From dec@pacbell.net Wed May 29 10:03:13 1996
Date: Tue, 28 May 1996 20:30:41 -0700 (PDT)
From: Tom Solberg
To: seancasey@cpuc.ca.gov
Date: May 16, 1996
To: Direct Access Working Group
From: James R. Solberg
Thomas W. Solberg
Patty Spangler
James Boulgarides
Thomas Kirk
Re: Proposal
I. Introduction
Pursuant to CPUC Decision No. (D.) 95-12-063, dated, December 20, 1995,
PG&E, SCE, and SDG&E have convened two meetings of interested parties to
participate in planning for the implementation of Direct Access (p.220 of
the Order). The meetings of the parties (Working Group) have been held at
the San Francisco Airport Hilton, on January 11, 1996, and March 1, 1996.
The first meeting resulted in a request to the CPUC to delay the submission
of implementation recommendations until August 30, 1996. At the second
meeting, the representatives of the utilities asked for proposals to be
considered as part of the recommendations ultimately to be made to the CPUC.
It is in the spirit of complying with the utilities' request as well as to
generate momentum in the process of developing a package of recommendations
that the sponsors identified above present this Proposal for discussion.
This proposal is necessarily general in those areas that rely on information
not yet available. Nevertheless the basic ideas put forward here are
conceptually clear. Moreover, their feasibility has been reviewed by
parties to every element of the proposal, and we are satisfied that the
proposal we are making can be implemented before the not-later-than date of
January 1, 1998, as articulated in the D. 95-12-063.
Our proposal is being submitted to the Direct Access Working Group (DAWG)
as part of the early agreement reached by the representative stakeholders in
the DAWG that the working group process would be employed as a forum for all
proposals. In order to facilitate the deliberations of the DAWG, we have
met with Southern California Edison (SCE) and San Diego Gas and Electric
(SDG&E) to see where there are potential sticking points.
Representatives of both utilities have asked questions and made suggestions
that have been incorporated in this Proposal. In particular, it became
apparent that while the Proposal reflects the understandings of the
signatories, it also implies other things to some readers. For example, the
Proposal originally was characterized as a "Pilot Project Proposal". The
term was employed in our early drafts in the academic sense which includes
hypotheses, data gathering, and evaluation. It was taken by the utilities
to mean a covert attempt to make a special deal to the exclusion of others.
The signatories, in this introduction, have attempted to clarify points that
were raised by SCE and SDG&E by enumerating below what the Proposal is and
what it is not.
* The Proposal is not an attempt to move implementation forward before the
mechanisms to do so are in place. We are as risk averse as any other party
is (cf. p.3, II. Background).
* The Proposal does suggest the potential for field testing any element
about which there might be a dispute, e.g. whether the ultimate market
structure (ISO and power exchange) must be in place before initiating any
element of Direct Access.
* The Proposal does not create an opportunity for the signatories to enjoy
an exclusive right to implement Direct Access.
* The Proposal calls upon the CPUC to create one or more implementation
projects (p.6, IV. A; p.11, F.1.).
* The Proposal calls upon the CPUC to develop criteria to establish the
legitimacy of any aggregation proposing an implementation project (p. 8-9,
1.- 4.).
* The Proposal envisions new aggregations being formed in order to
participate in Direct Access whenever participation is possible.
* The Proposal does not wrest control from the utilities. In the give and
take of the discussions which will ensue, their technical expertise cannot
be denied or ignored. Indeed, in some respects, the utilities will continue
to maintain virtual veto power.
* The Proposal does not mean to accelerate artificially the target date of
1/1/98. It does mean that if careful attention is paid to problem
resolution and an earlier date is achievable, implementation can occur
before 1/1/98 (p.11. F.5.).
* The Proposal is predicated on the notion that a phase-in is unnecessary
and that, therefore, the proposed volumetric caps on power are irrelevant
(p.10, E.1.).
* The Proposal’s basic concept is that any customer, as an individual or
group, that meets the criteria for participation in Direct Access, should be
free to do so as soon as possible. Such an opportunity must be absolutely
equitable across all customer classes.
The proponents encourage a careful reading of the Proposal. We are more
than willing to respond to questions as part of the DAWG deliberations. It
is the earnest desire of the proponents to move Direct Access forward as a
feasible concept. Our hope is that the basic tenets outlined here will be
incorporated in the August report to the CPUC.
II. Background
Virtually all the parties to the electric restructuring initiative have
expressed the need to make deliberate haste. Though there may be doomsayers
in the wings, no responsible party has asserted that the 1/1/98 date cannot
be achieved.
The CPUC has, in fact, declared that the rationale for a phase-in period is
to provide a "measured approach" that will allow practice with operational
issues, evaluation of steps taken (emphasis added), and opportunities to
improve the program for an "...Increasing number of electricity customers".
For their part, the utilities have on any number of occasions explained that
the enormous dollar amounts at risk in this reordering of a basic industry
require a thoughtful approach. Other merchant interests in this matter are
understandably anxious to open the obvious and obscure markets that will
emerge, but they, too, are averse to unnecessary risk. The end-users, of
course, are focused on the potential for significantly reduced energy costs
given no reduction in reliability of service. The degree to which choice
from an array of service options has appeal to consumers is something that
needs evaluation.
Undergirding the position of every entity in this bold venture is the
recognition that the stakes are large, that risks should be minimized, that
mid-course corrections will need to be made, that customers will need to be
educated, and that the marketplace must be free to operate. This Proposal
is made with these issues in mind.
III. Summary of Proposal
In D. 96-03-022 (the Roadmap decision), the CPUC identified a number of
issues that should be addressed by the Direct Access working group. The
Proposal contained herein addresses each of these issues. The following
summary links the Proposal with the items articulated by the Commission at
pages 23-24 of D. 96-03-022.
A. The Direct Access Plan
o Delineation of Participation
The Proposal calls for one or more implementation projects based on affinity
groups.
o Necessary Metering Requirements
Mandatory TOU metering needs to be economically feasible if all customer
classes are to be included in any Direct Access regime. The Proposal
identifies implementation project participants as those with predictable
loads for whom a scientifically-derived consumption profile can be
developed. No special metering will be required.
o Dissemination of Customer Information
Several of the Proponents of this Proposal are performing natural gas
aggregation services for their organizations. The Proponents already have
the means to provide education to their member organizations.
o Monitoring and Evaluation Mechanisms
The Proponents are thoroughly experienced in articulating hypotheses and
designing evaluation measures.
B. The Eligibility Plan
o Technical Concerns
TOU metering may be a significant barrier for many potential Direct Access
participants. Each implementation project will assess the need for
individual TOU meters for its constituency.
o Phase-In of Eligibility
The Proposal is premised on the assertion that Pilot Project experience with
natural gas shows that a phase-in is not needed.
C. Customer Aggregation Rules
o The Proposal identifies four areas in which the CPUC should establish
policy with respect to rules for aggregators.
D. Market Participant Rules
o Market forces and demand for service will prompt the evolution of
contracts between end-users and marketers, brokers, direct access suppliers
and energy service providers. Contract development will provide the initial
step in identifying areas where explicit rules must be adopted.
E. Metering and Communications Systems
o The implementation project(s) herein could provide a laboratory for
assessing a variety of metering and communications systems. However, the
Proponents believe that an implementation project emphasizing customers with
compatible load profiles will test the hypothesis that elaborate metering
and communications schemes will not be necessary.
IV. Proposal
The Proponents of this Proposal are suggesting the authorization of one or
more implementation projects. Because of the different interests of various
parties to the proceeding it would be presumptuous to offer a
one-size-fits-all model. While the general criteria employed in this
submission may be applicable to any subsequent Proposal, it is the intention
of the School Project for Utility Rate Reduction (SPURR), the Regional
Energy Management Coalition (REMAC), the Association of Bay Area Governments
(ABAG), Coachella Valley Association of Governments (CVAG), and the Southern
California Cities Consortium (Consortium), to offer a specific Proposal
limited to those five agencies. It is conceivable that others may want to
subscribe to our implementation project. It is likewise possible that other
groups may choose to develop their own projects.
We are proposing an implementation project because it offers the best look
in a limited way at an enormous undertaking. It seems prudent that with the
stakes so large, new techniques and assumptions should be considered in the
crucible of reality. A limited application, initiated in an analytical way,
minimizes the risk, but provides real life experience.
A. Constituencies
This Proposal is made on behalf of SPURR, REMAC, ABAG, CVAG, and the
Consortium. Other public groups whose interests are congruent with the
initiators’ are welcome to join us. The intention is to create a
demonstration project, i.e. the creation and implementation of the direct
access model. As a group of customers we will secure an electricity supply
with transmission rights to the intrastate distribution system. This is not
a simulation, though others may find that a simulated program would be
appropriate for them. The reasons for limiting participation to those
enumerated are several.
1. Each is a Joint Powers Authority organized under provisions of the
California Government Code. Thus each has a legitimacy that speaks to being
a responsible participant.
2. As groups with public members, the economic beneficiaries of our plan are
the taxpayers and children of California.
3. The educational members of the proponents are widely experienced with
pilot projects. They understand and can organize projects of this kind and
develop and implement evaluation protocols.
4. SPURR and REMAC have participated in the Core gas aggregation pilot
project which, in fact, was initiated by SPURR.
5. Three of the five are already approved by the utilities as aggregators,
having met credit worthiness criteria.
6. The ability of the Proponents to meet their financial obligations has
been well demonstrated. In fact, we believe that experience has shown that
aggregations of customers are more timely payers than their component
members were before aggregation.
7. The process by which the initiators became gas aggregators has provided
valuable experience in the organizational dynamics of aggregations including
but not limited to participant recruitment, member communication and
education, and establishing billing and other management systems.
8. The Proponents have wide experience in selecting responsible energy
supply and delivery agents.
9. All five Proponents are intervenors in the electric restructuring debate.
B. Approvals
It is the intention of the Proponents to select one or more suppliers
authorized to market power that will deliver power to the distribution grid
that provides service to our respective areas. The only regulatory approval
needed will be for the CPUC to authorize the “breaking of bulk” by the
supplier in order to identify the intended recipient. What this means to
the Proponents is that the customer's aggregator must be able to track the
ultimate destination of the bulk power delivered to the ISO. The CPUC will
need to authorize what we understand to be termed "retail wheeling"; i.e.
the wholesale supplier sells to the aggregation in bulk and the aggregator
is responsible for tracking that wholesale delivery through the distribution
system to the end-user.
C. Delivery Process
The exact evolution of the ISO is not yet known. This Proposal assumes that
the utility distribution company (UDC) would perform the functions of the
ISO should a program be implemented prior to formation of the ISO.
Our vision is that our supplier will provide electricity according to a
pre-determined load pattern and timetable to the ISO/UDC. The function of
the ISO/UDC will be to match its power receipts with its power needs in a
macro sense.
Certain end-users such as the constituent members of the Proponents have
such predictable consumption patterns that a meaningful profile can be
developed that should be acceptable to the supplier and UDC for purposes of
applying different time-of-use rate schedules for supply and distribution
respectively. Such a proxy representation could easily be incorporated by
the ISO/UDC for purposes of dispatch.
Two other issues need further discussion. One is the subject of truing up
imbalances. Several possibilities exist. The ISO/UDC could call upon
Direct Access suppliers to help balance the system by maintaining spinning
reserves or otherwise have access to "on demand" power. Another option
would be for the ISO to balance the system by relying on the Power Exchange
(PX) with ISO costs assigned to users/aggregators with short supply. There
may be other alternatives.
The second is the question of time-of-use metering. The real issue for
end-users is whether the pricing inefficiencies inherent in a proxy would be
a cost effective way of avoiding the capital and operating cost of
time-of-use metering. Ultimately this is a decision that the consumer must
make, but perhaps metering services on a time-of-use basis will emerge as
one of the new services to be offered when Direct Access is universally
available.
D. Timing
The parties in a Direct Access arrangement include the customer/aggregator,
the suppliers, transmission parties, and the ISO/UDC. It appears to be
possible to consummate supply and ancillary services agreements by the
proponents in relatively short order. We acknowledge that the
infra-structure needs of the ISO and UDC are real, but the CPUC must be
alert to the tendency of some to over-complicate and otherwise cause delay
in new program implementation.
The CPUC should authorize one or more implementation projects quickly. It
should include the criteria that would be required to establish an
implementation program. The following criteria should be included at a minimum.
1. Hypotheses for testing with an accompanying evaluation design.
* Any proposal should include areas to be evaluated that provide information
useful to the parties and to other end-users. The Proponents of this
Proposal will describe such areas for study when our implementation project
is formalized.
2. Clearly defined customer base.
* Any aggregation that is involved in an implementation program should be
clear about the customers to be served. This requirement can be used to
ensure that no customer group is under-represented prior to the general
implementation period.
3. Financial stability of the aggregation.
* It is important that all the parties be satisfied that the customers'
bills will be paid. This need not necessarily be through a financial
deposit. Other alternatives include, but are not limited to, prior utility
payment history, financial structure, and pledge of assets or other guarantees.
4. Organizational integrity.
* Experience in the gas aggregation program is that some end-users were left
to their own devices when their aggregators failed. Constituents of
aggregations need to be assured that their aggregators are organizations
with staying power and that the aggregation itself is a customer-focused
entity, i.e. something more than a marketer's tool.
The CPUC should develop a fast-track timetable by which the utilities would
be required to develop and substantiate their distribution activities and
related costs. The dispatch function would need to continue to be exercised
by the utilities in some form pending establishment of the ISO.
Given the July 15, 1996 date for the utilities to identify the components of
the proposed distribution system and to subsequently establish the price
structure for their services, it is reasonable that the utilities could
complete that and develop a dispatch monitoring system for one or more
implementation projects before the end of the year.
It is the expectation of the Proponents to enter into a search in the Summer
of 1996 for one or more providers of the services needed for our
implementation project. Agreements should be developed by early Fall.
During this same period, i.e. now until October, the CPUC should be able to
establish its implementation project policy. By using the Commission’s
previous pilot projects as examples, the task should not be too onerous.
Recognizing that things always take longer than planned, it should be
possible to begin implementation of a direct access Pilot Program on January
1, 1997.
E. Other Concerns
The Proponents of this Proposal recognize that in the course of the next
several months a number of potentially contentious issues will arise. We
are confident that candor and good faith discussions will result in
operational solutions. It is also true that several areas of dispute have
already surfaced. The Proponents have developed positions on two that are
presented below.
1. Proposed Phase - In Schedule
The entire phase-in schedule is unnecessary. After five years the natural
gas transport market has attracted only 3% of the core market. This is
attributable to several causes that are likely to occur in the
re-structuring of the electric industry.
a. Customers are not positioned, nor will they be, to take advantage on
opening day.
b. Customers that are economically attractive only as aggregations will need
considerable lead time to form those aggregations.
c. A great deal of education must take place so that customers are
comfortable with third-party energy suppliers.
d. A natural resistance to change controls much of the behavior of the
retail market and it is simply not realistic to think consumers are poised
to participate.
e. The vicissitudes of restructuring the telecom industry have left many
end-users wary of electric utility restructuring.
f. The failure to realize the full potential of unbundling natural gas
charges casts a pall of suspicion over the likelihood of meaningful reform
in electricity.
2. Competitive Transition Charge (CTC)
The CTC must not be used as an excuse to delay any other aspect of this
restructuring. The entire process of re-organizing the electric power
industry can go forward apart from the CTC debate. New ways of doing
business can be implemented, and once the CTC is calculated it can be
applied as a surcharge after the fact. In truth, the CTC may well be a
moving target anyway with subsequent true-ups during the entire collection
period.
The Proponents hasten to add that in our request for an expedited decision
permitting us to go forward sooner than later, we are not attempting to
bypass the CTC. We support a non-bypassable CTC. Our only caveat is that
it be a charge that is rationally derived and as considerate of ratepayers
as it is of shareholders.
F. Conclusion
Our proposal is simplicity itself. The Proponents are requesting that:
1. the CPUC authorize one or more implementation projects to be undertaken
as soon as possible;
2. the implementation project authorization include criteria for
establishing entry level requirements for any proposal;
3. the CPUC order the appropriate parties to develop the means for an
electricity supplier to deliver electricity to a UDC for subsequent
distribution by the UDC to contracted end users;
4. the CPUC establish minimum load requirements for customers to participate
in an implementation project; in the case of aggregated customers, this
requirement would apply to the aggregation as a single customer;
5. the CPUC establish a timetable that would allow an implementation project
to begin as early as January 1, 1997;
It is the intention of the Proponents to go forward with the identification
of an electric supplier in anticipation of the approval of the proposed
implementation project. The role of that entity will be to:
1. procure a least cost responsible supply to be delivered to the UDC;
2. provide ancillary services including but not limited to
a. nomination of supply,
b. load following and balancing,
c. interfacing as needed with the ISO or its precursor,
d. provision of metering or other means to maximize supply
economies,
e. cooperation as needed with the UDC to determine actual usage and
apply appropriate tariffs on other pricing mechanisms, and
f. provision of a convenient billing system for end-use customers,
3. assist proponents with regulatory intervention as needed.
With the endorsement of the Commission and the cooperation of the utilities,
the Proponents believe that a meaningful alternative to the proposed
phase-in of Direct Access can be accomplished by means of the implementation
project concept proposed herein.
James R. Solberg, Ph.D. , Managing Director
School Project for Utility Rate Reduction (SPURR)
Regional Energy Management Coalition (REMAC)
Thomas W. Solberg, Project Director
School Project for Utility Rate Reduction (SPURR)
Regional Energy Management Coalition (REMAC)
Patricia Spangler, Association of Bay Area Governments
Dr. James D. Boulgarides, Chairman
Southern California Cities Consortium
Thomas Kirk
Coachella Valley Association of Governments
(CVAG)