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 15, 1996 RE: Draft # 1 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.
4.1.2.1: Subparagraphs a and b are unnecessary; we are already there.
Subparagraph g portends yet another round of working groups. By the time the Commission has reviewed everything, it ought to be in a position to order the implementation plan. In fact, that's what I thought all our DAWG activity was about -- providing information to the Commission so it could design and order implementation. I therefore suggest the following language as a substitute:
The Commission must adopt and issue a final conforming implementation plan based on this report and the decisions made by the Commission and FERC. A draft plan should be issued early enough for meaningful comment to be received from all interested parties before the implementation plan becomes final.
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.
4.2.4.2: Another "Con" to this alternative is the possibility it would lead to serious industry parity imbalances.
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 believe this section of the report would be better understood if the specific proposals were outlined. The variants within the type of proposal could be explained under a general heading identifying the type of phase-in suggested. (For example, the CMA and DOD proposals have as a common denominator pro rata phase-in if necessary, but then have differing variants.) As the report is currently drafted, elements of proposals are put into differing variants. For instance, part of the CLECA proposal was that the non-residential class members that had equipment in place allowing them to take advantage of direct access would be preferred in the first year. That part of the CLECA proposal currently appears in 4.5.4 and is not described at all in 4.5.3.2, where the rest of the CLECA proposal is discussed. As I read it, the excluded portion of the CLECA proposal is an important part of the proposal as a package, and it ought to be described as such.
I therefore suggest 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: In light of comments on section 4.1.2.1 (see above), we suggest deleting the portion of the second sentence after the words "industry structure" and replacing them with the following: "the Commission should adopt and issue a draft conforming implementation plan based on this report and the decisions made by the Commission and FERC. This plan should be issued early enough for meaningful comment to be received from all interested parties before the implementation plan becomes final."
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 need further discussion of this issue before addressing it in the Team A report.
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