HOW ELECTRIC INDUSTRY CHANGE WILL AFFECT YOU

This brief overview of the competitive electric industry in California is adapted from the California Public Utilities Commission Internet web site. For more information, see the CPUC Electric Restructuring page at ftp://ftp.cpuc.ca.gov/gopher-data/electric_restructuring/er_home_page.htm.

To improve customer choice and lower rates, the Legislature enacted, and Governor Wilson signed, Assembly Bill 1890 in September 1996 to make California’s electric industry competitive. The CPUC is implementing a four-year transition period to this new competitive market. As of March 31, 1998 consumers from all customer classes (residential, commercial, agricultural, industrial) are able to buy electricity from either their current utility or another electricity supplier. The industry will be fully competitive by 2002.

PG&E, Southern California Edison (SCE), and San Diego Gas and Electric (SDG&E) customers as well as customers of Southern California Water Company Bear Valley District, Kirkwood Gas and Electric, and the California customers of Sierra Pacific Power and PacifiCorp are now able to buy electricity from their current utility or from a non-utility electric service provider. If you are a customer of one of these utilities (now known as utility distribution companies), whether you decide to continue buying electricity from your utility or choose to buy from another supplier, your utility will continue to transmit electricity to your home or business. But for the first time, you will be able to purchase that electricity from whatever company will give you the service options and/or prices you want.

The California Public Utilities Commission, working closely with the Federal Energy Regulatory Commission, utilities and other entities, will assure continued delivery of safe, reliable, and environmentally-sensitive electric service. The CPUC also will ensure fair competition and that residential and small commercial customers are educated about the competitive electric industry and protected from unfair business practices.

• If you don’t want to buy electricity from another supplier, you can continue to buy electricity from your current utility. It’s your choice.

• You can buy electricity from a company other than your current utility and have it delivered through the lines of your utility.

• You may be able to contract with your city, your county, an association, a broker or an aggregator to purchase electricity for you. Each entity offering electric service to residential and small business customers must register with the CPUC. And you can check to see if a company is registered before you do business with the company.

• You may wish to install a special meter so you can purchase and use electricity on an hourly basis at a time when it is least expensive.

• You can choose the supplier that offers the pricing plan you want. Some suppliers may offer different rates for day and for night, or for different seasons.

The electric rates of PG&E, SCE, SDG&E, PacifiCorp and Sierra Pacific Power are frozen at the rates in effect on June 10, 1996. By law, these utilities were also required to reduce residential and small commercial electric rates by 10 percent on January 1, 1998.

PG&E, Edison and SDG&E must purchase electricity from a competitive spot market called the Power Exchange. The Power Exchange will determine the price of electricity hourly according to demand for and supply of electricity. It will publish the price of electricity so consumers can shift their energy use to times when it is less expensive.

Utility plants and other obligations will be paid off earlier, and at a reduced rate of return. This will reduce rates by April 2002. Under monopoly regulation, electric rates, in part, reimbursed utilities for their costs of building power plants and buying electricity from independent power producers to serve their customers. The CPUC reviewed and approved these costs as reasonable and authorized utilities to recover them in rates over many years. To ensure utilities recover these costs during the transition to a competitive electric industry, all utility customers will pay a competition transition charge—most of which will be collected through March 31, 2002.

Having everyone pay a competition transition charge is important. It means that residential and small commercial customers won’t end up paying higher rates to make up revenue lost from customers who leave the utility system and choose service from a competing company.

• Electricity producers, including utilities, will have an incentive to operate as efficiently as possible so they can be competitive, remain financially viable, and earn a profit for their shareholders. Increased efficiency should produce lower electric rates in the long run.

• The cost of electricity is a key cost for businesses, as well as residential customers. Reducing this cost will encourage businesses to remain, expand, and locate in California. This means more jobs and more business investment. Two non-utility companies already plan to build new generation plants in California using the latest gas turbine technology.

• Having more time-of-use options will give consumers more incentive to use electricity efficiently to lower their costs.

• Electrical appliance manufacturers will have incentive to produce products that satisfy consumer needs but use as little electricity as possible.

The Legislature and CPUC have established public purpose programs to encourage energy conservation and efficiency, and research and development of energy efficient technologies and products. These programs will continue to be funded through a public goods charge, which all customers will pay. Low-income assistance programs will continue to be funded through a separate charge.

Your monthly electric bill will be itemized so you can easily see how much you are paying for electricity, delivery of electricity, the competition transition charge, the rate reduction bonds, and the public goods charge. However, your rates during the four-year transition period will not be higher than they were in June 1996. Rates for residential and small commercial customers were reduced by 10 percent on January 1, 1998.

PG&E, Edison, and SDG&E will continue to own their transmission facilities, but have turned operation of these facilities over to an Independent System Operator (ISO). The Federal Energy Regulatory Commission regulates the ISO. The ISO, functioning like an air traffic controller for energy, operates the state’s transmission system to ensure electricity flowing into it reaches all customers when they need it so they continue to have reliable service. The ISO will also ensure that all generators have equal opportunity to send their electricity through the transmission system to their customers. Generators who ship electricity through the system will pay a fee to cover system costs and to ensure reliability.

Distribution lines link your business or home to the transmission system. PG&E, Edison and SDG&E will continue to operate distribution lines and be responsible for reliable, safe delivery of electricity to your home or business. The CPUC will continue to make sure they fulfill this responsibility, and regulate their transmission and distribution rates using performance-based, rather than cost-of-service ratemaking.

A Power Exchange, regulated by the Federal Energy Regulatory Commission, became operational on March 31, 1998. PG&E, Edison and SDG&E must sell their power to the Power Exchange. If they wish to, municipalities, independent power producers, irrigation districts, and out-of-state producers may also sell power to the Power Exchange.

PG&E, Edison and SDG&E must also buy their power from the Power Exchange for four years to resell to customers who buy electricity from the utility distribution companies. They will pay a price determined by the Power Exchange based on the market demand for power. This will assure fair competition between utilities and other electricity suppliers. To ensure PG&E, Edison, and SDG&E do not continue their traditional monopoly advantage by controlling generation, transmission and distribution, the ISO and Power Exchange are independent of the utilities.

Look for information in your monthly electric bill and the service offerings of electric providers. The California Public Utilities Commission is a source of neutral, unbiased information about the changes to the electric industry. Visit the CPUC’s Internet web site at: http://www.cpuc.ca.gov, or telephone the Electric Education Call Center at 1-800-253-0500.

Participating in the new market will be your choice. If you don’t want to change anything about the way you or your business purchases and receives electricity, you won’t have to. If you want to make a change, or learn more about your choices, there is information available to assist you.