Order Instituting Rulemaking on the Commission's Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation.Order Instituting Rulemaking on the Commission's Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation. ) ) ) ) ) ) R.94-04-031 R.94-04-031
Order Instituting Investigation on the Commission's Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation. ) ) ) ) ) I.94-04-032
Paul A. Szymanski
for
Vicki L. Thompson
Attorneys for:
SAN DIEGO GAS & ELECTRIC COMPANY
101 Ash Street
Post Office Box 1831
San Diego, California 92112
(619) 699-5130
(619) 699-5027 Facsimile
January 21, 1997
Order Instituting Rulemaking on the Commission's Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation.Order Instituting Rulemaking on the Commission's Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation. ) ) ) ) ) ) R.94-04-031 R.94-04-031
Order Instituting Investigation on the Commission's Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation. ) ) ) ) ) I.94-04-032
San Diego Gas & Electric Company (SDG&E) submits these Comments to summarize and clarify its position on the nature and scope of the unbundling of utility services. As the deadline approaches for implementing Direct Access, the Commission has reached a crossroads and must determine whether Direct Access should be limited to the competitive provision of the commodity only (i.e., kilowatthours), while leaving all other services the exclusive franchise of the UDC monopolies, or whether Direct Access can and should be extended to include the full array of products and services that consumers want and which retailers may want to provide, limited only by the creativity of market players.
Not surprisingly, many consumers have stepped forward in this proceeding and asked the Commission for the opportunity to purchase more than the commodity from competitive suppliers, including value-added services that enhance or support their generation choices. These consumers are asking for greater choice -- the ability to choose from a wide array of energy-related products and services. In addition, prospective suppliers have asked for the opportunity to offer such services to consumers. In essence, this is what unbundling is all about: the opportunity to buy and sell services in a market that, up until now, have been available from only one monopoly supplier, the integrated utility, or not available at all.
SDG&E sees many compelling reasons to unbundle competitive services -- services for which there is no justification to retain monopoly supply, services which consumers have requested they be permitted to seek from competitive providers, and services which suppliers have requested they be enabled to supply. Both consumers and suppliers have said that so-called revenue cycle services -- including "metering" and "billing" services -- are among the services they would like to see offered competitively. They have said that these services lie at the heart of the competitive market because they serve as the springboard for additional value-added services being offered to consumers.
Frankly, there is no evidence suggesting that these market transactions must be provided solely by utilities. Doing any less than permitting the competitive supply of services that consumers want -- services that suppliers can offer and that utilities cannot justify keeping under exclusive monopoly control -- would be to impose undue constraints on a market just as it tries to emerge from its regulated past.
A few parties to this proceeding, primarily monopoly utilities other than SDG&E, have sought to limit consumer choices and supplier opportunities in the market by opposing the competitive supply of these value-added services. They have argued that utilities can do it better and cheaper or have enumerated implementation problems and called for rules to be erected in the guise of consumer protection but which serve primarily to restrict entry. The facts speak differently. Metering represents an information flow from consumers to an entity which gathers metered information; metering need not be provided by a utility. Billing is the method by which consumers learn of their obligations for delivered goods and services. Similarly, this function need not be provided by the utility. Nothing in the record of this proceeding indicates that these must be monopoly services. The result of competitive supply of metering and billing will be to inspire technological innovation far beyond what any one UDC may ever achieve because the incentives to innovate will be greater. Technological innovations will lead to lower service costs as well as enhanced quality of the services offered.
SDG&E's Comments which follow consist, in Section II, of a definition and description of "unbundling" envisioned by SDG&E, followed by a summary of the Company's positions on the various approaches to metering under consideration by the Commission in Section III. Section IV provides SDG&E's estimates of Automated Meter Reading (AMR) costs and savings for the SDG&E system. Finally, Section V concludes with a summary of suggested next steps for Commission action.
The "unbundling" of services entails two independent actions by the Commission:
(1) Permitting the supply of certain services to be made to consumers by competitive suppliers and not simply by a single monopoly utility; and
(2) Crediting to consumers the cost savings that the monopoly utility realizes when it no longer supplies a service to one or more consumers.
A. Supply of Competitive Services
In today's world, consumers receive electric service from a single source--the monopoly utility--which combines numerous individual services bundled together under the single "electric services" descriptor. Examples of these services include the production, transmission and distribution of electricity, providing advice on the efficient use of energy and providing "revenue cycle services," such as metering and billing services. Monopoly utilities have exclusive franchises to supply these services to consumers and nonregulated competitive entities are restricted from doing so. The public good is rightfully served by mandating that some of these services continue to be considered monopoly services. However, most of the "electric services," other than the "wires transport service" itself, can be opened up to the free market and supplied competitively to achieve service enhancements and cost reductions.
In its electric restructuring Preferred Policy Decision (D.95-12-063) and in AB 1890, the Commission and the legislature directed the unbundling of electricity production (i.e., generation) for the purpose of freeing the production and sale of electricity from the grasp of the monopoly utility and allowed this service to be supplied in an open market by competitive enterprises. It was envisioned that competing service providers would offer other services now provided only by utilities. AB 1890 does not limit the services that can be competitively supplied. It envisions that marketers, brokers and aggregators will be engaged in the supply of "electric energy, transmission and other services." (AB 1890, Section 331, emphasis added). The January 15, 1997 dialogue before the Commission on the services that competitors must be permitted to offer has focused on the consumer-interface functions, referred to as "revenue cycle services." Suppliers regard these services as important to the development of a competitive market, and consumers for increased choices in supply. As was evident in this full-panel hearing, this proceeding has no shortage of consumers' voices asking to have choices for these services. Opening up the supply of other competitive services, in addition to generation, to the free market is critical to the success of Direct Access.
SDG&E asks the Commission to listen to these consumers and allow the competitive supply of these services on January 1, 1998, whether or not it authorizes cost credits on January 1, 1998. The Commission should clearly and unequivocally state that competitive enterprises are authorized to provide all competitive "electric services" on an unregulated and unconstrained basis without impediments, subject only to their meeting certain specified minimum standards of performance.
B. Cost Credits for Metering & Billing Services
SDG&E recommends that the cost savings achieved by utilities when competitors supply services, relieving the utility of that responsibility, be reflected as a credit on the bills of consumers choosing to obtain services from the market. This cost credit is important to protect consumers from double paying for services. Implementing credits for these services on January 1, 1998 is not absolutely critical to the success of retailing and Direct Access, particularly since they are likely to be small at the outset, but such credits do need to be enabled quickly and there is no reason to delay implementation beyond January 1, 1998. SDG&E proposes that reasonable efforts be undertaken this year to establish appropriate credits for these services in order to minimize the time during which consumers will pay twice.
SDG&E provided its proposed methodology for calculating bill credits and other recommendations relative to unbundling metering and billing services in its "Comments On Unbundling Competitive Distribution Services" submitted to the CPUC on December 20, 1996. These Comments can be used as the basis for SDG&E's testimony in the unbundling proceeding which will likely conduct evidentiary hearings in March or April, 1997. SDG&E also recommends that the Commission direct the other UDCs and interested parties to provide testimony on recommended metering and billing credits for the upcoming hearings.
Although many approaches to RTP metering have been proposed, SDG&E wishes to make clear its own view regarding the roll-out of RTP meters for Direct Access. The CPUC should not mandate universal metering for three reasons: (1) it is too expensive, (2) it will limit entry of competitor suppliers, and (3) it will limit technology innovation.
A. Initial Installations of RTP Meters
Consistent with the Commission's schedule for meter installations in D.95-12-067, RTP meters, which provide the appropriate metering for hourly pricing or Direct Access, should be installed for the largest consumers first since they are the most likely to face the best metering economics. Many of these large consumers have already experimented with time-of-use metering and pricing and have found that benefits exceed costs. To the extent that they can further benefit from hourly real-time pricing, they will do so by exploring alternative load management strategies which respond to hourly price signals and be willing to pay the price of an RTP meter to realize these net cost savings. This meter schedule should apply whether or not consumers choose Direct Access supply.
B. Subsequent Installations of RTP Meters
Smaller consumers should also be able to have UDCs or retailers install RTP meters at their request even if they are not mandated to have such meters installed. The economics of real-time metering and the ability of large and small consumers to respond to hourly price signals is specific to the business operation and the capabilities of the individual consumer. UDCs should not prevent consumers from exercising the right to choose Direct Access or hourly pricing by imposing unnecessary metering requirements.
C. Schedule for RTP Meter Installations
Meter installations for large consumers over 500 kW can and should be completed prior to January 1, 1998. In addition, consumers under 500 kW who wish hourly metering in the first year of implementation should not be delayed as long as metering equipment and resources are available to meet growing demand for RTP meters. Meter installations are not an exclusive monopoly service and can be performed by either UDCs or qualified retailers. We expect that the benefits of such metering, combined with technological advances, will enhance the incentive to consumers to use such meters.
D. Responsibility for RTP Meter Expenses
The consumer who chooses hourly metering from the UDC pays for the meter either through service charges or as a one-time payment to recover the RTP meter and installation costs. This ensures an efficient allocation of meter resources where the service provided by the meter provides the highest consumer value. Any other payment strategy will result in inefficiencies -- RTP meters installed prematurely at locations which may not be able to benefit much if at all from hourly prices. Consumers and commercial suppliers can develop any terms they agree upon to cover meter expenses.
E. Ownership of RTP Meters
Either the retailer or the UDC can own the meter. Limiting ownership of RTP meter to the UDCs inhibits competition, forces retailers to deal with UDCs rather than directly with consumers, and creates bottlenecks when and if UDCs cannot meet the increasing demand for RTP meters.
F. Installation and Maintenance of RTP Meters
As long as certain standards of accuracy, safety and reliability are assured, any qualified retailer or the UDC can install and maintain meters. The CPUC has already reached this conclusion in D.95-06-163. Limiting installation and maintenance to solely a UDC responsibility creates bottlenecks and implies retailers cannot be trusted to install and maintain equipment to certain standards and tolerances. Furthermore, asset owners have the right and responsibility to manage any assets which they own.
G. Use of Load Profiles in the Absence of RTP Meters
Load profiles can be used as an interim measure for those consumers who desire Direct Access. In fact, consumers who do not choose Direct Access but instead accept average hourly Power Exchange prices will be implicitly billed based on class load shapes. Load shapes are defined as hourly load profiles net of the load of Direct Access consumers. Load profiles provide a useful bridge for access to the market as consumers become better acquainted with their options. Ultimately, however, an RTP meter is necessary to enable the consumer to respond efficiently to hourly price signals.
H. Existence of Market Forces to Ensure Meter Demands are Met
The market will be the most efficient force in guiding consumer and supplier decisions to install RTP meters. Therefore, potential gains from RTP metering is best judged by the consumer and supplier. Market forces can best ensure the judicious installation of RTP meters at the time and place where they create the highest consumer value and the best technology suited to the application.
I. Universal RTP Metering
UDCs should not install RTP meters on a systemwide basis. Meanwhile, as demand for Direct Access and hourly pricing grows, a burgeoning number of technology-based firms will have the incentive -- and the time -- to explore measurement technology innovations. Systemwide implementation of RTP metering based on today's technology will preclude consumers, especially smaller ones, from benefiting from market-driven innovations, as have occurred in telephony. Both decisions are premature but neither option is foregone by waiting until more information is available.
J. Communications Protocols
There are two ways to communicate measurement information needed for billing and in support of value-added service offerings: all qualified parties, including UDCs and retailers, can either have access: (1) to the RTP meter directly, or (2) to a data base that holds the measurement data. As long as the metering and communications system and protocols are made available to authorized users, there is no need to limit the technology employed to access the data nor interval data characteristics and formats.
During the hearings, Commissioner Conlon requested that SDG&E provide its estimate of AMR cost and operating cost savings. Cost estimates for AMR implementation on the SDG&E system have been prepared as requested during the January 15 hearing (Tr. at 5298). These estimates incorporate the following assumptions:
The cost estimates for AMR implementation are listed below. The costs are presented as the equivalent capital cost and the net (incremental) cost per meter per month for capital amortization periods, starting in 1998, of 4 years and 8 years (in order to compare to Edison's estimates) and 15 years (more typical assumptions of network AMR vendors).
Category Low Estimate High Estimate
Equivalent Capital Cost Range $150 million $180 million
Net Cost per Meter per Month: 4-yr. amortization $2.28/meter/month $2.86/meter/month
Net Cost per Meter per Month: 8-yr. amortization $1.09/meter/month $1.43/meter/month
Net Cost per Meter per Month: 15-yr. amortization $0.57/meter/month $0.80/meter/month
A. Open the Supply of Competitive Services
Permit competition in the supply of distribution-related value-added products and services, services other than the commodity -- such as metering and billing -- and impose no undue constraints on services that retail consumers or suppliers may buy or sell in a competitive marketplace.
B. Minimize Barriers to Entry and Trade
Discourage utilities from imposing barriers to competition, such as rules that would give utilities a monopoly or at least an unfair advantage on meter installations, billing options or any other value-added services that consumers and retailers may wish to buy or sell.
C. Support the Concept of Avoided Cost Credits
Endorse the concept that to the extent that utilities incur fewer expenses when consumers receive comparable services, e.g., metering and billing, from other suppliers, a credit for the cost savings can and should be included on the distribution bill. Regarding the calculation of the credit, near term credits can be stipulated by January 1, 1998 and the methodology can be refined over time as more is known about the penetration of these retail services.
D. Establish the Mechanism for Computing the Credit
Establish the timeframe and indicate the proceeding in which the credit associated with revenue cycle unbundling is evaluated. This credit is necessary to ensure that consumers reap the benefits of competitively supplied distribution services and avoid double-paying for those services which are unbundled.
E. Let the Market Dictate the Pathway to RTP Metering
Refuse to mandate universal metering using a single technology and thereby thwart technological innovations and market opportunities which could far surpass current options.
Respectfully submitted by,
Paul A. Szymanski
for
Vicki L. Thompson
Attorneys for:
SAN DIEGO GAS & ELECTRIC COMPANY
101 Ash Street
Post Office Box 1831
San Diego, California 92112
(619) 699-5130
Facsimile (619) 699-5027
January 21, 1997