Revised Calif. Draft Would Remove Some Procurement Costs from Retail Supplier Security Calculations

A California PUC agenda (draft) decision concerning electric service provider (ESP) security requirements would remove certain costs, for non-mass market customers, originally proposed to be included in the security requirements (R. 07-05-025).

The decision was scheduled to be heard at today's PUC meeting, but has been withdrawn for further consideration.

ESP security requirements must cover re-entry fees associated with involuntary mass transitions of customers back to the investor owned utility (IOU).

As first reported by Matters (8/24), the original proposed decision would have defined re-entry fees as including administrative costs associated with transferring the involuntarily returned customers to IOU procurement service, plus the incremental procurement costs involved to serve such customers. Direct access (DA) customers involuntarily returned to the utility would have been placed on the bundled portfolio service (BPS), or the standard rate, rather than the market-based transitional rate.

An October 18 agenda decision would exercise the PUC's discretion to define the re-entry fee as covering only the administrative costs relating to switching the customer back to bundled service. "We do NOT define the procurement costs to serve involuntarily returned DA customers as a reentry fee under § 394.25(e), provided that such returning customers bear full responsibility for such procurement costs through payment of a TBS [Transitional Bundled Service] rate. By paying the TBS rate, returning DA customers avoid shifting costs to utility bundled customers, and therefore, there is no need for a reentry fee to cover procurement costs in order to satisfy Sec. 394.25(e)," the revised draft states.

"We conclude that requiring procurement costs to be covered under an ESP bond in the manner proposed by PG&E and SCE could potentially have a material adverse impact on the viability of DA. Because PG&E and SCE have only presented illustrative bond calculations, there is uncertainty concerning how large an ESP’s resulting bond obligation could be, which could tend to make DA less cost effective," the agenda decision explains.

However, a subsequent revision to the agenda decision on October 19 would treat mass market customers differently, and would require their procurement costs to be covered by ESP security.

"Residential and small commercial customers subscribing to DA, however, may not possess the same degree of business sophistication in terms of protecting themselves in the event of a breach by their ESP. Accordingly, additional measures are appropriate to protect residential and small commercial customers from the risk of higher procurement costs resulting from an involuntary return to bundled service," the October 19 draft states.

"To the extent that an ESP provides DA service to small commercial and residential customers, therefore, we shall require that the ESP bond requirement include a provision for the expected IOU incremental procurement costs to serve those DA customers," the latest draft states.

Correspondingly, the small commercial and residential customer would pay the standard bundled service rate upon their involuntary return to bundled service. Any additional procurement costs relating to serving such involuntarily returned customers will be covered by the ESP bond.

The term small commercial does not appear to be defined within the decision itself, and would likely be driven by utility rate classification.

The draft would also defer to a subsequent decision the determination of how ESP bond amounts, for incremental procurement costs for involuntarily returned small commercial and residential DA customers, should be determined. The draft notes that the utilities' proposal for a bond calculation may be unnecessarily complex now that procurement costs related to the return of large volume customers to bundled service have been excluded.