Decision
| Order Instituting Rulemaking on the Commission's Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation. |
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| Order Instituting Investigation on the Commission's Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation. |
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In an effort to promote retail competition for the provision of electric services to all customers, many interested parties have urged this Commission to allow competitive firms to provide their own consolidated billing, metering and other related services. In this decision, we conclude that competing energy service providers should be allowed to present consolidated bills that reflect the full cost of electricity and to provide for their customers meters other than those commonly furnished by the utility distribution company. Many also argue that customers should not be required to pay the utility distribution company for the costs that the utility does not face when competing retail energy service providers are presenting consolidated bills, providing meters or fulfilling other related functions. Here, we conclude that in our unbundling proceeding, we will determine the appropriate way to separately identify these costs. Where the energy service provider furnishes the meter, that meter must be consistent with reasonable standards of open architecture and satisfy the distribution company's need for accurate calibration, appropriate installation, and the provision of information that is sufficient and reliable. In our direct access proceeding, we will determine rules for the development of open architecture standards. In that proceeding, we will also develop rules that will guide the energy service providers and distribution utilities in creating service agreements that will define the way the information needs of each entity will be met.
The Commission encouraged the creation of working groups to recommend means of implementing the policies it had adopted for restructuring the electric industry. The Ratesetting Working Group is such a group. Among other things, it set out to identify the highest priority steps for the Commission to take in unbundling utility rates prior to January 1, 1998. In discussing this issue, the group found itself at a disadvantage because the Commission had not determined, as a matter of policy, what aspects of utility service needed to be unbundled before 1998 in order to allow for meaningful retail competition at that time. The members of the working group were unable to agree on an answer. In order to prompt a determination by the Commission on this point, the Ratesetting Working Group presented a report dated August 26, 1996 that offered five options (see Decision (D.) 96-10-074 for a summary of these options).
The controversy centers on the fate of services and costs related to metering, billing and other information services. For convenience, we sometimes refer to these as Revenue Cycle Costs. Some say that these costs should be included in the bundled charge for distribution services. Others argue that these costs should be separately identified to allow some customers to elect not to buy these services from the distribution company. Of those who support unbundling, many argue that the costs must be separated now so that customers can begin choosing whether or not to pay the distribution company for these services in January 1998. They assert that a failure to do so will reduce the availability of direct access opportunities to residential and small business customers. Others argue that the parties and the Commission should take more time before allowing unbundling to occur to allow for further study of communication and information needs.
Reflecting on the Ratesetting Working Group report and comments filed in response to it, the Commission issued D.96-10-074, in which it recognized the importance of resolving this issue and asked parties to address specific issues in additional comments that were submitted on December 20, 1996. The Commission held a full-panel evidentiary hearing on January 15, 1997, receiving sworn statements from 26 witnesses representing the full spectrum of interests. The Commission received additional information in comments that were filed on January 21, 1997 and, in response to a request from Southern California Edison Company (Edison), received final rebuttal comments on February 7, 1997.
The following is a simplified summary of the models for unbundling revenue cycle costs and services proposed by various parties.
Pacific Gas and Electric Company (PG&E) proposes that a direct access suppliers be allowed to choose among three billing options:
In addition, PG&E asks the Commission to adopt one of two metering options:
PG&E has not expressed a preference of one metering option over the other. In either event, certain conditions would apply. First, only one meter would be needed at each point of service connection. Second, only one entity would read the meter. The energy supplier and the distribution company would share data-base level information about usage. Third, PG&E joins every other party in supporting the development of open architecture, or interoperability standards, which would allow meters with varying levels of functionality to connect to the network communications and data infrastructures. As is true of all other parties, PG&E believes that the market participants could develop the standards themselves. Finally, PG&E supports the use of load profiling (i.e., the use of template load shapes) to provide direct access for residential customers that do not have an hourly meter.
PG&E does not speak either for or against the separation of costs that would allow customers to avoid paying for services that they are not buying from the distribution company. However, PG&E does argue that in some instances, the savings due to customers who choose third-party service options may be small or non-existent and that the distribution company should not have to provide cost reductions to customers if the distribution company does not actually avoid any costs.
San Diego Gas & Electric Company's (SDG&E) approach to the unbundling of revenue cycle costs and services differs from that of PG&E in two significant ways. First, SDG&E recommends that the Commission not order the broad implementation of AMR technology, arguing that it would be too expensive, would limit entry of competitive suppliers and would limit technological innovation. Second, SDG&E recommends that the Commission require the distribution companies to provide a bill credit to reflect savings to the distribution company that result when energy suppliers provide revenue cycle services.
Edison agrees with PG&E, SDG&E and most other participants that energy suppliers should be allowed to provide consolidated billing. In addition, Edison argues that it is acceptable for an energy supplier to install an additional meter in order to measure its sales and provide value-added services. However, Edison proposes keeping its own meter in place even where an energy supplier chooses to install one. A customer that chooses to use a meter other than the one offered by the utility would have two meters. Edison argues that it has the right to make its own usage measurements and that it should not be asked to trust the accuracy of another company's measurements or record keeping.
Edison would not be reducing its costs, because it would continue to meter each of its customers. Thus, it would have no savings to pass on to customers that elect to use a meter provided by an energy supplier. The utility also argues that any savings it would face if the energy supplier provides billing or other related services would be insignificant, but that it would be unlawful to reduce a customer's distribution charges even though these services are avoided by the utility. Edison asserts that it does not cost the same to serve each customer, so that any reduced charges based on the average cost of service would harm the utility. Edison envisions that energy suppliers would seek out the customers whom it costs less to bill (the ones with below-average costs) and leave the utility with the more expensive customers (the ones with above-average costs).
Finally, Edison proposes adding AMR technology to the meters of 85% of its customers and charging its future distribution customers for the resulting net cost. Edison argues that this would be the fastest and cheapest way of making hourly pricing available to all customers, and that this would improve the opportunities for direct access providers.
All of the potential energy suppliers participating in this proceeding argue that direct access will not be available to all customers unless energy suppliers can offer revenue cycle services and unless the utilities reduce customer charges to reflect the resulting savings. None of these participants agree with Edison that it is appropriate for the utility to install AMR technology throughout its service territory at ratepayer expense. Instead, they would allow each customer to choose its own metering approach. This could enable energy suppliers to also offer value-added services to their electricity customers. The possibility of offering value-added services improves the incentive for energy suppliers to offer direct access opportunities to the lower usage customers (residential and small business) who provide less of an opportunity for the profitable sales of electric energy alone.
Most ratepayer representatives support the rapid unbundling of revenue cycle services and costs. This includes the Office of Ratepayer Advocates, The Utility Reform Network (TURN), Utility Consumer Action Network (UCAN), the California Farm Bureau Federation, the Department of General Services, the University of California, the California State University, Pacific Bell, and the Robinsons-May Department Stores. An exception is the California Small Business Association, which is not opposed to the unbundling of these services per se, but encourages the Commission to place adequate consumer protections in place before launching competition for meters and meter reading. In addition, none of these groups supports the system-wide addition of AMR technology to existing meters at ratepayer expense. The California Large Electric Consumers Association and the California Manufacturer's Association join others in specifically opposing Edison's metering proposal.
The question, here, goes to whether or not energy suppliers should be allowed to provide their customers with retail services that include consolidated billing, metering and related services and, if so, whether the distribution utility should reduce its charges to reflect any resulting savings. Parties raise various issues that relate to the implementation of such a policy. Those implementation questions would be addressed in our direct access proceeding, to the extent that they concern rules and standards, and in the rate unbundling proceeding to the extent that they concern costs and savings. We will address the fundamental policy questions here, in order to determine what additional work, if any, needs to be undertaken in those other proceedings.
There are long-run issues that might motivate this Commission to consider the merits of allowing energy suppliers to offer these services some time in the future. What prompts us to ask these questions now is a concern that direct access opportunities to residential and small commercial customers in 1998 might be severely limited if we fail to allow energy providers to provide these services and to offer their customers the resulting savings. /1/
Among the participants, there is near unanimity in support of allowing energy suppliers to provide consolidated electric bills, if they choose to do so. The advantages of a consolidated bill are self-evident. Customers may find it more convenient to receive, analyze and pay a single bill. There is at least an opportunity for savings, since it might cost less to prepare, mail and process a single bill than it would cost to similarly handle separate bills from the energy supplier and the distribution company. By allowing the energy supplier to provide the single bill, the energy supplier has an opportunity to seek added value by reinforcing its business identity, combining billing for various services, or using the bill to advertise other business offerings. These opportunities may help encourage suppliers to serve the residential and small commercial markets, where the lower volumes provide less of an opportunity to profit through sale of electric energy alone. PG&E has described three different options that could be made available to customers and energy service providers (relying on dual bills, or consolidated bills provided either by the distribution company or the energy supplier). SDG&E and Edison endorse these options. We will direct each of the utilities to accommodate each of these options in a manner consistent with rules that we will develop in our direct access proceeding.
There is less agreement about the involvement of energy suppliers in the furnishing of meters, meter reading and other related services. Most agree that the energy supplier should be able to install and monitor its own meters. /2/ However, Edison asks the Commission to allow it to install AMR technology for 85% of its customers at ratepayers' expense. In addition, Edison asks to be allowed to double-meter all of its customers who choose to use an energy supplier's meter.
Edison argues that if it provided almost all of its customers with time-of-use capability, it would be doing the best thing possible to enable those customers to purchase from direct access providers. Underlying this conclusion are various assumptions. First, Edison assumes that a customer must have a time-of-use meter in order to take advantage of direct access opportunities. The record does not support this assumption. Energy providers, customers and representatives of other utilities have all stated that load profiles could be used to determine the billing patterns for customers that do not have time-differentiated metering capability.
Edison further assumes that the greatest societal benefit can be achieved by capturing the economy of scale that results if all customers use the same type of metering system. It does appear likely that if everyone uses a given metering approach, the cost of producing that system per customer would be lower than if only a smaller, random assortment of customers uses it. However, economies of scale might be created in just about any area. Toasters, telephones, or VCRs might be less expensive to produce if everyone used the same model. Society places value on factors other than just economies of scale. Where there is customer choice, there may be greater incentive for technological innovation, greater opportunity for providing value-added services, and a greater likelihood that competitive forces will help keep prices low.
Lucent Technologies points out that if the distribution company dictates the metering system that will be provided to each customer and continues to perform its own metering even when an energy supplier has installed a new meter, then metering remains a utility monopoly function. The proposed AMR system relies on the transmission of information over radio waves. Lucent argues that metering is a natural monopoly function only if the sole approach that can be used is a radio-based system. However, there is a massive and varied communication infrastructure that provides other options, such as cable, line-based or cellular systems. What distinguishes the proposed radio-based approach is that it relies on a series of broadcast and receiving stations. These are stationary, proprietary systems that would be owned and controlled by the distribution company. Lucent argues that the investment in a proprietary structure is a strategic business decision that creates barriers to competition from energy suppliers. They argue that such a decision should not be adopted as a matter of public policy nor supported with ratepayer funds.
The concerns expressed by Lucent and others carry great weight. We want to take steps that improve the likelihood that all customers will have an opportunity to choose direct access in the early years of the restructured industry. We share the concern that a proprietary, utility-owned metering system could create barriers to entry in several ways. /3/ First, customers would face higher meter-related costs as they pay for the utility's new metering system. This might discourage customers from investing in yet another new metering approach that might be offered by the energy supplier. Second, since the utility would own and control the communication network dedicated to relaying metering information, the ability of competing energy suppliers to offer value-added services may be reduced. This is important, because we see the potential of offering value-added services as a means of encouraging firms to provide direct access opportunities to lower volume customers. Further, by definition, the two-meter approach proposed by Edison would discourage customers that cannot or will not have two meters on their premises from buying the services offered by an energy provider that uses its own meters. We cannot know if this is a major problem until we have significant experience observing the restructured market. However, we should not create such a barrier unless there is a necessity of doing so.
Wrapped up in Edison's discussion about the appropriateness of adopting a system-wide metering approach is the argument that energy suppliers want to take on the metering responsibility in order reduce their cost. Edison argues that any resulting savings that might be passed on by the distribution company would be too small to make a difference. The company asserts that potential savings represent no more than 3% of the utility bill and that even if the energy supplier could cut those costs in half, it would only save 1½ % of its cost. The implication is that such a level of cost savings is unimportant and would not make the difference to a potential competitor who is trying to decide whether or not to enter a given market sector.
There are several problems with this argument. First, any given assertion of the level of cost at issue is likely to be contested if the Commission begins the process of separately identifying those costs. Further, even if Edison's estimates prove correct, we do not know that a 1½ % margin is insignificant. We suspect that it would be difficult to prove such an assertion, in light of the fact that many businesses, such as retail food markets, appear to thrive on very thin revenue margins. Finally, the record demonstrates that energy suppliers want to provide revenue cycle services for reasons that go beyond cost savings. Many energy suppliers see an opportunity to add value to the products they sell if they can bill the customer directly and if they can offer a meter or metering communication service that provides the opportunity to exchange information and offer products in addition to retail electric service. This is important, because it supports our efforts to encourage the provision of retail electric service opportunities to all customer classes.
For all of these reasons, we do not find that it is appropriate to direct the distribution utilities to install AMR or any other type of advanced metering systems throughout their service territories at ratepayer expense, or to require that customers purchasing retail service from a competing electric service provider maintain two meters on site. We find that it is preferable to allow energy suppliers to provide and customers to choose the billing and metering systems that are best for their purposes.
Nonetheless, we must address legitimate concerns about the information needs of the various participants and the interchangeableness of metering systems.
When a customer chooses to purchase retail service from a firm other than the utility, the energy supplier and the distribution utility each have a strong interest in receiving information about usage that is reliable in terms of quality and accuracy. Each distribution utility and energy supplier may not have the same information needs. Rather than establish a single standard for data quality and access, we will direct those energy suppliers that wish to offer their own metering services to enter into a service agreement with the distribution company specifying the nature of the information to be collected, the means for sharing data, and a reasonable approach for ensuring that the metering equipment is installed, calibrated and maintained properly. The distribution utility may not unreasonably refuse to enter into such an agreement. The Commission will review each agreement to determine that it is not discriminatory or anti-competitive. If the parties are unable to reach an agreement, the Commission will resolve the remaining disputes. In our direct access proceeding, we will establish the rules affecting this process and the conditions under which the distribution utility will provide billing information to all energy suppliers. /4/
We want not only to encourage direct access, but also preserve the vitality of competition after the customer makes an initial choice. If a customer obtains a meter that is not easily used by other energy suppliers, another barrier to competition has been erected. All participants agree that in order to avoid constructing such a barrier, those who plan to participate in the market place must agree upon standards for open architecture for meters and communication. This refers to creating specifications that will ensure that all meters will provide information and communicate in the same way. Many participants expressed confidence that they could succeed in developing these standards within several months. What is required is a direction from this Commission for the parties to do so. In this decision, we direct the participants to begin this process and to report back to the Commission no later than June 20, 1997 within the direct access proceeding with the standards that the participants propose to be adopted.
The California Energy Commission supports the unbundling of Revenue Cycle Costs and Services. However, it would have the utilities separately identify the costs for the various components of Revenue Cycle Services now and would allow firms other than the distribution utility to compete for the provision of these services only at some later date. Its stated goal in delaying the start of competition would be to allow time for a stakeholder working group to develop a retail information management plan that specifies information management arrangements, infrastructure and protocols for the restructured industry. The Energy Commission argues that while large consumers may be well positioned to take advantage of competitive offerings, smaller consumers are not, creating the concern that large consumers might invest in unique technology that will inhibit and perhaps prevent a universal infrastructure that all customers and suppliers may use. Thus, the Energy Commission encourages this Commission to put detailed rules and standards in place before allowing any customers to receive competitively-provided revenue cycle services. In addition, before competition for these services begins, the Energy Commission asks that this Commission consider a system of randomly assigning an energy provider to those customers that fail to choose a provider.
We agree with the Energy Commission that it is important to create standards to ensure open architecture, but are persuaded by the testimony of others that much of this work can be done in the next few months. With the meter and communication protocols and service agreements discussed above, there is no apparent reason that the participants, with assistance of this Commission, cannot ensure the use of technology that would make direct access options available to customers in all classes.
Currently, PG&E and Edison propose to bundle all revenue cycle service costs with their distribution charges. SDG&E and many other participants propose separately identifying the cost savings realized by the distribution utilities when other firms provide revenue cycle services in order to ensure that customers can benefit from the resulting savings. Those who oppose removing these redundant charges rely on three fundamental arguments. First, as discussed above, they argue that the cost differences are too small to affect business decisions. This assertion is unproven both because the Commission has yet to determine the level of cost savings and because the record does not demonstrate that even a small savings would not affect business decisions.
Second, PG&E and Edison assert that billing and metering costs are not the same for all customers and that while it would be most practical to identify those costs on an average cost basis, this would enable energy suppliers to focus on the low cost customers and leave the distribution utility without the revenues needed to serve the remaining customers. This argument is unpersuasive for several reasons. First, it is not evident that different customers face different billing costs. While it is logical to expect that it costs more to read the meters of customers in remote locations, it is not self-evident that those customers are less likely to choose direct access options. To the contrary, agricultural customers, which are typically more remote, are actively represented in this proceeding and appear to be showing a great interest in direct access opportunities. Third, the Commission has yet to litigate these cost issues. Questions about how the costs should be identified would appropriately be raised in that context. They do not affect the threshold question about whether or not appropriate cost savings should be reflected in the customer's bill. Finally, PG&E and Edison have argued that the savings are too small to drive business choices. If that proves to be true, it is not logical to suggest that the even smaller differential that could be achieved by seeking out customers with lower revenue cycle costs would drive business decisions. Of course, we want to determine these costs as accurately as possible and are open to proposals that would lead to de-averaging. We have chosen to allow more time for the utilities to prepare cost studies in order to promote greater accuracy.
The third fundamental argument against cost separation is that Public Utilities Code Section 368(b) might prohibit reflecting these cost savings in the customer's bill. This section states, in part, that "[t]he separation of rate components...shall be used to ensure that customers of the electrical corporation who become eligible to purchase electricity from suppliers other than the electrical corporation pay the same unbundled component charges, other than energy, a bundled service customer pays." Some argue that this language requires charging direct access customers for all services, whether they buy them or not (and whether the utility incurs costs to provide them to a given customer or not). We do not read this section to require customers to pay for services that they elect not to buy. Instead, we understand this section to mean that direct access customers must pay the same amount as bundled customers pay for the services that they do buy.
There is no persuasive reason to cause customers to pay for costs that are not incurred. We will direct the administrative law judge in our unbundling proceeding to set a schedule for separately identifying the cost savings resulting from a customer's election to receive certain revenue cycle services from another service provider and to reduce distribution charges where appropriate.
In addition to billing, meters and meter reading, there are costs related to customer service inquiries and uncollectibles that are logically related to revenue cycle services. It is appropriate to separately identify customer service inquiry savings to be used to reduce customer charges in those situations where an energy supplier chooses to handle such inquiries. We will direct the utilities to do so. TURN objects to separately identifying costs related to uncollectibles out of concern that without the protection of a universal uncollectibles pool, businesses may be motivated to avoid serving areas which are perceived to have customers who pose a higher credit risk. This is a valid concern that suggests a need for caution. We will ask parties to separately identify the costs in the unbundling proceeding. However, we will explore in the direct access proceeding whether or not any incentive to avoid serving areas perceived as offering higher credit risk can be successfully mitigated.
We will move ahead expeditiously in our direct access proceeding to set forth the rules governing consolidated billing and metering activities and to further consider the redlining concern raised by TURN. In addition, we will direct the administrative law judge in the unbundling proceeding to set a schedule for separately identifying the cost savings resulting when energy suppliers provide revenue cycle services. The following table reflects our current goals related to the services and cost separation discussed in this order.
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| Participants Submit Agreement on Open Architecture for Meters and Metering | June 20, 1997 |
| Distribution Utilities Facilitate Three Billing Options (Consolidated Supplier Billing, Consolidated Distribution Company Billing and Dual Billing) | January 1, 1998 |
| Rules in Effect Governing Service Agreements Between Energy Service Providers and Utility Distribution Companies | January 1, 1998 |
| Submission of Utility Cost Studies and Testimony Addressing the Separate Identification of Various Revenue Cycle Services Cost Components | September 12, 1997 |
| Approval of Unbundled Rates for Various Revenue Cycles Services Cost Components | April, 1998 |
IT IS HEREBY ORDERED that:
This order is effective today.
Dated , at San Francisco, California.
/2/ This is consistent with the Commission's existing policy in this area. See D.95-12-063, Conclusion of Law 28, in which the Commission stated, "[s]uppliers or third-party intermediaries may install metering equipment on behalf of a customer so long as the meter meets standards adopted for the distribution utility."
/3/ Edison asserts that the net cost of the new system would be relatively small (perhaps $50 per customer paid over an 8 year period). However, PG&E and SDG&E predict that the net costs their customers would face would be higher. TURN argues that Edison has not demonstrated the accuracy of its net cost estimates. Since Edison's cost estimates are based on assumptions about savings and since Edison would not put the actual costs into rates for several years, we would not know the actual cost impact for many years, no matter how appropriate Edison's current estimates may be.
/4/ In developing and administering this process, we will draw on our experience in arbitrating and reviewing interconnection agreements for local telecommunications services. In comparison, the subject matter of the agreements contemplated here is far more limited and discreet.