The California Public Utilities Commission (CPUC) has proposed a program of retail wheeling or "direct access" as a means of bringing the potential benefits of competitive electricity to consumers in this state. TURN is concerned that "direct access" as conceived by the CPUC will not benefit residential and other small consumers because: a) small customers would not even be eligible for retail access for a number of years; and b) it is far from clear that the savings from direct access will be sufficient to overcome the large transaction costs involved in serving dispersed small retail loads. The experience to date with California's core aggregation gas transportation program has done nothing to alleviate these concerns.

In order to assure that the benefits of competition are equally available to all utility customers and not limited to a few large industries, TURN has developed the following conceptual proposal as an alternative to the CPUC's program. This "community access" proposal is intended to serve as a substitute for direct retail wheeling, and its chances for success would be greatly reduced if it were implemented at the same time as a retail wheeling scheme.

Several other key perceptions regarding the current market and regulatory/political environment underlie TURN's proposal: a) there is a significant opportunity for real consumer savings through increased wholesale competition, economic dispatch, regional exchanges, voluntary pooling arrangements, and intergrated resource planning; b) major structural/institutional and regulatory changes are necessary before true competition and associated savings to investor-owned utility (IOU) customers are likely to occur; and, c) California is not likely to completely abandon its existing initiatives in such areas as conservation, demand side management (DSM), and renewable resources.

TURN's "community access" proposal consists of the following key components:

I. Direct Access by Communities: New legislation should be enacted which would specifically authorize cities, counties, water districts, and other local entities with jurisdiction over a defined geographic area to establish consumer-owned utilities or co-ops (COUs). Such COUs would be unlike traditional municipally-owned utilities (MOUs) in that they would not actually acquire distribution facilities, or any other physical assets for that matter. Instead, such COUs would purchase distribution and other services from the local IOU and function primarily to aggregate the loads of all the residents and businesses within their jurisdiction. Wholesale suppliers (such as GENCOs, NUGs, municipal utilities, EWEGs, power marketers, etc.) would compete to supply all or a portion of the COU's electric demand. Energy service companies (ESCOs) could also offer their services directly to the COUs, perhaps offering to reduce energy and capacity costs on a "share the savings" basis with the COU.

Each COU would set rates for its residents and businesses, essentially allocating the savings it is able to achieve among the various customer classes (or keeping a portion for its own use). Rates may or may not be set to encourage industrial development or to promote other social goals. Each COU could also decide how much "green" power it wished to include in its resource mix. Each COU would be responsible for forecasting its power purchase needs, actually purchasing the necessary power, and mitigating the effects of forecasting errors through appropriate purchasing strategies. In other words, the local IOU would no longer be responsible for planning decisions (unless contracted to do so), and the CPUC would no longer be the forum for making rate design decisions for the COUs. The COU would also have the discretion to decide how much to spend on conservation, DSM, undergrounding, EMF protection, etc.

II. Three Separate Companies: Under this proposal, each of the existing IOUs would separate its functions into three distinct companies: DISCOs, TRANSCOs and GENCOs. DISCOs and TRANSCOs would remain regulated by the CPUC and the FERC (embedded cost of service regulation), and would continue to be reasonably assured of receiving adequate revenues and shareholder return on investment. The GENCO would be a separate non-regulated company, competing for load with other suppliers in the wholesale market.

III. Stranded Investment: A competitive "access fee" (to cover the customer share of any IOU "stranded investment") could still be charged to COUs, and to customers of IOUs not opting to become a COU (as part of their normal rates), to partially offset IOU shareholder investments in non-economic resources. (Note, such non-economic resources might still be used to provide control area services, reserves, etc., thereby generating some economic value and reducing the level of the competitive access fee).

IV. Competitive Utility Services: The current control area operators would sell control area services (including scheduling and dispatching power) and inadvertent energy services to the GENCOs and NUGs supplying power to the system.

GENCOs and NUGs would compete to sell power to each purchasing entity (COU, MOU, and IOU), including those in the former IOU service territory which opted to become COUs. Each wholesale seller would need to market its commodity to a COU, MOU, or IOU, and then purchase the necessary transmission, control area services, etc. Each seller would also have the ability to purchase backup services, emergency services, even meter reading servies, etc., from other suppliers or from the control area operator.

V. Transmission: Besides transmission planning, a regional transmission group (RTG) could perhaps perform a variety of other voluntary functions (pooling, regional exchanges, competitive auctions, etc.) to help achieve "regional" savings and efficiencies. The exact nature and pricing of the use of the transmission grid would presumably fall under FERC jurisdiction.

VI. Equitable Sharing of Benefits: Under this proposal, and unlike the CPUC proposal, all retail customers (not just large industrial customers) would have the opportunity to benefit economically, without phase-ins or preferences. The exact distribution of savings, however, would be determined locally and democratically, rather than through market power. Furthermore, this competitive proposal would move the utilities closer to full competition, and would not necessarily preclude the CPUC from implementing retail wheeling in the future, should it so desire, although it might very well obviate any need for retail wheeling.

VII. Reduction in Regulation: Except for determining the competitive access fee, the CPUC could expect to experience a significant reduction in regulatory review, with a major portion of the IOU's costs being shifted into the non-regulated generation area.

TURN submits that this "community access" proposal offers a much greater likelihood of actually achieving the benefits of increased competition in the electric services industry for the vast majority of customers than the CPUC direct access concept. Retail wheeling would put small customers in direct competition with large industry for cheap power, with the likely outcome being a dismal one for the little guy. "Community access," on the other hand, offers the opportunity for constructive partnerships between industry and local government to achieve cost savings for all consumers of electricity, large and small.