To: Consumer Protection and Education Subgroup Participants

From: Lon W. House, ACWA-USA JPA Advisor

Re: Public Entities as Energy Service Providers

Date: June 24, 1996

In our discussions about registration of energy service providers there is the issue of public entities that serve as energy service providers that needs to be addressed. Page 188 of the Restructuring Decision (D.95-12-063) states:

There currently is no differentiation in the decision between private energy service providers (over which the Commission certainly has jurisdiction) and public entities serving as energy service providers that are not under the Commission's jurisdiction. There are a number of public entities (such as the ACWA-USA Joint Powers Agency, Association of Bay Area Governments, Southern Cities Consortium, Chowchilla Valley Association of Governments, School Project for Rate Reduction, and others) that are pursing options of being energy service aggregators.

While we have strong reservations about whether the Commission can legally require the registration or licensing of public entities in the State of California, the concerns about the need for such registration/licensing are unfounded with public agencies functioning as aggregators for the electricity demand in their area.

We share the groups concerns about the need for consumer protection and the need for accountability of the energy service provider to the will of the customers, the need for some measure of stability or permanence on the part of the energy service provider, and the financial ability of the provider to ensure service.

While the aforementioned are legitimate concerns with regards to private providers of service, the existing public structure in California provides these safeguards with regards to public entities in the state.

Accountability

Public entities are, by definition, accountable to the will of the people. They are governed by Boards of Directors (or comparable ruling body) which are selected by their constituents. The Directors represent the will of the constituents. If they don't, they may be replaced at the discretion of those constituents. Private entities do not have this direct causal relationship between the energy service decision makers and the customers for electricity, and private entities are often influenced by incentives other than the public good For public entities serving as energy service aggregators, there is no divergence in incentives between the customers and owners, for the customers are the owners. For private aggregators, the owners are not the customers.

Stability

Public entities are not going to disappear and leave customers stranded. As opposed to private entities, we were generally not originally created to provide energy services, and energy is not our main function. The entities that are currently considering becoming public aggregators in the state all have some pre-existing social function for which they were organized (such as streetlighting, water and sewerage, public schools, or local government). Energy service is simply an extension of the public services that are already being provided. The only way we can be eliminated by the will of the constituents, either by a direct vote or legislation.

Private services providers have no such guarantee of stability. They can come and go based upon economic forces. There is no such assurance with private entities that they will be there next year, or five years from now. To take an extreme example, if a public entity happens to lose money one year providing energy services they will continue to function, whereas a private entity, to whom profits to its investors is the primary motive, may cease to exist and strand its customers without a service provider.

Finances

Public entities are already recognized and registered by the State of California. They undergo annual audits and have standardized reporting requirements. Their finances are a matter of public record and scrutiny. Private entities do not have such requirements.

Recommendation

I recommend that that this working group specify the clarification that the necessary registration and oversight of energy service providers is exclusive of political subdivisions of the State of California. Such a spefification would clarify the wording the wording on page 188 of the Decision to:

"Our consumer protection role may be enhanced if we retain the ability to require private energy service providers, including marketers, brokers and aggregators, to register with or obtain a license from this Commission." (change emphasized).

Thank you for your consideration of this issue.

Respectfully submitted,
Lon W. House, Ph.D.
Dated: June 24, 1996
(916) 676-8956
e-mail: lwhouse@el-dorado.ca.us