4.0 PHASE-IN/ELIGIBILITY REQUIREMENTS
This section reviews the issues associated with a phase-in for direct access and concludes with a description of four alternative phase-in options which generally encompass all of the specific proposals that parties have made in the previous year. Five subsections are included:
4.1 key steps for direct access programs;
4.2 assessment of eligibility factors;
4.3 Education/solicitation/rationing/authorization issues;
4.4 rationales for limiting direct access eligibility; and
4.5 specific phase-in proposals.
This section integrates into the discussion of phase-in many other topics that are discussed in more depth elsewhere in this report.
4.1 OVERVIEW OF KEY STEPS FOR DIRECT ACCESS PROGRAMS
This subsection reviews the key elements included in most implementation programs for direct access.
4.1.1 Overview of the Scope of Direct Access Programs Under Development in California
The direct access program which the California CPUC has established in D.95-12-063 goes far beyond that directed by any other state. Unlike the small scale pilot programs now in operation in New Hampshire and Illinois, or the forthcoming proposals from utilities in New York or Massachusetts, the CPUC has mandated a full scale implementation of direct access for all customers. Further, the CPUC has directed that the direct access programs for customers of the three major IOUs take place contemporaneously with other major changes in the structure of the integrated utilities that have dominated this state. Creation of the ISO and the PX are major steps in and of themselves, still in development, and in some instances the incompleteness of the proposals to establish these new institutions has impeded development of a specific program for direct access.
4.1.2 Key Steps
The following events/decisions are needed to permit direct access to occur by January 1, 1998. They are grouped into five broad categories. These five categories segment the activities into logical phases of the effort, both in design of an overall program as well as its implementation. They are:
a. program design and regulatory approvals;
b. customer education and notification of participation;
c. customer-specific activities;
d. system verification prior to commencement; and
e. program operation and monitoring.
Each of these five categories will describe a set of steps that are roughly sequential.
4.1.2.1 Program Design and Regulatory Approvals
This category includes the development of this report, its review by the CPUC, and ultimate adoption of a specific plan by the CPUC for implementation by the IOUs and other market participants.
a. the CPUC must determine what process (IOU applications, working group reports, CACD workshops, etc.) should be used to develop specific elements of direct access programs;
b. parties and utilities need to work together to identify and/or resolve issues and positions for inclusion in the working group report to the CPUC;
c. CPUC must evaluate the working group report and any IOU filings through workshops, settlement conferences, hearings, and other processes;
d. CPUC must issue decisions on direct access procedures (including eligibility criteria, customer class representation requirements, over-subscription allocation procedures, and metering requirements);
e. CPUC must issue decisions on revised tariffs for direct access customers segregating generation and transmission services from distribution services;
f. parallel approvals by FERC are required to allow various features like the ISO and Power Exchange to be relied upon for direct access; and
g. IOUs and other parties must collaborate to develop a final conforming implementation plan based on this report and the decisions made by the CPUC and FERC.
4.1.2.2 Customer Education and Notification of Participation
This category of activities begins the process of soliciting participation by informed customers who have sufficient understanding of the direct access program to be able to make an intelligent choice to participate.
a. scope and content of customer education and notification of opportunity for participation in direct access must be determined, as is the split between responsibilities of Independent Education Trust and IOU efforts;
b. Independent Education Trust formed and begins developing its activities;
c. customer service functions of IOUs augmented to address direct access inquiries;
d. programs involving education through individual customer mailings and/or media presentations are finalized and initial customer contacts are made;
e. bilateral contract providers and aggregators allowed to contact customers, sign releases for utility data customer data, and provide notification of interest to IOUs;
f. customers file statements of intent to participate in direct access with IOUs;
g. IOUs implement over-subscription procedures if necessary to limit participation in toto or to ensure CPUC customer class representation goals achieved;
h. if undersubscription occurs, steps (e) - (g) repeated an additional time; and
i. customer notification that his application to participate in direct access has been authorized.
4.1.2.3 Customer-Specific Activities
Once a customer has been accepted for participation, a wide range of customer-specific activities must occur in order that that customer can begin direct access service on 1/1/98. Some of these steps involve installation of equipment, while others require conforming changes in records to ensure that appropriate bills for service are issued by the UDC and the customer's energy service providers.
a. customer and/or energy service provider installation of metering and communication equipment (if needed);
b. IOU/UDC verification that meter/communication system performs properly (if needed);
c. billing system switches customer to appropriate direct access tariff and/or to consolidated billing by the UDC;
d. load forecasting system switches customer to appropriate category;
e. customer election to return to IOU service or to another direct access provider entered into billing and load forecasting systems appropriately;
4.1.2.4 Systems Verification Prior to Commencement
Prior to initiation of direct access is a final "check point" when the various hardware and software systems must be in place for direct access to operate correctly. Failure of any major system to be in place jeopardizes the potential success of the program, and may be a valid reason to delay implementation until the problem is corrected.
a. ISO-based settlement procedures must be operational, including: completion of computer software development, testing, and hardware installation to perform settlements;
b. scheduling coordinator procedures must be operational, including: completion of software development, testing, and hardware installation to perform settlements;
c. billing system procedures must be operational, including: proper calculation of direct access customer bills for UDC services, proper calculation of consolidated service provider bills, and remittance of consolidated bill funds to energy service providers; and
d. load forecasting system procedures must be operational, including: calculation of UDC generation service customer loads on an hourly basis for submission to Power Exchange using load research and/or monitored hourly load data; update of forecasted load profiles using load research and/or monitored hourly load data; "real time" integration of forecasted load profiles by customer class with customer class populations remaining as utility energy service customers.
4.1.2.5 Program Operation and Monitoring
Once the program is initiated, presumably on 1/1/98, various actions must start to take place and continue successfully. Among the most important are the monitoring functions which will be used to determined whether the scheduled expansion of direct access will continued as foreseen or will be delayed.
a. 24 hour ahead hourly load forecasts generated and supplied to Power Exchange that segregate UDC energy service customers from direct access customers;
b. monitoring of direct access for generation services with continued reliance on UDCs as provider of distribution services to ensure program defects identified, resolved, and planned phase-in schedule remains realistic; and
c. authorization for customer education and direct access opportunity notification activities to be repeated until all customers wishing direct access are allowed to select it.
4.1.2.6 Elapsed Time Between Steps
The time intervals between the steps in each of these categories is dependent upon a series of decisions to be made by the CPUC and to be implemented by the IOUs while they are transforming themselves into utility distribution companies. Many of these steps will be require IOU resources to be devoted to direct access facilitation, which will incur costs that have to be recovered through some means as yet undetermined. As a practical matter, both the length of time and the resources required to conduct some of these efforts will depend on the volume of customers choosing to engage in direct access. In addition, there may be unforeseen complications that necessitate adjustments once implementation of these efforts is already underway.
4.2 ASSESSMENT OF ELIGIBILITY FACTORS
This subsection reviews various issues of eligibility which may be elements of the various phase-in proposals, but are not intrinsic to the phase-in option, e.g. they are generalizable to all phase-in proposals. This subsection focuses upon factors that address the number of customers that are eligible to participate, i.e. the amount of megawatts of peak demand or the numbers of customers in a specific year. This subsection does not address issues of selection or notification of individual customers to participate once they have requested an opportunity; they are addressed in subsection 4.3.
4.2.1 The Overall Phase-in Descriptor
CPUC D.95-12-063 and D.96-01-006 describe phase-in of direct access, if necessary, in terms of megawatts of customer peak load demand. This is not the only descriptor that can be used to describe phase-in. There are at least three alternatives for describing how direct access can be phased in:
1. peak demand or energy consumption of the customers who participate;
2. energy consumption of the customers who participate; and
3. numbers of customers that may participate, either in the aggregate or by various customer classes.
4.2.1.1 Alternative 1: Peak Demand for a Specified Year
Capacity measured in megawatts has been used in the SCE MOU and in the CPUC's D.95-12-063 to describe how a phase-in of eligibility for direct access over a period of years might progress. Most parties interpret this capacity as peak demand. Inplementation of a peak demand descriptor for phase-in requires that a standardized measurement and a baseyear within which peak demand for specific customers and for the IOU systems as a whole are referenced.
Pros: The advantages of using peak demand include:
(1) its prior inclusion in the SCE etal. MOU and CPUC D.95-12-063;
Cons: The disadvantages of using peak demand include:
(1) Peak demand may raise equity concerns, because peak demand penalizes seasonal customers and customers with poor load factors for no valid reason. Seasonal customers operating a few months of the year will have a measured peak demand very high in comparison to their annual energy. Similarly, poor load factor customers may have high peak demand representing a few hours per week or month compared to their energy consumption.
(2) The great majority of customers -- residential and small commercial -- do not have recorded peak demand data.
4.2.1.2 Alternative 2: Annual Energy Consumption
Annual energy measured as megawatthours of gigawatthours could be used to as both a per customer and system-wide descriptor for purposes of phase-in of eligibility for direct access. A specific year or time period would have to be determined for use as the reference period.
Pros: The advantages of annual energy include:
(1) energy is a universally available descriptor for all customers, whereas peak demand is only available for those non-residential customers with demand charge tariffs;
(2) annual energy is a more fundamental element of revenue collection than is peak demand;
(3) customers with multiple accounts and/or meters per location can be readily aggregated to a single energy descriptor per facility site;
(4) annual energy is a more fair method of addressing specific customers with unusually load factors of seasonal patterns of operation.
Cons: The disadvantages of annual energy include:
(1) no disadvantages have been identified.
4.2.1.3 Alternative 3: Numbers of Transactions
All of the hypothesized rationales for phase-in of eligibility (described in section 4.4) have in common the difficulties of dealing with numbers of customers, rather than the size of the load that these customers represent. For example, ten 500 KW commercial customers are at least ten times more complex to deal with than a single 5 MW industrial customer, due to all of the customer service, data processing, metering and communication system infrastructure, contractual agreement paperwork and other elements of a transaction that takes place of a per customer basis, not on a peak demand of the customer basis.
Implementation of a transactions-based descriptor would, in effect, say that a certain percentage of customers within any pre-defined customer classes or customer aggregations would be eligible in a given year. This percentage would presumably increase in subsequent years. Among the implementation details to be established are: (1) determine whether a common percentage participation across all customer class is appropriate, (2) how the common participation rate would change through time, and (3) determining how to define transactions.
Pros: The advantages of a transactions-based descriptor include:
(1) the commonality of the hypothesized technical limitations which include concerns about the numbers of customers, rather than megawatts of peak demand or capacity represented by these customers;
(2) more direct linkage of expanded transaction processing capabilities (eg. installation of a new computer processing system to prepare bills) into expanded eligibility for direct access; and
(3) more straightforward translation of variables and actions being monitored during the phase-in period into go/no-go decisions about expanded participation.
Cons: The disadvantages of a transaction-based descriptor include:
(1) need to resolve the issue of common versus unequal percentage participation by customer classes and/or customer aggregation groupings;
4.2.2 Limitations on Size of Customer Participation
The SCE MOU recommended two limitations on the size of customers loads that could be aggregated: (1) minimum size on individual bilateral contracts, and (2) that aggregation be limited to 8 MW per aggregator, at least in the original year. These limits were to change over time as indicated in the following table.
Table 1
Suggested Size Constraints in SCE MOU
Eligibility Criteria 1998 1999 2000 2001 2002 2003 Minimum MW limit for individual customer 8 2 0.5 * * * Maximum MW limit for multiple customer 8 ** ** * * * aggregation Maximum number of accounts aggregated ** ** ** * * *
* to be determined after year 3 review.
** to be determined by CPUC.
4.2.2.1 Alternative 1: Floor on Minimum Size to Participate
The parties submitting the SCE MOU proposed a bilateral contract minimum size and an aggregation maximum load that is described above in Table 1. The result of these constraints would be to minimize numbers of customers that could participate, since greater loads per customer for bilateral contracts and maximum loads for aggregation arrangements both work to minimize the numbers of customers that can participate.
Pros: The advantages of a floor on minimum size to participate include:
(1) fewer numbers of customers in initial years making billing and data processing activities easier to accomplish for all parties;
Cons: The disadvantages of a floor on minimum size to participate include:
(1) reduction in the numbers of customers that can participate;
(2) elimination of the bilateral contract opportunities for customers below the floor size threshold;
4.2.2.2 Alternative 2: Ceiling on Maximum Aggregation Load
The SCE MOU proposed to impose a ceiling on the maximum load that a single aggregator could bring to participate in direct access. In the initial year the SCE MOU would have limited aggregators to about 1,600 small customers assuming that each customer averaged 5 kW demand. It is unclear whether the parties to the SCE MOU would have permitted multiple groupings of aggregated customers under different sponsorship, but where the organizers were functionally the same organization.
Pros: The advantages of a ceiling on the maximum size of an aggregation arrangement include:
(1) greater numbers of large customers participating in bilateral contract forms of direct access.
Cons: The disadvantages of a ceiling on the maximum size of an aggregation arrangement include:
(1) substantial limitations on aggregator efficiency (and cost-effectiveness) by imposing substantial overhead costs on a relatively small number of customers; and
(2) substantial barriers to effective participation by small commercial and residential customers most likely to require the services of an aggregator to be able to participate in direct access.
4.2.2.3 Alternative 3: No Constraints on Size
Isolation of the ISO from any individual customer data because of the scheduling coordinator concept appears to have reduced rationales for aggregator limits based in fears of burdening the ISO. The clearer appreciation for transactions-based constraints raises concerns about establishing minimum size floor for participation using bilateral contracts. From the perspective of the ISO or the UDC, each customer that engages in direct access creates approximately the same transactions-based paperwork and issues associated with shifting from UDC energy service to merely being a distribution customer of the UDC. From the perspective of the scheduling coordinator, greater numbers of customers participating creates additional workload, but whether the costs of this additional work are merited and how fees are charged to recover these costs ought to be a business decision.
Pros: The advantages of no minimum floor for participation or maximum size for aggregation arrangements include:
(1) greater numbers of customers can participate;
(2) arbitrary and contentious limits are avoided.
Cons: The disadvantages of no minimum floor for participation or maximum size for aggregation arrangements include:
(1) greater numbers can participate.
4.2.3 Representation from all Customer Classes
CPUC D.95-12-063 requires that all customer classes participate in direct access in some representative manner. The details are not specified. It is clear that the intent of the CPUC is that the apparent benefits of direct access be flowed through to at least some customers in all customer classes, rather than concentrated in those customers who have the greatest ability to negotiate bilateral contracts or aggregation agreements.
4.2.3.1 Alternative 1: Participation Proportional to Share of Load
This approach suggests that traditional customer class shares of total load (either energy or peak demand, see Sections 4.2.1.1 and 4.2.1.2 for discussion) might be the basis for proportional participation in direct access. On a statewide basis this might be about one third to each of industrial, commercial, and residential customer classes. Specific shares vary by IOU service area, and would require assessment of what indicator to use -- tariffs, revenue account groupings of tariffs, SIC code groupings, etc. In effect, the customers responding to solicitations of participation would have a conditional participation agreement with an energy provider, which would be held in a pool awaiting examination of a comparison with all such customers. Expressions of interest would be classified by the agreed upon categories, and different degrees of participation by category would result depending upon the variation in response rate among customer groupings.
For example, if all customer groups were oversubscribed, but unevenly, then perhaps 50 percent of residential customers requesting might be authorized to participate while only 20 percent of industrial customers requesting would be authorized to participate.
Pros: The advantages of this alternative are:
(1) all customer classes are able to participate in the cost reduction benefits of direct access;
(2) aggregators are provided a stimulus since most small customers are perceived to participate through aggregation arrangements.
Cons: The principal disadvantage of this alternative is the perceived "unfairness" of allowing different degrees of participation among those responding to an "open season" opportunity.
4.2.3.2 Alternative 2: Participation Proportional to Number of Customers
This alternative is similar to the previous one, except number of customers rather than load is used as the basis for the proportions of customers imposed on the respondents to an "open season" opportunity to participate in direct access.
Pros: This option provides the greatest benefit to small customers who are the overwhelming majority of customers of utilities.
Cons: There are several disadvantages of this option:
(1) because the overwhelming number of customers are residential and small commercial, this approach would shift actual participation away from the customer classes most interested in participating. e.g. industrial and large commercial;
(2) this approach would further accentuate the aggregation approach rather than the bilateral contract approach, since few small customers could afford the overhead burdens of a bilateral contract, and few residential aggregators are known at this time;
(3) transactions-based constraints (meter instillation, bill processing, etc.) would clearly be the technical factors most constraining this option, since this option most emphasizes the small customer.
4.2.3.3 Alternative 3: Participation by Customer Class Determined as Policy Decision
In this alternative, the numbers of customers of the load to participate in the initial year and subsequent years is determined as a matter of policy by the CPUC. Direct determination of these values offers the ability to hear arguments from various perspectives, yet not be bound by a fixed formula that may be inflexible. It may be necessary for this decision be combined with additional decisions concerning undersubcsription and oversubscription by customer class, and protocols for allocating undersubscribed opportunities to other customer classes.
Pros: The advantages of participation scaled to policy determined decisions include:
(1) ability to be flexible to create targets based on advance understanding of likely rates of participation.
Cons: The disadvantages of participation scaled to policy determined decisions include:
(1) appearance of unfairness by "favoring" one class of customers relative to another for the benefits of direct access.
4.2.3.4 Alternative 4: Participation Proportional to Number of Customers Expressing Interest in Direct Access
Once customers make an expression of interest in participation as a result of an "open season" solicitation, the chances of participation are proportional to those responding, rather than to overall customer loads or counts. This option relies upon the customer to become knowledgeable and to express interest in participation in direct access, rather than to wait passively for a provider to "knock on the door." This option might require greater customer education efforts in advance as a tradeoff prior to the "open season" period to ensure that customers had some minimal acquaintance with direct access and its opportunities.
Pros: There are several advantages to this approach:
(1) the opportunities to participate are greatest for those to are knowledgeable and eager to participate; and
(2) all who respond have an equal chance to participate, increasing sense of a "fair process."
Cons: The principal disadvantage of this approach is that once the responses to an "open season" solicitation were known, and they were radically disproportionate to underlying customer loads or counts, then little could be done to remedy the outcome without breaking faith with the agreed upon mechanism.
4.2.4 Whole or Partial Participation in Direct Access
[this section combined with 4.3.3]
4.2.5 Payment of CPUC-Determined CTC Obligations
The CPUC has determined in its D.95-12-063 policy decision that shareholders of IOUs will be "made whole" for stranded investments and other mandated obligations created through policy decisions through collection of competition transition charge (CTC) that customers will pay whether supplied energy through the UDC from the PX, or through direct access provisions. Creation of a level of funds to be collected through a CTC protocol, means to collect portions of these levels through time without exceeding current rates, and the rate design mechanisms to collect funds from specific customers are currently scheduled to begin with IOU filings at the CPUC. A statutory provision to ensure that CTC can be collected from all IOU customers is moving through the legislative process. Were these mechanisms completed and in place, IOUs would have little reason to limit direct access other than for concerns that direct access be an operational success, especially with respect to those elements of direct access for which UDCs have a responsibility.
However, given the lack of statutory language or CPUC-guarantees to make shareholders whole through mandated requirements at this time, some of the IOUs are concerned with the revenue loss implications of direct access, and therefore to wish to control the magnitude of participation in it. If customers agree to a contract to repay stranded costs as a condition of participation in direct access, then IOU concerns with these specific customers would be mitigated.
4.2.5.1 Alternative 1: Limit Direct Access Until Mandated Mechanisms to Collect Appropriate Costs Are in Place
This alternative justifies strong limitations or even deferral of direct access until the CPUC regulatory mechanisms to identify and collect CTC, and statutory provisions to ensure its collection, are in place. While previous CPUC decisions may make deferral impossible, these concerns may induce strong resistance to major proportions of direct access eligibility.
Pros: The advantages of strong limitations until mandated mechanisms are in place include:
(1) limitation on the revenue loss to IOUs and potential profit losses to shareholders; and
(2) arguments about direct access edibility and phase-in raise the visibility of the need to resolve CTC issues.
Cons: The disadvantages of strong limitations until mandated mechanisms are in place include:
(1) parties continue to falsely debate direct access phase-in, when the real issue is securing a CPUC decisions and legislative authority to collect CTC from all customers;
(2) IOU customers are needlessly impeded from participating in direct access, and determining for themselves whether a market-oriented solution suits their preferences.
4.2.5.2 Alternative 2: Contractual Agreements to Pay Appropriate Costs as a Precondition for Participation
As discussed (not without considerable rancor) in the ICTC process instigated by PG&E's efforts to ensure that all of its customers contribute to recovery of authorized CTC charges, it may be possible to develop contractual agreements for collection of estimated CTC charges that would be a precondition for a specific customer participating in direct access. Clearly estimated charges would have to be treated in some balancing fund arrangement to be partially returned or augmented once a final CTC collection mechanisms was authorized by the CPUC, but this need not be an insoluble impediment. A customer singing such an agreement would place the IOU in jeopardy as a result of its direct access activities, and presumably whatever resistance to direct access might exist by the IOU would be removed for any such customer, at least from CTC-collection perspectives.
Pros: The advantages of voluntary agreements as a precondition to direct access participation include:
(1) implicit or explicit IOU concerns about CTC recovery from specific customers participating in direct access are reduced or eliminated;
(2) knowledge of customer resistance to signing such agreements contributes to understanding the degree of customer resistance to the CTC concept;
Cons: The disadvantages of voluntary agreements as a precondition to direct access participation include:
(1) provisions similar to those discussed in the ICTC workshop process would have to be develop to address balancing funds, return of surplus charges, making whole underfunded contributions, etc.;
(2) legal expertise and resources would have to be deployed into the development of an agreement that withstood strong scrutiny;
(3) CPUC decisions would have to order signing such contractual agreements as a precondition for participation; and
(4) uncertainties of fund balancing, return of overpayments, and payment of additional underfunded amounts would increase complexities facing customer's choice to participate in direct access, increase educational burdens on small customers, and might retard overall participation compared to mandated CTC collection mechanisms.
4.2.6 Availability of Necessary Information to Allocate Imbalance Costs
The issue of identifying the necessary information to permit fair and accurate allocation of imbalance costs, and the metering and communication systems to collect and deliver this information to those who need it, has been a major concern. Hourly interval metering and electronic communication systems are seen as the means to deliver the necessary information, but the investment and operating costs of such systems may disadvantage small customers. Further, the leadtimes for massive installation of these equipment for all direct access customers might restrain access unnecessarily. Finally, since virtual direct access intrinsically requires interval meters, the limited ability to install such meters (and perhaps the associated communication systems) might also constrain direct access.
4.2.6.1 Alternative 1: Interval meters Are the Standard Means of Measuring Energy Consumption
[more to be written]
4.2.6.2 Alternative 2: Load Profiles Can Be An Acceptable Transition Step for Small Customers
[more to be written]
4.3 EDUCATION/SOLICITATION/RATIONING/AUTHORIZATION ISSUES
The are a large number of details that must be developed for an implementation program that define the sequence of activities that follow final CPUC approval of a direct access program, and which precede customer-specific actions to implement an authorization to participate. Section 4.1.2 provided an initial listing of these activities. Customer education, "open season" solicitation activities of potential energy providers, processing solicitation responses to determine whether agreed upon rationing schemes have to be invoked, and final notification to customers authorized to participate are included here. This section addresses issues related to which customers are selected to participate, rather than the numbers of customers which are eligible to participate which were addressed in section 4.2.
4.3.1 Customer Education Programs
Sometime during the summer of 1997, investor-owned utilities, the CPUC, a Consumer Education Trust, registered energy service providers, and others can anticipate beginning customer education programs to begin the process of informing consumers of the general changes in how they will interact with UDCs and commercial businesses in the future. In is unclear which of these entities will carry the largest burdens, but the CPUC must be considered responsible to ensure that customers are educated. A major element of that education must include the opportunities to participate in direct access, which probably include mass mailings, media messages, and various targeted literature intended to stimulate customers to respond to "open season" opportunities just a few months into the future.
4.3.1.1 CPUC Responsibility
[more to be written by Michael Shames]
4.3.1.2 IOU and Marketer Activities
[more to be written by Michael Shames]
4.3.1.3 Consumer Education Trust Activities
[more to be written by Michael Shames]
4.3.2 Open Season Solicitation of Participation
Notice of a forthcoming "open season" opportunity for potential providers or retailers to solicit interest in participation is part of the general education associated with electric industry restructuring in general, and direct access in specific. Following closely upon these education materials must come an actual open season opportunity itself in which one or more parties contacts customers that are eligible to solicit their individual interest in participation. This open season should occur in the early fall of 1997.
Some pre-sanctioned consent for release of data form combined with a statement of intent to engage in energy supply with a specific energy provider is likely to be submitted by the customer (or through the energy provider) for processing to determine whether customer class mis-representation and oversubscription protocols have to invoked. What data is included within this release is reviewed in detail in Section 10 of this report. Whether some data determined to be non-sensitive is released for all customers is a separate issue. Consent may be required for certain energy consumption data necessary for retailers to develop a customer-specific proposal within the initial customer contact.
Various options exist which must be resolved to determine who will conduct this open season and what the content of the customer contact includes. These options address different approaches to safeguard customer privacy and the use of customer information in informing providers, retailers and aggregators to develop marketing plans.
The result of the options discussed below is a signed statement of intent to participate, perhaps even a conditional contract between customer and provider, which is entered into the pool of along with all others. In the event of oversubscription, whether measured by peak load, annual energy usage, or numbers of customers, some of these customers or some of their loads will not be able to participate.
4.3.2.1 Alternative 1: IOU Solicitations of Interest Followed by Marketer Contacts with Interested Customers
This alternative requires a two step process whereas the following alternative permits a similar result in a single step. In this alternative the IOU (or an agent representing the IOU) solicits an indication of interest in the general subject of direct access from the customer. The customer signs an expression of interest, which probably includes a consent form approving release of certain customer information held by the IOU to certified providers, retailers, or aggregators. All customers signing such expressions of interest/release forms have their data provided to eligible retailers. Marketers then make specific customer contacts with these targeted customers and attempt to obtain signups and agreements to participate.
Pros: The advantages of two step processes in conducting open season solicitations include:
(1) customer personal privacy or business trade secrets are a dominant consideration, and no customer's individual data is released for direct access marketing purposes without prior approval; and
(2) only those customers interested in direct access will be able to be targeted by providers.
Cons: The disadvantages of two step processes in conducting open season solicitations include:
(1) if data release is limited to customers who self-select on the basis of a UDC education program alone, marketing efforts, especially those directed to small commercial and residential customers, may be severely restricted by this two step process;
(2) restrictions on access to customer-specific information eliminate customer-specific promotional materials and lead to marketing plans that are unfocused and non-targeted on the basis of information, leading to "advertizing" campaigns and other generalized marketing efforts;
(3) total costs of the solicitation process, including both direct costs of marketing as well as unmeasured costs of "aggravation" to customers for which customer data would have caused a retailer to screen them out, will be increased compared to alternative approaches; and
(4) because of the control that UDCs could exercise over merits of direct access programs, the CPUC will have to review and/or directly sanction IOU open season solicitation materials to ensure that no bias toward IOU affiliates or against direct access in general is present in these materials.
4.3.2.2 Provider Solicitations of Intent to Participate
In contrast to the previous alternative, providers can be allowed to directly contact those customers who are eligible for participation in direct access, whether in the initial phase or in subsequent phases of a multi-year phase-in. Two variants of this single stage approach are reviewed below; the difference between them involves the whether the provider is informed in advance of solicitations with customer-specific information or whether the marketer approaches the customer "blind."
4.3.2.2.1 Variant 2A: Providers Are Given Customer Data Prior to Solicitations of Intent to Participate
In this alternative, providers are permitted to contact customers directly without the previous efforts of the IOU. In addition, in this specific variant, the provider is informed about customer energy usage information that has been released to all marketers through CPUC policy decisions. Universal access to customer information (or at least the subset which is eligible in the period in question) permits each retailer or aggregator to target specific customers with their promotional materials and to avoid all others who do not fit within the marketing plan. [See Section 10 for further discussion of universal customer data release issues].
Pros: The advantages of single stage provider-conducted solicitations that are informed include:
(1) customer-specific consumption and other data allows customer-specific benefits to be computed by the potential provider and included within initial customer contact materials, leading to greater proportions of customers that are likely to participate;
(2) no need for the CPUC to review/sanction IOU materials to avoid affiliate bias;
(3) universal customer data permits many more marketer contacts with customers that may not have paid appropriate attention to IOU materials in alternative two-step processes;
(4) elapsed time of the open season process is reduced compared to Alternative 1;
(5) marketer costs are reduced by the ability to target customers compatible with their marketing plans compared to alternative 2B; and
(6) customer contacts where customer usage patterns incompatible with marketer plans are minimized compared to alternative 2B.
Cons: The disadvantages of single stage provider-conducted solicitations that are informed include:
(1) CPUC D.95-12-063 restriction on release of customer data without prior customer consent must be revised;
(2) some customers will be concerned that their privacy or trade secrets were revealed against their wishes; and
(3) larger total number of unsuccessful contacts of providers with customers not interested in participation in direct access compared to alternative 1.
4.3.2.2.2 Variant 2B: Providers Are Not Given Customer Data Prior to Solicitations of Intent to Participate
As in the previous variant of this alternative, the provider is permitted to directly contact all customers eligible for direct access without the previous contact of the utility. In this variant, however, the provider has no customer-specific data to use in developing marketing plans or in selecting specific customers for marketing efforts. In effect, no targeted marketing is possible.
Pros: The advantages of single stage marketer-conducted solicitations that are uninformed include:
(1) customer data is not available without explicit prior approval as directed by CPUC D.95-12-063;
Cons: The disadvantages of single stage marketer-conducted solicitations that are uninformed include:
(1) marketers do not have the universe of data to use in developing marketing plans in light of the variation of customer usage patterns;
(2) marketers do not have customer-specific data to use in targeting specific customers which fit their marketing plans;
(3) marketers are required to use general promotional literature which increases their costs compared to alternative 2A, and increases the "aggravation" costs to customers who review and reject inappropriate marketing efforts; and
(4) uninformed marketing is likely to lead to decreased percentages of customers electing to participate in direct access relative to Alternative 2A.
4.3.3 Oversubscription Rationing of Participation Requests
When agreed-upon customer class mis-representation or oversubscription protocols must be invoked, then thousands of requests to participate must be process to select some reduced set within a short time period. An agreed upon rationing/allocation scheme must be used that meets appropriate tests of fairness, speed of execution, and certainty. In this section alternatives of lotteries, first-come-first served, and pro-rata allocation are discussed.
4.3.2.1 Alternative 1: Lottery
When too many persons wish to participate in a limited activity, it is commonsense in human activities that lotteries be used to select the "winners." This seems to conform to basic ideas of fairness. This approach is certainly feasible within the context of selection for participation in direct access, but additional nuances of electricity customers may need to be addressed. For example, if eligibility is defined using customer classes to ensure representative participation, does this mean that lotteries are used within each customer class? What would happen if some customer classes were oversubscribed but others were not? Are the original proportions of eligibility reallocated among the classes to better reflect interest in participation?
Pros: The advantages of lotteries to allocate oversubscription include:
(1) readily agreed to be fair;
Cons: The disadvantages of lotteries to allocate oversubscription include:
(1) does not acknowledge details of a proposed direct access arrangement, including probability of following through to implementation;
(2) probably has to be implemented within segmented strata to ensure each customer class is contained in final authorized set of participants in proportions required for representativeness.
4.3.3.2 Alternative 2: First-Come, First-Served
This alternative presumes that an open season period requires that a request to participate will be filed with the IOU/UDC and that this organization can date/time stamp requests in the order that they are received. Requests to participate would be processed on a first-come, first-served basis until the cumulative limit of peak demand load, energy, or number of transactions appropriate to each customer class have been reached. Once this limit is reached, then no additional participation would be permitted until the subsequent open season period.
Pros: The advantages of first-come, first-served include:
(1) those customers/generation service suppliers that can quickly submit requests for participation will be more likely to be authorized to participate, which could be viewed as fair since these customers took the time and energy to be well informed and ready to participate;
Cons: The disadvantages of first-come, first-served include:
(1) those customers/generation service providers who have already negotiated conditional arrangements would be provided a substantial advantage over other customers since they would be able to submit needed requests to participate paperwork more quickly;
(2) bilateral contract customers would likely receive major advantages compared to aggregation customers, since bilateral contract customers are much more likely to have developed conditional arrangements than are aggregation customers, especially small aggregation customers.
4.3.3.3 Alternative 3: Pro-Rata Among Applicants
Most parties have understood participation in direct access to mean that once a customer submits a request to engage in direct access, and that request is authorized through whatever selection/rationing process that may be necessary, then the customer is no longer a responsibility of the UDC for energy forecasting/supply purposes. The customer and his provider(s) have the benefits and costs of participation in the direct access market for generation services, either through bilateral contracts or through aggregation. The customer is no longer included in any load forecasting that the UDC must provide to the PX, and the customer's imbalances of actual and forecasted loads have no impact on UDC customers.
Some parties have described phase-in proposals where customers would request partial levels of their load that might participate in direct access, and undersubscription or oversubscription within a class of customers might lead to revisions in the proportion of an individual customer's loads that were authorized to participate. These customers would, in effect, remain an energy customer of the UDC while simultaneously becoming an energy customer of a private provider through a bilateral contract or an aggregation arrangement. There are two variations that will be described below with separate advantages and disadvantages.
4.3.3.3.1 Variant 3A: Partial Participation in Direct Access With Floor on Load Participating
Partial participation in direct access splits a customers load into portions serviced by direct access and portions served through the UDC by the PX. For example, partial participation implies that a hypothetical 12 MW peak demand customer might be authorized to participate in a bilateral contract with 5 MW of load, while the remaining 7 MW of load would be supplied by the UDC through the Power Exchange. In this variant, the customer is allowed to bid his entire 12 MW load and condition his participation on the whole load being accepted. If the customer was not authorized enough load to satisfy his conditions, then the customer would drop out of that stage of the phase-in process, presumably to try again in a subsequent phase.
Pros: The advantage of partial participation is that more customers are enabled to participate in direct access, especially during periods in which very limited quantities of load are authorized to participate relative to the demand to participate.
Cons: There are several disadvantages of partial participation in direct access:
(1) pro-rata allocations of participation which fail the customer's minimum participation threshold may lead to "return" of that initial customer's allocation back to the pool for possible reallocation to other hopefuls, which would create additional complications for the selection process;
(2) partial customers continue to impose cost burdens and responsibilities for energy demand on the UDC;
(3) when customers loads vary from the forecast level, it is likely that the UDC would be viewed as the entity wholly responsible for the variations, not the direct access component, thus imposing all imbalance costs and forecasting uncertainty burdens on the UDC;
(4) there is ambiguity about UDC responsibilities to forecast partial loads, and corresponding confusion about the possibility of cost shifts to other UDC customers for errors in forecasts stemming from imbalance costs from the error for the partial customer.
(5) customer's and energy provider's abilities to engage in multi-year bilateral contracts are damaged by the uncertainty of the level of customer loads that will be authorized to participate from one year to the next.
4.3.3.3.2 Variant 3B: Partial Participation in Direct Access Without Floor on Load Participating
In this variant, the hypothetical customer with 12 MW total load is allowed to bid his entire 12 MW load but is not allowed to condition his participation on the whole load being accepted. The customer would have to accept as a condition for eligibility that only a portion of his total load would be accepted, and that there might be strong probability that his load would actually be split between direct access and the PX/UDC. Some persons has suggested that such customers ought to be enabled to
purchase from the PX through their direct access provider, thus reducing the role of the UDC.
Pros: The advantages of pro-rata participation without floors on load include:
(1) compared to variant 3A, even more customers are enabled to participate in direct access, especially during periods in which very limited quantities of load are authorized to participate relative to the demand to participate.
Cons: There are several disadvantages of pro-rata participation without floors on load include:
(1) customers and their suppliers might be forced to undertake expensive overhead costs for the contractual and implementation costs of direct access with only small benefits from a minor portion of the customer's loads actually supplied outside of the PX/UDC;
(2) partial customers continue to impose cost burdens and responsibilities for energy demand on the UDC;
(3) when customers loads vary from the forecast level, it is likely that the UDC would be viewed as the entity wholly responsible for the variations, not the direct access component, thus imposing all imbalance costs and forecasting uncertainty burdens on the UDC;
(4) there is ambiguity about UDC responsibilities to forecast partial loads, and corresponding confusion about the possibility of cost shifts to other UDC customers for errors in forecasts stemming from imbalance costs from the error for the partial customer.
(5) customer's and energy provider's abilities to engage in multi-year bilateral contracts are damaged by the uncertainty of the level of customer loads that will be authorized to participate from one year to the next.
4.3.4 Undersubscription of Participation Requests
[more to be written]
4.3.5 Continuity of Participation in Phase-In of Direct Access
Some parties have raised the concern that under stretched out direct access phase-in, that ability to participate in an early year of direct access ought to provide no special benefit concerning eligibility to participate in a subsequent year. For example, if an industrial customer of 15 MW was able to participate in 1998's initial year of direct access because the customer was selected in a lottery to resolve oversubscription for the industrial class, the customer would be compelled to request participation in 1999's open season process, and accept the results of the lottery, which might mean the customer was not selected in 1999. The implication of this approach is that direct access contracts could only be a single year duration while phase-in was underway.
Two alternatives are described below that address whether each year of a phase-in program is independent, or whether once selected, always selected.
4.3.5.1 Alternative 1: Participation is Limited to a Single Year and Participation in a Prior Year Provides No Greater Right to Selection in a Subsequent Year
This alternative presumes that each year is independent of subsequent years for the duration of a phase-in program. Selection in 1998 confers no greater rights or probability of selection in 1999, or other post-1998 years if direct access phase-in is lengthy.
Pros: The advantages of independence of selection to participate among years of a phase-in program include:
(1) more customers are enabled to participate during a period of limited opportunity;
Cons: The disadvantages of independence of selection to participate among years of a phase-in program include:
(1) customers selected in one year probably would believe they ought to be able to continue in subsequent years, especially if total volume of participation is rising through time;
(2) some combinations of customer interest in participation (low initial year, high subsequent year) could lead to lower probability of selection in subsequent year, especially if eligibility increases slowly; and
(3) necessary marketing, equipment installation, and UDC activities for each customer participating might be poorly utilized if they were not able to be used for multi-year periods.
4.3.5.2 Alternative 2: Once Selected, Always Selected
A natural belief of many direct access participants will be that once they are selected, they will always be selected. In fact, the concept of having to undergo selection repeatedly is probably highly undesirable, since it increases ex ante participation costs in general and for those which participate.
Pros: The advantages of once selected, always selected include:
(1) lower costs for participation of those selected by the avoiding periodic selection costs, and amortizing overhead costs over multiple years;
(2) lower costs for the program in general by reduced marketing efforts for suppliers with longer term bilateral contracts of aggregation agreements; and
(3) avoidance of some inevitable customer complaints to the CPUC and UDCs from customers who failed to be selected in subsequent years who were selected in prior years.
Cons: The disadvantages of once selected, always selected include:
(1) fewer total numbers of customers that are enabled to participate, especially with long phase-in programs.
4.3.6 Authorization to Participate Notification
Once the open season has been completed, and especially if a rationing scheme has had to be deployed to achieve customer class representation requirements or to constrain overall participation to agreed upon volumes, then a notification of authorization to participate must be issued to the customer and/or the energy provider. This will set in motion various contractual arrangements concerning new tariffs, metering/communication system responsibilities, bill arrangements, etc. that will characterize participation in direct access. Once these are in place, then additional physical actions associated with UDC data base changes, perhaps physical meter/communication system installation, and other time-intensive steps will be required to be completed before direct access service can actually commence on January 1, 1998.
4.4 RATIONALES FOR LIMITING ELIGIBILITY THROUGH PHASE-IN
There are technical and policy reasons for considering limiting eligibility to direct access. Limiting eligibility results in phased introduction of direct access, such as the five-year 1998 to 2003 phase-in identified in CPUC D.95-12-063 and re-characterized as a slowest possible phase-in schedule in D.96-01-006.
Technical rationales limit the feasibility of introducing direct access any faster because some requirements essential for it cannot be made available except in initially limited capacities, but which can be remedied through time until the entire customer population can be served.
Additional considerations for limiting eligibility are rationales based on a desire to "guarantee success" for those consumers who do wish to pursue direct access. One can theorize that in an immature industry, the capability to handle the entire customer base successfully might not be fully possible in the first or even second years. Thus, for these rationales it might be feasible, but not desirable, to permit full eligibility in one or two years.
Finally, a third category of rationales for limiting access are ones that address equity concerns. For example, CPUC D.95-12-063 requires that all customers classes benefit from direct access, rather than restricting direct access eligibility to economic sectors or by customer size. Equity concerns have also been identified about providing DA to single firms in industries with limited competition among otherwise similarly situated firms.
4.4.1 Technical Rationales for Limiting Eligibility
There are four proposed technical rationales for limiting eligibility to direct access based on technical considerations. These technical considerations emphasize what is feasible, as opposed to what might be desirable from various perspectives.
The hypothesized technical rationales are:
1. data processing capabilities (of the UDC, scheduling coordinator, ISO, and aggregator) required to compute settlement of ISO imbalance costs in a fair and equitable manner will not be in place in sufficient volume to allow unlimited eligibility.
2. metering and communication systems essential to provide the information required for settlement cannot be installed in sufficient volumes to allow unlimited eligibility.
3. existing UDC billing systems for small customers have limited capabilities to handle the computations and bill display requirements of direct access, and new systems will not have sufficient capacity to allow unlimited eligibility.
4. demonstration of integrated system performance involves determinations that the combination of hardware/software identified above are successfully integrated into new systems that perform to specifications.
4.4.1.1 ISO Data Processing Capabilities
WEPEX's Dispatch Integration and System Infrastructure (DISI) Team and DAWG's Implementation and Metering/Communication committees have both examined whether ISO data processing capabilities are a constraint to the transactions of imbalance computations that must be performed on a daily basis. The ambiguities of the scheduling coordinator concept have impeded resolution of information requirements, hence metering and communication data needed for imbalance settlements and energy billing in general, hence data processing issues for either ISO or the SCs. The WEPEX DISI Team submitted a proposed RFP to the WEPEX Steering Committee for necessary system development work, but the RFP was not authorized pending resolution of the Trust issues between the CPUC and the IOUs concerning ratemaking treatment of these and other developmental costs.
4.4.1.1.1 Alternative 1: ISO Data Processing is Not a Constraint Beyond 1998
The scheduling coordinator function is intended to insulate the ISO from the enormous volumes of imbalance settlement computations needed to determine and allocate settlement costs to responsible parties. A modest computer software/hardware system is needed in order to address the few hundred scheduling coordinators and their loads for each of the transmission/distribution interface points. Therefore, the ISO data processing system is not a viable rationale for a phase-in to direct access, except perhaps in the initial 1998 period.
4.4.1.1.1 Alternative 2: ISO Data Processing is a Short Run Constraint Beyond 1998
While the ISO's settlement process will not require the capabilities once imagined prior to the scheduling coordinator concept, the functions of the ISO are without precedence, and no existing computer hardware/software system exists to be adapted to suit these needs. The delays experienced by WEPEX in resolving the Trust ratemaking procedures with the CPUC may have jeopardized the January 1, 1998 start date already. Further, the unwillingness of the parties to restrict the number of scheduling coordinators and the complexities of treating each transmission/distribution interface point separately, means that thousands of daily transactions with be processed, each of which consists of as few as 24 or as many as hundreds of hourly imbalance computations. The result of the delay and the complexities of even a shielded ISO mean that a fully capable ISO settlement process cannot be ready until well into 1999. This requires that direct access participation be limited until these systems are in place and tested thoroughly.
4.4.1.2 Metering/Communication Systems
This is placeholder text until further progress on this issue has been accomplished.
Current Status
The DAWG Metering/Communication Systems Committee is now developing an assessment of metering/communication systems in several installation scenarios following the improved understanding of the technologies accomplished by the Metering Workshop on June 21, 1996.
Next Steps
(1) evaluate metering/communication systems options compatible with information requirements and various installation/ penetration scenarios.
(2) resolve issue of UDC versus other entity installation and control
(3) resolve/identify options for UDC investment recovery for metering/communication systems
(4) develop understanding of industry rampup capabilities
(5) develop understanding of installation of communication systems issues
(6) evaluate issues concerning data flow into billing systems, including: different data, volume of data, data distribution to multiple entities, bill payments forwarded to multiple entities, and new system development and shakeout timelines
(7) integrate all considerations into fastest possible rampup installation schedule and forward to Implementation Committee
4.4.1.3 Constraints of UDC Billing Systems
Initial reviews of utility billing systems in both the DAWG process as well as the Ratesetting Working Group process have revealed mixed results and inconsistent messages. This reflects the relatively late focus of the working group parties on this issue, and its potential role in limiting participation in direct access.
4.4.1.3.1 Alternative 1: UDC's Provide Exclusive Billing for All Customer Services
If UDCs provide exclusive billing of all customer services, and in effect, remit energy revenues to the private energy service provider, remit other revenues per regulated tariffs for ISO and PX services, and retain those revenues associated with UDC services, then the UDC billing system becomes a central controlling factor in the numbers of customers that can participate in direct access. At this writing it is unclear whether the billing systems that could be put in place by 1998 or 1999 provide a constraint on direct access. It is clear that the current billing systems of the three IOUs could not handle even a very small fraction of the potential customer's participating in direct access. Thus, UDCs face several questions:
a. what is volume of direct access billing that they can expect to be processing in 1998 and 1999?
b. of the systems available/adaptable for that time period, what processing capabilities could be in place?
c. are there any ancillary systems, such as translation of hourly reads through telephone-based modems for entry into the billing system, a constraint?
d. given the current requirement that UDCs perform all distribution services, but the anticipation that distribution function unbundling now under investigation by the CPUC will alter UDC responsibilities, what is the appropriate ratemaking treatment of any investments/expenses to augment bill processing capabilities?
Before concluding that billing systems that need to be in place in 1998 are an issue, these questions (and perhaps others) must be addressed and resolved.
4.4.1.3.2 Alternative 2: ESPs and UDCs both Bill for Respective Services
[to be written]
4.4.1.3.3 Alternative 3: ESPs May Contract with UDCs for Consolidated UDC Billing
[to be written]
4.4.1.4 Demonstration of Integrated System Performance
This section is a placeholder pending further development of this issue and its implications for direct access phase-in.
Current Status
Integration of separate hardware/software systems into systems demonstrated to work properly has been identified recently. DAWG has no work underway at this time to assess this concern.
Next Steps
(1) develop a task force of DAWG, DISI, and other parties to: (1) develop a better understanding of the potential data flows between various organizations, (2) understand the technical parameters of these potential data and the communication systems exchanging data
(2) develop an understanding of the hardware specifications to permit this data exchange to occur
(3) identify the decision mechanisms required to ensure that multiple organizations understand and will conform to a standard for data exchange
(4) identify the need for hardware/software shakedowns to ensure data communication works properly
4.4.2 "Success Guarantee" Rationales for Limiting Eligibility
Unlike the technical considerations that constrain the eligibility for direct access, this second category of rationales suggest limiting eligibility because it would be "unwise" to allow full eligibility, since to do so might jeopardize successful implementation. For example, the opportunities for millions of residential and small commercial customers to obtain direct access by a limited number of providers who do not now have any legal standing or retail customer service networks could result in far more customer contacts than can possibly be handled. This would result in unsatisfactory service, disappointment, and disillusionment with the prospects of direct access. Thus to "guarantee success" for introduction of direct access, a limitation on eligibility of customers would be introduced. Clearly the process of selecting the customers that would be offered the opportunity would be accused of being unfair, but the explanation of "having to wait your turn" may be more palatable than a free-for-all in which many customers are unserved. In addition, there may be opportunities to permit customers with different risk tolerance to participate in the early stages, while delaying lower risk tolerant customers later in the phase-in queue.
Examples of customer service rationales include:
1. immature industry customer service constraints result in difficulties of new firms staffing up to handle millions of small residential and commercial customers who will have many questions about general issues of restructuring as well as specific questions about individual company offers. These questions will burden both UDC customers service organizations as well as new energy providers.
2. necessity to use both 1997/98 for testing protocols recognizes that various customer education/notification of eligibility protocols have to be developed to allow successful marketing strategies that appeal to all customers given broad disparities of education, language, familiarity with contracts, and other issues.
3. coordination of data/information flows recognizes that many data handling activities will be different, that complex systems to notify customers and process their responses have to be developed and implemented, and protocols have to be developed and implemented to ensure that basic billing continues to occur when direct access begins.
4.4.2.1 Immature Industry Customer Service Constraints
This section is a placeholder pending further investigation and understanding of this issue.
Current Status
This hypothesized constraint was discussed for the first time at the June 5 DAWG Implementation Committee meeting. Quality of service might be included in rules for market participants.
Next Steps
(1) develop guesstimates of the proportion of small customers that might be willing to participate in year 1 and year 2
(2) evaluate the number of customer contacts, amount of paperwork, and any necessary hardware purchases/installation to accommodate direct access
(3) determine whether the capabilities of IOUs and market providers could handle this volume of customer contact
(4) identify upper limits of customer contacts to ensure satisfactory performance by IOU in 1997, UDC in 1998, and market providers in both years
4.4.2.2 Necessity to Use 1997/98 for Testing Protocols
This section is a placeholder pending further investigation and understanding of this issue.
Current Status
Testing through the use of pilots emerged as a topic that the Implementation Committee could address in its scope of work, but DAWG recently agreed at the June 7, 1996 meeting to postpone development of pilot or testing programs beyond the August 30 WG report. Whether the concerns about consumer education and reductions of those concerns are sufficient to delay full eligibility in order to reduce these concerns has not yet been established.
Next Steps
This topic will be postponed beyond August 30. It needs to be assessed more fully to determine whether intensive program testing, especially for small commercial and residential customers, can measurably improve protocols of notification, educational materials, and other facets critical to successful experiences with direct access selection.
4.4.2.3 Coordination of Data/Information Flows
This section is a placeholder pending further investigation and understanding of this issue.
Current Status
This topic is implicit in discussions of the hardware aspects of DISI Team development of ISO settlement hardware/protocols, DAWG Implementation Committee discussions of mandated participation of residential and small commercial customers, but SCE suggests it be highlighted in its right.
Next Steps
Once a clearer image of scheduling coordinator roles and responsibilities, and the interface between the UDC and generation service marketers emerges, it will be possible to develop protocols to determine how data changes hands, and to conduct an assessment of possible constraints.
4.4.3 Equity Concerns for Limiting/Controlling Eligibility
Unlike the discussion in sections 4.3.1 and 4.4.2 which addressing constraints on the total number of customers or the proportions of load that might be able to participant in direct access, this section addresses equity concerns within any overall constraints. In fact, the greater the constraints on aggregate participation, the more severe become the concerns about equity. If direct access is effectively unconstrained, then clearly no equity issues are encountered. If direct access must highly restricted because of large interest combined with technical constraints, then many issues arise in determining how to ration participation in the face of massive oversubscription.
CPUC D.95-12-063 clearly requires that all customer classes participate in, and benefit from, direct access.[1] The SCE MOU parties initiated agreement on this issue.[2] The CPUC's decision was clearly responsive to consumer protection group concerns that only large customers would benefit from direct access, and to the SCE MOU's willingness to address this small customer concern. Such a requirement imposes a policy decision on the mix of customers that will be allowed to participate. Extending this equity concern may be appropriate in other ways that restrict which customer may choose to participate in order to maintain parity among competing firms within an industry.
Examples of equity rationales include:
1. participation of all customer classes to ensure broadly distributed benefits to all ratepayers.
2. restriction on size of direct access loads to distribute the numbers of participants in initial or early years of direct access programs.
3. restrictions on participation to maintain parity in energy costs among similarly situated firms competing within a given industry.
4.4.3.1 Participation of All Customer Classes
The phase-in proposals submitted by various parties are beginning to identify the key factors important to representative participation in a direct access program which operates in a pattern of oversubscription. These include: (1) how to define customer classes, (2) how to initially allocate opportunities to participate among classes, (3) how ration oversubscribed requests within customer classes, (4) how to reallocate undersubscribed allocations to customer classes that are oversubscribed, and (5) what performance requirements to place on customers allocated direct access opportunities to ensure that the allocation is used.
Next Steps
This issue is discussed in Section 4.2.3. If it is determined that some form of proportional representation is required, then the following steps must be assessed:
(1) identify what customer groups or classes must be used for determining eligibility;
(2) determine how to allocate MW of peak demand (capacity), annual energy (kilowatthours), or numbers of participants among customer classes;
(3) develop a protocol for making a singular identification of a customer to a specific class, especially addressing multiple account customers which may be on different rate schedules; and
(4) identify appropriate notification and consumer consent protocols for use in the implementation stage of DA during 1997
4.4.3.2 Restrictions on Size of Direct Access Loads
This issue is discussed in Section 4.2.4.
4.4.3.3 Restrictions on Participation to Maintain Industry Parity
The DAWG Implementation Committee has discussed the concerns of some industry representatives that there may be a few industries where competitors are few in number and finely balanced in production costs. Providing direct access to one such firm while denying it to others may unsettle the competitive balance for reasons which are an artifact of regulatory decision-making, not the marketplace. Generally, the issue has been discussed as all such firms or no such firms would participate in direct access simultaneously. To accomplish this requires recognition of the industry and some form of identification of specific firms within to which such treatment should be imposed.
4.4.3.3.1 Alternative 1: CPUC Imposes Group Participation Requirements
If the CPUC were to impose group participation requirements on any industries, then the following steps would have to be assessed:
(1) determine whether any industries merit specific efforts to maintain parity based on access to energy suppliers
(2) identify representatives of these industries, contact them, and determine whether the industry can develop feasible options
(3) for those industries where voluntary solutions cannot be identified, develop mechanisms to ensure "all or none" for targeted industries
(4) develop customer notification and selection protocols to implement "all or nothing" selection in targeted industries
4.4.3.3.1 Alternative 2: Industries Impose Restrictions On Themselves Outside of Direct Access Program Requirements
It would be much simpler for DAWG, the CPUC, and resulting IOU implementation efforts if any such industries could identify themselves and come to agreements through a trade association, rather than requiring that the policing authority of the CPUC through the IOUs insure discipline among the firms involved. Whether this is realistic, or might somehow be determined to be anti-competitive by a non-cooperating firm is unclear.
4.5 SPECIFIC PHASE-IN PROPOSALS
Four general direct access phase-in proposals have been identified from the numerous specific proposals sponsored by various parties. In general, the alternatives differ by the number of years over which direct access is introduced. They are:
a. direct access is open to all customers meeting minimal requirements on 1/1/98;
b. direct access is limited in 1998, but becomes open to all customers meeting certain contractual and equipment requirements on 1/1/99;
c. direct access is phased in over a multi-year period with final opportunities not available until 2000 or 2001;
d. direct access is not limited in aggregate participation per se, but is limited to those customers with required equipment and contractual requirements, which themselves may be phased in over multiple years.
While many variations exist within these broad categories, especially the last, these are the major features put forward by parties to date. The details of subsections 4.2, 4.3, and 4.4 of this section provide a discussion of the major elements that can be combined to develop specific details of the programs that are variations within the broad themes of the following four alternatives.
4.5.1 Alternative 1: Direct Access Open to All Customers Meeting Contractual and Equipment Requirements on 1/1/98
This alternative eliminates the phasing of direct access, even a single year's testing efforts, and opens direct access to all customers on 1/1/98. This is a change from the special treatment of 1998 in CPUC D.95-12-063, and implies a reduction in the nature of the special requirements for direct access participants.
Pros: The advantages of universal eligibility in 1998 include:
(1) no special rules for determining eligibility have to be determined by the CPUC and implemented by the IOUs/UDCs;
(2) customers expressing interest in participation will all be accepted, and will not suffer possible rejection as exist for phase-in alternatives with the possibility of oversubscription.
Cons: The disadvantages of universal eligibility in 1998 include:
(1) many of the program features discussed in this report could not be implemented, or if implemented would be available only on a scale prototype scale to limited numbers of customers;
(2) developmental opportunities for metering and communication system installation are eliminated, implying most customers would use existing meters;
(3) for nearly all customers, ISO imbalance costs would be allocated to customers using imprecise class behavior rather than actual usage;
(4) IOU/UDC billing systems might not be able to properly compute or display appropriate charges for UDC services versus energy service provider services;
(5) UDC responsibilities to forecast UDC energy customer loads for use by the PX could only be done in ways that relied upon the UDC to forecast for all loads, which might exacerbate anti-competitive concerns about UDC responsibilities for direct access customer loads;
(6) consumer education efforts would have to be abbreviated, conducted largely through bill stuffers and advertizing; and
(7) consumer protection efforts would be grossly imbalanced relative to the need for them since huge numbers of customers would have confusion and/or actual problems leading to overload of CPUC, UDC, and energy service provider customer service personnel.
4.5.2 Alternative 2: Direct Access Limited in 1998, But Open to All Customers Meeting Contractual and Equipment Requirements on 1/1/99
This alternative continues the presumption that 1998 is required for a staged, initial direct access effort to "work out the bugs," and that full eligibility for direct access for all customers could take place on 1/1/99. This alternative offers more than twice as much leadtime (measured from a June 1997 CPUC decision concerning direct access to the point at which all customers would be eligible) as Alternative 1, thus many more of the technical considerations of new metering/communication systems, revised or replaced billing systems, ISO imbalance cost allocation protocols, and customer education/protection programs could be refined and implemented in more efficient ways.
Pros: The advantages of limited eligibility in 1998, but universal eligibility thereafter include:
(1) significantly more leadtime is available to develop new mechanisms to compute and allocate direct access costs specific to each customer;
(2) probability of major breakdown in education, consumer protection, and customer service activities greatly reduced, thus increasing chances of success for direct access;
Cons: The disadvantages of limited eligibility in 1998, but universal eligibility thereafter include:
(1) relative to Alternative 1, this alternative would reduce the opportunities available to marketers and aggregators in 1998;
(2) the CPUC has to establish through a policy decision the broad parameters of a direct access program with limited eligibility in 1998, and IOUs/UDCs have to implement these decisions.
4.5.3 Alternative 3: Direct Access Is Phased in Over a Multi-Year Period
Various parties have supported and continue to support the original direct access scheme introduced in the SCE MOU, e.g. a multi-year phase-in of eligibility based on peak demand of load involved. While the original proposal suggested a six year phase-in, SCE and PG&E now suggest either three or four year variants are likely. SDG&E, while included within this table of peak demand allocations, rejects this alternative for its service area, and supports a transaction-based limit, if any is identified.
4.5.3.1 Variant A: All Customer Classes Included Within Peak Demand Limits
The parties to the SCE MOU included a specific proposal for phasing direct access and enumerated various eligibility parameters. The CPUC D.95-12-063 endorsed the aggregate levels of peak demand participation, but not the other parameters of the SCE MOU proposal. In D.96-01-006, the CPUC indicated that the peak demand schedule endorsed was the slowest permissible phase-in for direct access, and encouraged more rapid phase-in schedules.
Peak Demand Eligibility of SCE MOU Proposal
Eligibility Criteria 1998 1999 2000 2001 2002 2003 SCE MWs eligible 800 1400 2200 4000 8000 all PG&E MWs eligible 800 1400 2200 4000 8000 all SDG&E MWs eligible 200 350 550 1000 2000 all
SCE has proposed a variation upon the original phase-in schedule included in its September 1995 MOU. The three years of a megawatt-delimited peak demand phase-in schedule described in the SCE MOU would be preserved, but after year 3 a major review would be conducted to determine whether to continue phasing, and if so on what schedule.
Pros: The advantages of multi-year phase-in using peak load for all customer classes include:
(1) improved opportunities to ensure that direct access is conducted successfully, especially in ability to avoid failure of major information systems needed to transfer data among UDCs, energy service providers, scheduling coordinators, PX, and ISO;
(2)
Cons: The disadvantages of multi-year phase-in using peak load for all customer classes include:
(1) many more customers are denied an early opportunity to participate in direct access than on previous alternatives;
(2) some marketers, brokers, and aggregators may not be able to survive on the smaller levels of participation implied by multi-year phase-in;
(3) the peak load descriptor for the size of the program requires imputed for small commercial and residential customers, rather than use of actual data, thus requiring another analytic step subject to dispute.
4.5.3.2 Variant B: Residential Class Is Excluded From Peak Demand Limits, and Has Its Own Transactional Based Limitation
A variant of the original SCE MOU peak demand limits which attempts to recognize the great disparity of size among various participating customers suggests that the original peak demand limits included within the SCE MOU be interpreted as applying only to the non-residential classes of customers. All aspects of that interpretation would remain as identified within the original proposal. In addition, the residential sector would be allocated a participation rate linked to the numbers of transactions that UDC billing systems and meter/communication systems could support through time.
Pros: The advantages of multi-year phase-in for all customer classes, but different descriptors for residential and non-residential customers include:
(1) improved opportunities to ensure that direct access is conducted successfully, especially in ability to avoid failure of major information systems needed to transfer data among UDCs, energy service providers, scheduling coordinators, PX, and ISO;
(2) compared to Alternative 3 (variant A), no imputation of extrapolation of residential customer energy data to determine peak load is required.
Cons: The disadvantages of multi-year phase-in for all customer classes, but different descriptors for residential and non-residential customers include:
(1) many more customers are denied an early opportunity to participate in direct access than on previous alternatives;
(2) some marketers, brokers, and aggregators may not be able to survive on the smaller levels of participation implied by multi-year phase-in;
4.5.4 Alternative 4: Participation in Direct Access is Limited to Customers with Required Equipment and Contractual Arrangements
A fourth alternative for phasing direct access rejects "arbitrary" limits on peak demand or on schedules of meter/communication system installation and suggests that direct access be permitted for any customer possessing certain required equipment and contractual arrangements. This approach recognizes the uncertainties of the development of billing systems, of metering/communication systems installation, of bill processing systems, and instead of forecasting the rate at which the capacity of these systems will be put in place merely says that once you have them you can participate in direct access. This approach places pressure on the installation of these systems by either the UDC or private parties, and would accentuate policy focus on these underlying institutional responsibility decisions.
To be specific, a hypothetical set of requirements for a customer to participate in direct access include:
a. metering/communication systems capable of measuring energy consumption data and transmitting this data to a bill processing center:
1. small customers -- traditional monthly consumption meter manually read by a meter reader; and
2. other customers -- hourly interval meter with an electronic communication system capable of uploading hourly reads for a day on a daily basis, plus an agreement from a bill processing center to support needed billing computations according to energy provider specifications; scheduling coordinator settlement protocols, and UDC tariff requirements.
b. energy supply contract covering all load of the customer for a one year period with 30-day notification to UDC period for return to UDC service.
c. system integration contract with scheduling coordinator which specifies protocols for forecasting hourly loads, use of consumption data and/or load profiles for use in settlement of imbalances, and process for remittance of customer payments to all appropriate parties.
d. UDC distribution contract establishing the tariff for distribution service, coordination arrangement for CPUC-regulated service payment, and agreement to pay CPUC-directed CTC charges.
These requirements could be refined, or alternative ones developed. Associated with establishing these requirements is clarification of who is responsible for providing these requirements to the customer, e.g. what are the roles of the IOU/UDC, energy service providers, standalone suppliers of limited services, etc.
Pros: The advantages of opening direct access to all customers possessing necessary equipment and contractual agreements include:
(1) attention is focused on determining the necessary equipment and contractual agreements required for participation, and if their are problems in furnishing these to broad numbers of customer, clearly revealing that it is solving these problems that is required, not debating arbitrary limits on participation;
Cons: The disadvantages of opening direct access to all customers possessing necessary equipment and contractual agreements include:
(1) CPUC D.95-12-063 would have to be revised to establish the requirements, determine who was permitted to furnish the requirements to the customer, and what oversight over this would be provided by CPUC, IOU/UDC, or others;
4.5.5 Final Implementation Plan
The many options described in this section, as well as others that will follow in the remaining sections, should clearly suggest that a final implementation plan does not yet exist. The DAWG recommends in Section 18.1 of this report that once the CPUC and FERC have determined the major elements of the revised industry structure, that the parties be required to develop a final conforming implementation pan for direct access in each of the three investor-owned utility services areas. While proponents of direct access properly insist on a large degree of uniformity for the requirements of these three plans, utilities are correct in noting that various elements of a direct access program ought to be configured to suit the circumstances in each existing service area. Finally, as noted in sections 18.2 and 18.3, a monitoring mechanism must be put in place and utilized to either confirm the phase-in schedule, accelerate it, or retard it according to pre-identified criteria.
4.0 PHASE-IN/ELIGIBILITY REQUIREMENTS
4.1 SHOULD THERE BE ELIGIBILITY THRESHOLDS?
4.2 ASSESSMENT OF ELIGIBILITY FACTORS
4.2.1 The Overall Phase-in Descriptor
4.2.1.1 Alternative 1: Annual Energy or Peak Demand
4.2.1.2 Alternative 2: Numbers of Transactions
4.2.2 Limitations on the Size of Customer Participation
4.2.2.1 Alternative 1: Size Constraints are Imposed
4.2.2.2 Alternative 2: No Size Constraints
4.2.3 Representation from All Customer Classes
4.2.3.1 Alternative 1: Participation Proportional to Share of Load
4.2.3.2 Alternative 2: participation Proportion to Number of Customers
4.2.3.3 Alternative 3: Alternative 3: Participation proportional to Number of Customers Expressing Interest in Direct Access
4.2.4 Whole or Partial Participation in Direct Access
4.2.4.1 Alternative 1: Partial Participation in Direct Access
4.2.4.2 Alternative 2: Whole participation in Direct Access
4.3 EDUCATION/SOLICITATION/RATIONING/AUTHORIZATION ISSUES
4.3.1 Consumer Education programs
4.3.2 Open Season Solicitation of Participation
4.3.3 Rationing of Participation Requests
4.3.4 Authorization to Participate Notification
4.4 RATIONALES FOR LIMITING DIRECT ELIGIBILITY THROUGH PHASE-IN
4.4.1 Technical Rationales for Limiting Eligibility
4.4.1.1 ISO Data Processing Capabilities
4.4.1.1.1 Alternative 1: ISO Data Processing is Not a Constraint Beyond 1998
4.4.1.1.2 Alternative 2: ISO Data Processing is a Short Run Constraint Beyond 1998
4.4.1.2 Metering/Communication Systems
4.4.1.3 Constraints on the UDC Billing Systems
4.4.1.3.1 Alternative 1: UDC's provide Exclusive Billing for All Customer Services
4.4.1.3.2 Alternative 2: ESPs and UDCs Both Bill for Respective Services
4.4.1.3.3 Alternative 3: ESPs May Contract with UDCS for Consolidated UDC Billing
4.4.1.4 Demonstration of Integrated System Performance
4.4.2 "Success Guarantee" Rationales for Limiting Eligibility
4.4.2.1 Immature Industry Customer Service Constraints
4.4.2.2 Necessity to use 1997/1998 for Testing Protocols
4.4.2.3 Coordination of Data/Information Flows
4.4.3 Equity Concerns for Limiting/Controlling Eligibility
4.4.3.1 Participation of All Customer Classes
4.4.3.2 Restriction on Size of Direct Access Loads
4.4.3.3 Restrictions on Participation to Maintain Industry Parity
4.4.3.3.1 Alternative 1: CPUC Imposes Group Participation Requirements
4.4.3.3.2 Alternative 2: Industries Impose Restrictions on Themselves
4.5 SPECIFIC PHASE-IN PROPOSALS
4.5.1 Alternative 1: Direct Access Open to All Customers Meeting Minimal Requirements on 1/1/98
4.5.2 Alternative 2: Direct Access is Limited in 1998, but is Open to All customers Meeting Equipment and Contractual Requirements on 1/1/99
4.5.3 Alternative 3: Direct Access is Phased in Over a Multi-year Period
4.5.3.1 Variant A: All Customer Classes Included within Demand (or Energy) Limits
4.5.3.2 Variant B: Residential Class is Excluded From Peak Demand Limits, and Has Its Own Transactional-Based Limitation
4.5.4 Alternative 4: Participation in Direct Access is Limited to Customers with Required Equipment and Contractual Arrangements