Making a small break with the energy crisis shackles resulting from the 2000-2001 wholesale energy market meltdown, California regulators last Thursday agreed to examine the feasibility of resuming direct-access retail deals in the electricity sector. The five-member California Public Utilities Commission (CPUC) granted a petition from pro-retail choice group Alliance for Retail Energy Markets (AREM).

Specifically, the state regulators ordered — by a 4-1 vote with commissioner Timothy Alan Simon dissenting — a statewide rulemaking in which it will be determined under what conditions, if any, it would be OK for direct access to be resumed under state law passed during the energy crisis six years ago (Assembly Bill 1X). Direct access is a retail service option whereby eligible customers purchase electricity from an independent supplier rather than from an investor-owned utility (IOU).

Assembly Bill 1X (AB 1X) requires direct access suspension until the California Department of Water Resources (DWR) no longer supplies power under AB 1X. Although DWR’s authority to enter into new power contracts ended as of Jan. 1, 2003, its authority to sell electric power delivered under previously signed contracts continues.

In California currently 10% of the overall power load among the three major utilities’ customers is currently served by third-party suppliers, but that amounts to 0.4% of the 11.3 million customers collectively served by the IOU. There is a lot of room for direct access to grow — both in terms of megawatt volumes and in numbers of customers.

AREM’s petition to the CPUC earlier this year proposed a review of the issue. The timing is ripe for a review of whether the state should reopen the customer choice program.

“Consumers have choices for most of the purchases they make and we will evaluate whether and how that may include electricity,” said Michael R. Peevey, CPUC president. “We will conduct this proceeding in a careful and balanced manner and take into account any lessons to be learned from previous efforts to bring competition to electric retail markets. If we ultimately conclude that legislative action is required to reopen direct access, this process will have framed the issues and provided a sound basis for further debate in Sacramento.”

Phase I of the plan examines the CPUC’s legal authority to lift the direct access suspension, while phase II will consider the public policy issues that surround lifting the direct access suspension and any and all applicable wholesale market structure issues. Phase III will then develop the rules that should govern a reinstituted direct-access market. For example, entry, exit, switching, default service arrangements and cost recovery issues will be considered, among others.

The latest statewide statistics on California’s direct-access program, which has remained in place even though a moratorium was placed on adding new customers in the wake of the 2000-2001 wholesale energy market crisis, show clearly that the largest power users in the industrial customer group and the largest commercial customers account for the vast amount of the load covered by the program. Residential and small commercial customers make up the largest numbers of customers, but collectively account for only small fractions of the load.

Of the 42,507 direct-access customers buying their own power supplies as of March 15, some 21,653 were residential customers and 8,370 were small commercial customers, but they represented just 0.2% and 0.8% of the 9.8 million and 1.09 million customers, respectively, in their customer groups.

In contrast, more than 11,000 of the 233,980 large commercial customers and 1,030 of 5,767 large industrial customers were buying their own electricity and having one of the private-sector utilities deliver it to them. That represents 17.9% of the industrial customers and 4.8% of the large commercial customers. Further, the industrials on direct access represent 27.1% of the state’s private-sector utility industrial load and 12.6% of the large commercial load for those same utilities.

The lone remaining customer category — agriculture — has 304 of 112,670 customers on direct access, accounting for about 1.6% of the agriculture load for the IOUs.

Assuming that any reopening of customer choice would attract the most play from the large commercial and industrial customer sectors, there are still more than 225,000 customers and about 80 billion kWh of annual load that could drift away from the three major private-sector utilities. As the CPUC already recognizes, any significant portion moving to direct access would have to be accounted for in major revisions to the utilities’ future resource procurement plans and retail rates.

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