CPUC Staff Calls for Restrictive Direct-Access Policies

Large electricity consumers? ability to directly access power providers outside regulated utilities should be delayed until 2009, and still subject to social costs and restrictions at that time, according to a California Public Utilities Commission staff report issued March 16. The president of the commission immediately distanced himself from the report sent to two lawmakers. ?I emphasize several areas of disappointment? in the staff report, in particular the lack of an endorsement of a core-noncore approach, CPUC president Michael Peevey stated in a letter to Assemblymembers Sarah Reyes (D-Fresno) and Keith Richman (R-Granada Hills). ?Consequently, it is seriously deficient in presenting a fleshed-out core-noncore proposal with sufficient detail for full evaluation,? he added. The ability of large noncore utility customers to choose direct access was a plank in Governor Arnold Schwarzenegger?s platform during his campaign. But the CPUC staff report does not reflect that stance. ?Allowing noncore exit prior to [2009] would create new stranded costs, avoidance of which is a high priority in this analysis,? warned the CPUC report. Commission staff expect that if that door is opened to noncore customers, as much as 30 percent of the market could avoid utility delivery and choose their own providers. The core-noncore debate started well before the current administration and was a key precept in original deregulation rules. At the time, CPUC members fought over the idea that both small core customers and large noncore customers should have direct access to outside electricity providers. Although the dual core-noncore approach carried the vote during the mid-1990s, the market eventually dropped out for small customers after retail competition set in. Meanwhile, the flight of large consumers away from utility service to outside providers further threatened the economic survival of utilities during the energy crisis. Regulators also saw direct access as a threat to rate parity for core?bundled service?customers. Other areas addressed in the CPUC report include: Exit fees: Currently these are capped, which the staff calls an ?untenable situation? because it creates deferred financial obligations. The staff suggests an uncapped surcharge reflecting noncore customers? full responsibility. 500 kW minimum: Staff would allow only customers with demand at that level or higher to be eligible for direct access. ?This category includes the large industrial customers most likely to leave California because of high electricity costs, threatening the state?s jobs and tax bases,? states the report. Peevey maintains it should be available to smaller customers. Aggregation: No aggregation of smaller customers into one larger load to qualify would be allowed until 2013 under the staff?s recommendation. Peevey disagrees, invoking community aggregation legislation on the books. Two capacity choices: To avoid unexpected load swings from utility service to direct access and back, staff suggest two options: a capacity-ensured noncore, which would have utilities provide that capacity as a backup, and a capacity-independent noncore, which would subject the customer to a potential high cost for readmittance to utility service. This is somewhat like the current debate over Social Security?some want to invest their own money to reap on retirement, but if those investments flop, it could remain a public liability to create a safety net. The staff report also reflects utility bias against private generators that it sees in the financial markets. Thus, the report favors utility construction of new power plants: ?Merchant generation, which had previously financed a significant amount of new construction, is currently in serious financial distress, and appears unable to build new projects unless financed through a long-term contract.? Staff did note some upside to direct access?that it allows flexibility and custom service packages and that the infrastructure is already in place to support it. ?The CPUC is doing its job, and its job is to be careful,? said Justin Bradley, Silicon Valley Manufacturing Group energy programs director. He added, however, ?We think we can do better timing-wise then 2009.? Bradley expects the information to be part of a bigger-picture bill in the Legislature, including resource-adequacy requirements. Legislators have no particular plans for the report at this point, according to Assembly Utilities and Commerce Committee staff. It could be the subject of an informational hearing, but it is not directly tied to current bills.

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CPUC Staff Calls for Restrictive Direct-Access Policies

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