March 6, 1997
Docket Clerk
California Public Utilities Commission
505 Van Ness Avenue
San Francisco, California  94102
Re:  	R.94-04-031/I.94-04-032
Dear Docket Clerk:
Enclosed for filing with the Commission are the original and five copies of the OPENING COMMENTS OF SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E) ON PROPOSED DECISION OF ALJ WEISSMAN in the above-referenced proceeding.
We request that a copy of this document be file-stamped and returned for our records.  A self-addressed, stamped envelope is enclosed for your convenience.
Your courtesy in this matter is appreciated.
Very truly yours,
James M. Lehrer
Senior Counsel
JML:JGM:LW970520.029
Enclosures
cc:	President P. Gregory Conlon
Commissioner Richard A. Bilas
Commissioner Henry M. Duque
Commissioner Jessie J. Knight, Jr.
Commissioner Josiah L. Neeper
ALJ Steven A. Weissman
All Parties of Record
(U 338-E)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE
STATE OF CALIFORNIA

Order Instituting Rulemaking on the Commission’s Proposed Policies Governing Restructuring California’s Electric Services Industry and Reforming Regulation

)))))

R.94-04-031
(Filed April 20, 1994)

Order Instituting Investigation on the Commission’s Proposed Policies Governing Restructuring California’s Electric Services Industry and Reforming Regulation

))))))

I.94-04-032
(Filed April 20, 1994)

OPENING COMMENTS OF SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E) ON PROPOSED DECISION OF ALJ WEISSMAN
ANN P. COHN
JAMES M. LEHRER
Attorneys for
SOUTHERN CALIFORNIA EDISON COMPANY
2244 Walnut Grove Avenue
Post Office Box 800
Rosemead, California  91770
Telephone:	(818) 302-3252
Facsimile:	(818) 302-1935
Dated:  March 6, 1997

EXECUTIVE SUMMARY
-- Eight Points --

The Commission should reject the unbundling of distribution services as envisioned in the ALJ’s Proposed Decision.  The Proposed Decision dodges the very real complexities inherent in a decision to unbundle, and fails to address real issues involving consumer protection and revenue security.  In the attached Opening Comments, Edison points out the ways in which the Proposed Decision errs in arriving at its conclusions, and the reasons it cannot serve as a rational, fair, and legally supportable basis for a Commission decision to unbundle distribution services.

If the Commission does choose to proceed with unbundling, it must address and resolve a number of tough, but fundamental, issues in order to assure that the restructured electric services market functions effectively and fairly and that California and its citizens are not saddled with an intolerably confused and dysfunctional electricity market.  The Commission should:

•	Enforce Consumer Protection
Marketers demand the fullest range of benefits from the restructured system, but vigorously resist accountability to the public and to the Commission.  Before any unbundling occurs, the Commission should implement enforceable consumer protection measures, including anti-slamming rules, anti-fraud protection, and effective consumer education.  The Proposed Decision is utterly silent on these crucial consumer protection issues.  

•	Mandate Reciprocal Unbundling of the Gas Industry
Unbundling electric revenue cycle services without symmetric unbundling in the gas industry would create an immense anticompetitive effect.  The Commission must unbundle gas revenue cycle services to the same extent and at the same time that it unbundles electric services.  This point is not among those raised in the Proposed Decision.

•	Refuse Subsidies For Any ESPs
ESPs would receive a direct subsidy to the extent cost credits do not take into account the actual cost to the UDC of unbundling revenue cycle services.  The Commission should permit the UDC to recover from the ESPs all of the costs the UDC incurs as a result of unbundling an ESP’s customers.  The Proposed Decision’s treatment of cost credits would not effectively deal with this issue. 

•	Protect UDC Revenues If Third Parties Bill
The Commission should establish effective mechanisms, such as bonding requirements, for ESPs that seek to use a consolidated bill that includes UDC charges.  By providing security for the UDC’s revenue stream, the Commission would also preserve the viability of the Rate Reduction Bonds which are central to restructuring.  The Proposed Decision fails to accomplish either of these facets of revenue security.

•	Assure The Integrity Of The Settlements Process
Load losses and imbalances will increase with unbundling.  The Commission should insure that losses attributable to a particular ESP are borne by that ESP, while losses which are not attributable are spread to all ratepayers on an appropriate basis.  The Proposed Decision fails to identify how these discrepancies will be accounted for during the settlement process.  

•	Provide Stranded Cost Recovery
Unbundling would create an entirely new category of stranded costs.  To assure utility investors that prudent investments in metering and billing infrastructure will be recovered if unbundling takes place, the Commission should provide for full recovery of all unbundling-related stranded costs.  The Proposed Decision is silent on this point, too.

•	Preserve UDC Right To Meter Its Services
Unbundling must adequately address the fundamental need ‑‑ and right ‑‑ of any business to measure and track the commodity it sells.  The Commission should allow the UDC to retain its meters, and to install interval metering at its discretion.  The Proposed Decision ‑‑ on the other hand ‑‑ implies that the UDC would not be allowed to meter its own distribution customers, thus delegating the security of the UDC’s entire revenue stream to third parties.

•	Clarify Reasons For Change In Basic Restructuring Policy
The Commission’s Policy Decision envisioned a vital role for hourly metering in providing useful price signals to all classes of customers and assuring a vigorous market characterized by transparent price information.  The Proposed Decision veers sharply from that stated policy goal.  The Commission should clarify whether it now intends to change its policy, should explain the reasons for that change, and should address the potential adverse impact on small customers and the competitive marketplace.
These eight points raise difficult public policy issues which the Commission must grapple with before any reasonable unbundling program can be shaped.  Edison is prepared to continue working with the Commission and stakeholder groups to complete this evaluation process as quickly as possible.  But the Commission should also ask itself whether this complex task can and should be undertaken during the few, extremely important and busy months that remain before the planned date for the start of the direct access regime.  Unbundling is not necessary in order for customers to receive the benefits of direct access or for marketers to establish substantial direct relationships with customers.

I. 	INTRODUCTION	
II. 	THE PROPOSED DECISION LEAVES SIGNIFICANT ISSUES UNRESOLVED	
A. 	The Proposed Decision Is Silent On Crucial Consumer Protection Issues	
B. 	Failure To Mandate Reciprocal Unbundling Of The Gas Industry Will Produce Anticompetitive Results	
C. 	The Proposed Decision Will Inevitably And Inappropriately Subsidize ESPs	
D. 	The Proposed Decision Would Endanger The Viability Of The Rate Reduction Bonds	
E. 	The Proposed Decision Fails To Account For The Increased Load Losses And System Imbalances That Unbundling Metering Will Inevitably Cause	
F. 	The Unbundling Proposal Will Result In Stranded Costs	
G. 	The UDC’s Right To Meter Its Services Must Be Preserved	
H. 	The Proposed Decision Threatens To Impose Higher Costs On UDC Customers, And To Allow Significant Cost-Shifting Opportunities	
1. 	The Proposed Decision Threatens to Impose Higher Costs on UDC Customers	
2. 	The Proposed Decision Fails To Deal With The Significant Cost Shifting Problem That Tariffed Cost Credits Will Create	
I. 	The Proposed Decision Fails To Clarify The Reasons For Changing The Commission’s Restructuring Policy	
III. 	THE PROPOSED DECISION WOULD IMPEDE DIRECT ACCESS	
A. 	The Proposed Decision Would Not Permit Most Customers To Respond To Price Signals	
B. 	The Evidence Fails To Support The Existence Of A Viable AMR Solution, Other Than Edison’s	
C. 	The Proposed Decision Lacks Record Support For Its Conclusion That Edison’s Proposed System Would Erect Entry Barriers	
D. 	The Decision Would Undermine AB 1890’s Carefully Crafted Design	
IV. 	CONCLUSION	

APPENDIX:	PROPOSED FINDINGS OF FACT
	AND CONCLUSIONS OF LAW

TABLE OF AUTHORITIES

California Statutes

California Public Utilities Code

367(e)(1)	2, 4
368(b)	21

Legislation

AB 1890	passim

Regulations

Title 20, California Code of Regulations, § 77	1

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE
STATE OF CALIFORNIA

Order Instituting Rulemaking on the Commission’s Proposed Policies Governing Restructuring California’s Electric Services Industry and Reforming Regulation

)))))

R.94-04-031
(Filed April 20, 1994)

Order Instituting Investigation on the Commission’s Proposed Policies Governing Restructuring California’s Electric Services Industry and Reforming Regulation

))))))

I.94-04-032
(Filed April 20, 1994)

OPENING COMMENTS OF SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E) ON PROPOSED DECISION OF ALJ WEISSMAN
I.	
INTRODUCTION
Pursuant to Rule 77 et seq. of the Rules of Practice and Procedure of the California Public Utilities Commission (“Commission”), Southern California Edison Company (“Edison”) herewith submits its opening comments on the Proposed Decision of Administrative Law Judge Steven A. Weissman on the unbundling of revenue cycle services. 

The Proposed Decision presents severe problems both in what it says and what it does not say.  What it addresses is replete with legal and factual errors.  But more important is what the Proposed Decision fails to address:  a myriad of crucial issues, from those necessary to protect consumers to those necessary to protect the Rate Reduction Bond mechanism.
Perhaps the greatest overall flaw in the Proposed Decision is that it ignores the very real complexities of the road it charts.  Revenue cycle service unbundling first arose in August 1996 in the Ratesetting Working Group.  At that time, the parties jointly raised nine issues that the Commission should resolve in deciding whether to unbundle metering or billing.^/  The Proposed Decision resolves none of these issues.  The Proposed Decision recognizes certain consumer protection issues, but suggests addressing them in a way that marketers have already rejected.  Neglecting the firewall established by AB 1890,^/ it exposes consumers who cannot afford expensive real‑time meters to higher costs, while subsidizing marketers’ efforts to sell “value added” services to more “desirable” customers.  It is silent about entry requirements for marketers, to ensure they have financial stability so consumers have recourse if they are mistreated, as well as about protections, such as bonds, to assure these third-party billers pay the utility distribution company (UDC).  These omissions are only a few examples of key unresolved issues.  The Proposed Decision never clearly defines the role of the UDC in the restructured market.  To make an informed choice, the customer needs to understand the role of all the competitors in the market.  To assist the customer, the Commission must describe its overall vision, including the role it expects the UDC will play, such as whether the UDC will compete on par with the new market participants to provide revenue cycle services at market rates, or whether the UDC will be the provider of last resort.  Without this information, customers will not be able to make an informed choice among competitors.
Finally, the Proposed Decision’s dismissal of the need for hourly metering, and in particular Edison’s AMR proposal, rests on a recitation of supposed “factual” statements, which the record not only fails to support but actively refutes.  At the same time, the decision ignores key evidence, for example, the showing that interval metering is the only way to make the benefits of the competitive generation market available as quickly as possible, for all customers, not just the ones who can afford costly meters.  Furthermore, the Proposed Decision misinterprets AB 1890 in order to support results that the statutory scheme does not justify.  
On a policy level, the Proposed Decision turns a restructured energy market from an end into a means.  The Commission began with the goal of giving consumers the benefit of a competitive generation market, but the Proposed Decision would use the electric market principally as a platform to sell “value‑added services.”  In August, marketers admitted they could not earn a profit on generation, and sought to unbundle billing and metering.^/  It is now apparent that they see their profits coming from value‑added non‑electric services, and are seeking to use electric unbundling as a foundation to market these services.^/   
To the extent the Commission concludes that an appropriate objective of electric services industry restructuring is to facilitate the provision of value‑added services, Edison submits that this can be accomplished through third‑party billing, without the imposition of third‑party metering and the concomitant issues that could impair the viability of a workable electricity delivery system.  Edison has attached Proposed Findings of Fact and Conclusions of Law that reflect this approach.
Edison respectfully urges the Commission to reject the Proposed Decision, give this complex issue more careful consideration, and adopt a position consistent with the record, the law and the Commission’s duty to ensure that consumers have a reliable electricity supply and a smoothly functioning and enforceably accurate restructured electric system.
II.	
THE PROPOSED DECISION LEAVES SIGNIFICANT ISSUES UNRESOLVED
A.	The Proposed Decision Is Silent On Crucial Consumer Protection Issues
The Proposed Decision opens the market of all California consumers, large and small, sophisticated and unsophisticated, to marketers promoting sales of power, meters, billing and value‑added services.  Despite extensive experience with customer complaints and fraud in the telecommunications area, it does not formulate any means to protect consumers, especially small consumers.  AB 1890 recognizes that small consumers deserve special consideration.  It constructs a firewall to prevent residential and small commercial customers from paying for CTC exemptions granted to other larger customers.^/  Unlike AB 1890, the Proposed Decision is remarkably insensitive to these issues faced by small customers.
To mention a few, but hardly all, consumer protection issues:
•	The Proposed Decision says nothing about antislamming measures.
•	The Proposed Decision says nothing about consumer education.  Notably, in the Direct Access proceeding, some marketers argue the Commission has no authority to order them to act in this area.
•	The decision says nothing about financial requirements for entry to prevent fly-by-night marketers from degrading the system.
Absent addressing the full spectrum of consumer protection issues, the Proposed Decision is unacceptable.
The Proposed Decision does, however, recognize the need for some protections in the marketplace.  It notes that the UDC has “a strong interest in receiving information about usage that is reliable in terms of quality and accuracy.”^/  It accordingly “direct[s]” ESPs to enter into service agreements with distribution companies “specifying the nature of the information to be collected, the means for sharing data and a reasonable approach for assuring that the metering equipment is installed, calibrated and maintained properly.”^/   With those simplistic words, it sidesteps the key question:  The ESPs argue that the Commission lacks legal authority to order them to do anything.  ESPs have adamantly maintained that the Commission lacks any authority over them other than to require them to register.^/  The Proposed Decision asserts the need for creating data standards, but it never explains the source of its authority to require ESPs to meet those standards.  It is incumbent upon the Commission to do so.
Similarly, the decision recognizes that if a customer installs a meter sold by one ESP, but another ESP cannot use the meter, there is a barrier to competition.^/  It therefore “directs” participants to create specifications to ensure that meters will “provide information and communicate it in the same way.”^/   Again, it does not cite any authority vesting the Commission with the power to issue such a direction.^/  
Moreover, the decision provides no dispute resolution mechanism, even though there are abundant possibilities for disputes.  If Edison must pursue judicial remedies, it will cost more, impede collections, and increase customer costs.
In short, where the Proposed Decision recognizes threats to the metering structure, its proposed remedy is strongly contested precisely by those whom it must control.  If, in fact, the Commission has no authority over the ESPs, as they repeatedly assert, then the Commission has no means to ensure that these unregulated entities will maintain the integrity of the distribution system.  It will be impossible to protect consumers and the rest of the market participants from service disruptions attributable to defective meters, deliberate or inadvertent erroneous usage reporting, and improper billing procedures.  This seriously endangers the system’s financial and operational viability and threatens substantial cost increases for customers.
B.	Failure To Mandate Reciprocal Unbundling Of The Gas Industry Will Produce Anticompetitive Results
The Proposed Decision would create an immense anticompetitive effect.  Southern California Gas Company (“SoCalGas”), a monopoly utility, would be allowed to meter for electricity service in Edison’s service territory, but others would not have the opportunity to compete against gas meter reading services.  SoCalGas has a performance based rate-making proposal before the Commission that does not incorporate true-ups or net revenue sharing.  As a result, SoCalGas would be able to recover all the fixed and infrastructure costs of metering services from its gas ratepayers indefinitely, while allowing shareholders to retain all the benefits of electric meter reading revenues, less the incremental costs incurred to extend meter reading to electric accounts.  If the Commission concludes that electric metering is a competitive activity, it must treat gas metering in an equivalent fashion.
C.	The Proposed Decision Will Inevitably And Inappropriately Subsidize ESPs
While professing to support competition, the Proposed Decision instead gives preferential subsidy treatment to new market entrants, essentially subsidizing ESPs at the expense of the UDC’s customers.  Edison has agreed that customers may receive metering and billing services from ESPs should they so choose.^/  It has consistently been our position that ESPs are free to install their own meter at the customer’s premises, provided that their meter does not interfere with the UDC’s.  
The ALJ’s decision, however, simply claims that “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.”^/  To prevent this from occurring, and thereby to encourage competition, the decision proposes to allow ESPs to displace the UDC’s meter.  It also provides significant multiple subsidies to ESPs to do so.
First, the ESP will receive  a direct subsidy if the UDC must provide a cost credit due to unbundling of the revenue cycle services.
Second, the ESP’s cost to install the meter is reduced because it can use the utility’s meter location, and simply replace the utility’s meter.  The utility has already incurred this cost once when it initially installed the meter, and may need to incur the same cost again should it conclude that it must install its own meter for revenue security purposes.  It should be able to recover its infrastructure costs from the ESP.  Precluding this, in addition to the subsidy to the ESP, also creates a significant economic barrier for the utility, preventing it from obtaining its necessary measurement data from any source but the ESP that installed the meter.
Finally, if the UDC is not allowed to deduct from its cost credits any charges from the ESP for providing metering data, then the UDC may have to pay twice for the same information – and conversely, the ESP may be subsidized twice for the same service. 
In the absence of any direction from the Commission regarding the UDC’s ability to recover its costs, this scheme clearly establishes a preference that favors the new market entrants, and denies the UDC a right granted every commercial entity in a competitive market – the right to measure and collect for its product.
D.	The Proposed Decision Would Endanger The Viability Of The Rate Reduction Bonds
The Proposed Decision would endanger the viability of the Rate Reduction Bonds, which are central to restructuring.  The Proposed Decision suggests that there is “near unanimity” regarding third-party billing.^/  Its description of the supposed consensus, however, neglects the requirement that, if third parties bill, there must be sufficient security for the UDC’s revenues.  If Rate Reduction Bonds are to be assured credit ratings equivalent to the ratings they would obtain if distribution remained unbundled, the financial community must be confident that UDCs will obtain payment of their charges regardless of the financial status of the ESP.  This could entail bonding or other security arrangements.  In the absence of a mechanism to maintain the credit rating of Rate Reduction Bonds, the Proposed Decision would endanger this central component of AB 1890.
This is not simply an “implementation question[  ]” which can be dealt with later.^/  Rate Reduction Bonds will be marketed within the next several months and the financial markets must know by then that UDC revenues will not be at greater risk than today.  This decision must provide a mechanism to achieve that.  The Legislature did not establish a detailed plan to reduce rates, relying on the UDC’s ability to issue Rate Reduction Bonds, with the expectation that the Commission would threaten that plan by unbundling distribution.
E.	The Proposed Decision Fails To Account For The Increased Load Losses And System Imbalances That Unbundling Metering Will Inevitably Cause
Load losses and imbalances are always present in the energy distribution system and may result from several different factors.  For example, load profiling will cause imbalances when the actual hourly usage of load profile customers differs from the estimated hourly consumption.  Moreover, energy theft, meter malfunctions, errors in transmission of meter data, and other similar factors will also result in differences between actual energy consumption and the measured amounts.^/  With several different market participants operating meters and metering systems within the state, it seems likely that these load losses will increase with unbundling.
We are particularly concerned that ESPs lack the financial interest to assure the accuracy of their metering.  Today, Edison’s relationship with its customers is a normal commercial relationship:  if we under-record usage, or fail to detect a customer’s energy theft, then we risk non-recovery of our delivery costs and CTC.  In contrast, the ESP relationship to the customer is highly unusual, because the ESP never takes physical possession of the product that is delivered to the consumer.  ESP purchases of electricity through the ISO are metered by the same end-use meter that measures customer usage.  As a result, when energy usage is under-reported by one ESP, the cost of make-up energy is borne by the entire system as discrepancy or system losses.  Further, if an ESP enters a contract with a fixed monthly payment, the ESP would have no economic incentive to meter accurately or deter energy theft.  In fact, there would be an incentive for the ESP to participate in this behavior, therefore avoiding settlement charges from the ISO or other market institutions.
The Proposed Decision fails to identify how these system imbalances will be accounted for during the settlement process among the ESPs, ISO, the Power Exchange, and the UDCs.  Often, there is no way to determine which of several factors led to the imbalance, or to identify whether it resulted from the UDC or direct access transactions.  Therefore, the financial impact of these imbalances must be spread to all customers, regardless of who provides their electric service.  But when system losses are attributable to a particular ESP or its customers, these costs must be borne by that ESP.  Only in that way will the ESPs have the proper incentive to ensure the accuracy and security of their meters and metering data networks.
If the Commission unbundles metering and billing, the Commission will, at a minimum, need to establish protections to insure that discrepancies resulting from meter unbundling are not charged to the UDC or its customers.
F.	The Unbundling Proposal Will Result In Stranded Costs
The Proposed Decision also fails to address the issue of stranded costs.  There will be an entire new category of stranded costs if revenue cycle services are opened to competition.^/  For example, the utility may be left with meters that are no longer used or useful and which have a market value less than their depreciated cost.  There may also be substantial employee retraining costs.  The Proposed Decision, however, simply overlooks the issue of stranded costs, and provides no policy or procedural basis for assuring utility investors that prudent investments in metering and billing infrastructure will be recovered if unbundling takes place.  In the absence of stranded cost recovery, the “plan” suggested by the Proposed Decision could constitute an unconstitutional taking.^/ 
G.	The UDC’s Right To Meter Its Services Must Be Preserved
Fundamental to the commercial viability of any business is the ability to measure, bill and collect payments for the services it provides customers.  The Proposed Decision implies that the UDC will not be allowed to meter its customers who choose direct access.   But neither the UDC nor any other market participant should be forced to rely on others to measure the services it provides to its customers.  If the UDC is prevented from metering its customers, then this will delegate the security of yet another portion of the UDC’s revenue stream, in particular generation and CTC, to unregulated third parties.  Therefore, the UDC must be permitted to retain its meter and should further be allowed to install AMR at its discretion, and to charge market rates along with other energy providers.
Furthermore, if the UDC must remove its meter to allow a third‑party provider to install its own meter, then the UDC will incur costs to remove the meter, place it into storage, and then perhaps reinstall it later if the customer returns to the UDC.  All of these costs are the direct result of unbundling and must be charged to the direct access provider.  These additional costs should also be analyzed when addressing the issue of avoided cost.  In fact, it may very well be that there are no avoided costs and just additional costs incurred by the UDC on behalf of the ESP.  Such costs must be recovered from those who caused them and not passed on to other customers.  In that case, allowing the UDC to retain its meter may be the lower cost solution.
H.	The Proposed Decision Threatens To Impose Higher Costs On UDC Customers, And To Allow Significant Cost-Shifting Opportunities
1.	The Proposed Decision Threatens to Impose Higher Costs on UDC Customers
The Proposed Decision makes a two-fold error regarding avoided costs, with the potential of actually increasing the UDC customers’ costs in order to promote unbundling.  First, it rejects Edison’s showing that the cost saving achieved by permitting third parties to meter is too small to justify the potential customer confusion and system degradation as a result of multiplying metering entities.  But no party has contested those costs to date.  Second, it ignores the fact that unbundling of revenue cycle services will increase some costs for the UDC customers, and, moreover, the decision itself mandates procedures that will generate increased costs.  Consequently, the costs the UDC will avoid through unbundling of revenue cycle services must be offset by the amount of these increased costs.
The mandated procedures proposed by the decision include the requirement that the UDC negotiate with the ESPs to “enter into service agreement[s] . . . 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.” ^/  This process will certainly cause Edison to incur significant costs related to interacting with the third party firms, such as negotiating costs and legal fees.  Edison must recoup the costs of such expenditures, which result solely from unbundling.  In addition, “the Commission will review each agreement to determine that it is not discriminatory or anti-competitive,” and “will resolve the remaining disputes.”^/  This, too, will lead to costly proceedings before the Commission, assuming that the Commission even has the authority to conduct such proceedings with respect to ESPs. 
The Proposed Decision also ignores the fact that unbundling revenue cycle services would increase some costs that others suggest will be avoided.  For example, as Edison pointed out in its December 20, 1996 Comments (pp. 56‑57), there will almost certainly be increased call-center volume due to confusion as to which entity services a meter, charges when customers switch from one ESP to another, and charges resulting from increased load losses (see Section II.F, supra). 
The processes required to interact and negotiate with the ESPs as part of revenue cycle services will be complex, and will develop over time. The Proposed Decision fails to define how Edison will be compensated for the significant costs generated, without forcing the UDC customers to bear a disproportionate share of the burden.
Finally, because cost credits are based upon avoided costs, to the extent Edison must pay for the information, it avoids no costs.^/  Therefore, if Edison is to provide full cost credits, then we must get the same service we have today at no additional cost.  For instance, we must be notified of outages directly through our current computer system, meter data must be provided on the day we specify, and CPUC-mandated information, such as consumer notifications, must be passed along to the consumer.  Requirements such as these should be part of the Commission’s decision and should not be left to some later agreement between UDCs and ESPs. 
If Edison’s increased costs exceed its savings, the avoided costs will be negative and should, in fairness, be charged to ESP customers, not to UDC ratepayers who did not cause them and would not benefit from an avoided cost.  In other words, the increased costs incurred from unbundling must be borne by the ESP’s customers ‑‑ who are responsible for the increased costs ‑‑ and not by the UDC’s customers.
2.	The Proposed Decision Fails To Deal With The Significant Cost Shifting Problem That Tariffed Cost Credits Will Create
The Proposed Decision fails to address the significant problem that providing any form of average cost credits will cause in terms of cost shifting.  Any form of tariffed cost credit is necessarily an average value that is applied to all customers, whether the cost credit is based on embedded costs or some measure of incremental costs.  Only customer-specific credits are adequate to prevent low-cost customers from taking advantage by “cherry picking” the tariffed rate and shifting costs to the remaining customers.
The decision argues that “it is not evident that different customers face different billing costs.”^/  However, the decision considers only those customers in remote locations, such as agricultural customers, whose metering costs are greater when metering is done manually.  The decision overlooks the customers with higher metering and billing costs due, for example, to a higher level of credit-related problems.  ESPs will not target these customers with value‑added services; they will remain, by default, customers of the UDC.  This will result in unreasonable cost allocation that discriminate against such customers and are generally not conducive to a competitive market.
I.	The Proposed Decision Fails To Clarify The Reasons For Changing The Commission’s Restructuring Policy
The Commission’s Policy Decision, recognizing the drastic price fluctuations of electricity during the course of the day, placed the “revelation of the real‑time price of electricity” and “transparent, reliable price signals” at the focus of its rationale for restructuring the electric market.^/  All customer classes were to benefit from this information.  The Proposed Decision moves away from those principles.  In order that all interested parties understand the Commission’s current reasoning, any decision allowing unbundling should explain in detail why the Commission no longer believes price signals are crucial.
III.	
THE PROPOSED DECISION WOULD IMPEDE Direct Access
The Proposed Decision’s discussion of metering consists almost entirely of an effort to reject Edison’s AMR proposal.  This narrow examination of a complex area causes the decision to miss several key points.  In fact, Edison’s proposals would permit marketers to reach their customers will permit them to sell value‑added services, while still maintaining a sound distribution system.  In the short run, residential customers would use load profiles.  Marketers would have the customer access they want via the consolidated bills they would send.  And Edison has offered to aggregate the bills of their customers, as TURN and UCAN desire.  There is therefore no need to unbundle metering and risk destabilizing the distribution system.
A.	The Proposed Decision Would Not Permit Most Customers To Respond To Price Signals
A principal benefit of direct access to the customer and to society is that it will permit a customer to respond to price signals, which will decrease peak demand, leading to decreased generation needs and lower prices. ^/  The Proposed Decision inexplicably ignores this central issue.  To act on hourly price signals, one needs a meter that detects hourly usage.  The energy can come either from an ESP (direct access) or the Power Exchange (virtual direct access).  Yet the Proposed Decision essentially dismisses this benefit, deciding that load profiles will suffice for the foreseeable future.
Edison has consistently supported the use of load profiles for residential customers as an interim measure, while real‑time meters were phased in.  Thus, Edison has never “assumed,” as the Proposed Decision insinuates, “that a customer must have a time‑of‑use meter in order to take advantage of direct access opportunities.”^/  We have been quite clear that load profiling is a permissible technique to give residential customers the benefit of direct access temporarily, prior to installation of real‑time metering.^/
We also maintain, however, that providing direct access via load profiles is a somewhat hollow endeavor; because load profile customers are charged the average load rate regardless of their actual hourly usage,  they have no economic incentive to respond to hourly price signals.  Load profiles, which the Proposed Decision would permit on an apparently indefinite basis, thus provide no real incentive for customers to change their usage patterns.  Accordingly, our proposal for load profiling is for a limited defined period until real‑time meters can be installed.
Moreover, load profiles open up cherry‑picking opportunities:  a customer with an actual individual profile that is lower cost than the average load profile would be targeted by marketers, who could install an hourly meter, leaving the UDC system with a higher population of customers using energy on a less efficient basis, resulting in higher costs for UDC customers.  This creates a spiraling mechanism that will shift costs in a way that is both unfair and inconsistent with basic Commission and legislative objectives.  The Proposed Decision does not address who should pay for such costs, the ESP or the UDC customer.  Again, nothing in the record refutes that the Proposed Decision would produce this serious, adverse result. 
Although the Proposed Decision suggests that the “record does not support [Edison’s] assumption” regarding the need for hourly meters in order to take full advantage of direct access,^/ in fact, the record supports no other conclusion in the long term.  No party has contended that load profiles permit customers to take advantage of price signals.^/  No evidence supports the Proposed Decision on this point. 
Several parties have asserted that a real-time metering system does not provide price signals unless it allows two-way communication to the customer premises.^/  This assertion is meritless.  It fails to recognize the realities of the restructured market.  If customers’ utility bills are calculated based upon hourly usage, then customers will receive price signals through the monthly electric bill.  If they modify their usage to take advantage of lower non‑peak rates, then the bill will decrease.  If they instead continue to use electricity as they do now, then they will lose out on one of the principal benefits of direct access.
B.	The Evidence Fails To Support The Existence Of A Viable AMR Solution, Other Than Edison’s
Given the long-term necessity for real time meters, Edison has proposed to install Itron’s AMR system.  After a lengthy competitive bidding process – which was open to 70 suppliers – Edison selected Itron’s as the most cost-effective system.^/  Others now assail Edison’s choice as too expensive, but the evidence contradicts them.
The Proposed Decision relies heavily upon statements by Lucent Technologies (“Lucent”) that “there is a massive and varied communication infrastructure that provides other options, such as cable, line based or cellular systems.”^/  The record fails, however, to support the argument that any such “infrastructure” exists, presently or even in the foreseeable future, that is capable of supporting broad‑scale metering.  In fact, the record shows that the vast majority of the AMR systems already installed, or proposed to be installed by utilities across the country, are radio frequency (“RF”) based systems similar to that proposed by Edison.  When competitors respond to RFPs for system-wide deployments of AMR, RF‑based networks prevail, and “public networks never win a serious share of the business.”^/  
For example, the Cellnet system installed by Kansas City Power and Light (“KCP&L”) is a radio frequency based system, at least in part,^/ and, the evidence is unrefuted that the only economic way of approaching that system was through a system‑wide installation.^/  Moreover, while the Proposed Decision places “great weight” on Lucent’s hypothetical it fails to note that the only actual systems Lucent or the other marketers point to have  few or no customers.^/  Lucent’s system itself would be built on fiber coaxial cable, which is quite expensive.^/  
In short, although the marketers talk of the benefits of sophisticated metering, the fact is that less than 10 months before the direct access program is to begin, no marketer has made a concrete proposal to offer any type of new meter to residential customers.  Obviously, they have not proposed a less‑expensive system.  In the absence of record facts showing the existence of a viable competitive option, the Commission may not assume that there is such a system.
C.	The Proposed Decision Lacks Record Support For Its Conclusion That Edison’s Proposed System Would Erect Entry Barriers
The Proposed Decision professes great concern for various entry barriers that it asserts Edison’s proposal would supposedly erect.  This concern is unsupported and misdirected.  Instead, the Commission should be concerned about entry barriers created by the marketers if the Proposed Decision is adopted. 
The Proposed Decision expresses doubt about Edison’s estimated cost for AMR.^/  However, Edison and Itron have answered each question about the system’s cost and no party has cast serious doubt on these estimates.^/  Although the Proposed Decision states that “PG&E and SDG&E predict that the net cost their customers face [for systemwide metering] would be higher” than Edison’s estimate, given the brevity of both SDG&E’s and PG&E’s responses, it is difficult to know exactly how their systems are configured.  SDG&E has not presented costs for Edison’s type of system.^/  SDG&E’s system is part RF and part telephone, which may account for the higher cost.  PG&E’s recent estimate of costs is for a part RF system, but it is not clear what form of network infrastructure is proposed.^/  
Part of the Proposed Decision’s concern is the “stationary, proprietary” nature of the system.^/  Clearly, it makes no difference that the equipment is stationary; so is cable, which Lucent touts.  And the fact that the system is proprietary is  a red herring.  The issue is whether the system is open.  In our proposed system, the database is open and Itron has offered to license, at no cost, the technology necessary to decode the signal from the meter.  Thus, all data from Itron’s meter is publicly accessible.  Moreover, the proprietary nature of a technology does not – in the real world – present a barrier to technological development.  For example, VHS‑formatted videotape technology is proprietary;  yet many companies manufacture the tape and many companies produce VCRs.  Laser discs compete with VCR tapes.  The real question is whether the patent owner licenses the product at a reasonable fee.  In many cases, it will be quite willing to do that.  So the fact that a technology may be “proprietary” does not preclude other technological development.
Finally, the Proposed Decision fails to consider the very real entry barrier to customer participation in direct access if a reasonably priced metering system is not available.  The record evidence that the Proposed Decision does not cite shows that systems of the kind proposed by various marketers would be 5 to 19 times as expensive as Edison’s proposal.^/  Enron’s witness conceded that those estimates are correct.^/  Again, the decision fails to cite that fact.^/  In sum, the Proposed Decision itself creates significant entry barriers.
D.	The Decision Would Undermine AB 1890’s Carefully Crafted Design
The Proposed Decision ignores the structure of AB 1890, which was designed to make the generation market  not distribution  competitive.  Public Utilities Code Section 368(b) requires that “[t]he separation of rate components . . . shall be used to ensure that customers of the electrical corporation pay the same unbundled components charges, other than energy, a bundled service customer pays.”  The Proposed Decision reads this language as stating that “direct access customers must pay the same amount as bundled customers pay for the services they . . . buy.”^/  True enough, but direct access customers must still buy distribution services from someone.  Therefore, the issue is not whether utilities charge for services they do not provide, but instead whether all who provide those services charge the same thing.  Thus, marketers may not charge different prices for metering – a virtually impossible goal in an unregulated market  contrary to what marketers promise.
The clear implication of the language of Section 368(b) is that, other than energy charges, there shall be no unbundling of services.  This will leave ESPs free to sell exactly what they say they are interested in selling  energy and value‑added services  without dismantling a working distribution system, which is essential to serve all California energy customers. 
IV.	
conclusion
The bottom line is that the record does not demonstrate a need to engage in drastic unbundling now.  Marketers can reach their customers; they can promote and sell value-added services.  But before dismantling the distribution system, leaving the public unprotected and utility shareholders exposed, and threatening the foundation of AB 1890, this Commission should formulate serious answers to the very serious questions raised by revenue cycle service unbundling.  These issues arose less than nine months ago.  There is ample time to think carefully about them and no reason to rush to judgment.
Respectfully submitted,
ANN P. COHN
JAMES M. LEHRER

By:

James M. Lehrer
Senior Counsel

Attorneys for
SOUTHERN CALIFORNIA EDISON COMPANY
2244 Walnut Grove Avenue
Post Office Box 800
Rosemead, California  91770
Telephone:	(818) 302-3252
Facsimile:	(818) 302-1935
Dated:  March 6, 1997

APPENDIX
PROPOSED FINDINGS OF FACT
AND
CONCLUSIONS OF LAW

Proposed Findings of Fact
We propose that the following Findings of Fact be deleted:  4, 6, 8, and 9.  In addition, we recommend the following modifications:
11.	If a customer obtains a meter  the output of which is not easily used by other energy suppliers, another barrier to competition has been erected.
15.	It is important to pursue the goals discussed in this order on a timely basis in order to promote competitive  electrical generation for all classes of customers.
We propose the additional Findings of Fact:
1.		The ESPs’ ability to bill customers will establish a sufficient mechanism whereby the ESP can market its services directly to customers.
2.		Failure to assure the UDC’s revenue stream when third parties bill customers for the UDC, will put the credit rating of Rate Reduction Bonds at risk. 	
3.		The principal benefits of direct access include decreased generation needs and lower prices.
4.		Allowing free competition for distribution services in the electric industry, but not in the gas industry, would create a serious anticompetitive effect.  It would allow a monopoly gas utility to compete freely to provide services in the electric utility’s territory, while no other entity would have the equivalent opportunity to compete for gas services.
5.		Load profiling does not allow customers to respond to price signals, and, therefore in the long term does not permit consumers to obtain these benefits.  It is, however, a feasible alternative for residential customers until real time meters are installed systemwide, so long as only one load profile is used.
6.	 	Significant stranded costs will occur as a result of revenue cycle service unbundling, including, but not limited to, substantial employee retraining costs, retired meters with market value less than their depreciated cost, and other prudent investments in metering and billing infrastructure. 
7.	 	If the UDCs are directed to provide cost credits based upon their avoided costs if revenue cycle services are unbundled, then these cost credits are the actual avoided cost to the UDC.  Furthermore, unbundling may  increase the UDC’s costs in some instances, and the cost credit calculation should take into account these negative avoided costs.
8.		If third party ESPs are allowed to replace the UDC’s meter, then there must be a mechanism in place for the UDC to ensure the accuracy and reliability of the third party meters.  
9.	 	Load imbalances are always present in the energy distribution system, and occur as the result of several different factors, including, but not limited to, metering errors and inaccurate load profiling estimates.  Load imbalances may increase with unbundling.
10.		Metering information provided to the UDC by ESPs must at a minimum meet existing UDC standards for accuracy, timeliness, and reliability.
11.	Radio-based AMR systems are the lowest cost solution for systemwide deployments, and no other technology has yet been shown on the record to be a viable alternative.
12.		The absence of a reasonably priced hourly metering system could create barriers to customer participation in direct access.
Proposed Conclusions of Law
We propose that the following Conclusions of Law be deleted:  2 and 4.  In addition, we propose the following modifications:
3.	Energy suppliers should be allowed to provide and customers should be allowed to choose the billing and metering systems that are best for their purposes, so long as the metering systems are consistent with the other requirements discussed in this order and do not displace or interfere with the UDC’s meter.
7.	The Commission should require the distribution utilities to separately identify the cost savings resulting when billing and related services are provided by another entity and should ensure that customers are not charged by the distribution utilities for those services in such circumstances.
In addition, we propose adding the following Conclusions of Law:
1.		Procedures must be established to ensure the security of payment to the UDC of all UDC charges to be billed by ESPs.  Such procedures shall include provision of sufficient security of payment that the credit ratings to be established for the rate reduction bonds authorized by AB 1890 shall not be any lower than such ratings would have been in the absence of any unbundling of revenue cycle services.
2.	 	Revenue cycle services in the gas industry must be opened to competition to the same extent as revenue cycle services in the electric industry.
3.		Any cost credits that the UDC shall be required to give customers for revenue cycle services provided by ESPs shall be based on actual costs reasonably avoidable by the UDC and shall not be based on averages across customer classes or groups.  Any such credit must be reduced by all costs incurred by the UDC as a result of the unbundling of any particular revenue cycle service, including but not limited to the costs of ESP meter verification, payment security mechanisms for billing by ESPs for UDC services, and increased levels of customer inquiries arising from unbundling. 
4.	 	The UDCs may establish criteria for gauging the accuracy and reliability of third party meters, and may refuse to contract with third party providers that do not meet this criteria.  
5.	 	The UDC may establish balancing accounts for utility distribution charges to insure that any load imbalances attributable to a particular ESP are charged only to that ESP, and that all other discrepancies are recoverable from all energy customers across the board.
6.	 	No third party may bill for a UDC unless it is subject to security requirements adequate to ensure that the UDC experiences no larger revenue losses in the billing process than it presently experiences.    
7.	 	The Commission should direct the UDC to refuse to enter into agreements with ESPs in which the ESP does not agree to provide the quality and accuracy of data required by the UDC.
8.		It is appropriate to direct the UDCs to consider installing some form of AMR throughout their service territories, provided that the system is a low cost means to provide automatic meter reading and hourly usage data, and that the system provides open access at the meter and database levels.  
9.		Load profiling should only be permitted on a temporary basis and only for residential customers.  At the conclusion of the transition period, the UDCs may install some form of hourly use metering for those customers still being served through load profiling.

CERTIFICATE OF SERVICE
I hereby certify that, pursuant to the Commission’s Rules of Practice and Procedure, I have this day served a true copy of OPENING COMMENTS OF SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E) ON PROPOSED DECISION OF ALJ WEISSMAN on all parties identified on the attached service list.  Service was effected by means indicated below:
	Placing the copies in properly addressed sealed envelopes and depositing such envelopes in the United States mail with first‑class postage prepaid (Via First Class Mail);
	Placing the copies in sealed envelopes and causing such envelopes to be delivered by hand to the offices of each addressee (Via Courier);
	Transmitting the copies via facsimile, modem, or other electronic means (Via Electronic Means).
Executed this 6th day of March, 1997, at Rosemead, California.
______________________________________________
Susan Quon

SOUTHERN CALIFORNIA EDISON COMPANY
2244 Walnut Grove Avenue
Post Office Box 800
Rosemead, California  91770