DOWNEY, BRAND, SEYMOUR & ROHWER
M E M O R A N D U M
TO: Michael Jaske FROM: Dan L. Carroll (for California Industrial Users) DATE: July 23, 1996 RE: Draft # 2 of Phase-In/Eligibility Requirements of DAWG Team A Report cc: DRA Web Site
Following are my comments on the above-referenced draft. References are to the section number of the draft. Some comments are the same as my last set of comments, since you had not had an opportunity to incorporate them before completing Draft # 2. Please ignore them if they have already been inserted. Some comments also reflect discussions from the last Team A meeting, further advancing my thoughts about some issues we were to discuss on July 23 but now will not, in light of that meeting's cancellation.
Enclosed is a 3 ½ inch diskette in WP 5.1 format with a copy of the memo.
4.1.2.1: Subparagraphs a and b are unnecessary; we are already there.
I still believe we should try to avoid another round of working groups, as is hinted at in subparagraph g. I have talked with others who feel the same. I recognize the practicality of the concern you and others have expressed that the Commission may well order them in any event. If that is true, though, I believe we should let the Commission decide that, rather than DAWG offering itself up for such services. In addition, I support the suggestion that we present the Commission with a sort of "top ten" list of matters that it must decide before implementation can progress any further.
In light of those thoughts, I suggest editing subparagraph g as follows:
Some working group participants believe that the IOUs and other parties must in the future collaborate to develop a final conforming implementation plan based on this report and the decisions made by the CPUC and FERC. This belief is founded in a concern that the Commission may lack the necessary resources to develop such a final plan. Others disagree and state that after considering the input provided by this report, the Commission must adopt and issue a final conforming implementation plan based on this report and the decisions made by the Commission and FERC, with a public comment period to follow issuance of a draft plan. A major concern of these participants is that the resources of some stakeholders are already stretched near the breaking point and will be even further frayed by the time any future implementation plan collaboration would occur. This could lead to underrepresentation in such a collaborative; Commissioners Knight and Neeper have already expressed concern about such underrepresentation in the current DAWG process.
Even if the Commission chooses to order another round of collaboration, stakeholders agree that the Commission must make certain fundamental decisions before the commencement of such a collaboration; without such decisions, a future collaboration will not aid in advancing implementation of direct access. These decisions are:
1. Will a phase-in be required?
2, What is the proper descriptor for a phase-in if it is required: that set forth in the Policy Decision, one based on transactional limitations, or some other choice?
3. Will universal real time metering be required?
4. Will the Commission allow load profiling of any class or classes of customers as an alternative -- whether permanent, long-term, or short-term -- to universal real time metering?
[THESE FOUR ITEMS ARE INCLUDED AS EXAMPLES. OTHERS CAN BE ADDED; SOME OF THESE CAN BE DELETED. THE SUGGESTION AT TEAM A WAS THAT WE COME UP WITH THE "TOP TEN LIST" BY THE TIME THE FINAL REPORT IS FILED.]
4.1.2.3: Subparagraphs h and i, when read together as written, could lead to the conclusion that if undersubscription occurs, those who subscribed in the first round would not necessarily take precedence over those subscribing in the second round. Such a result would be unfair. Whatever might eventually be done with a "first come-first served" idea, that concept certainly ought to apply in the presence of initial undersubscription. I suggest revising subparagraph h as follows, and deleting subparagraph i:
h. If undersubscription occurs, customers subscribing during the first round of solicitations would be notified that their applications to participate in direct access had been authorized, after which steps (e) - (g) would be repeated an additional time, with subsequent customer notification of acceptance for second round customers.
4.2.3.1: Another "Con" to this alternative is a failure to maximize success guarantee variables. Customers most likely to be able to guarantee success are those already possessing time of use meters and the financial resources to bear some of the risk that may attend the first year of direct access.
4.2.3.3: Add as a pro:
(2) ability to select initial participants based on many factors, including success guarantee rationales;
Add as a con:
(2) administration of such a program would be less ministerial and require direct Commission intervention and decision-making.
4.2.4.2: Another "Con" to this alternative is the possibility it would lead to serious industry parity imbalances.
4.2.5: DAWG Team A has never discussed the issues addressed here, in my recollection. There are many loaded issues discussed here, beginning with the first sentence, which, I believe, inaccurately characterizes what the Policy Decision says about stranded cost recovery. Most important, though, is the fact that this section is irrelevant to our deliberations. All these issues should be addressed in the eventual CTC proceedings. I strongly urge that it be deleted.
4.3.2.1: Renumber so that Alternative 1 becomes alternative 2, and so on, and include as alternative 1 something we discussed at a recent Team A meeting: a "pre-survey" of interest. That is in some ways what your "first step" in current Alternative 1 is, but such a "pre-survey" need not come from the IOUs. Suggested language:
Under this alternative, stakeholders would form an advisory committee to survey the market to obtain an estimate of the interest in each customer class in direct access. The advisory committee would determine the nature and content of the survey, how it would be financed, the level of customer education (if any) to precede it, and the method of its dissemination and assessment of returns.
Pros: (1) Allows measurement of interest before substantial investment in phase-in; if the interest level indicates likely undersubscription, phase-in would be unnecessary.
Cons: (1) Time and resource consumption.
4.3.2.1: Strike sentence two. A lottery under these circumstances would "conform to basic ideas of fairness" only if randomness in result equals fairness. A lottery has an advantage only because it would be easy to administer, but ease of administration does not necessarily equal fairness.
Further, to use a lottery under these circumstances would amount to a rejection of all the work that went into drafting the more sophisticated proposals. If all DAWG was going to do about eligibility was conduct a registration and pick names from a hat, that could have been done long ago.
In addition, the text does not accurately describe the sole lottery proposal entertained. That proposal included weighting of chances of winning based on level of usage of energy.
As to the "Pros", it should be clear I do not agree that lotteries are "readily agreed to be fair". If that is the only pro, maybe the lottery should not be included at all! Rather than take that drastic position, I suggest editing the "Pro" and adding a "Con":
Pro: Because of their randomness with everyone having an equal chance to "win", lotteries may be perceived as "fair".
Con: Some participants perceive a lack of fairness in the randomness of lotteries.
4.3.3.2: Add as a con:
(3) Depending on the number of people who want to sign up, this could be inherently unfair because the result could border on randomness, depending on whether a customer hit an open phone line at the right time to get through or made it into the right stack of mail as it was sorted.
4.3.3.3.1: In the third sentence, add the following after the word "bid": "all or any portion of".
4.3.5.1: Add as a "Pro":
(2) the process may be perceived as more fair if those who are selected the first year are not allowed to "lock up" available energy for the long term, leaving later participants to negotiate for what is left.
As the first "Con", I disagree with the assumption. Why would they "probably" believe that they have such a right? Such a belief is an education issue. If they are told they only get in for one year before the open season, no such belief should exist. I suggest deleting this "Con".
4.3.5.2: As to the first sentence, see just preceding comment. This s a "natural belief" only if participants are not educated otherwise. I suggest deleting the sentence and editing the following one by deleting the first two words.
Add as a "Con":
(2) the program may be perceived as unfair if the result of "once selected, always selected" is to allow those selected the first year to "lock up" long term energy supplies, leaving later participants to negotiate for what is left.
4.4.3.1: Will item (3) under Next Steps be addressed in the August 30 report? I am not aware of any proposals circulating on this topic. Further, we have had very little discussion on the topic of how to define customer classes (item (1) under Next Steps). Failing such a definition of customer classes, will default be to the presently defined ratepayer classes?
4.4.3.3.1: First, was your Alternative 2 supposed to be paragraph number 4.4.3.3.2?
Second, we are concerned about the "all or nothing" prospect. Although there are issues with pro rata participation, in this area a third alternative is pro rata awarding of direct access rights throughout an industry that can demonstrate true parity concerns. In that regard, I suggest this alternative wording for subparagraphs (3) and (4) under 4.4.3.3.1:
(3) for those industries where voluntary solutions cannot be identified, develop mechanisms for either pro rata participation of all industry participants, or alternatively for "all or none" participation within the industry during the phase-in period.
(4) develop customer notification and selection protocols to implement either pro rata or "all or nothing" selection in affected industries.
4.5 and its subsections: We still believe this section of the report would be better understood if the specific proposals were outlined. Bluntly, not to do so penalizes participants who took the time to put together a proposal as a package and with a specific identity. I disagree with your comment at the last Team A meeting that we don't have time to worry about "packages" at this time. What we don't have time to do is try to track the variants through all the proposals to see what part of what proposal fits where in the constructs you have presented. If the Commission wishes to create constructs, it can. If it wants to pick and choose among elements of the proposals, it can. We should not presume to dilute proposals for the sake of an organizational effort.
I therefore suggest again that all of 4.5 be rewritten as follows:
4.5: SPECIFIC PHASE-IN PROPOSALS
The parties have not reached consensus on a particular phase-in proposal. In fact, the parties do not agree whether a phase-in as called for in the Policy Decision is even necessary, with some parties remaining convinced that it is not. Thus, from a temporal perspective, several alternatives have been proposed:
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.
4.5.1 Phase-In Alternatives
Setting aside for the present the lack of consensus regarding the necessity for a phase-in, the parties have received and discussed proposals from a number of participants concerning how phase-in would occur if it were required. Discussion of those alternatives follows.
4.5.1.1 Alternative 1: All Customer Classes Included within Peak Demand Limits
[Use content (after editing to remove attribution) which is currently found at 4.5.3.1 on p. 26; then add the following.]
Two variants on this alternative follow:
4.5.1.1.1: Customers would be phased in by load, either individual or aggregated, beginning with loads above 500 kW in January 1998, with the load reducing incrementally by 100 kW per year down to 100 kW in January 2002, with all customers eligible in January 2003.
4.5.1.1.2: The megawatt limits from the Policy Decision would be used, but preference would be given to customers in a class whose rate/cost experience is above average for the class.
4.5.1.2 Alternative 2: Account for Residential Load Outside Megawatt Limitations from Policy Decision
Under this alternative, the residential class would be accounted for outside the 1800 megawatt allocation for year one. Residential direct access participants would be load profiled. The 1800 megawatt allocation from the Policy Decision would be split in some fashion among the remaining customer classes. First year allocation would be based on whether customers are technologically ready to participate because they already possess time of use meters.
4.5.1.3 Alternative 3: Lottery for Participation
Under this alternative, a lottery would take place. Those wishing to participate in the first year would submit their applications during a subscription period. If a customer class is oversubscribed, a lottery would held, in which the chances to win would be weighted in favor of heavier users of power in each class.
4.5.1.4 Alternative 4: Pro Rata Participation
A number of alternatives with the common denominator of pro rata participation of classes in the presence of oversubscription were submitted. Under these alternatives, after a subscription period, oversubscription of a class would not result in exclusion of any customer. Instead, all customers still desiring to participate in direct access would accept a pro rata reduction of their direct access supply request. Customers could indicate when they subscribed whether there was any amount of direct access below which they were not willing to participate. The rest of the customer's load would be served by the UDC through the power exchange. The variants within the proposals deal mainly with how customer classes would be defined.
4.5.2: No Requirement of Scheduled Phase-In
As noted in subparagraph a under section 4.5, some parties believe direct access should be universally available on 1/1/98. Within that concept there is an alternative that even under such "universal" availability, a customer would have to meet certain minimal requirements to participate. Thus, a customer would be permitted to participate in direct access as of 1/1/98 if it met the following requirements:
[Here insert subparagraphs a, b, and c on page 27.]
4.5.5.5: In light of comments on section 4.1.2.1 (see above), we suggest deleting the second sentence replacing it as follows: "In this regard, see the discussion in section 4.1.2.1, subparagraph g."
I do not recall discussion in the Implementation Team concerning the material found in the next to last sentence of this section. I therefore am not comfortable saying that the IOUs are "correct" as stated in that sentence. I think we either need further discussion of this issue before addressing it in the Team A report, or that this portion should be deleted.
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