Summarized Positions of the CCA Alliance

CPUC Rulemaking (R.) 12-02-009Government Conference

on Community Choice AggregationIn San Diego

- San Diego Energy District Foundation -Scott Blaising

Co-Counsel for the CCA AllianceBRAUN BLAISING MCLAUGHLIN &

SMITH P.C.

Participation in and Support for the CCA Alliance

Participation•Marin Energy Authority•San Joaquin Valley Power Authority•South San Joaquin Irrigation District•City of Santa Cruz•The Climate Protection Campaign•Sierra Club California•Direct Energy•Noble America Solutions•Constellation NewEnergy•Alliance for Retail Energy Markets•Direct Access Customer Coalition

Support•San Diego Energy District Foundation•Sonoma County Water Agency•Sonoma County•Monterey Regional Waste Management District•Santa Cruz County Planning Department•City of San Jose•Retail Energy Supply Association•Local Energy Aggregation Network•Renewables 100 Policy Institute•Yolo County•Tuolumne County•City of Arcata•City of Palmdale•Town of Apple Valley•City of Richmond

Caveats

The opening and reply comments of the CCA Alliance (and suggested rule changes) are fairly voluminous

Only high-level and summary aspects of the comments can be provided during this presentation

Copies of the comments may be obtained from the CPUC (www.cpuc.ca.gov) or by sending me an e-mail (blaising@braunlegal.com)

Statutory Background

(P.U. Code § 707(a)) Code of Conduct shall do all of the following: 1. No marketing by IOU except through independent

division• Funded exclusively by shareholders• Functionally and physically separate from rate-

payer funded divisions2. Limit marketing division’s use of corporate support

services• Fully allocated, embedded-cost basis

3. No access to competitively sensitive information4. (A) “Incorporate rules that the commission finds to be

necessary or convenient in order to facilitate the development of community choice aggregation programs, to foster fair competition, and to protect against cross-subsidization paid by ratepayers” and (B) include rules from D.97-12-088 and D.08-06-016.

5. Protect a ratepayer’s right to be free from forced speech.

Principal Focus: Market Power Mitigation

“Electrical corporations have inherent market power derived from, among other things, name recognition among customers, longstanding relationships with customers, joint control over regulated operations and competitive generation services, access to competitive customer information, and the potential to cross-subsidize competitive generation services.” (SB 790; Section 2(c)) (See also SB 790; Section 2(f) – market power is a deterrent to CCA development .)

PG&E Corporation said it best (in other jurisdictions):“A code of conduct recognizing the need for

structural separation between competitive and regulated activities and stringent affiliate rules is necessary for the development of a competitive market. Alternative suppliers will not be willing to assume the financial risks of entering the Michigan market absent some mitigation of the market power held by the incumbent utilities.” (Michigan)

Additional Rules are Necessary for Non-Marketing IOUs

The CPUC’s proposed rules for IOUs that do not intend to market or lobby are insufficient:•OIR merely requires an IOU to file an information-only advice letter

All IOUs have inherent market power, and correspondingly all IOUs must be subject to some form of market power mitigation.•Even non-marketing IOUs

The CCA Alliance asked the CPUC to take official notice of the orders issued by the Illinois Commerce Commission (ICC) in its deliberations on market structure rules

Actions by the Illinois Commerce Commission

The ICC proposed separation rules in 2001•Originally, IOUs had no choice: they must provide functional separation•ComEd (an IOU) asked that the IOUs continue to be allowed to operate as “Integrated Distribution Companies,” subject to various rules•ICC Staff added additional rules to “genuinely remove a utility from the retail power market….”•Key elements of the ICC-approved rules for non-marketing IOUs include:

• Detailed implementation plans• No “general” advertising – only advertising about

delivery services• Extensive rules to protect against cross-subsidization• Employee re-training• No tying (PG&E has been the poster child)

The CCA Alliance proposed similar rules for non-marketing IOUs

Additional Associated Rules are Needed

P.U. Code § 707(a)(4)(A) contemplates additional rules “to facilitate the development of community choice aggregation programs, to foster fair competition, and to protect against cross-subsidization paid by ratepayers.”

(1) any “on-behalf of” procurement (Cost Allocation Mechanism – CAM) should be undertaken only when there are exigent circumstances that cannot be met in any other way, and when that is the case, the cost allocation must be fair and equitable

The CCA Alliance proposed three regulatory reforms and associated rules:

(2) IOU costs should be allocated appropriately among generation, transmission, distribution and other charges – •Burden of proof on IOU if other than generation•CPUC proceeding to examine general and administrative costs

(3) IOU charges on departing CCA and other departing retail loads, including Direct Access, should be fair – an end date is needed and better forecasting of departing load (AB 1723)

Affiliate Transaction Requirement

The OIR asks whether the CPUC should “[r]equire that any marketing or lobbying against a [CCA] plan be conducted by an affiliate of the [IOU], and not be conducted by a marketing division of the [IOU]?” ( See P.U. Code § 707(c))Whether the separation is functional or corporate, the goal is the same: “to facilitate the development of [CCA] programs, to foster fair competition, and to protect against cross-subsidization paid by ratepayers.”Tension: Hybrid-market; IOU-owned and controlled

generation resources “[An IOU that is] allowed and eager to grow its ownership and control of [generation] resources is likely going to find living up to its neutrality obligations extremely difficult.”CCA Alliance is not currently advocating

corporate separation, but will be further studying the issue and the IOUs’ conduct

Reply to First Amendment Challenges

PG&E and SDG&E claim their free speech rights will be violated because of supposed “prohibited lobbying” and “precluded direct contact by a utility’s employees with its customers” in the draft rules.CCA Alliance Response: Wrong, both factually and legallyFactually: Not a ban or prohibition, but necessary

“regulation”Legally: Careful constitutional analysis is necessary•CPUC conducted a similar analysis as part of the Affiliate Transaction Rules•“Commercial Speech” or “Political Speech” [Different Standards]•IOU “lobbying” is commercial speech (not presumptively political speech)•Central Hudson Test: 4-part test, including whether there is a substantial government interest to be advanced and whether the restriction is more restrictive than necessary SB 790 establishes substantial interest; not ban but restriction

Other Issues

• Two procedural phases are needed: Code of Conduct and Associated Rules

• Shareholder funding of Audits is appropriate

• Expedited enforcement procedures are needed

• Use of the IOU’s billing envelope does not violate the First Amendment

• Various responses to IOU comments

Contact Information

Scott BlaisingBRAUN BLAISING MCLAUGHLIN &

SMITH P.C.(916) 682-9702

blaising@braunlegal.comwww.braunlegal.com