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In April 1992, we initiated a comprehensive review of current and future trends in the electric industry. This process produced a Rulemaking proceeding on restructuring California's electric services industry and reforming regulation, which was issued on April 20, 1994. The Rulemaking envisioned a future in which customers would have choice among competing generation providers, and in which traditional cost-of-service regulation would be replaced by performance-based regulation. We issued the Rulemaking for extensive public comment and solicited comprehensive alternatives to the vision described in that document.

Since April, we have sat together in San Francisco, Sacramento, San Diego, and Los Angeles for six days of public hearings on industry restructuring and regulatory reform. Over 140 individuals and organizations have presented comments on the Commission's Rulemaking, either in written form or as oral testimony at these full panel hearings. (Fn. 1) (See Appendix C.) In addition, thousands of California citizens have voiced their opinions on industry restructuring, many of them at the 16 public participation hearings attended by the Commissioners and held throughout the state: Eureka, San Diego, South Lake Tahoe, Stockton, San Francisco, Martinez, San Jose, Fresno, Pasadena, Bakersfield, Ventura, Garden Grove, Carson, San Bernardino, and Huntington Park. Many more have participated via Internet with written comments, submitted videos, or watched the full panel hearings on public broadcasts over CAL-SPAN.

We also conducted a week of evidentiary hearings on issues related to uneconomic assets. In addition, we have engaged our western North America counterparts, federal agencies, and legislators in constructive dialogues on cooperative solutions to jurisdictional issues. On December 7, 1994, we invited a working group, comprised of interested parties, to prepare a written report on sustainability of public purpose programs and options for attaining our objective in a variety of restructured market models. On January 31, 1995, numerous parties filed briefs on legal issues. Appendix B presents a procedural history of our proceeding on electric industry restructuring and regulatory reform.

On May 24, 1995, we issued our majority and minority policy preference statements. For those unfamiliar with those documents, their essence was captured in our preface to the majority's proposed policy decision:

We commenced this Rulemaking because of our unanimous belief that as the electric services industry moves toward embracing competition, command and control regulation is no longer an appropriate mechanism. We have concluded that two of the major proposals offered to the Commission, generally referred to as the "PoolCo model" and the "Direct Access Model", reveal few true conceptual differences. Both proposals share a foundational premise of encouraging competition to flourish in the production of power. Mirrored in both is the proposed application of performance based ratemaking techniques where competition is absent. Both proposals also recognize the need for an entity independent of generation ownership charged with transmitting power. Furthermore, both plans recognize and address critical issues related to market power, jurisdictional ambiguity, transition costs and consumer choice. The significant difference between [the pool based and contract predicated models] lies with the manner in which the economic dispatch of power would be achieved.

The essential similarity as well as the difference between the two models found reflection in the Commission majority's vision of preferred market structures as well as the preferences of the minority. The majority proposed creating an independent system operator which would perform two critical functions: it would dispatch generation predicated on an open bidding mechanism to meet day ahead forecasts for California's electricity needs, and it would arrange transmission access for those generators with bids that cleared the pool price. The majority envisioned two distinct roles for private contracts. Financial instruments of any nature designed to hedge the pool price were deemed outside the realm of governmental regulation and immediately available to customers and other market factors who wished to contract for price stability on any terms congenial to the parties. Physical, bilateral contracts between a customer and a generator were also envisioned, but in the majority's preference their introduction would occur two years after the pool had been established and the characteristics of the wholesale market had become familiar to customers. (Fn. 2) The minority differed from the majority in asserting the view that the establishment of a wholesale pool should not be a precondition to the availability of a market structure predicated on physical, bilateral contracts. While acknowledging the indispensable role of an independent system operator, a preference was expressed for a role which did not include the dispatch of generation save in those circumstances in which it was necessary to achieve system balance or preserve system stability. The minority also expressed doubt as to the need for a single operator and held forth the vision of multiple, competing operators of the transmission grid.

By unanimous vote the four sitting Commissioners issued both policy proposals for comment with the explicit request that stakeholders express their views on both our selection of goals as well as articulated means to achieve those goals. "Equally important is the sincerity of our invitation that we are open to the suggestion of alternate goals or alternative means to pursue the goals which we have advanced." The response from stakeholders has been both gratifying and constructive. In addition to both written and oral contributions to our hearings, participants have arrayed themselves in a variety of discussion groups seeking to evolve common understandings and positions. Two of these efforts merit special mention. In September we received a Memorandum of Understanding which conveyed the joint recommendations of four of the major participants in our proceedings. (Fn. 3) While it covered numerous points, its basic focus was on issues of market structure and stranded asset and liability issues. In early October we were favored with a joint submission of eleven public interest, environmental, alternative energy, and consumer advocacy organizations. Termed a "Framework for Restructuring in the Public Interest," it elaborated on public interest and customer oriented principles. (Fn. 4) The recommendations in these submissions, as well as from other sources, are acknowledged and examined in the course of today's decision. Their influence has been substantial and is repeatedly acknowledged. While some have elected to look askance at these efforts we are not to be included in their number. We regard these submissions as compliant with both the letter and spirit of our invitation of May 24. Common to both recommendations was the open acknowledgement that the task of divining the public interest and selecting policy choices to defend and advance that interest is ours. Therefore unless we are instructed otherwise by legislation or discover unanticipated and serious impediments in the course of our implementation effort, today's decision may be looked to as the foundation for California's emerging market institutions and regulatory reforms.

1. Such public, recorded meetings where all Commissioners are present are generally called "full panel hearings." They are conducted in a legislative style.

2. The majority also expressed concern that both transmission and jurisdictional impediments to the implementation of what has been widely termed "retail wheeling" or "direct access" be resolved during this two year period. The singular policy goal was that any costs and benefits from such bilateral arrangements be born and enjoyed by the direct participants and not imposed on other users of common transmission and distribution facilities.

3. The Memorandum of Understanding or MOU was submitted by Southern California Edison (SCE), the California Manufacturers Association (CMA), the California Large Energy Consumers Association (CLECA), and the Independent Energy Producers (IEP).

4. Framework sponsors included the Utilities Consumer Action Network (UCAN), Union of Concerned Scientists, Toward Utility Rate Normalization (TURN), Sierra Club of California, Natural Resources Defense Council (NRDC), Environmental Defense Fund (EDF), Center for Energy Efficiency and Renewable Technologies (CEERT), California Public Interest Group, California/Nevada Community Action, and the American Wind Energy Association.


Last Modified: 10/17/2007

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