the ESP's 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.

7.2.4. Metering

7.2.4.1. Metering Uniformity

Metering and Communication equipment should be controlled by those parties which can operate it safely, and maintain its effectiveness, all in the most efficient manner. The Customer, the ESP, the UDC, and the public-at-large all have an interest in the equipment's safe and effective operation; so Operating and Performance Standards are necessary to insure that all parties' legitimate interests are protected. However those standards should not unfairly preclude any customer group from selecting customer or ESP ownership options available to others.

Minimum requirements for the installation of meters include:

1) Meters shall meet all ANSI standards for metering, engineering and applicable building codes. (See the Direct Access Working Group's August 30, 1996 "Design and Implementation of Direct Access Programs" report to the Commission, Appendices G, H, and I).

2) Require non-UDC Installer certification standards to ensure safety concerns are addressed.

3) If new or additional non-UDC meters are to be installed, ensure that they do not compromise the integrity of UDC meters and communication systems.

4) The formation and required compliance of uniform and universal metering and installation standards.

7.2.4.2. Meter Service Limiters

In countries where energy services have been deregulated, some energy service providers have moved to service limiting meters as a means of reducing delinquencies and collection costs. These meters come in different variations and have varying cut-off mechanisms, but all have one common characteristic: they facilitate pre-payment for electric service.

If as a result of restructuring, these kinds of meters were required for certain customer segments, a very significant change in the quality of service currently enjoyed by Californians would result. Currently, all electric customers are entitled to render payment after having received service. Where a customer's credit is at issue, several months deposit may be required. However, because energy demands are difficult to predict, prepayment for electric service has traditionally not been required because of the risks that anticipated demand may be wrong, leaving customers with over usage without service. For that reason, all parties to these workshops agree that California should avoid requiring any customer to use service limiting meters.

However as an option controlled by the customer, service limiting meters should be allowed. Customers who have proven to be credit risks are today required to deposit with their utility an amount equal to two months billing. That money is held by the utility for up to one year, without interest. Some customers may rather contract with an ESP who installs service limiting, or pay as you go (PAY-Go) meters, thereby avoiding that deposit.

Other customers may be interested in these meters as well. PAY-Go meters eliminate the need to perform meter reading, data processing, billing, payment processing, and collection activities. These savings, when passed to the consumer, create an incentive for both good and bad credit customers to make the switch.

At a time when deployment of such meters are sought by providers, the Commission should hold a rulemaking to establish the conditions for such use; the protections to be accorded customers choosing PAY-Go meters; and installation, operations, and maintenance practices

7.2.4.3. Meter Test Procedures

The following procedures could be implemented to enable customers to verify their meters are operating correctly. Any cost impact to the UDC should be considered a Direct Access transition cost, and be allowed for recovery under the mechanisms established in section 376 of the Public Utilities Code.

1. A standard shall be put in place so that any Customer may, upon not less than X working days notice, require the UDC to test the Customer's electric meter. No payment or deposit will be required from the customer for such tests when the customer meets certain usage or credit/deposit criteria. A deposit to cover the reasonable cost of the test will be required of Customers that abuse or request tests greater than the amount of tests set forth in the standard.

2. The deposit will be returned to the Customer if the meter is found, upon testing, to register more than two percent fast or slow under conditions of normal operation.

3. A Customer shall have the right to require the UDC to conduct the test in the customer's presence, or in the presence of an expert or other representative appointed by the Customer. A report giving the result of the test will be supplied to the Customer by the UDC within a reasonable amount of time after completion of the test.

4. All electric meters will be tested at the time of their installation. No meter will be placed in service or allowed to remain in service which has an error in registration in excess of two percent under conditions of normal operation. On newly purchased single-phase meters, the manufacturer's test may be used as the installation test when the UDC's random tests indicate satisfactory test results for a particular manufacturer and for a particular shipment.

7.2.4.4. Hourly Metering

Distribution services includes metering. Accordingly, the Legislature's mandate to provide customers with nondiscriminatory access to distribution services implies a requirement to provide equal access to metering. Hourly or time-of-use metering is required for consumers to be able to save on their electric bills by shifting load or avoiding on-peak use.

Equal access to hourly or time-of-use metering is unlikely to be accomplished by allowing market forces to work, with customers having choice of metering provider and ability to pay for their own meters. This approach results in very high costs, since meters are deployed one-by-one. These costs total $10 to $100 per meter per month for the purchase, installation, and added meter reading and maintenance costs associated with such meters. Transaction costs are also high. Since the vast majority of electric consumers cannot save enough on their energy to pay this much for metering, the vast majority of electric consumers will not have meaningful equal economic access to metering, and only large customers (industrials, large commercials) will have economic access to the savings associated with time-based energy management.

Equal access may be better achieved through exploiting scale economies associated with metering. These economies include technology, deployment, and operations. Use of network meter reading ("NMR") technology, available from at least four major suppliers, to provide hourly or time-of-use metering results in total costs of metering that range from less than $1.00 to less than $2.00 per meter per month. Savings on meter reading and related operations of the UDC can exceed $1.00 per meter per month (see August 30 DAWG Report, page 8-66), so NMR technology could potentially be deployed universally in California at zero net cost. Only this approach results in meaningful equal access by all consumers to hourly metering. Universal metering has other important consumer benefits. First, transaction costs are greatly reduced, since no site visit is required to change power suppliers; the meter is read remotely. Also, no site visit is needed to change the rate plan, whether it be total consumption, time-of-use, demand, real-time pricing, or other, new creative rate developed by power retailers. Second, since NMR includes an open architecture database that holds all of the meter readings, the switching cost at the data processing center, which is currently high, is also minimized via NMR. Third, all consumers benefit from the capabilities of NMR (outage detection, information access, etc.), not just customers paying for higher cost hourly meters, again, at potentially zero net cost.

7.2.5. Billing and Payment Processing

7.2.5.1. Information Required of UDC and Energy Service Providers on Customer Bills

The billing agent shall identify the UDC and the ESP, if applicable, on each bill. Each bill must prominently display a toll-free number for service or billing inquiries, along with an address where the customer may write. If the service provider uses a billing agent, the provider must also include the name of the billing agent it uses. Each bill for energy service will contain notations concerning the following areas:

1. When to pay your bill;

2. Billing detail including the period of service covered by the bill;

3. Late payment charge and when applied;

4. How to pay your bill;

5. Questions about your bill;

6. Termination of service;

7. Breakdown of services, if other services are billed;

8. Breakdown or unbundling of energy components included in the bill shall allow comparisons with other suppliers;

9. Description of how to read and understand the bill;

10. Date that bill is due and payable by;

11. Dispute resolution procedure.

7.2.5.2. Disputed Bills

7.2.5.2.1. Communications

If the correctness of a bill is questioned or disputed by a customer, an explanation should be promptly requested from the billing agent. If the bill is determined to be incorrect, the billing agent will issue a corrected bill.

7.2.5.2.2. Bill Review Procedure

A customer who has initiated a complaint or requested an investigation shall be given an opportunity for review of his/her complaint.

a) After review, when a residential customer and the UDC or ESP agree on the amount of the bill, the UDC or ESP will determine and advise the customer: of the date the unpaid balance of the account must be paid. If an amortization period is warranted and agreed to by the customer and the billing agent, service will not be discontinued for nonpayment, provided the customer continues to meet the obligations of that agreement and keeps current their account for utility service as charges accrue in each subsequent billing period. If the customer fails to comply with this arrangement, service shall be subject to discontinuance for nonpayment of bills as provided in the Section concerning Discontinuance of Service.

b) After review, when a customer and the service provider or UDC fail to agree on the amount of the bill and upon review, the service provider or UDC has determined to its satisfaction that the bill is correct, the service provider or UDC will explain to the customer that:

1) The service provider or UDC has completed its investigation and review.

2) In lieu of paying the disputed bill, the customer may deposit with the California Public Utilities Commission at its office in the State Building, San Francisco, CA 94102, the amount claimed by the UDC or service provider to be due. A check or other form of remittance for such deposit should be made payable to the California Public Utilities Commission. A residential customer who is unable to pay the full amount in dispute will not be required to deposit the full amount in dispute for a bill covering a period in excess of 90 days but shall deposit an amount equal to 90 days at the average disputed charge per day of the disputed bill.

3) The customer shall submit the disputed bill and a statement setting forth the basis for the dispute of the amount billed.

4) Upon receipt of the deposit, the commission will notify the UDC or service provider, review the basis of the billed amount, and advise both parties of its findings and disburse any deposit in accordance therewith.

5) Service will not be discontinued for nonpayment of the disputed bill when deposit has been made with the Commission pending the outcome of the Commission's review.

6) Failure of the customer to submit a dispute to the Commission in accordance with 1) and 2) above will warrant discontinuance of customer's service in accordance with the Section concerning Discontinuance of Service.

7) If, before completion of the commission's review, additional bills become due which the customer also wishes to dispute, the customer should follow the procedures set forth in 2) and 3) above with regard to the additional amounts claimed by the service provider or UDC to be due. Failure to follow the procedures in 2) and 3) above may warrant discontinuance of customer's service in accordance with the Section concerning Discontinuance of Service.

8) Subsequent bills, not in dispute, rendered prior to the settlement of the disputed bill, will be due and payable in accordance with the Sections concerning Rendering and Payment of Bills and Discontinuance of Service.

7.2.6. Collection Practices

7.2.6.1. Notices for Discontinuing Service

Notices to discontinue service for nonpayment of bills shall be provided in writing by first class mail to the customer and to the UDC, not less than 10 calendar days prior to termination. Each notice of discontinuance of service for nonpayment of bills shall include all of the following information:

1. The name and address of the customer whose account is delinquent.

2. The amount that is delinquent.

3. The date by which payment or arrangements for payment are required in order to avoid termination.

4. The procedure the customer may use to initiate a complaint or to request an investigation concerning service or charges.

5. The procedures the customer may use to request amortization of the unpaid charges.

6. The procedure for the customer to obtain information on the availability of financial assistance, including private, local, state, or federal sources, if applicable.

7. The telephone number of a representative of the UDC or service provider, who can provide additional information or institute arrangements for payment.

8. The telephone number of the commission where the customer may direct inquiries.

7.2.6.2. Procedures for Discontinuing Service

Requirements of UDCs may include:

1. UDCs will follow approved discontinuance of service procedures. The UDC will not terminate service for service provided by a third party.

2. The UDC may deny or terminate service to the customer immediately and without notice when:

a. The UDC determines that the premise wiring, or other electrical equipment, or the use of either, is unsafe, or endangers the UDC's service facilities; or

b. The customer threatens to create a hazardous condition; or

c. Any governmental agency, authorized to enforce laws, ordinances or regulations involving electric facilities and/or the use of electricity, notifies the UDC in writing that the customer's facilities and/or use of electricity is unsafe or not in compliance with applicable laws, ordinances, or regulations.

d. When relocation or replacement of electric service by the UDC is necessary, the service, including the metering facilities, will be installed in locations mutually acceptable to the UDC and the customer and which conform to current applicable codes, regulations and standards. If no such mutually acceptable location can be agreed upon, the UDC shall discontinue service until the customer and the UDC reach agreement.

e. The UDC will not supply service to a customer operating equipment which is considered by the UDC to be detrimental to either the service of other UDC customers or to the UDC. The UDC will terminate service and refuse to restore service to any customer who continues to operate such equipment after receiving notification from the UDC to cease.

f. The rights of the UDC and the consequences in cases where fraudulent information is given to the UDC by the customer shall remain as they are presently.

Requirements of ESPs may include:

1. ESPs will follow Commission approved procedures for discontinuance of service.

2. Requirements of service discontinuance due to non payment of energy services bill by the due date shown on the bill and after all notice requirements and periods of response have been met.

3. The ESP shall provide the applicant of Notice of the proposed discontinuance pursuant to Rule X.

4. The ESP shall have the right to terminate supply arrangement, discontinue service, or refuse to provide service to applicant or customer, without advance notice if the acts of the customer or conditions upon the premises are such as to indicate that false, incomplete, or inaccurate information was provided to the ESP or if the acts indicate intention to defraud the service provider. This includes fraudulently providing and receiving energy and energy services and /or providing false credit information.

5. Energy services providers must provide at least 30 days notice to UDC of intent to cease, discontinue or terminate supply or service arrangement whether due to non-payment or customer request.

Customer responsibilities:

Customer is responsible for notification to UDC, proper agreements, etc. for customer default service if UDC provides energy due to discontinuance of service by energy service provider.

UDC rights:

UDC has the right to discontinue service without any liability to energy services provider.

7.2.7. Customer Service

This section addresses communications and response standards for energy service providers...and will be completed, if necessary, by the next draft.

7.2.8. Reporting Requirements

This section addresses specific UDC and energy service provider reporting requirements determined to be necessary to ensure trade and marketing practices are within acceptable societal parameters...and will be completed, if necessary, by the next draft.

Note to reviewers: This is a revised version of what was sent out on October 8, 1996, that modifies Section 8.2 and Section 8.4.4.2 to add new material that was omitted in the previous draft.

This chapter, which was Chapter 11 in the August 30, 1996 DAWG Report, has been reorganized by Carl Silsbee, and additional material on the Consumer Education Plan has been inserted. With the exception of the alternatives and pro-con descriptions contained in the original chapter, an attempt has been made to retain as much of the earlier material as could be reasonably included. Material relating to consumer protection and monitoring has been retained, despite an overlap with Chapters 12 and 13 in the August 30, 1996 DAWG Report. Depending on how other chapters of this report are drafted, this material may be deleted, or additional material may be inserted. Direct requests or comments on the Chapter to silsbech@sce.com or 818-302-4841 (fax).

This chapter addresses the consumer education issues that DAWG has discussed, both before and after the August 30, 1996 report. Various issues addressed in the August 30, 1996 report are included in this chapter, along with additional material on development of a Consumer Education Plan.

The DAWG members envision three primary activities taking place in 1997 and beyond, to insure appropriate consumer education, both for the purpose of allowing consumers to exercise meaningful choices in the new electricity market, and to recognize and seek remedy for the market abuses that are likely to occur. First, we believe that California's major utilities under CPUC regulation should be charged with the responsibility to lead the development and implementation of a Consumer Education Plan. Second, the CPUC must develop and perform a unique role in providing oversight, monitoring, and consumer access to information. Some believe the CPUC should also act affirmatively to foster access to competitive services in communities that might not otherwise be fully served in the new market environment. Third, in accordance with the CPUC's December 20, 1995 restructuring decision, we anticipate the formation of a consumer education trust fund to, among other activities, enable the participation of community-based organizations in the process of consumer education. Following an overview of the objectives of consumer education, each of these activities is described in the sections which follow.

8.1 Educational Needs and Objectives

11.1.1 Consumer Needs

Most parties agree that consumer education is a key factor in achieving meaningful consumer choice. Meaningful choice is the potential to achieve significant improvements in value received from expenditures made, by permitting individual consumers to select from market options with quantity or quality differences. As explained in Chapter 2, customers have the right to know, which is generally agreed to mean that customers should both have information available and have the means to understand how to use it to make intelligent choices.

With the new reliance upon the competitive market to provide basic electric and telephone services for small consumers, the CPUC's new challenges can be summarized as:

a. Promote a competitive marketplace with multiple buyers and sellers.

b. To arm all consumers with the information necessary to make informed choices through multilingual and varied media educational efforts, particularly targeted toward the most vulnerable.

c. Direct educational programs toward informing communities about potential abuses under deregulation, including how to safeguard themselves as consumers and what to do in case of fraudulent practices affecting them.

These three elements are essential components to a competitive market. This underlying premise compels the CPUC to take actions to adequately inform consumers of their choices of service and service providers. This mission can be accomplished with four strategies: (1) sponsor and disseminate price and quality comparisons of deregulated services; (2) monitor customer education conducted by private participants and administer an education trust funds for the electric industry; (3) work to help mitigate barriers to meaningful customer choice, especially in traditionally underserved communities; and (4) monitor customer complaints and alleged abuses by providers, both in terms of how well educational efforts are enabling customers to report problems and complaints as well as the level of potential fraud or abuse by new providers.

8.1.2 Objectives

The Commission must accept significant customer education responsibilities. Guided by the principles of Chapter 2 -- to make competition work, to make it work in accord with state policies to preserve equity principles, and to prevent abuse and foster competition in chronically underserved communities -- regulators will need to ensure that consumers are provided the tools to participate in a competitive market.

Most agree that the CPUC must maintain an active role in a deregulated electric power industry similar to its role in telecommunications by providing a framework in which competitive players operate in a structured market. Since many elements of restructuring span beyond direct access, it is essential that the IOU/UDC play a major role in implementing what we have labeled as the Consumer Education Plan. The initial wave of consumer education will need to heavily involve utility resources and information delivery systems, perhaps with substantial CPUC oversight. The IOUs should be considered as an additional, if not an alternative, to an independent entity to impart to residential customers the information that they need to participate in a competitive marketplace.

Since IOU/UDCs are clearly under the direction of the CPUC, they can be used as the agent of the CPUC to disseminate a message to customers in ways that market participants could not be controlled. In addition, since it is becoming clear that UDCs will have little to lose or gain by "retaining" full service energy customers, they could be viewed as a more neutral party that competitive energy service suppliers who will be expected to put a gloss on their materials to support their overt marketing desires.

The following two paragraphs (taken from Section 11.1.7 of the August 30, 1996 DAWG Report) seem somewhat out of place here, since they touch on issues only partly related to (and only partly resolved by) education efforts. These points are key, but it seems that there should be a better spot than here. I would appreciate any comments or suggestions -- CHS.

Even under the traditional regulatory paradigm, certain residential customer groups have been underserved relative to other customers. In telecommunications, rural areas, low-income and minority groups, especially those with language-diversity, were not as well served as other customer groups. In a competitive markets, underserved communities will increase as private markets function to stratify social and economic classes. Residential consumers will be cherry picked because the underlying objective of the competitive market is to discriminate between those receiving cross-subsidies and those funding cross-subsidies. Unfortunately, the social objective of non-discriminatory electric services (c.f. Public Utilities Code 451, et. seq., 453 et. seq.) is undermined by this competitive reality.

Thus, it is incumbent upon the Commission to focus attention on potentially underserved communities, (e.g. rural areas, minority groups, seniors, renters, low-income, inner city and areas served by antiquated equipment). In a competitive electric market, market outcomes for some underserved communities may be determined by technological factors. For example, areas with distribution constraints or unusual climatic zones may prove unattractive to aggregators. The Commission will need to pay special attention to the intentional or inadvertent discrimination that is engendered by the competitive market.

8.1.3 The Need For Flexibility

Many aspects of direct access remain uncertain, making it difficult to fully specify the design elements of specific education efforts at this time. For example, the DAWG members are uncertain as to the rapidity of the direct access phase in, or the selection mechanism that will be used to determine eligibility for direct access in 1998. Also, it is not clear how interested smaller customers will be in direct access. Based at least partly on consumers' view of telephone deregulation, we expect that many electricity customers will initially take a position of "just leave us alone." In addition, none of the marketing organizations represented in the DAWG process has expressed any significant degree of interest in pursuing smaller customers. We expect that load profiling and aggregation rules will significantly influence the eventual penetration of direct access into the small customer market segment.

As a result of this uncertainty, the CPUC must put into place educational efforts that are flexible, and can be modified on short notice as other aspects of direct access fall into place during 1997. It would not be appropriate, for instance, to design a program with significant mass advertising directed towards small customers, only to find that there are virtually no marketing firms interested in providing direct access service. Such a result would create consumer skepticism, and likely harm the long-term development of a competitive generation market.

Irrespective of the size of the small customer market, or of the level of customer interest, a certain basic amount of information needs to be conveyed to small customers regarding the potential for marketing abuses or fraudulent practices. Customers need the knowledge to recognize fraud and to seek redress should they be victimized by unfair marketing practices. Since we cannot fully forecast the creative opportunities that may exist for the unscrupulous, flexibility is needed in this area as well.

8.2 Consumer Education Plan

8.2.1 Introduction

Although the August 30, 1996 DAWG report set forth a number of different options for choosing a "lead entity" to direct education efforts, we have now concluded that the best alternative is to make utilities responsible for developing and implementing a consumer education plan during 1997. The practical reality is that only the utilities have enough expertise, resources and lines of communication with customers to mount a successful effort in the time remaining before direct access commences. Representatives of the three major investor-owned utilities have agreed to take on this responsibility. This approach is consistent with recently enacted AB 1890, which imposes a consumer education responsibility on utilities, with educational efforts subject to approval by the CPUC (check cites).

In broad design, the DAWG envisions that the utilities would jointly select, and rely heavily on, an outside consultant to assist in fashioning a Consumer Education Plan (CEP), and perhaps in developing and delivering key messages to consumers. We see this as both efficient and effective, by avoiding duplicative development of possibly inconsistent advertising messages in different parts of California. Use of an outside consultant creates greater opportunity for CPUC and stakeholder involvement in the process of developing the CEP. For example, we expect the utilities would involve stakeholders in developing the consultant scope of services prior to releasing a request for proposals.

We encourage the CPUC to support participation of municipal utilities in development of the CEP. To the extent that mass media advertising is used by the utilities, it isn't possible to target such advertising to selectively avoid customers of nearby municipal utilities. Close coordination is necessary to avoid potential customer confusion.

When the need for a utility led process for developing a CEP became apparent, the DAWG created a Consumer Education Plan group, composed of communication experts from the three utilities. This group has held several meetings, to initiate the process of developing the Consumer Education Plan. The next four sections which follow primarily reflect the findings of this group, supplemented with issues discussed by the DAWG members.

8.2.2 Goals of the Consumer Education Plan

There are three simple and straightforward goals that must be achieved in order to meet overall consumer needs:

Minimize consumer confusion over the changes in electric utility business structure;

Increase consumer understanding of potential market abuses and opportunities for consumer recourse; and

Raise awareness of what consumer choice means in the emerging marketplace.

It is important that educational efforts lend themselves to performance measurement, so that there is a way in which success can be assessed. These goals are structured in a sufficiently quantitative manner that the success of the CEP in meeting them can be measured through marketplace research

The CEP should be developed consistent with the following principles. First, traditional and non-traditional forms of communication media should be used to ensure maximum consumer reach. Because of the need to reach as many consumers as possible, the CEP should use a diverse range of approaches to seek out consumers who might not pay attention to standard communication media such as newspaper or television advertising. Second, efforts need to be constructed from the start as a multi-lingual campaign. In other industries, there is concern that non English-speaking market segments are often targeted for abusive marketing practices, and such is likely in the emerging electricity market as well. Third, consumer information needs should drive the messages and their presentation. The CEP must be designed in a flexible, iterative manner, with sufficient market research incorporated in the design to tailor the messages to respond to measured consumer needs. Finally, participation by representatives of various target audience segments is crucial. Stakeholder involvement in the CEP, while not a substitute for measurement of consumer needs, is nevertheless very important to insuring that needs are not overlooked, and messages are crafted in a sensitive and effective manner.

8.2.3 Roles and Responsibilities

The three investor owned utilities are willing to take the lead in developing the CEP and in implementing this plan. The CEP group envisions the role of the consultant to be one of facilitating the development of the CEP by working with representatives of the three utilities, the CPUC, and stakeholder groups representing low-income, elderly and non- and limited-English speaking consumers.

The consultant will need to have experience developing broad-scale consumer education campaigns targeted at diverse audiences. At lease some of this experience should be with efforts in California, due to the particular ethnic and social attributes of California consumers. Additionally, the consultant should have participated at some level with implementation of similar plans, in order to provide the CEP group with a realistic assessment of what does and doesn't work. In order to insure effective control of expenditures, the contract can be scoped into phases. For instance, Phase I would be a contract for working on development of the CEP. If there is a role for the consultant in implementation of the CEP, this would be addressed in a separate Phase II contract.

The CPUC needs to establish and communicate to consumers the existence of an organization to whom customers may be directed for information. Although most consumers will naturally turn to their current utilities for information, we believe that an additional public source for information is appropriate, and should be in operation in parallel with implementation of the CEP. The CPUC's role in education and customer information is discussed further in Section 8.3. It would be advantageous to move forward quickly to create a consumer education trust fund, and begin the process of engaging Community Based Organizations (CBO's) in the educational process at the outset. This will allow CBO efforts to proceed in a coordinated manner alongside implementation of the CEP. The consumer education trust fund is discussed in Section 8.4.

The role of the consultant in implementing the CEP through paid communications (i.e., print, radio and television advertising) crafted to reflect a uniform statewide message was vigorously debated. Some believe that using the consultant in this manner assures an arms-length process that may allay concerns marketers would have about direct utility involvement in education efforts. To the extent that local community differences are minor, there may be economies gained by using a uniform advertising approach. Others believe that the utilities should be free to use their existing advertising agencies, to target the specific needs within their service territories (consistent with the goals and approaches in the CEP, of course). This latter approach can be implemented faster, and with greater confidence of success. Also, this latter approach does not create consumer confusion regarding the perceived sponsor of the educational materials. This could be important in terms of gaining consumer trust regarding the advertising message. We believe that resolution of this issue should be attempted by the CEP group in further meetings, and in with the assistance of the consultant.

Regardless of the role of the consultant and the use of paid communications, existing utility communications should be a key part of educational efforts. Newsletters and other forms of bill inserts are a relatively inexpensive and targeted vehicle for customer education that should not be overlooked. The utilities, facilitated by the consultant are willing to make billing envelop space available (subject to competing requirements for using this space for legally mandated inserts), and will produce common materials to the extent appropriate.

8.2.3 Key Messages

Some of the key messages which have been identified as themes which would be targeted for all audiences are as follows:

Change is coming

Consumers will have choice

Consumers don't have to do anything, to continue "business as usual" service

Consumers need to be careful about potential marketing abuses

There is a place to go for further information

More questions than answers right now, stay tuned for further information

There are a number of assumptions about consumers and about the pace of restructuring which underlie this choice of key messages. For instance, we are assuming a high degree of consumer skepticism based on experiences in telecommunications restructuring, so addressing the concept of default service creates a neutral backdrop for consumers who wish to consider competitive choices. That is, if consumers know that the status quo is always available, they are likely to perceive that consumer choice really is a benefit to them. Also, we are assuming that advertising and other educational efforts will need to begin before key elements of restructuring have been firmly established, so the concept of a dynamic, evolving process needs to be conveyed, or consumers will draw negative conclusions from the lack of substantive answers available from information sources.

Refining these key messages, through research, and based on stakeholder insights, will be a critical part of the effort to develop the CEP.

8.2.4 The Consensus-Based Process

Development and implementation of the CEP must take place within an environment that allows effective involvement by a variety of stakeholder interests. The DAWG members envision one of the obligations of the utilities responsible for managing the CEP to be organizing a consensus-based process designed to provide ongoing review of CEP development, strategies, and specific consumer materials, such as bill inserts.

We do not see the consensus-based process functioning as a review board that would have veto powers over CEP development. Because timely development of educational materials is critical, the utilities must have the authority to move forward where necessary, even where there is a lack of consensus. We realize that utilities may be reluctant to move forward aggressively where there is dissension, and the potential for parties to second-guess their efforts at a later date. The DAWG recommends that the CPUC appoint a "referee", either from within its staff or a representative from a state consumer agency, that would serve as an independent, neutral party that utilities could rely upon for advise when disputes arise.

8.2.5 Funding

Utilities should be permitted to recover the incremental costs associated with CEP development and implementation. The DAWG members recognize that providing such funding is a necessary precondition to obtaining utility involvement in the CEP. Such funding should be consistent with the direct access implementation funding described in Section 376 of recently enacted AB 1890, and should not result in any rate increase during the "rate freeze" period through December 31, 2001.

Although funding recovery should be conditioned on the reasonableness of utility expenditures, the DAWG members do not anticipate the need for an explicit reasonableness review. As a result of the consensus-based process, and reliance on the CPUC-appointed referee, expenditures should be deemed reasonable, absent a prima facie demonstration to the contrary. (Good faith reliance on the opinions of the CPUC referee should be per se reasonable.)

Costs of the CEP could be allocated among the participating utilities based on relative kWh deliveries made to ultimate customers within the utilities' service territories, consistent with how WEPEX development funding is being allocated. (Reviewers: The facts need to be checked. Intent is to use previously agreed methods that would be suitable for extension to participating municipal utilities.)

The CEP group recognizes the interest of many parties in developing "ballpark" estimates of likely CEP funding requirements, but is not able to estimate potential costs at this time.

8.2.6 Experience with the Caller Notification Education Plan

The Commission has demonstrated the efficacy and effectiveness of community-based education in its implementation of a public education plan for CNEP (Caller Notification Education Plan). Recognizing that the introduction of CallerID would present new and important impacts upon telephone customers, the Commission required that Pacific Bell and other phone providers commence a "bottoms-up" education plan as a precondition for the commencement of CallerID service. Because Pacific Bell was determined to be the primary financial beneficiary once this service was offered by them to customers, the Commission required Pacific Bell to pay the full $32 million educational program cost for this product.

Although the purpose and need for education are very different between CallerID and electric industry restructuring, some parties believe that lessons learned from the Pacific Bell program may be useful when considering policies for electric industry restructuring. For example, the efficacy of that approach towards customer education is discussed in depth in "Evaluation of the October 11 Pacific Bell CNEP on CPN Delivery" by Professor Brenda Dervin of Ohio State University. That report, commissioned by the Commission's CACD and delivered on November 21, 1995, establishes a number of important principles for educating customers about changes in utility service.

Some of the features recommended by Professor Dervin and adopted by the Commission include:

a. Independently Crafted Messages. Professor Dervin stressed the need for involving community representatives in co-production of campaign messages. For CNEP, the Commission approved the hiring of a nationally recognized media consultant to develop themes and mass advertising and sought the input of intervenors to refine the proposed themes.

b. Use of Community Based Organizations (CBOs). The Professor emphasized the use of high involvement/high interaction outlets and recommended that at least 50% of the campaign need be implemented out in the communities. Recognizing the educational advantages offered by the state's existing network of non-profits, the CPUC required that these CBOs be hired to effect customer education.

c. Early and Concerted Efforts. A concerted education plan should commence six months prior to the beginning of the new regulatory scheme and be continued through the transition. The campaign must be iterative and sustained, according to Dervin. Accordingly, the CNEP began educating customers almost 6 months prior to the introduction of Caller ID service in California. The $32 million plan proved to be so successful that Pacific Bell could not accommodate the crush of customers seeking blocking protection and implementation was delayed until customer responses could be completed. The plan is to continue for one year after the introduction of the service.

Drawing upon these lessons from tele-communications, community-based programs should make the campaign relevant to customers. Electric restructuring is going to require a new awareness by customers of matters that had been heretofore largely handled by the monopoly utility. It will be essential that customers are educated, in simple terms, as to why they should care. The message must be interactive and accessible to all customer groups, including multi-lingual and multi-cultural communities. In addition, consumer education should be designed to prevent foreseeable abuses. Telecommunications deregulation foretells some of the marketing and other abuses that will come with electric deregulation in California.

Not only is it critical that consumer education begin well before-the-fact to inform customers that restructuring is going to happen and what it will mean to them, but they must also be educated to be informed about how to protect themselves from abuses by the unscrupulous. Language minorities, the poor, immigrants and limited English speaking will be most susceptible to targeting by potential fly-by-nights and quick buck artists abusing the Commission's certification and redress process. In all major slamming and marketing abuse cases prosecuted by the CPUC to date in telecommunications the unscrupulous practices have been focused primarily on limited English speaking and minority groups. Many of these victims have been charged rates two or three times higher than those of their previous carrier, as well as being billed for calls they never made. They must be educated both ahead of time and as restructuring progresses about how to evaluate and/or make informed choices among competing energy providers, what credit information may be sought, where to report suspected abuses, what to do if they are overbilled or slammed, where to go for redress, and what their rights are in terms of a provider of last resort. All information must be multilingual and culturally appropriate, and provision must be made for illiterate customers or those, such as the Hmong, without a written language. In evidence adduced recently before the Commission in the CTS slamming investigation (I.96-02-043), witnesses testified that minority and limited-English speaking populations are targeted because of their propensity not to complain to authorities or not to know how to exercise their rights.

Five essential elements should be applied to the educational plans for electric restructuring, and should be linked to opportunities for direct access, since this is the first major choice that customers will be provided. This education effort should commence at least six months prior to January 1998 and may best be crafted by a qualified independent entity to impart to residential customers the following points:

a. Companies other than the local utility will be selling electricity.

b. Customers will have the right to choose these other services or stay with the local UDC.

c. In making that choice, the customer must understand prices, risks and personal usage patterns.

d. Utilities will provide customers with personalized energy usage profiles if they are reimbursed their cost to do so.

e. CPUC and/or others will provide customers with energy shopping information.

8.3 The CPUC's Consumer Advocate Role

8.3.1 Information Access

In order to effectively comparison shop, customers will need to be educated about their own energy consumption patterns and history of usage. It is unreasonable to expect that customers have saved their bills over the previous three years in order to secure this information. However, IOUs have collected a certain amount of historical data about its customers that can be used. There are various ways that the IOU can facilitate customer education about their own energy usage history, and its importance to their opportunities.

a. IOUs Provide Customized Usage Profiles. In order to facilitate customer evaluation of options, the IOUs could be directed to provide, upon request, an energy usage profile for an individual customer. Costs to provide this information should either be reimbursed by the customers or through cost recovery mechanisms that encourage IOUs to perform this function proactively. Profiles could include a chart and breakdown of monthly data for energy consumption and price paid for energy over the previous 12-24 months. In order to participate in a meaningful way in consumer choice opportunities, the electric customer needs energy usage history, data from comparable periods of the current and at least one previous year, adjustment for weather fluctuations, adjustment for price changes, comparison to other customers' energy usage and breakdown of expenses for major appliances. (See: W. Kempton, Improving Residential Customer Service Through Better Utility Bills, ESource SM-95-1, August 1995). The first energy profile should be offered at no cost to customers. Modest charges may be applied to subsequent profile requests. This profile will be the basis upon which customers can gauge their historical energy consumption patterns, better assess their energy needs and gain a sense of the cost of that electricity.

b. IOUs Provide Raw Data. IOUs could be directed to provide raw energy consumption and bill data for each billing interval in their active computer databases for a processing fee. Searching back into archived records would be an added cost activity. analysis to adjust raw data for price changes, weather, or other anomalies would be some the customer did, or an potential energy service provider, or a third party firm providing an analytic service.

The UDC will continue to be sending monthly bills to most small customers for distribution service costs. This bill packet has "unused space," owned by the utilities, that could be used to provide information. Because of the legal issues surrounding the utilities' bill envelopes, the IOU's consent may be required to include such inserts. Other state mailers, such as DMV and tax-related mailers could also be used if state policy directed such inter-agency cooperation.

The UDC may provide a unique opportunity to assist with the low-cost distribution of important information to consumers through the use of the UDC's bills. These bills, paid for by all ratepayers but legally owned by the utilities, have additional room into which lists of qualified, certificated aggregators along with customer information about how to evaluate these services may be inserted. This vehicle helps reduce the significant transaction costs facing any service provider seeking to "crack" the mass market. Notably, this list can be distributed an information insert in a distribution companies billing packet, much like rate increase notices are currently distributed. The incremental costs of the insert could be defrayed by a contribution from those aggregators who are listed in the notice.

8.3.2 Price and Quality Comparisons

If a consumer is unable to comparison shop for electricity services, then the market will fail. In order to shop, a customer must be able to determine value. In order to establish value, the consumer must be able to compare price and quality of competing services. Some believe that "competitive" markets don't always succeed in providing such information and that the long-distance, local-long distance telephone services, and the auto insurance industry are examples where industry has failed to properly apprise customers of essential information. (In response, the state's Department of Insurance has a program to assess and publicize comparative rates or customer service records for auto insurers. It is also statutorily charged with creating a "hotline" service for price comparisons to customers.)

Some believe that explicit education programs must be developed that would supplement the information provided by the private market. These efforts could include:

a. Monthly listing of licensed energy providers;

b. Bi-annual listing of price comparisons among energy providers;

c. Bi-annual listing of consumer complaint information;

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

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

f. Creation of representative service benchmarks for different types of customers upon which comparisons of service can be readily made.

Some believe this information should be made available to customers at no cost. It can be distributed though CPUC offices, community-based organizations, other state agencies and by all licensed energy providers. Others emphasize the need for this information to be available to English and non-English speaking customers.

Reflecting the above description of a more market-oriented approach, some believe that the need for this information should not be provided by extra-market means, or at least not beyond a transition period. UDCs or ESPs might also be used to provide this information, rather than by new organizations that must be created, staffed, and gotten up to speed in a short period of time.

8.3.3 Monitoring Customer Education by Private and Non-Profits

Some believe that the CPUC should go beyond ensuring that price comparison information and evaluative services are provided, and that the CPUC will be obligated to monitor private consumer education by market competitors and non-profits to ensure accuracy of the information. There are four concrete steps that can be taken by the CPUC to improve the quality of consumer information in the market. These steps could include:

a. Provide Materials. The Commission should provide copies of its education materials to CBOs and other state agencies for distribution to clients.

b. Provide Training. As part of its public outreach and dispute resolution functions, the Commission should train individuals in CBOs and assorted social service agencies to handle electric service complaints. These designated individuals will then be familiar with the kinds of complaints and available remedies to customers who have problems with their newly competitive services. The individual could advise the consumer, help mediate a resolution or refer the customer to the CPUC and/or other appropriate entities for resolution of the complaint. This training effort could substantially increase the likelihood that consumers will get assistance. It will also serve as an early warning system for potential systemic problems in the market and it potentially reduces the workload on the Commission's Consumer Services Division.

c. Review Draft Materials. The CPUC can also serve an advisory function for market participants. During the transition period, the CPUC should provide a service whereby it will review marketing materials voluntarily submitted by service providers to the CPUC. By undergoing an accuracy review by the CPUC, the market providers may be protected against possible private action for misleading or false advertising. And the CPUC is able to proactively prevent potential customer confusion.

d. Hold Providers Accountable. The CPUC must inform providers that they will be held responsible (to the extent consistent with law) for any fraudulent, deceptive or other unlawful marketing or billing acts performed by their agents and representatives, whether or not they attempt to insulate themselves by classifying such persons as independent agents.

8.3.4 Fostering Aggregation of Small Customers

Small customers may need to rely upon service by aggregators in order to participate in direct access to competitive generation services. Absent aggregation, these customers' costs will be linked directly to the performance of the Power Exchange. As demonstrated in insurance, banking and other complex services, aggregation of small customers can reduce transaction costs and increases market leverage. In newly established markets like electric and telecommunication services, it may be important that such aggregation occur, so as to give small consumers some opportunity to secure improved service and lower costs.

The CPUC is acutely aware of the problems faced by traditionally underserved communities. It has studied and is aware of low-income, senior, rural, ethnic minority, inner-city and other readily identifiable subgroups that have not been adequately served in telecommunications reforms. It is uniquely qualified to help identify to aggregators these communities by improving information and communication among potential customers. Some believe this task cannot be left, exclusively, to the private market because they assess other market results as inadequate. There are at least two alternative views about how far fostering aggregation should go.

a. Educate Consumers. During the five to ten year transition period, the CPUC should be active in helping promote aggregation by properly educating customers. While the Commission should not directly assist energy providers, it can serve as a coordinator for private companies to find customers. For example, it can direct the distribution of information to the state's customers about available aggregators in rural, inner city and other underserved communities. It can establish a hotline where interested consumers can learn of the potential aggregators.

b. Actively Facilitate Aggregation. Some parties believe that the CPUC can be even more active and work with the private market to aggressively promote customer aggregation. It can assist municipalities and other public agencies who seek to create legal aggregators of electric or phone services. It can list the aggregators' names and product information on the CPUC Web Site and make the information available at CPUC offices.

8.4. Restructured Electric Service Education Trust (RESET)

The Commission has set the stage for development and implementation of an education trust as an important element to facilitate the success of its program to restructure the electric industry. Before developing a framework for a consumer education trust for electric service, let us look at two other trusts with educational aims, namely the Telecommunications Education Trust (T.E.T.) and the D.E.A.F. Trust. Some parties advocate a structure similar to the TET fund, with independent administration and allocation of funds to community organizations and others who are familiar with specific fraudulent activities in various communities, and who also have the confidence of the community.

8.4.1 Telecommunications Education Trust

On December 22, 1987, the Commission issued D.87-12-067 which ordered Pacific Bell (Pacific) to create a trust fund called the Telecommunications Education Trust (T.E.T.). The T.E.T. was one of the programs the Commission ordered Pacific to establish to make restitution to ratepayers for abusive marketing tactics employed by the telephone company in selling certain telephone services. T.E.T. was established to further educational efforts and increase ratepayer understanding of the telecommunications system. Pacific's funding for T.E.T. was set by the Commission at $16.5M. The money was to be disbursed annually over a period of six years ($ 3M per year for five years; the remainder in the sixth year) to various community and consumer oriented groups and other organizations to implement certain outreach and educational projects. Trust funds were to be administered by a trustee (in this case, the trust department of a bank). A disbursements committee composed of DRA, Pacific, two consumer groups and the Public Advisor would meet annually to review applications for funds and decide which projects were to be funded.

8.4.2 The D.E.A.F. Trust

The second trust fund, the Deaf Equipment Acquisition Fund (D.E.A.F.) Trust existed in various forms since the early 1980s, when state legislation mandated a fund be established to provide special equipment and communication services to deaf, hearing impaired and disabled individuals. Funds were collected by placing a surcharge on intrastate telephone calls. In 1989, in response to complaints from various groups in the deaf and disabled communities, the Commission issued D.89-05-060 (May 30, 1989). This decision completely reorganized the administrative structure of the D.E.A.F. Trust.

Prior to this decision, under the jurisdiction of the Commission, Pacific administered the D.E.A.F. Trust and performed its day-to-day activities. The decision created one administrative committee and two subcommittees, and ordered the administrative committee to open and staff a D.E.A.F. Trust office to handle day-to-day operations. Each committee had representatives from the various constituent consumer groups, as well as personnel from the telephone utilities (including the communications services provider) and Commission staff. The 1996 Budget for the D.E.A.F. Trust was approximately $44M.

8.4.3 Comparison of T.E.T. and D.E.A.F. Trusts

The differences between the two trust funds are summarized below.

a. The T.E.T. was established to benefit all users of telecommunications services; the D.E.A.F. Trust was established to benefit only certain segments of the community.

b. The T.E.T. was funded as a result of a penalty levied on a utility by the Commission; the D.E.A.F. Trust was funded by a surcharge.

c. The T.E.T. was a temporary trust; the D.E.A.F. Trust is a Federally-mandated permanent fund.

d. The T.E.T. was established as a disbursement vehicle for restitution funds; the D.E.A.F. Trust is a subsidized activity from customers.

e. Each T.E.T. Committee member had one vote; on the D.E.A.F. Trust subcommittees, certain parties were standing members only and were not permitted to vote.

8.4.4 Restructured Electric Service Education Trust

The following three subsections provide an initial proposal for an educational trust. As noted previously, this is an initial proposal from a single party that will be reviewed in more depth as part of the continuing DAWG effort to review consumer education and protection issues. It is not necessarily constrained by current CPUC authority, since many changes in statute will be required to establish other facets of retail restructuring.

8.4.4.1 Scope

RESET is to be established to promote consumer education and understanding of forthcoming changes in the structure of the electric industry in California and to educate consumers about service options available to them in the newly competitive electric environment. Such efforts could include, but not be limited to: mass media programs, educational forums and community outreach efforts, paid for by giving trust funds to selected groups. Special efforts should be made to target certain groups such as the elderly, low income and non-English speaking communities. Experience in the restructuring of the telecommunications industry indicates these groups are targeted by unscrupulous companies and subjected to various forms of marketing abuse (i.e., "slamming" and "redlining").

Timing is a major issue, with respect to both funding and instructional efforts. Consumers must be educated BEFORE the market is declared competitive, as well as during the transition and afterward. In order that direct access can be implemented, a major responsibility of the education trust will be to ensure that customers are able to make informed choices in the market. For this to happen, massive and general education efforts must begin at least six months prior to implementation of direct access, i.e., NO LATER THAN JULY 1, 1997. Obviously, the trust must be established well ahead of that date. If legislation is required to create the trust, the Commission should make the appropriate overtures to the Legislature now to make it happen.

8.4.4.2 Funding

This section will be modified to incorporate the discussion of funding issues that took place at the August 28, 1998 DAWG-D meeting. Also, references to the CNEP funding level have been deleted, since those working on the Consumer Education Plan have questioned whether the CNEP figure has any relevance.

Funding should come from those companies who have a vested interest in doing business in California in the newly deregulated energy market. A budget for outreach and education could be agreed upon, and a fair and reasonable method of assessment of industry participants agreed to. In addition, an education fund of this nature could also be fed by fines or penalties levied by the Commission on service providers who violate the Commission's rules.

Potential sources of funds for the education trust that have been discussed by the DAWG members include the following:

Utility funding, recovered in distribution rates or as part of the Public Goods Charge;

Registration fees or a kWh based fee charged to service providers;

Fines and penalties levied on market participants; or

Private funding from advertisements included in educational materials.

None of these funding mechanisms is particularly appealing, particularly at a time where there is widespread concern about high electricity rates. It should be noted that the assertion that consumers should not be required to pay for a program to educate them is simply a smoke­and­mirrors statement. If retailers pay for education, they will just pass the costs on to consumers. If utilities are required to fund significant educational efforts fairness dictates they receive appropriate compensation. This is frustrating for some, who observe that consumers should not be required to pay for education when the decision of whether or not the industry was to be restructured was beyond their control.. However, once we recognize that consumers will eventually pay the bill, the choice is simply how to recover the money in the most efficient and equitable means possible.

Some have suggested that a short-term funding mechanism would be to divert general rate case funding for DSM marketing/education programs to the trust. Such funding is already included in rates, so customers would pay, but they would not pay more. Given the public policy support for DSM activities, as well as specific funding criteria in recently enacted AB 1890, this does not appear to be a viable approach.

Imposing fees on retailers imposes education costs solely on direct access participants. This approach avoids some of the problems with recovering charges within utility rates, and will be seen as equitable by some. However, it may also be seem as a barrier to competitive entry, since it is a fee that utility default service customers would not pay. Also, the CPUC's legal right to impose registration or kWh fees could be challenged, unless there are legislative changes.

Using fines imposed on market participants for abusive practices is clearly a viable means of funding the trust. Unfortunately, such a source of funding is uncertain, and will certainly not be available in time to proactively avoid potential problems.

In conclusion, the DAWG members were not successful in identifying a funding source without significant difficulties.

8.4.4.3 Administration

RESET should be administered by a committee modeled after the committee which administered T.E.T. Committee members should consist of Commission staff (including the Public Advisor and outreach officers), industry participants, and various consumer groups. Committee members should be approved by the Commission and each member should have one vote. A trustee for the actual funds would need to be retained, as well as the services of an attorney. Fees for these services and committee operating expenditures should be approved by the Commission. (This includes expenses for consumer members, which should be subject to the same rules as those applicable to Commission staff.) The Committee should be responsible for reviewing various requests for proposals (RFPs) or grants submitted to it. An outside party (someone not on the committee) should be made available to assist parties with the writing of requests and grants. In other words, no group or individual should be automatically excluded from the process due to their inexperience in grant or request writing.

There are two disputed views about the criteria for membership on the administrative committee.

a. Exclude Participants in CPUC Proceedings. Criteria should be established for consumer members similar to the criteria established for consumers of the T.E.T. Disbursements Committee: (1) consumer members must have prior experience with mass consumer education programs; (2) consumer members must not have appeared before the Commission in formal proceedings, and (3) if consumer members are active in a consumer group, that group must be willing to forego competing for any moneys the committee may grant or disburse.

b. Select Capable Persons Irrespective of Their Other CPUC Activities. Some parties disagree that appearances before the CPUC or involvement in CPUC proceedings should disqualify a person from serving on the administrative committee. This would exclude some of the most knowledgeable and capable organizations concerning impacts and implications of electricity restructuring from participation. These are also the same groups with the trust and confidence of minority organizations. There is precedent for parties to the proceedings which led to the TET fund to receive moneys for community education purposes.

8.4.6 Monitoring and Evaluation of Trust Performance

RESET's administrative committee would be monitored by the CPUC and its performance evaluated on a routine basis. DAWG has not yet focused on these details, but periodic reporting and CPUC control over some RESET actions seem self evident.

8.4.6.1 Periodic Reporting

The Trust committee would periodically report to the CPUC on the following items:

a. Amounts of money disbursed.

b. Names/Identities of fund recipients.

c. Purpose of programs funded.

d. Summaries of educational efforts, including: (1) What was done?; (2) Who was the target group?; (3) What was the impact of the effort? (How many people contacted? What was the response, if appropriate?)

e. Account balances.

8.4.6.2 CPUC Control Over Certain Changes

A Commission resolution should be required for the trust committee to do the following:

a. Change the identity of the financial advisor or trustee.

b. Change either the committee structure or its membership.

c. Change the terms and conditions of the trust.

d. Obtain approval for an operating budget.

8.4.7 Concerns with a Trust Approach

Experience with other trust funds has shown that certain problems have arisen with the trust fund process. These problems are primarily in the area of definition of roles of the members and conflict of interest. Some parties believe that the RESET fund can be established in such a way as to avoid problem areas by implementing measures such as those listed below.

Voting Rights. Each member of the committee should have one vote. If a vote is tied, the Public Advisor should cast a tie-breaking vote.

Either experts should be hired to conduct a consumer outreach program, or the groups given funds should have extensive experience in this area.

Before any outreach education programs are conducted, ways of effectively monitoring efforts and measuring outreach results should be agreed upon by the committee.

The roles of committee members, the committee itself and the Commission should be distinctly defined.

Conflict of interest rules need to be explicitly defined and understood by everyone.

A "sunset" clause needs to be included in the terms and conditions of the trust.

The following material was in the August 30, 1996 DAWG report, but I propose to delete it in this revision of the report, since it just doesn't seem to fit as introductory material. I have left the material here, for the convenience of any reviewers who disagree, and would propose to incorporate the material back into the chapter. -- CHS

11.1.1 Emphasis of Educational Efforts

Participants appear to agree that there are appropriate roles for virtually all of the market participants and regulatory agencies. Unfortunately, there is major disagreement among participants about the relative emphasis to be placed on any of them. This leads to considerable disagreement about the specific objectives for various educational efforts. Some support educational programs designed to target specific customer segments with specific messages. Others hope to rely upon natural information exchanges as part of business transactions.

At the risk of polarizing debate with the extreme views, the following alternatives may help provide a sense of the different perspectives under discussion.

a. Strong Equity-Based Education Programs. An equity-based program approach presumes that consumers will require educational programs and materials that will permit comparison shopping for price, quality of service, provider track record, understanding of choices, quantification of risk and redress opportunities. Customers need to be educated against typical market abuses which they might encounter. A focus upon chronically underserved communities is necessary to achieve the overall goal. Community-based organizations are the best means of providing service to these underserved communities. The messages of these programs must be controlled to ensure that they are free from bias. Particularity for these communities, educational materials must be developed to serve people in languages of their communities. The CPUC must assume ultimate responsibility that adequate market information is made available to diverse segments of consumers.

This view suggests that it is important that for the initial transition years that this information dissemination and education activity not be needs-based or subject to a cost-effectiveness test. Educating small customers about their options will have to be deemed a competitive transition cost similar to treatment of stranded costs and ISO/PX infrastructure. It is an essential cost necessary to create a competitive marketplace. In later years, the publicly-funded education efforts may be less necessary and cost-effectiveness standards would then be applied.

b. Reliance Upon Market-Based Efforts. Relying upon market participants to convey much of the detail of product offerings and to raise consumer awareness will be more effective than any equity-based programs. The CPUC should work to reduce transaction costs associated with aggregation so that greater numbers of customers can actually be reached by market participants, rather than forestalled by excessive restrictions. CPUC mandated educational programs should be designed to teach how to make choices, how to use market information, and should be transitory, not permanent. Education expenditures should be needs-based and processes should be subject to continuing reviews of their cost effectiveness at delivering the "message" to the consumer. Public policy should be founded on societally cost-effective actions to avoid squandering scarce funds and resources. To ignore the long term cost-effectiveness of educational activities in deciding when and where to take action inappropriately funds low social value programs at the expense of those with greater social value.

Note to reviewers: This chapter reflects material presented by Carl Silsbee at the September 12 and September 26 DAWG-D sessions, and the associated discussions. The discussion presentations have been modified somewhat to reflect a recent ACR, that establishes a comment period for the October 30th report. The utilities have not yet provided final comments on the feasibility of the specific dates shown in the implementation timelines. I've also added an alternative to utilities making the initial registration filing, that would have CPUC staff start things off with an OIR. Finally, I'm not sure where we have ended up with the consumer education trust fund, but I made something up that tries to be consistent with discussions at our discussion sessions. Please provide comments to me at 818-302-4841 (fax) or silsbech@sce.com.

9.1 Implementation Objectives

First and foremost, there is general agreement as to the importance of developing procedures for registering electricity service providers and developing a program to educate consumers, prior to the commencement of direct access on January 1, 1998. Failure to achieve these objectives risks customer confusion, poor market information, disparate choice, and political backlash resulting from an undeveloped and poorly performing competitive market.

This chapter proposes implementation timelines and recommends actions that the DAWG members believe the CPUC should take now in order to implement an effective program of consumer protection and education. We propose two "critical path" chains of events, one leading to CPUC registration of electricity service providers, the other with adoption and implementation of a Consumer Education Plan. Time is clearly of the essence, as a review of our proposed timelines will show. Already, time constraints are acting to limit our opportunity to pursue more deliberative efforts. For instance, Section 11.2 of the August 30, 1996 DAWG Report identified a number of different entities in whom responsibility for Consumer Education Plan development could be vested. Whatever the merits of these different options, only the utilities have the requisite expertise and resources to lead the effort to develop and implement Consumer Education Plans in the time available.

Thus, there is wide (but perhaps not universal) agreement that utilities should take a leadership role in organizing activities and efforts that move implementation forward in 1997. The utilities distribution activities will continue to be regulated as monopoly functions, which insures oversight of the utilities efforts. In addition, failures in the registration process or in consumer education are likely to adversely impact utility operations, such as by increasing telephone center workload. Nevertheless there may be concerns about this utility role. To the extent that utilities themselves participate in the electricity supplier business (either through marketing affiliates or as a result of the default provider obligations imposed by the CPUC), some may be concerned that utilities might take undue advantage of their role in implementation. Thus, implementation efforts should go forward using a process that provides full "due process" rights to all potential market participants, to insure the integrity of the resulting registration and education programs.

The DAWG members agree with the importance of developing a consumer education trust, which would serve as a source of funding for community-based and other targeted educational outreach programs. In Chapter 8, various structural and funding approaches are described. In light of more pressing needs, we have not developed specific implementation proposals, and do not plan to make a further submission to the CPUC on this subject on December 6, 1996. Finding a reasonable source of funding for the trust is a problem, due the rate freeze enacted in recent legislation, and a general concern with high electricity rates. We invite the Commissions guidance with regard to funding sources.

In addition to registration and education efforts, the Direct Access Working Group envisions the CPUC taking an affirmative role in developing redress, oversight and monitoring procedures (Chapter __) and becoming a reliable, neutral source for information about electricity service providers (Chapter __). Because these are internal CPUC functions, we have not provided specific implementation recommendations. Nevertheless, we are concerned that the CPUC move expeditiously in these areas. Our members welcome any opportunity to comment or assist in these CPUC efforts.

9.2 Legislative Issues and AB 1890

This report has been drafted to reflect the beliefs of the DAWG members about the necessary elements of effect programs to insure adequate consumer protection and education. In developing our recommendations, we made no attempt to limit ourselves based on what is permissible under existing law, or what is achievable through legislative changes.

Recently enacted legislation, AB 1890, explicitly imposes on the CPUC a requirement to register electricity service providers and specifies information to be compiled from such providers (check exact language and insert citations) . The DAWG members are not prepared to express opinions as to whether this legislation restricts the CPUC's ability to impose requirements on electricity service providers, such as bonding, or allows the CPUC to reject or suspend a registrant. In general, most of us believe the CPUC should have such authority. As soon as possible, the CPUC should conduct a review of its statutory responsibilities and authorities in light of AB 1890's registration requirements, and determine whether it will require additional consumer protection legislation to carry out its responsibilities. Such clarity is essential to move forward with the registration timeline presented in the following section.

AB 1890 imposes consumer education requirements on electric utilities, subject to approval by the CPUC(check exact language and insert citations). The discussion of a utility-initiated Consumer Education Plan contained in Chapter 8 comports with this legislative requirement.

Finally, AB 1890 recognizes that restructuring imposes certain implementation costs on utilities, which at the same time imposing a rate freeze (Section 368(a).) Section 376 provides a procedure for utilities to defer recovery of implementation costs until after 2001. The DAWG members recognize the practical necessity of allowing utilities to recover their costs associated with the consumer education plan described in Chapter 8. Thus, the CPUC should allow utilities to make a funding request, and should act expeditiously on this request.

9.3 Implementation Timelines

9.3.1 General Framework

In a recent Commissioners' Ruling, a schedule for comments on this report was adopted. Comments are due on November 26, 1996, and replies are due on December 11, 1996. Thus, we do not anticipate further action by the CPUC on Consumer Protection and Education issues until the end of 1996, once comments and replies have been received. Thus, the timelines presented below effectively start at the beginning of 1997.

In developing the timelines shown in the following subsections, it has been necessary to make certain assumptions regarding the phase in of direct access, and the technical requirements imposed on this phase in by the ISO settlements process. First, it is assumed that the ISO will require a daily flow of metered usage information be communicated "upstream", so that accounts can be settled each day and so that schedule coordinators are aware of the discrepancies between their forecast and actual loads as soon as possible. As a result, most existing customer metering, even for the largest customers, needs to be replaced or augmented with communication devices prior to the commencement of direct access. If this is the case, then at least 60 days should be allowed to procure, install and test the necessary metering devices. Second, it is assumed that the Commission will adopt a phase in schedule that limits direct access availability during 1998, so that there are more customers seeking direct access eligibility than can be accommodated. This results in the need for some form of open season, where customers can chose whether to participate in the initial phase of direct access. The schedule must allow adequate time for this open season. If 30 days are allowed for the open season, then registration and initial consumer education efforts should be completed no later than September 30, 1997.

Thus, there are about nine months to complete the registration and education processes, from the end of the comment period on this report until the beginning of an open season on October 1, 1997. The next two subsections present specific timelines for registration and education. The final subsection discusses alternatives that take into consideration delays in the schedule.

9.3.2 Registration

The table below sets out a schedule for developing registration requirements and for registering electric service providers prior to the commencement of direct access. This schedule assumes that development of registration requirements will be a controversial process requiring testimony, hearings, and a CPUC decision. After this decision has issued, the schedule envisions a process where electricity service provider applicants will be registered en masse, if they meet certain application deadlines. Late applications will be processed individually, and may not receive approval by September 30, 1997.

Date		Activity
1/31/97		Utilities File Registration Requirement Applications and Testimony
3/7/97		Prehearing Conference
3/14/97		CPUC Staff and Intervenor Testimony
3/21/97		Concurrent Rebuttal Testimony
3/31/97		Hearings
5/30/97		CPUC Decision
8/1/97		Registration Applications Due
9/1/97		Protests to Registration Applications Due
9/30/97		CPUC Decision Approving Registrants Applications
10/1/97		Open Season Commences

This schedule envisions that Southern California Edison, Pacific Gas and Electric and San Diego Gas and Electric would each file proposals for registration of electricity service providers. The proposals would include registration requirements, a retailer code of conduct, and a mandatory disclosure statement to be provided by each electricity service provider to its customers. There is no necessary reason that the utilities should be the applicants; the Commission could instead direct its staff to develop such a proposal and issue the proposal by instituting a rulemaking proceeding, with a companion investigation. (Formally, these would be an Order Instituting Rulemaking, or OIR, and an Order Instituting Investigation, or OII, respectively). The DAWG members recommend that utilities be the applicants simple due to the greater resources that utilities may have to develop proposals. If the Commission instead chooses to issue a rulemaking and companion investigation, we believe the schedule should permit testimony and evidentiary hearings, and should conform to the timeline shown in the table above.

The timeline does not provide for any gap between approval of registration applications and the start of the open season. This could be a burden on some applicants. However, it is likely that virtually all applicants will be approved (although some may be required to cure defects in their original applications), so that the applicants are likely to begin advertising and other business activities while their applications are pending. In any case, applicants will know whether any party has protested their application 30 days before the start of the open season.

1. Consumer Education

The table below sets out a schedule for developing and implementing a Consumer Education Plan. This schedule assumes that the Consumer Education Plan can be developed in a largely consensus-based process without a requirement for formal evidentiary hearings. As a result, the DAWG members expect that the CPUC would be able to issue a decision on the utilities joint consumer education application after reviewing issues addressed in protests to the application, should any parties chose to file a protest.

Date		Activity
2/7/97		Utilities Jointly File Consumer Education Application and Funding Request
3/10/97		Protests Due
3/31/97		CPUC Decision
5/30/97		Vendor Selected
8/1/97		Consumer Education Plan Completed
8/1/97		Education Efforts Begin
10/1/97		Open Season Commences

This schedule envisions that Southern California Edison, Pacific Gas and Electric, and San Diego Gas and Electric companies would jointly file an application for development of a Consumer Education Plan. The application should describe the process of consultant selection, should include a preliminary scope of consultant services, and should request a specific funding mechanism consistent with P.U. Code 376. A subgroup of utility communication experts has already begun preliminary meetings, at the request of the DAWG members, as reported in Chapter 8. The CPUC should encourage municipal utilities to participate in this joint application and in the development of a Consumer Education Plan. Without such coordination, mass media advertising (print ads, radio, and, if necessary, television), may create confusion, since they will necessarily reach both investor-owned utility and municipal utility customers.

9.3.4 Accommodating Delay

The timelines shown above are very compressed, and do not permit any slippage should delays be encountered. There are however, modifications to the schedule of direct access that could be invoked, while still allowing direct access to commence on January 1, 1998, to accommodate a delay in the schedule for registration and education activities. Of course, if the ISO does not require daily reporting of metered usage information, existing metering would be sufficient to accommodate large customers, and it may be possible to shorten the 60 day period for meter and communication infrastructure installation now reflected in the schedules.

Gradually Phase-In Direct Access During the First Quarter of 1998. If the open season is conducted in December 1997, metering infrastructure would be installed during the first 60 days of 1998. Thus, while some customers would have direct access on "day 1", others would be backlogged for a period of time while infrastructure is installed. As a result, it would be possible to accommodate a several months delay in both the registration and education timelines.

Different Phase-In Schedule For Residential Customers. In comments on the August 30, 1996 DAWG Report, Southern California Edison, Pacific Gas and Electric and San Diego Gas and Electric companies all supported use of load profiles for residential customers. At some risk of consumer confusion, it may be possible to have an October 1997 open season for business customers, and a December 1997 open season for residential customers. (Some believe there will be limited residential interest in direct access. If this is the case, over subscription of the residential portion of the first year phase-in limits may not occur, and there may not need to be any allocation procedures.) This would allow the education program timeline to be delayed several months. If the Commission is willing to allow electricity service providers to offer services to business customers provisionally, i.e., while their application is pending, this would also allow the registration program timeline to be delayed several months.

9.4 Summary

The DAWG members respectfully request that the Assigned Commissioner issue a Ruling before the end of 1996, or as soon thereafter as practical, that will direct the following activities:

By January 31, 1996, Southern California Edison, Pacific Gas and Electric and San Diego Gas and Electric companies should file proposals for registration of electricity service providers. These proposals should include registration requirements, a retailer code of conduct, and a mandatory disclosure statement to be provided by each electricity service provider to its customers.

By February 7, 1997, Southern California Edison, Pacific Gas and Electric, and San Diego Gas and Electric companies should jointly file an application for development of a Consumer Education Plan. The application should describe the process of consultant selection, should include a preliminary scope of consultant services, and should request a specific funding mechanism consistent with P.U. Code 376.

The Commission should seek further comments on the Consumer Education Trust. The Commission should provide further guidance on the alternative funding approaches discussed in this report, prior to requesting comments. The Commission may wish to consider issuing the illustrative draft of a trust agreement, as set forth in Appendix J of the August 30, 1996 DAWG report, as a proposed rule, as the basis for comments.

To the extent that the Commission has not already initiated the necessary internal changes needed to insure effective oversight, monitoring, complaint resolution and redress, and consumer information initiatives, these activities should start now. It is important that these changes in CPUC function be developed in parallel with the registration and education timelines, to enable effective coordination between the efforts.