CMTA's Energy Priorities

By Loretta Macktal, Executive Assistant to the Vice President, Government Relations

Capitol Update, Nov. 7, 2003 Share this on FacebookTweet thisEmail this to a friend

2004 promises to be busy on the energy front – both in the Legislature and at the state's two major energy agencies: the California Public Utilities Commission and the California Energy Commission.

The Legislature is likely to take up retail market design, utility obligation to serve and utility procurement rules. These three issues tee-up the important threshold issue of whether California will have a robust energy marketplace or a return to CPUC regulation.

The CPUC will also deal with a number of issues important to industrial customers, including electricity rates (the Southern California Edison and Pacific Gas & Electric general rates cases will be decided next year), the future of on-site generation and the utility interruptibles programs.

CMTA's energy priorities are as follows:

Reduce Electricity Rates for Industrial Customers
In the spring of 2001, large industrial customers of Pacific Gas & Electric and Southern California Edison received rate increases ranging from 80 to over 100 percent. The massive rate increase has dealt a devastating blow to California's manufacturers, as evidenced by recent employment and energy load figures. Since January, 2001, the state's manufacturing workforce has declined by 176,000 jobs, or 9 percent. During the same time period, industrial load has dropped nearly 10 percent. The drastic reduction in employment and energy usage by industrial customers since the 2001 rate hikes underscores the impact of the rate increase on economic activity. More businesses will fail or leave the state unless electricity rates are immediately reduced to more competitive levels. Providing rate relief to industrial customers will stop the hemorrhaging effect and stimulate investment in the manufacturing sector.

Reinstate Direct Access
With exit fees in place and the issuance of DWR bonds, the focus of state policymakers should now be on reforming California's retail electricity market. As soon as possible, the Legislature should lift the suspension of direct access. Reinstating customer choice will provide significant economic and reliability benefits, both for direct access customers and the economy as a whole. It reduces the cost of doing business in California by allowing businesses to manage their energy costs and establishes a competitive benchmark price against which the cost of bundled service can be evaluated, keeping prices lower for all electricity consumers in California.

Establishing a distinction between core (residential and small commercial) and noncore (large commercial and industrial) customers may be beneficial if implemented in a rational manner. However, it is essential that the right of noncore customers to select direct access be fully restored and that reasonable rules be adopted to allow noncore customers to take bundled service from the utilities if they so desire. Noncore customers should not be required to make more than a two-year commitment for bundled service or to provide more than six-months notice of their desire to take or to exit from bundled service. Rather than establishing a separate portfolio of power to supply noncore customers seeking bundled service, these customers should be served from the core portfolio.

Establish a Competitive Utility Procurement Process
To encourage the development of generation resources needed to maintain reliable and economic electric service for all Californians, the utilities should be required to conduct an open and fair competitive bid solicitation process to meet future needs. It is important that this process be designed and implemented to ensure that a level playing field exists and that utility affiliates do not have a competitive advantage. Utility affiliates should be permitted to participate in the competitive solicitation process only to the extent that they are physically and structurally separated from the utility, do not share employees, and do not receive any information that is not available to other bidders.

Promote Customer Generation
Distributed generation enhances the reliability of the state's electric grid, and helps customers manage and stabilize their energy costs. One of the key barriers to the deployment of distributed generation is standby rates. The CPUC has extended an exemption to standby fees that sunsetted earlier this year, on an interim basis. An extension of the standby fee exemption for several years would increase deployment of distributed generation, help customer-generators manage and stabilize their energy costs, and provide important reliability benefits to all Californians.

Extend Interruptible Programs
The interruptible programs should be extended at current incentive levels without any sunset provisions. These programs provide a rate discount to large customers in exchange for which service to these customers may be interrupted when power reserves reach critical lows. As it currently stands, these programs could be terminated by the CPUC as early as 2004. The merits of these long-standing programs are well established. Interruptible and curtailment programs have helped to provide energy reliability since their inception in the mid-1980s.

Real-Time Pricing
Most large customers already are subject to “time-of-use” rate schedules. Although real-time pricing may offer additional benefits, it must be implemented in a manner that does not disrupt business operations. It seems likely that the greatest benefits from real-time pricing would occur in the large commercial market where lighting and HVAC loads represent a significant percentage of the customer's total load. For manufacturing customers, lighting and HVAC represent a small percentage of the total load and, thus, any response to real-time price signals would require major changes in production processes and schedules. For companies operating on single or even two-shift operations where these types of production changes are not feasible, real-time pricing would dramatically increase rates for these customers. Therefore, it is critical that real-time pricing be implemented on a voluntary basis whereby customers can determine whether it would benefit their operations.
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