Buying Electricity and Natural Gas in Today's

WHAT SHOULD YOU KNOW

Buying Electricity andNatural Gas in Today'sRestructured Market

HA

ND

BO

OK

P400-00-001F

Gray Davis, Governor

SEPTEMBER 2000

CALIFORNIA ENERGY COMMISSION

STATE OF CALIFORNIA

ENERGY COMMISSION

20001975


Prepared under contract # 400-96-019

Michael S. Sloss, Office Manager

NONRESIDENTIAL OFFICE

Scott W. Matthews, Deputy Director

ENERGY EFFICIENCY DIVISION

Steve Larson,Executive Director

William J. Keese, Chairman

Commissioners:Michal C. MooreRobert A. LaurieRobert PernellArthur H. Rosenfeld

Mary D. Nichols,Secretary for Resources

WHAT SHOULD YOU KNOW

Buying Electricity and

Natural Gas in Today's

Restructured MarketH

AN

DB

OO

K

P400-00-001F

Gray Davis, Governor

SEPTEMBER 2000


STATE OF CALIFORNIA

ENERGY COMMIS

SION

2000

1975

Prepared for the

California Energy CommissionEnergy Efficiency DivisionNonresidential Office

By

Henwood Energy Services, Inc.Sacramento, CAContract # 400-96-019

U P D A T E S T O H A N D B O O K

State regulators and lawmakers are occasionally modifying the rules governing directaccess to improve the operation and function of the energy markets. These adjustmentscoupled with electricity supply and transmission line issues can create a volatile energyenvironment. Being well informed and aware of the changes will help you decide on thebest energy-purchasing and usage strategy for your agency.

To keep you updated on these changes, the California Energy Commission will post onour website, amendments to this document that highlight the most up-to date informationregarding the restructured electricity and natural gas markets.

For this handbook and amendments, visit the California Energy Commission website at:www.energy.ca.gov/reports/efficiency_handbooks/index.html

LEGAL NOTICE

This report was prepared as a result of work sponsored by the California EnergyCommission. It does not necessarily represent the views of the California EnergyCommission, its employees, or the State of California. The California EnergyCommission, the State of California, its employees, contractors, and subcontractors makeno warranty, express or implied, and assume no legal liability for the information in thisreport; nor does any party represent that the use of this information will not infringe uponprivately owned rights.

Procuring Electricity and Natural Gas in the Restructured Markets

Acknowledgements

This document, “What You Should Know: Buying Electricity and Natural Gas in Today’sRestructured Market” was prepared by Henwood Energy Services, Incorporated (HESI) for theCalifornia Energy Commission. It is primarily written for public agencies to help themunderstand their energy procurement options. However, others may benefit from the informationprovided. The primary authors of this report from HESI are Douglas Davie, Kristen Kelley,George Givens, and Jon Collins. The California Energy Commission staff responsible for thedevelopment of this handbook are Daryl Mills, Virginia Lew, and Elizabeth Shirakh.

The California Energy Commission and HESI are grateful for the thoughtful comments andsuggestions provided by the following: Antione Abu-Shabakeh, City of Riverside; Bill Knox,Rick Buckingham (now with the Energy Commission), Jonathan Teague, and Marshall Clarke,California Department of General Services; Greg Cook, Northern California Power Agency;Dave Finigan and Eugene Leong, Association of Bay Area Governments; Bud Fish, County ofRiverside; Ray Giles, Community College League; Yvonne Hunter, League of California Cities;Kevin Kelley, City of Palo Alto Utilities; Darren Kettle, County of San Bernardino; Jack Kreig,Modesto Irrigation District; Clay Maynard, Yuba County; Bill McCallum, Fresno Public Utilities;John Moss and Ron Munds, City of San Luis Obispo; Matthew Muniz, County of Alameda;Susan Munves, City of Santa Monica; Otto Radtke, County of Los Angeles; Michael Rochman,School Project Utility Rate Reductions (SPURR); Steve Sachs, San Diego Association ofGovernments; Dan Smith, Association of California Water Agencies; Tony Valenzuela,California State University; Scott Wentworth, City of Oakland; Kurt Kammerer, San DiegoRegional Energy Office; Rita Norton, City of San Jose; and Dennis Kahlie, City of San Diego.

The authors acknowledge California Energy Commission staff: Sylvia Bender, Maxine BottiDennis Fukumoto, Karen Griffin, Mike Jaske, Dan Nix, Monica Rudman, Tim Tutt, and RichardRohrer for assistance in editing the document; and Sue Foster for the cover design.

For information on how to obtain a copy of this report or other Commission Handbooks onEnergy Efficiency, contact the Nonresidential Building Office at (916) 654-4008. All documentscan be downloaded from the Energy Commission’s Web Site at:

www.energy.ca.gov/reports/efficiency_handbooks/index.html

Special A c k n o w l e d g e m e n t

The Commission would like to especially thank the League of California Cities for itsassistance in preparing and distributing this document.



TABLE OF CONTENTSI. INTRODUCTION......................................................................................................................... 1

II. IS DIRECT ACCESS RIGHT FOR YOU? KEY ISSUES TO CONSIDER............................... 3

A. DEFINE YOUR GOALS AND OBJECTIVES ........................................................................................ 3B. UNDERSTAND YOUR ENERGY USAGE PATTERNS .......................................................................... 4C. DEFINE EXPECTATIONS................................................................................................................ 7D. UNDERSTAND THE RISKS ............................................................................................................. 7

1. Price Volatility - What are common commodity pricing structures? ......................................... 72. Contract Duration - How long should my contract be? ............................................................ 83. Limits on Changing - What if I want to switch providers? ........................................................ 84. Non-Performance - What if my supplier cannot meet my needs?............................................... 85. Keeping Up With the Market – Why do I need to pay attention to the markets once a contract is

in place? ................................................................................................................................. 86. Protecting Your Interests......................................................................................................... 9

E. IS DIRECT ACCESS FOR YOU? ........................................................................................................ 9

III. YOUR ELECTRICITY CHOICES ............................................................................................ 11

A. YOUR PURCHASING OPTIONS ..................................................................................................... 111. Staying With Your Existing Utility ......................................................................................... 112. Choosing a Competitive Supplier -- Direct Access ................................................................. 123. Participating in or Creating an Aggregation.......................................................................... 134. Municipalization ................................................................................................................... 15

B. PRICING OPTIONS ...................................................................................................................... 191. Existing Regulated Rate Structure ......................................................................................... 192. New Rate Options.................................................................................................................. 19

C. METERING AND BILLING OPTIONS.............................................................................................. 201. Metering ............................................................................................................................... 212. Billing................................................................................................................................... 21

D. BUYING GREEN OR RENEWABLE ELECTRICITY ........................................................................... 22E. ENERGY EFFICIENCY AND ENERGY MANAGEMENT...................................................................... 26

1. Energy Efficiency .................................................................................................................. 262. Managing Energy Usage ....................................................................................................... 293. Choose the Best Rate Schedule .............................................................................................. 294. On Site or Distributed Generation ......................................................................................... 29

IV. COMPETITIVE POWER PROCUREMENT ........................................................................... 31

A. THE REQUEST FOR PROPOSAL/REQUEST FOR QUALIFICATIONS PROCESS ...................................... 311. Identifying Qualified Vendors................................................................................................ 312. Timing of solication process .................................................................................................. 313. Drafting the RFP/RFQ .......................................................................................................... 314. Publicizing the Solicitation.................................................................................................... 335. Obtaining Notice of Intent to Respond ................................................................................... 336. Holding a Pre-proposal Conference ...................................................................................... 337. Collecting Responses............................................................................................................. 348. Evaluating Responses............................................................................................................ 349. Requesting Additional Information ........................................................................................ 3410. Notifying Short Listed Proposers ........................................................................................... 3411. Preparing for the Interviews .................................................................................................. 3512. Conducting the Interviews ..................................................................................................... 35

B. SELECTING A VENDOR(S)........................................................................................................... 35C. NEGOTIATING TIPS .................................................................................................................... 35D. DRAFTING THE CONTRACT......................................................................................................... 36E. MANAGING THE TRANSITION FROM THE LOCAL UTILITY TO THE NEW SUPPLIER .......................... 37F. VALIDATE THE BENEFITS........................................................................................................... 37


G. MONITOR PROJECT RESULTS AND INDUSTRY CHANGES .............................................................. 37

V. NATURAL GAS PROCUREMENT ISSUES............................................................................. 41

A. NATURAL GAS RESTRUCTURING BACKGROUND ......................................................................... 411. How Is The Market Being Restructured?................................................................................ 412. Emerging Trends................................................................................................................... 423. Components of Your Service.................................................................................................. 43

B. NATURAL GAS CHOICES ............................................................................................................ 431. Procurement Process ............................................................................................................ 442. Who Do I Buy From? ............................................................................................................ 443. Expected Savings and Risk Management................................................................................ 45

SUPPLEMENT 1 � CHANGES IN THE ELECTRICITY MARKET ............................................... 47

A. REVIEW OF CHANGES IN THE ELECTRICITY MARKET................................................................... 471. Monopoly Franchise: Prior to 1998....................................................................................... 472. Transition to Customer Choice: 1998 – 2001......................................................................... 473. Customer Choice: post 2001.................................................................................................. 49

B. COMPONENTS OF ELECTRIC SERVICE.......................................................................................... 491. Generation............................................................................................................................ 502. Distribution........................................................................................................................... 503. Transmission......................................................................................................................... 514. Public Good Charges ............................................................................................................ 515. Competition Transition Charges............................................................................................ 51

C. MARKET PARTICIPANTS............................................................................................................. 531. Direct Players: Providers of Electric Service......................................................................... 532. Indirect Players: Providers of Support Services ..................................................................... 55

D. TRENDS AND ISSUES IN THE NEW MARKET ................................................................................. 571. Green Power......................................................................................................................... 572. Evolving Competition ............................................................................................................ 583. Future Issues Impacting Customer Rates............................................................................... 59

SUPPLEMENT 2 � FREQUENTLY ASKED QUESTIONS .............................................................. 61

APPENDIX A -- INFORMATION SOURCES.................................................................................. 67

CALIFORNIA ENERGY COMMISSION ...................................................................................................... 67WEBSITES .......................................................................................................................................... 68

1. CPUC ................................................................................................................................... 682. Utilities ................................................................................................................................. 683. Associations .......................................................................................................................... 684. Public Agency Programs ....................................................................................................... 68

PERTINENT CPUC DECISIONS ............................................................................................................. 69PERTINENT LEGISLATION .................................................................................................................... 69

APPENDIX B -- GLOSSARY OF TERMS ....................................................................................... 71

APPENDIX C -- AGGREGATION PROGRAMS SUMMARY ........................................................ 75

APPENDIX D -- SAMPLE CUSTOMER DATA LIST..................................................................... 77

APPENDIX E -- SAMPLE DATA REQUEST .................................................................................. 79

APPENDIX F -- SAMPLE REQUEST FOR PROPOSALS.............................................................. 81

APPENDIX G � PUBLIC AGENCY RESOURCES ..........................................................................111

Section I � Introduction Page 1

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I. INTRODUCTION

Buying electricity used to be relativelysimple. One company, your local utility,sold you electricity and delivered it toyour meter. The services you paid forincluded electricity generation, longdistance transmission over high voltagelines, transport over local distributionlines, and the costs of meter reading andbilling. The utility company even ranrebate programs for energy efficientequipment to help you reduce yourenergy use and costs.

In 1996, the California Legislaturepassed legislation (AB 1890, Chapter854, Statutes of 1996) restructuring thestate’s electric industry. The start of thetransition to the new electricity marketbegan March 31, 19981. For customersin investor owned utility serviceterritories (Pacific Gas and Electric,Southern California Edison, San DiegoGas and Electric, Sierra Pacific Power,Pacific Corp, Bear Valley Electric, andMountain Utilities), the electric marketstructure changes were mandatory. Forpublicly owned utilities, the decisionwas left to the local governments. Thegoverning body of each municipal utilitymust determine whether they wish toopen their system to the competitivemarket.

With the restructured electric industry,customers can shop around, compareprices and services, and purchaseelectrical power from the supplier whobest meets their needs. No longer are

1 The original January 1, 1998, starting datechanged to March 31, 1998 due to initialimplementation difficulties.

customers restricted to buying poweronly from their local utility company.The ability to purchase electricity fromother suppliers rather than from yourtraditional utility is called direct access.As a result of direct access, you may beable to better manage your energy billsand may have opportunities to cut yourelectricity costs.

These changes to the structure ofCalifornia’s electricity industry areprofound and over time will most likelychange the way you think about electricservices. Unbundling of the variouscomponents of electricity service willgive you opportunities to better manageyour consumption choices and electricitycosts.

The California Energy Commission(Energy Commission) developed thishandbook to help public agenciesunderstand the changes and choices inthe new energy markets, the electricitymarket in particular. The handbookcontains information on:

• industry changes and how they affectyou and your organization;

• things to consider before you decideto switch power providers;

• a process to follow if you decide topurchase energy from a competitivesupplier; and

Section I � Introduction Page 2

• an update on the changing naturalgas markets.

Two supplements included in thishandbook provide a complete discussionof the changes to the structure ofCalifornia’s electric industry andanswers to frequently asked questions.

The Appendices contain a Glossary,Sample Request for Proposal, and otherresources to help you understand thechanging energy marketplace.

The following are the major findings andconclusions discussed in the handbook:

• Prices in the current electricitymarket are very volatile and potentialsavings in the restructured energymarket may be modest at this time.

• The rules governing electricitymarket operation are changing aslawmakers and others work toimprove functioning of therestructured energy markets. Publicagencies need to stay well informed,whether purchasing energy throughdirect access or staying with theirlocal utility.

• Energy efficiency and loadmanagement are critical to reducingenergy cost—even if public agenciesare participating in direct access.They need to understand that the best

strategy to reducing energy cost isthe one that relies on multipleapproaches.

• Unbundling electricity energycommodity costs from other providerservices is key to avoiding confusingand complex offers. Public agenciesneed to separate the cost for value-added services from energy in orderto evaluate bids equivalently.

• Energy price bids are typically validfor a short time, one to five days.Unless there is an individualdesignated to negotiate for them,public agencies may have difficultyobtaining a board or city councildecision within this time frame.

• Meter installation and re-installationis one of the problematic aspects ofdirect access. Switching providerscould mean the need for new metersdue to meter readingincompatibilities.

• Customized billing services canresulted in substantial savings due toreduced internal processingexpenses. These savings can exceedthe electricity price savings.

Section II � Is Direct Access Right for You? Page 3

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II. IS DIRECT ACCESS RIGHT FOR YOU? KEY ISSUESTO CONSIDER

Now that the basic elements andoperation of the electricity market arechanged, it may be time to determine ifyour agency could benefit from the newstructure. Many public agencies havefound that competitive services offeredin the restructured electricityenvironment are complex and meet awide variety of needs. By understandingthe reasons for your taking action, youcan select options tailored to yourexpected benefits.

Before starting any efforts to changeyour electric services, understand whatfactors are driving your decisions.Questions to answer include:

• What are your goals for takingadvantage of restructured marketopportunities? Can you clearlydefine them?

• What are your energy consumptionpatterns? When you use energy maybe more important than how muchyou use.

• Will you get a good deal on yourown or should you try to aggregate,or join an existing group?

• What are your expected results? Arethey reasonably achievable? Do theygo beyond what other publicagencies have achieved in therestructured market?

• What are the risks involved? Is youragency prepared to assume thoserisks?

The next section will help you answerthese questions. A summary of the keyissues is shown in Figure II-1.

Figure II-1

Define Goals/Objectives

Understand Your

Energy Usage Patterns

Define Expectations

Understand the Risks

A. DEFINE YOUR GOALS ANDOBJECTIVES

Before making any decisions, establishclear goals and objectives. Do notundervalue this step. Your goals andobjectives and will guide yoursubsequent actions and decisions.Having clear and understandable


objectives will make it easier to justifyeach decision as you go through yourevaluation process. Because of theirimportance, allow adequate time toensure that everyone involved in thedecision process understands and agreeson these goals and objectives, and thatthe potential political implications andramifications are understood.

Here are some key questions to ask tobetter define your agency’s goals andobjectives.

Are you changing services in order to:

• avoid volatile energy costs throughstable and predictable prices?

• reduce energy costs?

• obtain better customer service?

• change or customize your energybilling process?

• support or lead a move toward use ofenvironmentally friendly (e.g.renewable) energy resources?

• improve the reliability of yourenergy services?

• support the development of newcompetitive options?

• better understand your energy usageand service options?

• respond to an unsolicited offer?

There are numerous other questions youmay need to answer to clearly defineyour goals and objectives. Talking withothers who have been through theprocess or engaging qualified expertsmay be helpful. A number of potentiallyhelpful contacts are included inAppendices A and G.

B. UNDERSTAND YOUR ENERGYUSAGE PATTERNS

Understanding your energy usage patternis a critical next step. Providing detailedinformation about your energyconsumption to a supplier increases thelikelihood of obtaining the best possibledeal. Generally, if you have a relativelyconstant energy use pattern, you willreceive a better deal than if your usagefluctuates or spikes during peak periods.

The best way to understand your energyconsumption patterns is to create anannual load profile. This profile willshow the demand patterns for every hourof every day over a 12-month period.Key items include the differencesbetween your maximum and minimumusage, the time of the day, and the timeof the year you use most of your energy.Usage that occurs predominately duringsummer daytime hours is generally themost expensive. This will be reflected inprices offered by a competitive supplier.

If you are going to aggregate a numberof loads, understand the energyconsumption and behavior for allmembers of the group. If you areconsidering joining an existingaggregation group where the savingslevels will be dependent on the usagepatterns of the entire group, make suretheir patterns complement yours. If not,you may receive a better offer on yourown. However, if your usage pattern hasa lot of spikes, you could be better in anaggregation group.

While compiling detailed historical datafor your agency’s electricity accountscan seem overwhelming, it is a critical


step in the decision process. In manycases, your current electricity suppliercan provide you with a load profile. Ifyour organization is not familiar withmanaging and analyzing large databasesof energy information, contract the datacollection and evaluation to a third party.After your data review process, youshould be able to clearly communicatethe following:

• how many meters make up your totalload;

• the number of meters by rate class;

• the time and amount of yourmaximum hourly usage (in kW);

• the typical difference between yourmaximum and minimum hourlyusage (in kW);

• your total annual energyconsumption (in kWh); and

• your annual load factor (which is theratio of your average load to yourannualized maximum load).

If your agency doesn’t have data for allaccounts and meters expected to be partof the aggregation program, request itfrom your local utility or extract it fromyour utility bills. Your utility canprovide 12 to 24 months of usage historyfree of charge. Requests for this data areusually processed within 30 to 60 days.

Some agencies have experiencedproblems verifying the accuracy andcompleteness of data from their utility.Work with the utility to verify the usageand billing data. Make any correctionsto account for missing or inaccuratedata.

One way to keep mistakes to a minimumis to specify the exact information youneed. A sample form is included asAppendix E to this guidebook.

Most utilities provide standardinformation that is adequate though eachutility’s terminology for the same datamay be slightly different. Theinformation may not be delivered in auser-friendly format, so allow plenty oftime to process and analyze theinformation in order to understand yourusage levels and patterns. Appendix Dcontains a listing and explanation of theterminology found in utility bills. Withthe utility billing information, youshould be able to use it to characterizeyour energy consumption and patterns interms of total usage, kW demand andload factor of the aggregated use pattern.An aggregated load profile is a goodway to demonstrate these characteristics.Appendix F contains summary tablesthat provide examples of effective waysto communicate this information.

A greater understanding of usage levelswill allow your agency to develop a veryinformative Request For Proposal andQualifications (RFP/RFQ) which, shouldlead to more responsive offers fromsuppliers. It will also give you an ideaof potential metering costs due to theinstallation of direct access meters.

Figure II-2 shows example hourly loadprofiles for a typical municipalcustomer. These graphs show that thetotal annual electricity use is 11,927,796kWh. The maximum hourly load of2,533 kW is occurring in August and aminimum hourly load of 743 kW is


Figure II-2Examples of Hourly Load Profiles for a Municipal Customer

February 1998 Hourly Load Profile

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500

1,000

1,500

2,000

2,500

3,000

Hours

August 1998 Hourly Load Profile

0

500

1,000

1,500

2,000

2,500

3,000

Hours

kW

kW

kW

1998 Annual Hourly Load Profile

0

500

1,000

1,500

2,000

2,500

3,000

J F M A M J J A S O N D


shown for February. This load has anannual load factor of 53.7%. Themonthly profiles are for the samecustomer for the months of February andAugust, respectively. In the monthlyprofiles, it is easy to see how thecustomer’s load changes over the courseof each day and the lower loads on theweekends are clearly evident. Thedifference between the daytime andnighttime loads as well as the differencebetween the maximum load in thesummer and winter will be keydeterminants of the competitive pricesoffered to this customer.

C. DEFINE EXPECTATIONS

After you have defined your goals andobjectives, and understand your usagepatterns, it is equally important to defineyour expectations. To make the bestpossible decision, your expectationsneed to be realistic and reflect truemarket conditions.

As the market continues to evolve andmature, so will the types of offers andprice offerings. Review the latestmarket conditions and keep abreast ofthe market changes.

Comparing your specific situation to thatof other entities that have achievedenergy savings is a simple and effectivetechnique. However, recognize thatmarket conditions can change rapidly.Competitive providers will respond tothese changes in order to maintain anacceptable business risk/reward balance.This should directly impact the resultsyou can achieve. Be flexible and adjustexpectations as new market conditionsdictate.

D. UNDERSTAND THE RISKS

Just as your energy objectives need to beclearly defined, so do your risks. Thecontinued market restructuring meansthat all customers, even those that staywith the local regulated utility, will beexposed to new risks and changes in theway energy services are priced. Pricevolatility is but one of the risks you mayface in the new competitive energymarket structure. The key areas of riskinclude:

• price volatility risks;

• contract duration risks;

• risks of not being able to changesuppliers;

• supplier non-performance risks; and

• risks of inaction or not payingattention to the evolving market.

Recognize these risks and understandthat you will be exposed to many ofthem even if you stay with your currentutility.

1. P R I C E V O L A T I L I T Y - W H A T A R E C O M M O N

C O M M O D I T Y P R I C I N G S T R U C T U R E S ?

There are three primary types of pricingstructures in today’s energy markets.These include:

• fixed – a guaranteed price per kWh,regardless of any usage patterns ormarket conditions;

• indexed – a price that will rise or fallin relation to certain marketconditions, often the PowerExchange (PX) price; and

• hybrid or portfolio – a combinationof fixed and indexed pricing that


may fluctuate within a fixed pricerange or be linked to the cost of aspecific set of generating resources.

More detailed information on PriceOptions is provided in Section III, B-Pricing Options.

2. C O N T R A C T D U R A T I O N - H O W L O N G

S H O U L D M Y C O N T R A C T B E ?

Many agencies that have undergone anenergy procurement process found it lessrisky to enter into a one to two yearcontract with the option to renew, asopposed to a longer three to five yeardeal at a marginally more attractive rate.

Having shorter contract terms withoptions also allows you to learn moreabout the competitive energy industrybefore making any long termcommitments. Some of the uncertaintiesabout energy prices will be resolved asthe market matures. Having the abilityto change suppliers as market conditionsdictate, rather than being restricted by along-term contract with initially betterterms, is probably a lower risk strategyat this point in the evolution of theCalifornia market.

3. L I M I T S O N C H A N G I N G - W H A T I F I W A N T

T O S W I T C H P R O V I D E R S ?

Your contract terms should clearlyexplain the financial implications if youdecide to switch suppliers or go back tothe local utility. Many agencies thathave gone through the process were ableto negotiate terms that allowed them toswitch with no penalty if a better offerwas presented and proper notice wasgiven.

However, one of the complexities ofswitching between providers involves

meters and meter reading. If you don’town the meters, your new and oldenergy service provider will have tonegotiate the sale or removal of themeters. In some cases, new meters mayneed to be purchased in order for yournew energy service provider or utility toread them.

4. N O N - P E R F O R M A N C E - W H A T I F M Y

S U P P L I E R C A N N O T M E E T M Y N E E D S ?

A supplier’s failure to perform couldexpose your agency to additional costs,because you’ll have to go through atleast some steps of the procurementprocess again. To protect against thispossibility, some agencies have requiredtheir suppliers to post performancebonds or place cash in an escrowaccount that they can access undercertain nonperformance situations. It isimportant to note that suppliernonperformance does not mean yourelectricity supply will be terminated.The Independent System Operatorensures that all consumers receive thepower they demand. However, theremay be financial consequences if yoursupplier fails to pay for power purchasedon your behalf.

5. K E E P I N G U P W I T H T H E M A R K E T � W H Y

D O I N E E D T O P A Y A T T E N T I O N T O T H E

M A R K E T S O N C E A C O N T R A C T I S I N P L A C E ?

Just as understanding your electric usageis important to getting started incompetitive energy procurement, stayingaware of changes in the energy industryis equally important. There are hiddenrisks associated with lack of knowledgeand inaction. If you do not make theeffort to understand the restructuredelectric market, you may lose out oncurrent savings or make energyconsumption decisions that are


unnecessarily costly. And don’t forgetthat there may be risks associated withdoing nothing.

6. P R O T E C T I N G Y O U R I N T E R E S T S

Switching your electricity service to anew provider is a risk. However, theState of California has mandated severalmeasures to protect you from providersthat will not be able to meet their servicecommitments.

This protection is provided throughregistration requirements established bythe California Public UtilitiesCommission (CPUC). The focus ofthese requirements is to ensure thatenergy service providers serving smallcustomers are credible and financiallyviable and will be able to meet theirservice commitments. Also establishedis a process to investigate any allegedinappropriate operations or practices byenergy service providers. Appendix Acontains information on how to obtainthis information from the CPUC website.

Energy service providers serving onlylarge commercial and industrialcustomers are not required to registerwith the CPUC. These customers are ina “buyer beware” situation, and it will beimportant to do appropriate additionalresearch on a prospective energy serviceprovider and the provider’s offer.

E. IS DIRECT ACCESS FOR YOU?

Historically, public agencies that aremost successful in entering into directaccess contracts are those that had welldefined goals and objectives, understood

their electrical loads and usage, andunderstood the risks and costs. Due tothe complexities of evaluating proposals,reviewing contract terms, andnegotiating a contract, many publicagencies or aggregators have hired anindependent consultant to prepare thebid documents, evaluate the proposals,and/or negotiate the final contract.Depending on the assistance needed, theconsultant costs can range from $10,000to $50,000 or more.

Even if you hired a consultant andresponded positively to the questionsraised in this section, you may still notbe a good candidate for direct access norbe successful in negotiating a contractwith an alternate provider. Some publicagencies have gone through extensiveevaluation and bidding processes andfound few acceptable bidders. This iswhy it is good idea to contact publicagencies that have gone through thisprocess, to determine the reasons fortheir successes or failures in negotiatinga direct access contract. A list of publicagencies that have released biddocuments soliciting energy serviceproviders are listed in Appendix G.Once you learn the reasons for their pastsuccesses and failures and understandthat future regulatory and energy marketconditions can evolve and change, thenyou can decide whether direct access isfor you.


Section III � Your Electricity Choices Page 11

III. YOUR ELECTRICITY CHOICES________________________________________________________________________

For customers in investor owned utilityservice territories (Pacific Gas andElectric, Southern California Edison,San Diego Gas and Electric, SierraPacific Power, PacificCorp, Bear ValleyElectric, and Mountain Utilities), thenew restructured electricity market nowoffers many choices when it comes toyour electricity service.

Local governments also have choicesthat give them and their constituentsgreater local control. For instance, theycan play a role in delivering energyefficiency services to their citizens andbusinesses or can serve as an aggregatorfor those businesses and residentialcustomers who wish to participate.Local governments also have the right toexercise their municipalization rightsand authorities, or to support theformation of new municipal utilityservice providers.

In addition, you can choose to purchasegreen power to help the environment andsupport the renewable energy industry.And, as before, you can reduce yourenergy use by changing operationprocedures or installing energy efficientequipment.

This section discusses the five majoroptions of electricity procurement andincludes:

• purchasing;

• pricing;

• metering and billing;

• green or renewable electricity; and

• energy efficiency and energymanagement.

A. YOUR PURCHASING OPTIONS

You now have four choices for obtainingelectric services in California:

• continue to purchase your electricservices from your existing utility;

• participate in direct access − buypower from a competitive energyservice provider (ESP), broker, orpower exchange;

• aggregate (combine with otherorganizations) to form a new buyinggroup or pool; or

• create a municipal serviceorganization to provide your electricservices.

1. S T A Y I N G W I T H Y O U R E X I S T I N G U T I L I T Y

You can continue to rely on your currentutility for electricity without doinganything. The utility will continue toprovide power at rates set by theCalifornia Public Utilities Commission(CPUC) during the transition period,typically from April 1, 1998 to March31, 2002. San Diego Gas and Electricended its transition period in 1999.During the transition period, utilitypricing will be “frozen” at the 1996

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rates. After the transition period, thecommodity portion of your bill willchange with the Power Exchange (PX)price. It should be noted that in August2000, the legislature and CPUC wereconsidering options to change thetransition period rate parameters.

If you want to participate in thecompetitive market, but don’t want toswitch to a new supplier, you can choosethe utility’s “Schedule PX”, sometimesreferred to as virtual direct access or realtime pricing.

Schedule PX lets you buy power atmarket-determined, real time pricesrather than at a rate that is based on theaverage consumption pattern ofcustomers in your rate class. It willreward you when PX prices are low butwill also expose you to the risk of higherprices that occur during times of peakdemand and consecutive hot summerdays. If you choose Schedule PX, youmust install – at your expense – intervalmeters to record hourly usage.

Real time pricing may be a beneficialoption if you use a greater percentage ofenergy in off-peak (lower priced) hourscompared to other customers in your rateclass. Real time pricing can offersignificant savings if you have the abilityto reduce energy use during peakperiods.

2. C H O O S I N G A C O M P E T I T I V E S U P P L I E R --D I R E C T A C C E S S

If you choose direct access, there arethree key requirements in addition to theselection of a new supplier. First, aDirect Access Service Request (DASR)

must be filed with your local utility.This is a notification that you are goingto obtain some or all of your electricservices for the specified loads from acompetitive supplier. Second, you mustobtain the services of a SchedulingCoordinator. They will schedule yourelectric load supply with theIndependent System Operator (ISO).Lastly, if your load is greater than 50kW, you will need an interval meter thatwill keep track of your usage on anhourly basis. Your energy serviceprovider should be expected to take careof all of these requirements as part oftheir competitive offer.

All energy service providers offer theelectricity commodity, but many alsooffer packages of energy products andservices. This may include billingservices, meter reading, meter and meterservicing, energy audits, energyefficiency measures, and other energyrelated services. This is often referred toas a “bundled services” offering. Thekey question for you is what servicesyou want and whether bundled orindependent service offerings will bestserve your specific needs.

The advantage of acquiring bundledservices is that you can limit yourprocurement efforts to virtually onebidding process and select a single entityto provide multiple services. Yourenergy service provider will oftenmaintain detailed information about yourloads. That knowledge should give themthe advantage of being able to identifymeasures that could reduce load orenergy use. As many public agencieshave found out, trying to transfer largeamounts of end-use energy data from


one provider to a third party can be along, time-consuming process.

The key disadvantage of bundled serviceofferings is that it is often difficult,confusing, and complex to evaluate thecosts and benefits of each service. Alsothe energy commodity provider may notbe the most competitive or most capablesupplier of the other services.

M e t e r s

If your electricity demand on a singleaccount is greater than 50 kW, you arerequired to install interval meters thatmeasure and record hourly energyconsumption. The meter and installationcost range from $400 - $1500 peraccount. Alternatively, you can lease themeters from your energy serviceprovider. You also may be assessed amonthly fee for meter reading andmaintenance. Though these chargessubstitute for the utility’s otherwiseapplicable meter charges, you need toinclude these costs in the determinationof whether direct access is beneficial foryou.

Currently, for any account whereelectricity demand is less than 50 kW,you can participate in direct accesswithout purchasing a new meter. In thefuture, this could be reduced to 20 kW.Therefore, it is important to understandhow your energy service provider wouldaddress this additional meteringrequirement if changes occur during theterm of your service contract. Thesesmaller customer accounts are assumedto have an hourly usage patternrepresented by “typical” customers inthe same rate class. This process ofconverting total monthly energy usage to

an hourly usage pattern is called loadprofiling.

S c h e d u l i n g

Your energy service provider is requiredto handle the scheduling of generatingresources to meet your energy usage. Ifyour provider does not handle thescheduling themselves, they willcontract with an approved schedulingcoordinator. The provider purchasespower supplies in bulk quantities for allits customers’ loads from a variety ofwholesale market options. When thereare differences between the scheduled(pre-purchased) amounts and actualconsumption by the customers, yoursupplier has to buy or sell power from areal-time market where prices can bequite volatile. To reduce price volatility,your energy service provider tries toclosely match supplies with itscustomer’s actual hourly consumption.

If you are billed based on real timepricing, you have the opportunity andmay be able to reduce total energy costsby shutting off equipment quickly inresponse to high prices. However, thisoption requires you to monitor hourlyenergy prices and have the flexibility toimplement a load shedding plan.

3. P A R T I C I P A T I N G I N O R C R E A T I N G A N

A G G R E G A T I O N

Aggregation means pooling your powerneeds with others to get “volumediscounts” and sharing the startup andadministrative costs. There are severalaggregation programs offered by thestate, joint powers authorities,universities, and other independently runprograms. Before you start your ownaggregation program, look at existing


groups to see if they will meet yourneeds.

In this section we’ll examine the types ofpublic sector aggregation programs andthe possibilities for initiating new groupsthat could serve private citizens orcompanies.

A g g r e g a t i o n P r o g r a m s

There are several existing Joint PowersAuthority and governmental aggregationefforts. Most have focused on specificcustomers.

Joint Powers Authority

A Joint Powers Authority is a singleentity formed by several independentgroups, usually public agencies that wishto exercise common authorities. It isgoverned by law, has procedures inplace to exercise its authority, and has astaff charged with specific tasks. A JointPowers Authority allows its members tobenefit from a larger organization;however, it only has the authorities thateach member has independently. It alsohas an independent identity that allows itto act separately from its memberagencies. For example, it is possible fora Joint Powers Authority to provide taxexempt financing without encumberingthe total liability or bonding limits of itsmembers.

Energy Cooperatives

Electric or energy cooperatives are non-profit corporations that can supplypower to their members. Like JointPowers Authorities, they are tax exemptand can borrow money at low rates.Cooperatives can include privatebusinesses or citizens as well as publicagencies. For further information, the

Energy Commission sponsors an EnergyCooperative Development program,which you can access via the websitehttp://www.energy-co-op.net/index.html

Municipal Aggregation Programs

There are a number of municipalities, ormunicipal groups, that have developedtheir own aggregation programs. Theseprograms are typically designed aroundspecific goals and may include all oronly certain energy accounts.

Some municipal led aggregationprograms have considered includingnon-municipal customers in theirprograms. The benefits of includingnon-municipal participants include:

• the possibility of receiving a betterprice from an energy serviceprovider due to offering it a largerload;

• the public agency leading theprogram may be able to get amarketing credit (a direct payment ora further price reduction) inrecognition of the marketing costsavoided by the energy serviceprovider; and

• positive community relations for theagency providing a value-addedservice to its constituents above andbeyond what most cities offer.

The drawbacks of including privatecustomers include:

• the difficulty of getting privatecustomers interested;

• any uncertainty in who will actuallyjoin the program may be viewed as


added risk by the energy serviceprovider;

• their electrical load and use maybenon-complementary to the usagepatterns of municipalities in theaggregation and negatively impactprice offerings; and

• the energy service providers lack ofinterest in smaller customers due toincreased billing and metering costs.

Appendix C provides a summary ofaggregation programs that have beencreated in the state. Your agency maymeet the qualification requirements forjoining one of them. Even if you donot, the programs can certainly offer youadvice on how to most effectively set upyour own program.

The California Department of GeneralServices (DGS) provides a number ofaggregated purchasing services for stateand other public agencies. Becausethere might be savings from purchasingenergy for numerous facilities under asingle contract purchase, the Departmentof General Services created anaggregation program for governmentalentities. The case study on page 16describes the program.

4. M U N I C I P A L I Z A T I O N

Some communities are looking totraditional public takeover ormunicipalization of electric distributionsystems as a means of enhancing theirconstituents access to competitive powerservices in the restructured market. Anumber of existing municipal electricutilities have demonstrated that they canprovide competitive prices for energy

services in addition to the commodityservice. The primary reason formunicipalization is to take advantage ofadditional ways to reduce the cost ofenergy services.

Municipalization can be a majorendeavor. There have been very fewinstances in which the existing utilityservice company has been receptive to apublic takeover of their existing businessand/or customers. And, the cost to thepublic agency could be significant.

There are two approaches typicallyconsidered by an entity wanting to createa municipal electric system. The first isforming a municipal service functionwithin the existing municipalorganization. The second is to form anew (or use the unexercised rights of anexisting) special district such as aMunicipal Utility District, Public UtilityDistrict, or Irrigation District, which isgoverned by an independent and locallyelected Board of Directors. In eithercase, the new municipal entity willacquire, own, and operate the electricdistribution system and thus provide allof the services of a traditional electricutility.

There are a number of both such entitiesthroughout California and there are newentities that have been recently created.All of these entities recognize the needto offer electric services at prices belowthose offered by their customer’s currentutilities. The use of a municipal serviceorganization is also a way for a localgovernment to influence theircommunities commitment to specificrenewable energy sources.


CASE STUDY

CALIFORNIA DEPARTMENT OF GENERAL SERVICES (DGS)

The objective of the DGS Electricity Services Program is to enable public sectorcustomers to participate in the new competitive electricity market. The goal is to reducecustomers’ operational costs for electrical energy below the customer’s default utilityservice provider. DGS also envisions opportunities to integrate commodity energysupply, new energy production and end use technologies, and enhance information onenergy usage patterns, to provide customers with economical energy services.

BackgroundIn November 1997, potential suppliers were invited to submit standardized bids for bothbundled electrical services (electricity, schedule coordination, and revenue cycleservices) and individual unbundled services under a three-year Master ServicesAgreement. In addition, suppliers were invited to submit offers for additional electricityservices.

Status of the ProgramDGS has amended the Master Services Agreement to open the “pool” of suppliers tonew entrants. Several rounds of price quotations have been requested from suppliersas market conditions have evolved. However, no service orders for direct access tocustomer meters have yet been finalized with any of the energy service providers listedon the Master Services Agreement. DGS continues to review customer loads foreconomic opportunities in the direct access market and to negotiate with its suppliers toensure verifiable customer savings from any direct access contracts.

Are Objectives Being Met?To date, energy service providers’ response to direct access has been disappointing. InDGS’ estimation, this is the result of several factors, including high transaction costs,disincentives resulting from the way continuing traditional utility service costs areseparated from their bundled rates, and uncertainties surrounding the business rules forthe new market. DGS anticipates that the market may achieve greater depth andstability after the end of the rate freeze, when the post-transition ratemaking environmentis more stable.

For more information on the DGS program, call (916) 322-8808.


Examples of recently establishedmunicipal entities include MercedIrrigation District and San JoaquinIrrigation District. Merced IrrigationDistrict began providing retail electricdelivery services in May 1996. SouthSan Joaquin Irrigation District isanticipating it will be able to beginserving retail customers sometime in2000.

A public agency wishing to form its ownmunicipal electric system should consultwith its County Local Agency FormationCommission.

Creation of a new electric service utilityfrequently involves the "condemnation"or forced sale of a portion of the existingutility’s electric distribution facilities.This process is often politically andfinancially challenging to the publicagency.

The experience of the Trinity CountyPublic Utility District within Pacific Gasand Electric Company’s (PG&E) servicearea is an example of a local entityhaving difficulties, but eventuallysucceeding in acquiring local electricfacilities for the formation of amunicipal system. The community ofHayfork, located in Trinity County,wanted to form its own municipalsystem and began the condemnationprocess of the PG&E facilities in itsarea. The condemnation results wereappealed by PG&E in court before thefacilities were finally acquired by the

city and eventually became part of theTrinity County Public Utility District.In Calaveras County, a referendum onwhether to form a municipal electricutility was defeated. However, the costsof pursuing the concept were borne bythe local entities promoting the effort.

The case study on page 18, describes amore recent municipalization effort inDavis, California.

Another way to form a new municipalservice entity is by the incrementalestablishment of the electricity deliverysystem infrastructure. In this approach,there is no need to acquire facilities fromthe existing utility. Rather, the newmunicipal provider builds the newfacilities necessary to serve newcustomers and/or developments. In sodoing, it is possible that some customersof the existing supplier will want to“switch” if the new facilities are locatedin such a way that this can be doneeconomically.

There are circumstances wheresignificant savings may be created byconstructing new energy distributionfacilities to serve multiple customers. Inthese cases, the new entity must simplyhave the authority to provide retailelectric services in the State ofCalifornia. Since private corporationsdo not have that authority (unless theybecome a regulated utility), thedistribution facilities must be owned bya municipal entity with authority to sellelectric retail power.


Case Study – City of Davis Municipalization Effort

In an effort to lower utility costs and focus on alternative and renewable energy, a grass-roots Davis organization, the Sustainable Utility Network Cooperative Inc. (Sun Co-op),began the process of creating the Davis Municipal Utilities District.

Municipalization options include:4 Act as a negotiator and secure lower rates for the customers of Davis by bulk

purchase of energy and services;4 Join with Sacramento Municipal Utility District; or4 Become a full service utility provider.

StatusThe first step is getting the proposition on the ballot. The ballot measure would askvoters to establish a specified geographic district and a board of directors. The Sun Co-op submitted to the Local Agency Formation Commission (LAFCO) the 889 pages ofsignatures totaling 4,024, in addition to the required application. InJuly 2000, due to a lack of information regarding a plan and fiscal analysis, LAFCOrejected Sun Co-op’s request to put the municipalization proposition on the November2000, ballot.

Lessons LearnedForming your own utility district is extremely difficult. One great challenge is the lack ofreliable information from any one source regarding legal guidance on themunicipalization process. For example, more than 4,000 signatures were collected toplace the measure on the ballot. It was understood that 10 percent of registered votersignatures (about 4,000 for Davis) were needed to qualify. However, it was later learnedthat, in fact, only 1,900 signatures were needed (only 10 percent of the number ofpeople who voted in the last election, not including absentee voters).

To create a Davis Municipal Utility District, it will require the mobilization of people tosupport the idea of local control and a good economic study supporting fiscal soundnessof the plan.

For more information write Dennis Dingemans, Coalition for Local Power, 645 C St,Davis, CA 95616.


The owner of the facilities then takesresponsibility for providing powerdelivery services to each of its customersat rates that are competitive with thelocal utility’s transmission anddistribution rates. This is a viable optionin developing areas where much of theutility infrastructure is installed by thedeveloper. If the new area can be servedwithout the use of the local utility’stransmission lines, additional costsavings may be possible. The MountainHouse community developmentnorthwest of Tracy is an example of anew development that is promoting this“incremental” concept.

The formation of new municipal serviceentities is governed by applicablesections of California laws. There aremany pros and cons to each of thepotentially available options. As such,anyone considering such a move will bewell served by obtaining appropriatetechnical and legal advice at an earlystage.

B. PRICING OPTIONS

The cost of electricity depends mainlyon how much you use and when you useit. In existing regulated rates, demandcharges and time-of-use differentialshave a major effect on total cost. Smallcustomers don’t usually pay demand ortime-of-use charges, but pay a higherunit cost than large customers. In thissection we will start by looking atexisting rates. We will explain typicalrates for both small and large customers.Then we will look at other pricingstructures offered by competitive energyservice providers.

1. E X I S T I N G R E G U L A T E D R A T E S T R U C T U R E

Your electric bill is comprised of severalcomponents as discussed in Supplement1. Direct access, however, is focusedprimarily on the commodity orgeneration component of the bill. Inyour current bill, this charge iscalculated based upon the size of yourload and your rate class.

For smaller customers, the bill isgenerally calculated by multiplying anaverage cost for electricity times theamount of electricity used during thebilling period. The cost is independentof when you use the electricity. Thisaverage cost includes the cost ofproducing the energy.

For larger customers, the generationcomponent is calculated as the sum of ademand charge and an energy charge.Both the demand and energy charge aretime and season dependent. Typicallythe highest charges will occur in thesummer between 12 noon and 6 p.m.The demand charge is intended to be areflection of the cost of building ageneration facility to meet your needs.For the large customer, the energycharge is much less than for smallcustomers. This is because for smallcustomers, the cost of building thegenerating facilities is included in theenergy price, whereas large customerspay a separate charge.

2. N E W R A T E O P T I O N S

In the direct access markets, electricitycosts are calculated differently and thereis often only a generation componentthat includes both the commodity anddemand charges. The following are themain pricing options.


(1) F ixed Pric ing

This price structure offers the customer afixed, known price for the electriccommodity. It offers the least exposureto price volatility, although that reducedrisk is usually reflected in a higher price.The electricity provider accepts the riskassociated with the commodity pricevolatility during the period of thecontract. This may be an attractiveoption for customers with a low risktolerance, fixed budget constraints, orlimited flexibility to respond to priceswings.

(2 ) Indexed (Var iab le ) Pr i c ing

This structure links the price of thecommodity to an agreed upon marketindex such as the PX market clearingprice. Due to exposure to market pricingvolatility, this option can be more riskyif you do not have the ability to shiftyour load or curtail your use during highpriced peak usage periods. This optionis particularly attractive to customerswho can shift energy consumption totake advantage of low off-peak priceswhile avoiding high price spikes duringpeak periods. However, there is a riskunder this scenario, especially if youcan’t shift or reduce load during periodsof high price spikes. For publicagencies, with a set energy budget, thiscould be a problem. If you choose thisoption be reasonably confident that youragency can risk exposure to electricityprice volatility during your contactperiod.

At the end of the utility transitionperiods, customers not choosing directaccess will be subject to the pricevolatility of the supplies purchased byutilities on behalf of their customers,including the portion of supply from the

PX. Though this price volatility may bemasked by the utility offering balancedpayment plans or similar programs, thereis usually a subsequent calculation thatresults in the entire price risk beingborne by the customer.

(3) Port fo l io Pric ing

Portfolio pricing allows you to design aspecific program with your supplier thathas price volatility generally linked tospecific resources. This approach willtend to mitigate, though not eliminate,price volatility. It requires that thesupplier thoroughly understand yourelectricity use patterns so that their risksare minimized. If a supplier perceives alow risk of offering a lower price, hewill generally do so. However, in manycases, it may be that the risk is simplybeing transferred to the energyconsumer, for example through penaltyclauses, if certain requirements are notmet.

Despite how any pricing plan isstructured, you must realize thatprotection from volatility has a price andexposure to volatility has risks.

C. METERING AND BILLINGOPTIONS

Metering and billing services are nowunbundled, meaning you don’t have toaccept services offered only by yourtraditional utility company. At thecurrent time, you are restricted to receivethese services from your energy serviceprovider or its agent. If you do chooseto receive offers for metering andbilling, make sure the cost for theseservices are clearly separate from theenergy cost. Unbundling the electricity


commodity from other provider servicescan be key to avoiding confusing andcomplex offers.

1. M E T E R I N G

If you choose a new supplier, you mayneed to install a new interval meterbefore receiving your electricity service.If you need to install a new meter thereare three ownership options:

• Customer owned – You can purchasea meter from the local utility, energyservice provider or other companyoffering CPUC approved intervalmeters. Prices range from $400 to$1,500 including installation costs.

• Energy service provider owned –Many energy service providersinclude a meter leasing optionbundled with the electric commodityservice. Monthly leases can beanywhere from zero to $40 permonth.

• Utility owned – You can lease autility-owned meter, paying amonthly fee for the installation andthe cost of the meter. The fee willdepend on the type of meter andcontract length.

For governmental and small consumers,the trend to date has been for the serviceprovider to take care of the installation,ownership, and servicing of any requirednew meters. The customer has beenresponsible for a lease payment that isnegotiated as part of the service contract.In many cases, the customer hasobtained the right to own the meter at theend of the contract, or they will have an

option to buy the meter at a pre-determined price. However, be aware ofthe possibility that any meters installednow may become obsolete in only a fewyears as new metering technology, withexpanded data access capabilities,becomes available. Also, meter-readingcapabilities vary with the energy serviceprovider or your electric utility. Somepublic agencies that went back to theirlocal utility found that the energy serviceprovider supplied meters that were notcompatible with the electric utility meterreading equipment. As a result, somepublic agencies had to buy new“interval” meters again.

Interval meter installation has been oneof the more problematic aspects of directaccess for some public agencies.Remote locations and installationscheduling problems have sometimescaused this step to take longer thananticipated. If you need new metersinstalled, take a proactive role early inthe installation process to keep theschedule on track and ensure that theinstalled meters can be read by yourutility in the event that you go back tothem in the future.

2. B I L L I N G

There are a number of billing optionsavailable. You can receive either oneconsolidated bill or separate utility andenergy service provider bills. If youchoose a consolidated bill, it will includecharges for the competitive commodityas well as regulated delivery services.You can decide which entity will sendyou the bill. If you are participating inan aggregation program, you maychoose to customize your bill from theenergy service provider. For example,you may choose to receive one summary


bill for your entire program with aspecified level of detail for individualparticipants.

Some direct access customers haveachieved substantial savings throughcustomizing billing services that reducedinternal processing expenses. In onecase, these savings exceeded theirelectricity cost savings.

For many of the aggregation programs,there is continued reliance on theexisting utility provider to supplyconsolidated billing. This optioneliminates the need to set up complicateddata management and customer billingsystems by the new provider, thusallowing focus to be on the provision ofcompetitive commodity services. It islikely that competitive providers willdevelop their own billing systemcapabilities as the market continues todevelop.

D. BUYING GREEN ORRENEWABLE ELECTRICITY

You may be asking yourself, “Whatexactly is green power?” Generallyspeaking, it is electricity generated fromresources that do not run out, or arequickly renewed through naturalprocesses. These sources includegeothermal power, solar power, biomass,wind, and small hydroelectric generationfacilities.

Green power, or renewable electricity,has proven to be a popular option forresidential, municipal, and commercialcustomers in the new competitiveelectricity market. The Center forResource Solutions estimates that about90% of customers who have switched to

a competitive supplier are receivinggreen power. While the majority areresidential customers, some high profilecustomers in the state, like the City ofSanta Monica, City of Oakland, andToyota Motor Sales USA Inc., havedecided to meet their electricity needs bybuying green power.

A customer who purchases renewable orgreen power from a supplier may notactually receive electricity from a greenpower plant. What actually happens isthe green supplier agrees to purchasepower in the amounts and proportionscorresponding to the loads of thecustomers they serve, and they ensurethat amount of renewable power issupplied into the state electric powergrid.

How do I know I’m actually gettinggreen power?Both the California Energy Commissionand the Center for Resource Solutionshave programs that green powersuppliers may use to document howmuch of their mix is renewable-based.

The California Energy Commissionrequires a “Power Content Label” fromany supplier that claims that a portion oftheir supply is renewable energy based.The label, an example of which is shownin Figure III-1, shows the percentage ofelectricity from each source that theprovider feeds into the grid for youraccounts. You should request the labelfrom each electricity provider you wantto consider.

Figure III-1

POWER CONTENT LABEL


ENERGYRESOURCES

PRODUCT

NAME*

(projected)

1998 CA POWERMIX**

(for comparison)

Eligible Renewable 55% 11%

- Biomass & waste - 2%

- Geothermal - 5%

- Small hydroelectric - 2%

- Solar - <1%

- Wind 1%

Coal 10% 20%

Large Hydroelectric 11% 22%

Natural Gas 16% 31%

Nuclear 8% 16%

Other <1% <1%

TOTAL 100% 100%*50% of (Product Name) is specifically purchased from individualsuppliers.

**Percentages are estimated annually by the California EnergyCommission based on the electricity sold to California consumers duringthe previous year.

For specific information about this electricity product, contract (CompanyName). For gereral information about the Power Content Label, contactthe California Energy Commission at 1-800-555-7794 orwww.energy.ca.gov/consumer

The Center for Resource Solutions’“Green-e” certification program requiressuppliers to have at least 50% of theelectricity supply from renewableresources. Any non-renewable part ofthe product must have lower airemissions than the traditional mix ofelectricity from the utility. For moredetails consult the Center’s website athttp://www.green-e.org/index.html.

There are currently over a dozencompetitive suppliers offering greenpower with varying degrees ofrenewable electricity in their supplymixes. The Center for ResourceSolutions and the California EnergyCommission have information onsuppliers and their offerings on theirwebsites. See Appendix A for websiteinformation.

What are the benefits of buying greenpower?The main benefit of renewable power isit lessens pollution and otherenvironmental impacts resulting frompower generation.

Cities and public agencies buying greenpower can also enjoy the positive publicrelations aspects of “going green.”Taking this step can result in positivepublicity, as the city/agency will be seenas a progressive, caring member of thecommunity. For entities that want todemonstrate their commitment toenvironmentally friendly policies, this isa proactive and demonstrable action forconsideration.

What are the drawbacks?Although a few suppliers may haveoriginally offered renewable power at orbelow market rates, the main drawbackof buying renewable power is that it isgenerally more expensive than thecurrent power included in your electricbills. Typical residential customers maypay on the order of $10 more per monthfor green power. Offers will likely bemore expensive if you require newrenewable generating sources, such aswindmills, to be used or constructed byyour supplier.

To support the renewable energy market,the California Energy Commissionoffers a consumer credit to customerswho purchase green power. The creditsare part of the State’s RenewableResource Trust Fund which is made upof monies collected from ratepayers ofthe three large California utilities. Indealing with a supplier, you need to be


sure and ask whether these credits arealready considered in prices offered forrenewable power.

The Customer Credit is distributed on acent-per-kilowatt-hour basis to providersthat deliver power from registered in-state renewable supplies. The creditamount is periodically reviewed by theCalifornia Energy Commission todetermine whether there are adequatefunds to sustain it through the transitionperiod. The credit was initially set at 1.5cents per kilowatt-hour, with an annualcap of $1,000 per meter. For residentialand small commercials there is no yearlycap. In November 1999, the amount wasreduced to 1.25 cents per kilowatt-hour,with the cap remaining unchanged. Andagain in July 2000, the credit was furtherreduced to 1 cent per kilowatt-hour.This rate is effective from July 1, 2000through December 31, 2000. Near theend of 2000, the Energy Commissionwill re-evaluate the credit level (andchange it if necessary) for the periodfrom January 2001 to June 2001. Theprocess will be repeated in the spring of2001 to set the credit level for July toDecember 2001.

One important new developmentconcerning the existing consumer creditlaw specifically effects public agencies.As of August 2000, pending legislation,(AB 995), prohibits public agencies frombeing eligible to receive renewableconsumer credits after January 1, 2002.After this date, cities, counties and otherpublic agencies purchasing green powerwill no longer be eligible to receive thiscredit.

The City of Santa Monica is the first cityin the United States to purchase 100%renewable energy for its own facilities.Santa Monica has also been a leader intaking advantage of the CaliforniaEnergy Commission’s EmergingRenewable Resources buydown programas it has installed photovoltaic powersources to help meet City requirements.

The case study on page 25, describes theprocess the City went through to procuregreen power supplies to support theCity’s overall environmental plan.


Green Power Case Study – The City of Santa Monica

Santa Monica’s objective was to purchase power from renewable resources for City-owned facilities as part of its larger Sustainable City Program. The City also wanted toconduct an outreach program to determine the level of interest of the City’s variousconstituents in joining the renewable procurement program.The City hoped its efforts would support emissions reductions and renewable generationsources in California.

BackgroundIn November 1998, the City prepared an RFQ/RFP to request energy supplies forapproximately five megawatts needed for City owned facilities and any potentialadditional load of the City’s non-municipal customers. In mid December, the Cityreceived responses from 13 suppliers. The City reviewed each offer’s generationsource, pricing, structure, and the overall background of the supplier. (Refer to AppendixG for a copy of the RFQ/RFP).

ResultsAfter an extensive interview and evaluation process, the City contracted withCommonwealth Energy Corporation for renewable power supplies. The contract is forone year and the City has the option to renew for four additional years. The City has justcompleted their first year contract and has renewed with Commonwealth for a secondyear. The California Energy Commission credit has allowed the City to enjoy favorableterms on its renewable energy expenditures.The City conducted an outreach program and decided not to attempt to include non-municipal load in its program. Instead, they will act as an information source for anyconstituent who wants assistance in taking advantage of electric restructuring andpurchasing green power.

Are Objectives Being Met?The City is pleased with its green power procurement process and the results achievedwith its supplier. By taking a proactive attitude and having clear and realisticexpectations, the City has found a way to support its Sustainable City Program whilecontrolling its electricity budget.

For more information on the City of Santa Monica’s efforts, contact Susan Munves at :(310) 458-8229 or [email protected].


E. ENERGY EFFICIENCY ANDENERGY MANAGEMENT

While potential significant savings froma restructured energy market may at thistime be less than originally anticipated,public agencies may be able to enjoysavings sooner through reducing energyuse especially during peak hours andincreasing efficiency. The key factor toconsider in determining whether toinvest in conservation and efficiency isthe payback period for the cost ofinvestment. Many investments pay forthemselves in two to three years.Because of the volatility of therestructured energy market at this time,it may be possible to save more moneynow, as well as in the long run, byinvesting in energy efficiency. This maybe more cost effective than purchasingpower from a third party provider.

Energy efficiency and load managementare two critical areas to reducing yourenergy costs. Initially, restructuringfocused on how much an energy usercould save on the price of electricity.However, as more users switch to directaccess, it is apparent that the customer’sability to save on energy costs is basedless on the price and more on how youuse and manage your consumption.Reducing energy costs can not beachieved by any single approach.

1. E N E R G Y E F F I C I E N C Y

Energy efficiency and energymanagement options focus on allowingyou to use less energy by being moreefficient or by using energy at timeswhen it costs less. In consideringwhether to procure competitive energysupply services, you should alsoconsider ways to change or reduce your

energy requirements. Some energyservice providers may be willing to offerthese services in addition to energysupplies. However, when bundling theseservices together into one proposal,complex and confusing issues are addedto the procurement process, especially indetermining which offer is the mostbeneficial.

Energy efficiency includes bothimproving operating practices andreplacing inefficient equipment. Thesestrategies cut your entire energy bill, notjust generation and billing costs. Manyconsumers have achieved savings of20% or more. Some energy efficiencyimprovements are low cost, and can payfor themselves within a few years. Mostenergy efficiency measures in buildingsalso improve employee comfort andproductivity, and increase the value ofyour facilities.

Many local agencies have used energyprograms to assist with the installation ofnew equipment. Incentive programs thatpromote high efficient equipment help tofurther reduce the effective cost ofenergy efficiency investments. Loansand municipal financing are availablewith repayment schedules to match thesavings created by the new equipmentinstallation.


Examples of energy efficiencyimprovements include:

• Install automated devices that turnoff lights and equipment whenbuildings are unoccupied.

• Optimize operating schedules forhigh energy use equipment.

• Convert existing lighting fixtures tomore energy efficient lighting.

• Convert constant volume airhandling systems to variable airvolume systems.

• Incorporate natural lighting coupledwith lighting controls to provideillumination where possible.

• Install variable speed drives forelectric motor loads.

• Require energy efficient lighting andheating, ventilation, and airconditioning (HVAC) systems thatexceed the Title 24 standards for newconstruction and replacementprojects.

• Retrofit or replace old inefficientequipment or processes with newenergy efficient ones.

• Evaluate efficiency of water pumpsand motors. Replace with moreefficient equipment as needed.

If you are interested in pursuing energymanagement and energy retrofits, youcan refer to the California EnergyCommission’s energy efficiency website listed in Appendix A or obtaincopies of the following handbooks. SeeAppendix A for ordering information.

• How to Hire a Construction Managerfor Your Energy Efficiency Projects(400-00-001E);

• How to Hire an Energy ServicesCompany (400-00-001D);

• How to Hire and Energy Auditor toIdentify Energy Efficiency Projects(400-00-001C);

• How to Finance Energy EfficiencyProjects (400-00-001A); and

• Energy Accounting: A Key Tool toManaging Energy Costs (400-00-001B).

Before energy industry restructuring, theCPUC required utilities to providerebates and run other energy efficiencyprograms. Some utilities continue tohave incentive programs that can helppay for energy efficiency measures.California’s restructuring legislation,AB1890, mandates the continuance ofthese programs ($220 million per year)through the end of 2001. Recentlegislation was passed to extend theseprograms to 2011.

If you are interested in initiating anenergy efficiency program, talk withother agencies that have previouslyundertaken such efforts. Though yourexperiences and needs will differ, thereare important lessons that can be learnedfrom networking with other entities withsimilar interests and concerns.

One such entity is Riverside Countywhose experience is recounted in thecase study on the following page.


Energy Efficiency Case Study

Riverside County

The objective was to implement energy saving projects that would reduce theCounty’s energy cost while improving buildings operations and appearance. Theenergy savings from the projects had to pay for the projects.

BackgroundThe County was interested in finding ways to reduce its energy costs and modernizeits 30-year-old buildings. In 1995, the Energy Commission’s Energy PartnershipProgram audited three buildings and identified energy saving lighting and heating,ventilating, and air conditioning projects that would reduce the County’s energy costby 40 percent. In 1997 the County entered into a performance contract with SiebeEnvironmental Controls, now known as Invensys Building Systems, to identify andimplement energy saving projects in 29 county buildings. Approximately $8.8 millionin projects were identified. These included adding a thermal energy storage system,installing energy efficient fluorescent lighting, retrofitting HVAC components andupdating building control systems. These large, quicker payback projects allowed thecounty to fund other infrastructure improvement projects, such as the installation ofenergy efficient windows and a roof. The performance contract guarantees that theenergy cost savings will meet the project debt service.

Project ResultsThe County is now achieving savings through reduced monthly utility bills. Theenergy efficiency measures have resulted in reductions to the County’s cost ofenergy services. The annual savings from the projects are estimated to be $976,000.

Lessons LearnedThe most important lesson learned was to take a proactive role in overseeingprojects and working with contractors. This will keep minor problems from becominglarger ones.

ContactFor more information contact Bud Fish, Assistant Director, Department of BuildingServices, Riverside CountyTelephone: 909-955-4800Fax: 909-955-4828


2. M A N A G I N G E N E R G Y U S A G E

Since the energy you use during peakperiods is more expensive, it makessense to shift energy usage to off peaktimes whenever possible. One effectivestrategy could include the use of controlsto regulate or shift energy use.Examples include use of thermal energystorage to shift all or part of a building’sair conditioning requirements from peakto off-peak hours, or installation of ahybrid gas/electric cooling system.However, these alternate strategies arecostly and a detailed feasibility study isneeded to verify the costs and benefits.

3. C H O O S E T H E B E S T R A T E S C H E D U L E

If you decide to continue with yourutility, investigate the utility rateschedules that are applicable to yourfacilities. Consolidating your accountsinto a single account or meter couldresult in cheaper prices on a highervolume rate. Consolidation combinedwith owning a transformer or substationmay qualify you for even lower costhigher voltage service rates. Theseoptions need to be closely evaluated.

Although utilities are required to offeryou service under any applicable tariffs,they may not always identify the lowestcost services. Obtaining the services of

a commercial rate analyst may provideyou with a more complete review ofyour rate options, including thefeasibility of account consolidations andtransformer ownership. The analysis canalso help you understand options theutilities do not offer directly.

4. O N S I T E O R D I S T R I B U T E D G E N E R A T I O N

Distributed generation generally refers toany form of electric generation that issmaller in size than a traditional centralstation power plant. These can includenatural gas-fired cogeneration,microturbines, photovoltaics, windmills,and other types of energy generation.These facilities are sited on a customer’spremise or near the customer load.Traditionally, it has been used to serveprimarily a single customer but there areapplications where distributedgeneration has served many customers.Customers can use distributed generationtechnologies to support, or in some casesreplace, generation received from autility or energy service provider. TheCPUC is currently conducting a majorrulemaking proceeding on distributedgeneration interconnection rules, standbyrate design, utility ownership options,and other factors that may influence thecost/benefit of distributed generationinstallation.

Section III �Your Electricity Choices Page 30

Section IV � Competitive Power Procurement Page 31

Sect

ion

IV

IV. COMPETITIVE POWER PROCUREMENT

After completing the analysis todetermine if direct access is right foryour organization, a "go" or "no-go"decision must be made. If direct accessis right for you, than the competitivepower procurement is the next step.

There are a number of steps to follow inorder to gain the most benefit from yourefforts. This chapter provides you with achronological “checklist” of activitiesduring the energy procurement process.A summary of these items and anestimated time line is shown in FigureIV-1.

A. THE REQUEST FORPROPOSAL/REQUEST FORQUALIFICATIONS PROCESS

The Request for Proposal/Request forQualifications (RFP/RFQ) process lookschallenging, but with a dedicated effortfrom start to finish, things should flowwell. Following the steps in this sectionshould allow your agency to manage theprocess effectively.

1. I D E N T I F Y I N G Q U A L I F I E D V E N D O R S

To identify qualified vendors, check theCalifornia Public Utilities Commission(CPUC) website for registered energyservice providers. See Appendix A forwebsite information. Contact otherpublic agencies that have already gonethrough the process; their insights andexperiences can be invaluable. A list ofpotential contacts can be found inAppendix G.

2. T I M I N G O F S O L I C A T I O N P R O C E S S

The timing of the procurement processcan impact price expectations of both thesupplier and the consumer. Forexample, releasing an RFP/RFQ in thespring and negotiating a contract justbefore the summer months could resultin high electricity price offers.However, releasing an RFP/RFQ in thefall and negotiating prices in the wintercould result in lower electricity priceoffers.

3. D R A F T I N G T H E R F P / R F Q

The usage information you havecompiled will help you develop acomprehensive RFP/RFQ withinformation necessary for bidders tomake their best possible offers. As partof the RFP, you will want to solicitinformation that allows you to determinethe qualifications of each bidder, and thelevel of quality and performanceexpected.

If you are just testing the market or feelyou have the time, a separate Request forQualifications (RFQ) can be done priorto asking for formal proposals. Whetheryou request the qualifications andproposal separately or together, just besure the request clearly communicateswhat you are requiring in the responses.

Key components of a comprehensiveRFP include:

• a description of the public agency orlocal government group;


Figure IV-1 Outline of RFP process

Activity EstimatedTimeframe

Drafting The RFP/RFQ Week 1-12

Identifying Qualified Vendors and

Publicizing the Solicitation

Week 13-14

Release the RFP/RFQ Week 15

Obtaining Notice of Intent to Respond Week 17

Holding a Pre-Proposal Conference Week 18

Proposer Responses Due Week 20

Evaluating Responses Week 21 - 24

Requesting Additional Information Week 22

Notifying Short Listed Proposers Week 23

Preparing and Conducting the Interviews Week 24

Selecting a Vendor Week 25

* Negotiating a Contract Week 25-33

Drafting a Contract Week 34-39

∗ The time shown here is the typical time it takes to negotiate a contract with acceptable terms,conditions, and price and have it approved by your board/council. However, most fixed pricedofferings are only good for a short time, typically 1-5 days. Your agency must be able to decide in thistime frame or forgo the fixed price offer.


• the objectives and expectations ofthe program;

• an outline of the solicitation processand schedule;

• a description of your usage amounts

and patterns;

• the scope of services being requested(both required and optional);

• a response format;

• agency requirements (legal, contractlanguage regarding insurance andindemnification, bonding, etc.).Include a clear identification ofrequirements that are non-negotiable;and

• the evaluation criteria you will use indetermining qualified bidders andselecting winning proposals (give asmuch guidance as possible butrecognize there is judgement in theprocess).

For your reference, a sample RFP/RFQis included in Appendix F.

4. P U B L I C I Z I N G T H E S O L I C I T A T I O N

The RFP should be sent to all suppliersthat have been active in the market, anysupplier registered with the CPUC, andothers identified in item one of thissection. A certain amount of pre-marketing is always important to ensurethe document is going to the right person

and that it will receive seriousconsideration.

It is important to note that only thosesuppliers serving residential and smallcommercial customers are required toregister with the CPUC. Therefore, notall energy service providers areregistered.

5. O B T A I N I N G N O T I C E O F I N T E N T T O

R E S P O N D

Requesting a notice of intent to respondis optional; however, it can help youragency gauge the expected level ofresponse and give you time to make anynecessary adjustments in the process.

6. H O L D I N G A P R E - P R O P O S A L C O N F E R E N C E

A pre-proposal conference is a great wayto further communicate your agency’sspecific needs, gauge the interest level inyour bid, and answer potential bidder’squestions about the RFP. Though thiswill add time to your procurementprocess, the value in getting better bidsis usually well worth the extra time.

Experience has shown the effectivenessof pre-proposal conferences can beimproved if the suppliers submit theirquestions beforehand. This allows youtime to prepare useful responses for themeeting. It is highly recommended thatyou record the meeting and prepare atranscript that summarizes all thequestions and responses. Your agencyshould distribute all information to allwho received a copy of the RFP/RFQ.This ensures a level playing field for allsuppliers and helps ensure responsiveproposals.


7. C O L L E C T I N G R E S P O N S E S

It is recommended that potentialsuppliers be allowed four to six weeks torespond to an RFP. If a pre-proposalmeeting is held, the deadline forsubmitting proposals should be at leasttwo weeks later.

8. E V A L U A T I N G R E S P O N S E S

Evaluating responses may be one of themost difficult aspects of the entireprocurement process. This will be thefirst time your agency will get a clearidea of whether or not your objectivescan and will be met.

Public agencies that have gone throughthis process before say that in general,proposals are not as responsive as othertypes of procurement efforts. Becausethe electricity market is in its earlystages, many suppliers are trying toestablish their role and understand howthey can provide unique value-addedservices in responding to competitiveenergy service solicitations. Also, somesuppliers seem to have standardresponses to all RFPs, resulting in anoffer that is not tailored to your agency’sparticular needs.

All agencies should expect to receiveresponses that at first glance are noteasily comparable to each other (thoughuse of a form as shown in the sampleRFP will help). They will have differentpricing structures, offerings, andtimeframes. It will be necessary totranslate each offering in a format thatwill allow side-by-side comparison. Atthat point, a true evaluation of theproposals can begin.

Some of the major points to examineinclude:

• commodity costs;

• metering costs;

• billing costs;

• renewable generation credits;

• guarantees on total cost savings;

• contract timeframes; and

• other value added energy services.

This initial evaluation process isdesigned to screen out those responsesthat do not meet your objectives and donot warrant additional consideration.

9. R E Q U E S T I N G A D D I T I O N A L I N F O R M A T I O N

Your evaluation process will likelyproduce additional questions for someenergy service providers. Any supplierthat is serious about your program willbe responsive to your request. Allrequests for additional informationshould be in writing and all responsesfrom suppliers should be in writing.Give the supplier a week to ten days torespond to questions.

10. N O T I F Y I N G S H O R T L I S T E D P R O P O S E R S

Once the evaluation of the responses iscomplete, you can then interview thebest potential suppliers in person.Create a “shortlist” of the two to fourbest respondents that could truly meetthe objectives of your program.

You should also notify those firms thatwere not “short-listed.” They should bethanked for contributing to your processand encouraged to participate in futureRFPs.


11. P R E P A R I N G F O R T H E I N T E R V I E W S

Before the interviews are conducteddetermine exactly what information youwant from the interviews. Specificquestions should be prepared based onthe RFP responses. Make sure yourpriority issues are addressed and that allkey individuals in your agency areinvolved in preparing the interviewquestions.

12. C O N D U C T I N G T H E I N T E R V I E W S

Plan on each interview taking about oneto two hours, and everyone involved inthe decision-making process shouldattend.

In the course of the interviews, you mayreceive “new offers” from the potentialenergy service provider. This willfrequently be the result of understandingyour most important criteria moreclearly. For example, the energy serviceprovider may be including a service orrisk mitigation measure that is of nointerest to you. By removing that fromthe proposal, the cost should go down. Itis important for you to determine, priorto the interview, how you will considersuch modifications or clarifications.You should request that any “newoffers” or “cost saving options”mentioned at the interview be put inwriting if they are going to beconsidered in the final decision.

B. SELECTING A VENDOR(S)

Now that your agency’s objectives andexpectations are clearly defined, you’vecompleted a thorough evaluationprocess, and met with potentialsuppliers, the final selection of a vendorshould be a fairly straightforwardprocess. However, going through theprocurement process is not a guarantee

that your savings objectives will be metor that you will be best served byaccepting one of the proposals.

C. NEGOTIATING TIPS

Once you select a supplier, you need tonegotiate the final details of theagreement. The negotiation phase iscritical, as it will have a direct bearingon your cost savings and other importantprogram objectives.

Some basic tips to follow whennegotiating with a potential supplierinclude:

• understand your assets as a potentialcustomer (size of load, strategic loadfor market entry, attractive loadprofile, long term potential customer,etc.);

• know each supplier’s target marketsand historical marketing strategies soyou can obtain assurance yourinterest will be a high priority;

• find out what issues are negotiablewith the supplier;

• collect market information onofferings to comparableorganizations; and

• identify areas where yourorganization has flexibility (term,qualifications, price, etc.)

One problem faced by public agencies isthe ability to give quick approval onprice bids and offers to suppliers.Electricity prices are constantly


changing and suppliers cannot hold theiroffers open for 30-60 days like othercommodities. The typical “holdingperiod” for most offers might be just 1-5days. Your agency must be able torespond within this period. Someagencies have tried to expedite theapproval process within their agenciesby obtaining advance approval to enterinto a contract with a specific fixed pricedetermined in advance.

D. DRAFTING THE CONTRACT

Drafting the contract is a fairly specificprocess that will likely involve legalstaff from both your agency and thesupplier. Great care should be taken toeliminate any ambiguities. Thosesections that should be clearly definedand stated include:

• services to be performed by thesupplier – commodity, energymanagement, billing, etc.;

• pricing information, includingguaranteed savings, incrementalsavings, price calculation,responsibility for obtaining andproviding renewable credits, andresponsible party for load imbalancesand congestion charges;

• scheduling coordination services;

• designation of resource supplies (i.e.,particular renewable resource typessuch as wind, etc.);

• ancillary services;

• meter installation, meter service, andmeter reading – who will pay forthem and when they will be installed;

• who will complete and file the DirectAccess Service Requests (DASRs);

• billing – will either the energyservice providers or utilitydistribution company provideconsolidated bills or will their billsbe separate;

• access to meter data;

• energy quality/reliability;

• contract effective date;

• term of contract;

• guarantees – low price, pricematching, etc.;

• performance bonding requirements;

• permits, licenses, and certifications;

• contacts for routine communication;

• auditing and records inspection;

• default or termination clauses;

• marketing and solicitation uses – useof agency’s name for vendor’spromotional purposes;

• aggregation fees if applicable;

• performance measures andperformance reporting requirementsand identification of conditions, ifany, when performance is excused;

• penalties for nonperformance; and


• standard agency contract clauses -such as indemnification, insurance,assignment, liability, laws, venues,attorney’s fees, and force majeure.

E. MANAGING THE TRANSITIONFROM THE LOCAL UTILITY TOTHE NEW SUPPLIER

There will be a transition period whenthings may be a bit rocky as your metersare switched, the required paperwork issubmitted, and billing issues areresolved. Take a proactive role duringthis period to ensure that the programstays on track and power is deliveredunder the contract as soon as possible.

Despite all of your efforts to maintainthe schedule, there will probably besome unexpected delays. Some publicagencies have experienced lengthydelays with meter installation. Initialbilling rarely goes as smoothly asexpected. As the market matures andsuppliers gain more experience, thesedelays should be significantly reduced.However, any time you are dealing witha new entrant to the market, you shouldexpect some delays especially if youhave a significant number of accountsand requirements for a significantnumber of new meters.

F. VALIDATE THE BENEFITS

It is important to have some way toconfirm that contractual obligations arebeing met. Make sure the supplier sendsa monthly or quarterly update detailingsavings levels, renewable resourcepercentages, etc. This validation will bethe only way to be sure that theobjectives of your program are beingmet. It will also help you decide onpossible contract extensions and future

budgeting requirements. Consider hiringan independent firm to verify savingsrather than relying on the supplier.

G. MONITOR PROJECT RESULTSAND INDUSTRY CHANGES

The final step is continuous monitoringof the programs’ status and the energyindustry conditions. The level ofmonitoring will depend on yourresources, but a small time commitmentcan keep minor concerns from turninginto big problems. Furthermore, ageneral understanding and following ofthe industry may reveal further savingsopportunities as the transition periodends and competitive service optionscontinue to develop.

The San Diego Association ofGovernments (SANDAG) has recentlycompleted the power procurement RFPprocess. Their experience is outlined inthe case study on the following page.


Power Procurement Case Study –

San Diego Association of Governments (SANDAG)

The initial objective of the San Diego Regional Power Pool (Power Pool) was toposition local governments and other public agencies in the San Diego Region totake maximum advantage of the potential cost savings and benefits of electricindustry restructuring. Aggregation, or pooling, had the potential to providesignificant monetary savings on electric energy.

BackgroundThe San Diego Regional Power Pool was formed in June of 1998 under theauspices of SANDAG, the regional planning agency for local governments in SanDiego County. Composed of 84 public agencies including local governments,water and sewer districts, fire districts, school districts, transit authorities, and thePort of San Diego, the San Diego Regional Power Pool encompassesapproximately 5,000 electric accounts with annual energy consumption in excessof 533,000,000 kWh and yearly electric bills in excess of $21 million.

As early as November of 1996, SANDAG began holding meetings andworkshops to educate the agencies on purchasing pooled power, and to analyzethe benefits and drawbacks of aggregating in a deregulated electricity market. InSeptember of 1997, SANDAG and the Ad-hoc committee issued an RFQ/RFP forproviding power and related services, and in May of 1998, CommonwealthEnergy Corporation was chosen as the Energy Service Provider (ESP). Theone-year bilateral contract between Commonwealth and Power Pool memberagencies provided a discount of approximately 2.5% from the market electricityvalue (PX). The contract also provided for four one-year extensions following theoriginal term.

Current StatusThe original one-year contract between Commonwealth and the San DiegoRegional Power Pool ended on June 30, 2000. Commonwealth advised thePower Pool that they could no longer serve the Power Pool under the sameterms and offered to renegotiate new terms of the contract. In March 2000, thePower Pool issued an RFQ/RFP for a new energy services provider.

Between March and June 2000, the Power Pool evaluated several proposals. Ofthe three ESPs interviewed, one was selected to continue negotiations with thePower Pool. However, current volatility in the retail energy market, especially


in San Diego, resulted in the Power Pool reconsidering negotiating a contractduring the summer season. Any further negotiations would be deferred until Fall2000.

Challenges and Lessons LearnedPower Pool members expected to receive offers similar to their original contract(i.e. a discount from the PX). However, none of proposals offered a discount. Afew offered a fixed energy price while others offered energy and risk mitigationservices, but no guaranteed energy price. Discounts from the PX, or guaranteedsavings, are no longer being offered in a region where consumers aresusceptible to the volatility of market prices.

The biggest challenge facing the Power Pool was interval metering. CurrentDirect Access rules require that only the Utility Distribution Company (UDC) canread the meters for bundled-service accounts. It was discovered that SDG&Ecould only read about 300 of the 700 interval meters. Therefore, 400 of the 700meters would have to be changed in order to switch back to UDC bundledservice. Ultimately, SDG&E, the Meter Data Management Agent (MDMA) andCommonwealth negotiated an agreement to retain the meters for up to threemonths, while the Power Pool negotiated a new contract. Because the PowerPool has decided to delay negotiations until Fall 2000, those members electingnot to negotiate a separate contract with an ESP will have to have their intervalmeters changed to a meter that can be read by SDG&E.

In its RFP, the Power Pool requested that bidders provide any additional value-added services such as energy efficiency or bill reporting options. Few proposalsaddressed value-added services in a meaningful manner. Those bidders offeringenergy efficiency would outsource the work to a third-party energy servicescompany. The Power Pool concluded that it would be best to issue a separateRFP requesting energy efficiency services and will be considering suchstrategies in the Fall 2000.

Points of ContactFor more information on the San Diego Regional Power Pool, contact SteveSachs, SANDAG, at (619) 595-5346, or Susie Sides, San Diego Regional EnergyOffice, at (619) 595-5634.


Section V � Natural Gas Procurement Issues Page 41

V. NATURAL GAS PROCUREMENT ISSUES________________________________________________________________________

A. NATURAL GASRESTRUCTURING BACKGROUNDThe restructuring of the natural gasindustry in California preceded stateelectricity restructuring. Prior tochanges in the market, the gas industrywas made up of gas producers, interstatepipeline companies, and localdistribution companies.

Typically, natural gas producers wouldsell gas to the pipeline companies, whichwould then sell and transport it to localdistribution companies, which in turnwould sell the gas to the end usecustomer.

The market structure began to change inthe mid-1970s, becoming morecompetitive. Changes since then haveincluded:

• The 1978 Natural Gas Policy Actrestructured natural gas production toeliminate price controls, resulting inmarket- determined gas prices.

• Order 436 (issued in 1986) by theFederal Energy RegulatoryCommission provided for an openaccess gas transportation program. Italso allowed local distributioncompanies to transport theirindependently procured gas. Thispermitted local distributioncompanies and end-users to purchasecompetitively priced natural gas

supplies and negotiate separately fortransportation of those supplies.

1. H O W I S T H E M A R K E T B E I N G

R E S T R U C T U R E D ?

In 1988, the California Public UtilitiesCommission (CPUC) beganrestructuring the natural gas market inCalifornia. Natural gas customersserved by local distribution companieswere divided into two classes - core andnoncore.

Core customers are defined as thosecustomers consuming less than 250,000therms a year or 20,800 therms permonth. Individual core customerscontinue to receive bundled service fromtheir local distribution company.However, through the CPUC’s CoreAggregation Transportation Program,customers who can aggregate themselvesinto gas volumes of more than 120,000therms per year can procure gas suppliesfrom alternate suppliers on a more orless equal footing with noncorecustomers with gas transported by thelocal distribution company.

Noncore customers use more than20,800 therms per month. Thesecustomers are generally largecommercial or industrial users andwholesale gas suppliers. Noncorecustomers are allowed to procure gassupplies from companies other than thelocal distribution company and have thegas transported by the local distributioncompany.

Sect

ion

V


Most importantly, noncore customers arenot guaranteed to receive all of their gasduring shortages, unlike core customers.This means that noncore customers needto plan for “curtailment” conditions.Although curtailments happeninfrequently for firm noncore customers,they can occur and customers need toconsider the impact of a supplyinterruption on their particular needs foruninterrupted gas service. Customerstaking interruptible noncore gas serviceare subject to curtailments but receivesignificantly lower prices in return.

When curtailment occurs, somecustomers can simply shed non-essentialgas usage. Critical loads might call forsome kind of back up, either gas storageor fuel switching. For example, youcould have an on-site diesel or propane-fired boiler or your boiler could operateon other fuels, in the event you do nothave natural gas. Alternatively, thenoncore customer can purchase localnatural gas storage from its localdistribution company.

California local distribution companiesserving natural gas customers include:

• Pacific Gas and Electric Company -Serving over 3.5 million gascustomers in Northern and CentralCalifornia;

• San Diego Gas and ElectricCompany - Providing natural gas toapproximately 800,000 customers inSan Diego County; and

• Southern California Gas Company -Serving over 4.8 million customersfrom Central California to theMexican border (San Diego Gas andElectric Company and SouthernCalifornia Gas Company areoperating subsidiaries of SempraEnergy).

2. E M E R G I N G T R E N D S

Though the gas market went throughrestructuring earlier than electricity and,from certain technical perspectives, is aneasier commodity to manage in acompetitive marketplace, changescontinue to occur in the regulatorystructure. California Assembly Bill1421, enacted in April 1999, requireseach natural gas local distributioncompany to provide bundled basic gasservice to all customers using less than250,000 therms annually (corecustomers), unless that customer choosesto receive gas service from a differentsupplier. This is intended to ensure thatall core customers continue to receivebasic gas service in a competitive marketstructure without having to switch toanother supplier either through anaggregation program or on their own.The need for this type of legislation is areflection of the continuing concern thatthe primary beneficiaries of gasrestructuring will only be the largeconsumers and that small customersmust be protected in order to ensureservice is available.

The use of distributed generation andcogeneration of heat or steam and poweris another important trend in California.This has important implications for thepricing of gas, and procurement of thecommodity and its transportation.


As the industry continues to evolve andcustomers become more proactive infinding ways to improve their position,suppliers will be forced to respond inorder to survive the challenges of newideas and new entrants. The result willbe a level of constant change in the newcompetitive market structure.

3. C O M P O N E N T S O F Y O U R S E R V I C E

Core and noncore customers have twogeneral components of their gas service.

• Natural gas – The actual natural gascommodity is similar to thegeneration component of yourelectric bill. This is the portion ofyour gas service that can be procuredfrom a competitive supplier.

• Intra-state transportation services –This service provides for the deliveryof the natural gas commodity to theend use customer. This componentof the service continues to beprovided by the traditional gas utilitycompany – except for “backbone”lines.

Noncore customers and aggregated corecustomers can also make use of autility’s storage service (also known as abanking service). This storage serviceallows you to purchase gas during lowerprice periods (typically the summermonths) and have the utility store it foryou until it is needed. Storage alsoserves as a source of supply wheninterstate supply cannot meet in-statedemand.

There are typically three charges for thestorage service:

• a reservation fee for the volume ofspace reserved for your individualuse;

• a fee for “injecting” the gas intostorage; and

• a withdrawal delivery charge whichrepresents the variable cost forproviding the service.

B. NATURAL GAS CHOICES

As with electricity, you have the optionto purchase your gas commodity servicefrom a competitive supplier. This is astrictly voluntary option, at least forsmall (core) users. Any small customercan elect to keep purchasing all of theirnatural gas needs from their localdistribution company. In fact, AssemblyBill 1421 requires each natural gas localdistribution company to provide bundledbasic gas service to all core customersunless that customer chooses to receivegas service from a different supplier.

After March 2001, commodity servicesfor noncore Pacific Gas and Electriccustomers will cease. These customerscan retain core commodity service fromPacific Gas and Electric or choose tobuy gas from a competitive supplier.

In addition, if you elect to switch to acompetitive supplier you may also returnto the local distribution company. Onceyou switch back you cannot switch againwithin one year. This is designed toprevent frequent switching.

Any decision to switch depends on anumber of factors. You should probablyconsider switching to a competitive


supplier if you can answer yes to each ofthe following questions:

• Do I have any noncore (greater than250,000 therms per year) accounts?

• Are my expectations in terms ofprice reductions actually achievable?

• Have I investigated all of my optionsrelating to my natural gas needs?

• Do I have a baseline savings levelrequirement and will this beachieved by switching suppliers?

• Do I thoroughly understand thecontract terms from a competitivesupplier’s offer, including thepossible exposure to price volatility?

Few core customers in California haveswitched to a competitive gas supplier.While specific numbers are notavailable, small commercial customersappear to represent the majority of corecustomer participants.

On the other hand, most noncorecustomers have switched to non-utilitygas suppliers because they have beenable to reduce gas supply costs. Mostlarge industrial customers entered intospecific contracts but aggregationprograms have been popular withgovernmental entities.

If you do decide to switch gas suppliers,here are some issues to consider:

1. P R O C U R E M E N T P R O C E S S

The natural gas procurement process isgenerally similar to that of electricity.You will need to establish yourprocurement goals, understand yourusage levels, and begin the procurementprocess either alone (noncore) or as partof an aggregation process (core andnoncore). As with any competitiveprocurement process, you also need tounderstand key issues and risks faced byprospective suppliers. In gasprocurement, one of the issues isseasonal variation in gas prices. Theexpected seasonally gas price should beimplicitly reflected in an offer for anannual gas supply contract. However,the timing of the procurement processcan impact price expectations of both thesupplier and the consumer. Forexample, negotiating a contract beforethe winter months when there areforecasts of extremely cold weather mayresult in bids/offers with higher pricescompared to a similar process in thespring after a very wet and mild winter.A properly designed procurementprocess should allow you to obtaincompetitive proposals that properlybalance these varying expectations but itwill still need your attention during thefinal price negotiations.

2. W H O D O I B U Y F R O M ?

Core Customers – Those corecustomers who are able to aggregatethemselves into gas volumes of morethan 120,000 therms per year canprocure gas commodity supplies fromcompetitive suppliers. Transportationservices will continue to be provided bythe local distribution company. Somecore customers may also be able to joinan existing gas procurement aggregation


program. Billing for core customerswho aggregate can be more complex.

There are two types of coretransportation aggregators. The first is aprivate sector for-profit gas supplier,while the second type is a governmental“co-operative” – with two very differentforms of management and goals. Inaddition, each local distributioncompany has specific requirements as towho qualifies as a core transportationaggregator.

Noncore Customers – Any noncorecustomer can procure the commodityportion of their gas service from acompetitive supplier. Intrastatetransportation services will continue tobe provided by the local distributioncompany. Interstate transportation to thelocal distribution company’s pipelinecan be purchased along with thecommodity or separately. If it isseparate, either the customer or itssupplier must schedule transportation onboth local and interstate pipelines.

Your local distribution company and theCPUC also have information oncompetitive gas suppliers in your area.See Appendices A and C for moreinformation on this topic.

3. E X P E C T E D S A V I N G S A N D R I S K

M A N A G E M E N T

Your savings depend on a number offactors. Savings will vary betweenaggregated core and noncore customers.They also will vary significantly fromyear-to-year with changes in both marketconditions and the regulatoryenvironment. Changes to a localdistribution company’s rate structurewill also affect savings levels. Inaddition, there is also the possibility fora significant variation within each localdistribution company service area.

Managing the price risk associated withprocuring gas from a competitivesupplier is as important, if not moreimportant, than overall expected savings.In fact, additional price risk can beintroduced when savings quoted from asupplier are based on spot market prices.In other words, although the savingsquoted might be two or three percent,unexpected market swings couldeliminate savings and even result incosts being higher when compared tomonthly or other longer-termbenchmarks.

The case study of the following pagedescribes the gas aggregation programoperated by the California Departmentof General Services.


Gas Procurement Case Study –

Department of General Services (DGS)

Project ObjectiveTo offer public sector, noncore gas customers in the Pacific Gas and Electric andSouthern California Gas territories the benefits of participating in a large-scaleprocurement program. Currently, DGS does not offer San Diego Gas andElectric customers this program, but expects to in a few years.

BackgroundThe Program currently has 119 members who use approximately 150 milliontherms of natural gas per year. Program members include state agencies (70percent), school districts, cities, counties, special districts, and communitycollege districts.

The Program spends approximately $46 million annually on natural gas. Thisfigure includes expenditures for commodity services (which DGS passes on tothe suppliers), transportation services (which DGS passes on to the localdistribution companies) and a DGS fee of 0.65 cents per therm. DGS also offersa storage service for interested members. The Program offers members theopportunity to join the Program for either a one or three-year period.

Status of the ProgramThe program is ongoing and currently procures gas supplies for its members onan annual basis. DGS is considering taking advantage of tax-exempt financingpossibilities and procuring a portion of its gas needs under a five-year contractwhen market conditions allow.

Are Objectives Being Met?Yes. DGS is offering its members price certainty for its gas requirements underan acceptable long-term risk/reward framework.

For further information on the DGS gas procurement program, contact MarshallClark at (916) 324-1283 or by e-mail at [email protected]

Supplement 1 � Changes In The Electricity Markets Page 47

SUPPLEMENT 1 – CHANGES IN THE ELECTRICITYMARKET

In 1996, the structure of the electricutility industry in California wassignificantly changed. For customers ininvestor owned utility service territories(Pacific Gas and Electric, SouthernCalifornia Edison, San Diego Gas andElectric, Sierra Pacific Power,PacificCorp, Bear Valley Electric, andMountain Utilities), the electric marketstructure changes were mandatory andimplementation began in the spring of1998. For publicly owned utilities, thedecision is left to the local governments.The governing body of municipalutilities must determine whether theywish to open their system to thecompetitive market. Thus the changesdescribed in this section do notnecessarily apply to customers of publicutilities, such as municipal utilities andirrigation districts.

Parts of the electricity industry are beingchanged from a highly regulatedmonopoly structure to a more open andcompetitive market. The generation ofelectricity will be more competitive, aswill metering and billing, whiletransmission and distribution will remainregulated.

A. REVIEW OF CHANGES IN THEELECTRICITY MARKET

1. M O N O P O L Y F R A N C H I S E : P R I O R T O 1 9 9 8

Under traditional utility regulation,customers purchased electricity from autility according to a specified rateschedule. The rate was a bundled pricethat included all costs for generation,transmission, distribution, and related

services and programs. A regulatoryprocess approved all costs. Investorowned utilities had defined service areaswith an obligation to provide service inaccordance with their approved tariffs.

For more information on typicalcustomer characteristics and rateschedules, see Table S-1 and Table S-2on the following page.

2. T R A N S I T I O N T O C U S T O M E R C H O I C E :1 9 9 8 � 2 0 0 1

Electricity market restructuring began in1998, to allow customers the opportunityto choose a provider of electricity. Inorder to allow for an orderly change, atransition period was established.During this transition period, investorowned utility rates were capped at theJune 1996 levels. Beginning January 1,1998, residential and small commercialcustomers (defined as those with electricloads less than 20 kW) received a 10%reduction on their rates from the June1996 rate levels. This was financed bybond sales to be paid back over 10 years.Larger commercial and industrialcustomers did not receive a ratereduction but did have their rates frozenat the June 1996 levels. This rate freezewill end for each investor owned utilityno later than March 31, 2002. In August2000, the legislature and CPUC wereconsidering options to change thetransition period rate parameters. Duringthis transition period, there is a non-by-passable competition transition chargethat is collected as part of the frozenrates. This is discussed in more detail inthe following section.

Supp

lem

ent

1


Table S-1

Typical CustomerMonthly Characteristics

Residential SmallCommercial

MediumCommercial

Industrial Agricultural

Usage kWh 500 3,000 50,000 2,000,000 6,000

DemandkW

N/A 4 150 5,000 30 (40hp)

Sources: Various IOU tariff schedules and municipal utility web sites.

Table S-2Rate Schedules Representing Customer Classes

Utility Residential SmallCommercial

MediumCommercial

Industrial Agricultural

PG&E E-1 A-1 A-10 E-20P AG-1 (B)

SCE D GS-1 GS-2 TOU-8 PA-1

SDG&E DR A AL-TOU A6-TOU PA

LADWP R-1 A-1 A-2 A-3 N/A

SMUD R GS-27 GS-47 GS-TOU AS-63

Burbank R C C P N/A

Glendale L-1 L-2 LD-2 PC-1-B N/A

Pasadena D G-1 P P N/A

Source: Various IOU tariff schedules and municipal utility web sites.


Many other changes are occurring. Butmost customers, because of the frozenrates, do not see these changes in thecosts they pay. These changes include:

• development of a commoditymarket for electricity where theprices are readily verifiable by allparticipants in the market;

• costs for services are beingunbundled and some costsreallocated to the various categories;

• investor owned utilities arerecovering their investments ingenerating assets that will not becompetitive in the new commoditymarket; and

• public purpose programs previouslyadministered by the utilities areunder the direction of the CaliforniaPublic Utilities Commission(CPUC) and the California EnergyCommission.

3. C U S T O M E R C H O I C E : P O S T 2 0 0 1

After the transition period, somecustomers will assume greaterresponsibility and risk of making energyservices choices in the new competitiveelectricity market. If you do not select athird party provider, your existing localutility will continue to be the provider ofelectricity. CPUC decisions andproposed legislation may created orremove various protections that nowexist to insulate customers from priceshocks.

Because electricity is a commodity, theprice will likely vary widely accordingto market supply and demand.

Electricity is unlike other commoditiesin that it cannot be stored; it must beconsumed as it is generated. Thisfeature is expected to result in morevolatile prices that will react to seasonaland short term weather conditions. Thestable price structure formerly offered byutilities will be replaced by changingcommodity rates. Price stability may beavailable through negotiated contractswith competitive suppliers or throughrate stabilization plans offered byutilities. However, this may increaseyour electricity cost above market pricesat curtain times because the supplier willassume the risk of higher prices. Thesenew factors require customers to becomemore informed about their energy useand the options available in the energymarket.

B. COMPONENTS OF ELECTRICSERVICE

One way to understand the changingmarket structure is to look at a typicalmonthly electric bill. Your electricservice is now divided into five majorcomponents:

• generation;

• distribution;

• transmission;

• public good charges; and

• competition transition charges(CTC).

Most public agency accounts areclassified as small commercial,commercial, industrial, or publiclighting. The following Figure on thenext page, shows the percentage of howeach of these components make up amonthly bill of a typical smallcommercial customer.


Figure S-1 Electric Bill Components

0

10

20

30

40

50

60

Generation Distribution Transmission Public Goods CTC

During the transition period the largestcomponents are the CTC, generation,and distribution. In the future thecompetition transition charges will beeliminated, and the two largest billcomponents will be the generation anddistribution components. Collectively,these two charges will make up 70 - 80percent of your future electric bill. Thenext sections will describe eachcomponent of your electric service,explain the changes, and what it meansto you.

1. G E N E R A T I O N

The generation component of yourelectric bill is the actual energy that isdelivered to operate your lights,equipment, and other electric devices.The generation component is one of onlytwo portions of your electric service

currently open to competition. (Thesecond is metering and billing).

Historically, your local utility providedthe electricity you used either bygenerating it or buying it from outsidesources. You paid the utility’s cost ofgenerating or procuring the power.These costs were reviewed and approvedby the CPUC for customers of investorowned utilities, thus providingconsumers a level of assurance that thecosts were reasonable.

During the transition period, typicallydescribed as 1/1/98 to 3/31/2002, electricrates are frozen at 1996 levels.However, the investor-owned utilitysupplier’s electricity purchase costs arenot frozen and in fact vary hourly. TheCalifornia Power Exchange (generallyreferred to as the “PX”) determines theprice they pay for electricity supplies.The PX price is the generationcomponent of your electric service. Thedifference between the PX price andyour “frozen” rate makes up the otherelectric service components, such astransmission, distribution, public goods,CTC, and other costs discussedpreviously.

After the transition period, competitivemarket forces will determine thecommodity price you pay. This meansyou will incur higher prices for energyconsumed when the demand forelectricity is high and prices will belower when demand for electricity islower.

2. D I S T R I B U T I O N

The distribution charge reflects the costto send the electricity from the


transmission system to the end user.This also includes a small charge forreading your meter and billing eachmonth. Although the metering andbilling charges are a small percentage ofyour bill, they are currently the onlyother piece of your electric servicewhere you have the ability to choose acompetitive provider. Since January 1,1999, customers that are participating indirect access have had the ability tochoose their billing and meteringproviders. A customer receiving theseservices from an entity other than theirinvestor owned utility receives creditsfor the amount the utility saved by nothaving to perform this service. Theamounts will vary according to customersize and the credits will appear as lineitems on your bill.

The CPUC will still regulate thedistribution system. As you can see inFigure S-1, distribution charges are amajor cost component. If distribution isopened to competition, it could have asignificant impact on your total costs forelectric services.

3. T R A N S M I S S I O N

Transmission charges are a smallpercentage of most customers’ electricbills. This charge reflects the cost to theutility company of sending electricityover the high voltage wires that connectthe generating plants to the lowervoltage distribution wires that come intoyour home or office. It is currentlyabout four to six percent of your bill andwill remain regulated by the FederalEnergy Regulatory Commission.

4. P U B L I C G O O D C H A R G E S

The Public Good Charges make up aboutthree to four percent of a typical bill.This charge supports various energyefficiency, renewable energy, research,and low-income programs. Pendinglegislation (AB 995) will extend thecollection of these charges to January 1,2012.

5. C O M P E T I T I O N T R A N S I T I O N C H A R G E S

There are certain costs that wereincurred in the historic electric industrystructure that cannot be recouped in acompetitive market structure. As part ofthe change from a fully regulated electricindustry to a more competitive industrystructure, AB 1890 established a numberof charges that are intended to make thetransition more orderly and fair to allparticipants. Without these charges,significant financial damage could haveimpacted the ability of these utilities toprovide reliable electric services to thestate’s electricity consumers. The fourcategories of costs that are generallyidentified as the relevant competitiontransition costs include:

• Costs of utility owned generationassets;

• Employee-related transition costs;

• Residential and small commercialtrust transfer account costs; and

• Purchased power contracts.


Figure S-2

Purchased Power Contract Costs

Trust Transfer Account10% Rate Reduction for Residential and Small Commercial Customers,

Stranded Utility Owned Generation Assets for Others

Stranded Utility Owned Generation Assets

Trust Transfer Account (Rate Reduction Bonds paidby Residential and Small Commercial Customers)

Employee Related TransitionCosts

2000 20062002 2008 2020

Components of Competition Transition Charges

The competition transition charges arecalculated as the difference between thefrozen rates and the other fourcomponents of your electric bill. Afterthe transition period, the competitiontransition charges are based on theutility’s costs allowed for recovery bythe CPUC. The following figuregraphically displays the relativemagnitude and duration of these variouscompetition charges. Note that the otherfour components of your electric servicebill are not shown on the graph.

The obligation to pay the competitiontransition charges is non-by-passable,except for a limited number ofexceptions specified in AB 1890. Evencustomers buying generation from acompetitive supplier will continue to paythese charges.

Stranded Cost

AB1890 allows utilities to recover theirremaining investments in utility ownedgeneration assets or “stranded cost” thatare not expected to be competitive in thenew industry structure. Theseuneconomic assets are primarily fossiland nuclear fueled generating resources.

If a utility owns resources that producepower at costs below the competitivemarket price, such as hydroelectricresources, these reductions offset theuneconomic costs of the utility’s otherresources.

The utility owned generation assets areto be fully recovered by March 31, 2002,or sooner. San Diego Gas and Electricfully recovered its generation assets in1999.

Employee Related Transition Costs


To mitigate the potential impacts onutility personnel, AB 1890 allowsutilities to recover certain employeerelated transition costs. Examplesinclude costs for early retirement,retraining, and outplacement relatedexpenses for employees no longerneeded by the regulated electric utility.These costs may only be collectedthrough December 31, 2006.

Trust Transfer AccountA key consumer provision of AB 1890was the mandated 10% reduction to the1996 rates for residential and smallcommercial customers. The 10%reduction was funded by the issuance oftax-exempt bonds that are being repaidover 10 years. The Trust TransferAccount payments are paying theprincipal and interest on those bonds.Trust Transfer Account costs areapplicable only to those customers thatare receiving the 10% rate reduction.These charges will continue to becollected until those bonds are fullyretired in December 2008.

Purchased Power ContractsIn the 1980s and 1990s, utilitiestypically purchased significant amountsof electricity from third parties. AB1890 recognizes the costs of suchpurchased power contracts as obligationsthat cannot be unilaterally ended. On anaggregate basis, these contracts areexpected to have higher prices than thosefrom the new competitive market. Theseuneconomic costs will be recovered overthe remaining term of the individualcontracts. This portion of thecompetition transition charges should berecovered by 2020, unless the contractsare renegotiated.

In summary, most of the changes to yourelectric services are in the generation,metering, and billing components ofyour bill. These changes are the first ofan ongoing process that will result inyour electric service costs increasinglybeing set by competitive forces ratherthan regulatory agencies.

C. MARKET PARTICIPANTS

There are a number of participants in thenew electricity market, some you willdeal directly, and others are behind-the-scenes players. This section will discussthese new players and theirresponsibilities.

1. D I R E C T P L A Y E R S : P R O V I D E R S O F

E L E C T R I C S E R V I C E

Inves tor Owned Ut i l i t i e s

The three large investor owned utilities,Pacific Gas and Electric, SouthernCalifornia Edison, and San Diego Gasand Electric, provide service to about tenmillion customers in the state. Theseutilities are required to restructure andsell 50% of their non-nuclear thermalgenerating assets to conform to statemandates. These utilities have alsoentered the competitive market byestablishing unregulated subsidiaries asalternative electricity providers.

There are also four smaller investorowned utilities operating in California;Sierra Pacific Power Company,PacifiCorp, Bear Valley ElectricServices, and Mountain Utilities. Theseutilities have had varying degrees ofparticipation in the restructuring processdue to their small size.


Munic ipal Ut i l i t i es

There are 27 electric municipal systemsserving approximately three millioncustomers in California. Municipalutilities are governed by an elected boardof directors and regulated by localgovernments, not by the CPUC.

Under the restructuring legislation,municipals are not required torestructure their services. They candecide to open up their operating areasto competition. The municipals wouldthen be allowed to sell their servicesoutside of their areas and new providerscould sell their services inside themunicipal’s territory. If they open tocompetition, they would be allowed torecover their “stranded costs” like theinvestor owned utilities.

E l e c t r i c C o o p e r a t i v e s

There are five electric cooperativesystems in California, each servingfewer than 10,000 customers. These co-ops are often located in more remote orrural areas, are member-owned, and aremanaged by an elected board ofdirectors. Most co-ops own transmissionand distribution facilities and buy powerfor their customers.

Irr igat ion Distr icts

California has eight irrigation districtsthat provide electricity to less than half amillion customers. The districts offerirrigation services mostly to agriculturalcustomers, but also provide domesticwater and electricity services tobusinesses and citizens in their serviceareas. They also have the authority tosell retail power to any customer inCalifornia.

Irrigation districts have similarownership and management structures asmunicipals and co-ops.

C o m p e t i t i v e S u p p l i e r s

If you choose to buy electricity fromsomeone other than your local utilityprovider, you will be dealing with acompetitive supplier or energy serviceprovider (ESP). These entities can beutility subsidiaries or independententities. They can sell traditional powerand/or renewable or “green” power.Since the profit margins on thecommodity portion of their services arelimited, many suppliers offer additionalservices such as energy efficiency andadvanced metering.

Legislation passed in 1997, requires thatenergy service providers serving smallcommercial and residential customers beregistered with the CPUC and provide aperformance bond. The CPUC has alsoestablished a number of other protectivemeasures for energy consumers. Thesemeasures prevent energy serviceproviders from engaging in falseadvertising claims or fraudulentpractices such as switching a customerwithout their consent.

Specifically, all energy service providersoffering services to residential and smallcommercial customers must:

• have an executed and signed serviceagreement with each utility companyin whose service territory the energyservice provider is offering services;

• name their key personnel involved inthe technical and operational aspects


of the business and provide adescription of each key person'sexperience;

• post a $25,000 security deposit orfinancial guarantee bond with theCPUC or open a customer trustaccount in the same amount;

• submit to potential customers awritten notice describing itsproposed services and terms; and

• submit a copy of all schedulingcoordinator agreements.

Those suppliers that offer electricservice only to agricultural, largecommercial, and industrial customers donot need to register with the CPUC, butmust comply with the rules for directaccess.

A current listing of electric suppliersregistered with the CPUC to offerservices to residential and smallcommercial customers can be found at:<http://www.cpuc.ca.gov/published/ESP_Lists/esp_udc.htm>

Power BrokersMany power brokers and eCommerceservice companies can bring togetherwholesale energy suppliers and largecommercial, industrial, and governmentenergy consumers. These companiesoperate internet-based power exchangesor auctions for procuring commoditiesand services within the energy industry.Some organizations may prefer thisoption to the traditional RFP process thatcan often be long and involved.

A g g r e g a t o r s

Aggregators are defined as any marketer,broker, public agency, city, county, orspecial district that combines theelectricity needs of multiple end usecustomers and purchases electricity andrelated services on behalf of the group.

The goal of aggregation is to attractenough members so their electric usageis sufficiently large with attractive usagepatterns. This provides participants abetter price than they could havereceived on their own and allows thecosts of implementing the program to beshared. Aggregators will often use aportion of the savings to cover ongoingadministration costs.

2. I N D I R E C T P L A Y E R S : P R O V I D E R S O F

S U P P O R T S E R V I C E S

The restructuring of the electric industryhas created an opportunity for a wholenew set of participants in the energyservices chain. Many of these newentities provide services that support theutilities, the new suppliers, and theoverall structure of the electricitymarket. You may not deal directly withthem, but they are critical players indelivering and maintaining your electricservice.

P o w e r M a r k e t E x c h a n g e s

The Power Exchange is a market placethat facilitates trade of wholesaleelectricity and ancillary services. TheCalifornia Power Exchange (PX) is anonprofit, public benefit corporationestablished under AB 1890 and managedby an independent Board of Governors.As discussed earlier, the PX generally


sets the price for competitive electricsupplies. The PX is charged withproviding an efficient, competitiveauction to meet the electricity needs ofcustomers. Under AB1890, the investorowned utilities are required to buy all oftheir electricity from the PX during thetransition period from 1998 until theirstranded generation costs are collectedbut no later than 2002.

The California Power Exchange runsday-ahead and hour-ahead auctions thatdetermine the market prices forelectricity when supply is equal todemand for the given time period.Between April 1998 and December1999, electricity prices in the CaliforniaPower Exchange averaged less than 3cents per kWh. In the first seven monthsin 2000, the electricity prices were morevolatile and the average monthly pricesranged from 3 to 12 cents per kWh. TheCalifornia Power Exchange sets amarket-clearing price for approximately80% to 90% of the generation on the grid.

Competing with the California PowerExchange is the privately heldAutomated Power Exchange. TheAutomated Power Exchange offers manyof the same services as the CaliforniaPower Exchange including a forum tomatch up buyers with sellers.

The Automated Power Exchange (APX)was the first to open a renewable energymarket. Any generator registered withthe California Energy Commission as arenewable supplier can sell renewableenergy into the Automated PowerExchange’s Green power Market.Renewable energy or green power iselectricity generated from renewable

resources including: wind, solar,geothermal, biomass, landfill gas, andsmall hydropower (less than 30megawatts). The price in the greenmarket has been averaging 15-20 percentabove the PX price for non-renewablepower on a megawatt-hour basis. However,as previously discussed, a rebate program,administered by the California EnergyCommission, may make green powerless expensive.

I n d e p e n d e n t S y s t e m O p e r a t o r

The Independent System Operator wascreated to manage the transmissionnetwork to ensure reliability whilepromoting an open, competitive market.While the investor-owned utilities stillown their transmission wires, theIndependent System Operator managesthe day-to-day transmission systemoperations. Key functions provided bythe Independent System Operatorinclude:

• coordinated scheduling of powerover most of California’s integratedtransmission system so that it doesnot become overloaded; and

• management of real time energysupply services needed to operate thesystem within acceptable voltage andfrequency tolerances and to maintaina continuous balance betweenenergy supply and demand.

The Independent System Operator workswith the various market participants tominimize the costs associated with theseessential services. Though thesechanges have involved a large effort,


they should not have affected theservices you receive.

The extent that these costs are passed onto you depends on your agreements withyour supplier.

S c h e d u l i n g C o o r d i n a t o r s

Scheduling coordinators communicatedirectly with the Independent SystemOperator on behalf of electricitysuppliers and generators to plan whenand where electricity is needed. Thesecoordinators are certified through theIndependent System Operator. Moreinformation on the certification processand requirements can be found athttp://www.caiso.com/clientserv/certification/.

M e t e r R e a d e r s

Meter data management agents areindependent meter readers, existingutilities, or CPUC certified companiesthat read and manage the electric usageinformation recorded by your electricmeter. Their responsibilities includemanaging meter reading schedules,reading and validating meter data,calculating usage, and storing the dataon a computer server where energyservice providers and others can accessthe information. You most likely willnot need to choose a meter datamanagement agent, as your suppliershould have the necessary arrangementsin place.

Meter Ins ta l l ers

Meter service providers are thecompanies that actually install directaccess meters or “interval meters” thatcan read electric usage on an hourly

basis. Utilities and other companiesapproved by the CPUC can perform thefunctions of meter service providers thatinclude installing, removing, repairing,and maintaining the direct access meters.In most cases, you should not need tochoose a meter service provider becauseyour supplier will have the necessaryarrangements in place. Whenpurchasing or leasing meters, make surethe units have the capability of beingread by your utility, in the event that youreturn to them in the future.

D. TRENDS AND ISSUES IN THENEW MARKET

1. G R E E N P O W E R

Green power has emerged as a popularchoice for those customers who haveswitched to a competitive supplier.Green power is electricity that isgenerated from renewable resources andis less polluting. These sources ofelectricity include:

• Biomass – using wood, agriculturalwastes, and crops grown specificallyfor energy production to produceelectricity.

• Geothermal – utilizing heat that liesbelow the surface of the earth togenerate electricity. The supply ofheat is continually replenished fromthe center of the earth, making it arenewable resource.

• Wind – using wind to generateelectricity.

• Solar – electricity produced bysources that collect energy from thesun.


• Small hydroelectric – using fallingwater to turn a turbine and generateelectricity from a facility that is notgreater that 30 MW.

• Other – including waste tires,digester gas, landfill gas, and solidwaste.

Many customers buy green power tosupport a cleaner environment andsuppliers are responding to theirdemands by selling green power options.These options range from 100%renewable power to a mix of renewableand non-renewable power.

Power from renewable resources is oftenmore expensive to produce than thatmade from traditional sources.Therefore, you should expect to pay apremium over traditional utility rates.Because it is more expensive, theCalifornia Energy Commission issupporting the development of the greenpower market by providing customerswho purchase it a rebate. Additionalinformation on the EnergyCommission’s rebate is found in Section

III-D and also on the web atwww.energy.ca.gov/greenpower/index.html.

2. E V O L V I N G C O M P E T I T I O N

Since restructuring started, competitionin the electricity markets has been slowto evolve. Initially, there were close to300 energy service providers, but thatnumber dwindled as Californiaregistration requirements increased forenergy service providers. Some energyservice providers have now chosen tomonitor the California market, whilecompeting in the more profitableNortheastern U.S. markets.

The Table S-3 shows the customerswitching trends for the first two yearsof restructuring. Some states have seenmore movement among customers andsuppliers than California. For example,Pennsylvania has seen 10 – 40 percent oftheir customers choose new suppliers.Because Pennsylvania customers weregiven a “credit”, competitive supplierswere able to offer prices that providedassured savings.

Table S �3

California customers switching to direct access as of July 15, 2000

Activities ResidentialCommercial

<20 kWCommercial20 - 500 kW

Industrial> 500 kW Agricultural Total

Percent of DirectAccess Customers 1.9% 4.1% 7.2% 15.9% 4.1% 2.2%Percent of DirectAccess Load (KWH) 2.3% 5.7% 24.1% 31.7% 7.9% 15.9%

Small commercial and residentialcustomers are largely indifferent to thenew open market, with 98 percent of all

customers staying with their currentutility company. This slow evolution ismainly due to the lack of significant


savings, a lack of consumer education,and the fact that it is easier to stay withthe current provider.

During the restructuring transition periodthat will end no later than March 31,2002, customers are subject to a ratefreeze while the investor owned utilitiescollect their stranded generation assetcosts (as part of the competitiontransition charges). Once those costs arerecovered, the rate freeze will end, andthe amount of competition transitioncharges will be reduced. At that time,activity in California’s competitiveelectric services market may increaseand customers may see more significantvolatility in generation or commoditycharges. This could be accompaniedwith the offering of a number of relatedservices such as energy efficiencyproducts, advanced metering, and energyinformation products to supportcustomer energy management options.Some suppliers will likely also offer amenu of non-energy services such asInternet access, home security, andtelephone related services.

3 . F U T U R E I S S U E S I M P A C T I N G C U S T O M E R

R A T E S

Dis tr ibut ion Co m p e t i t i o n

Of all the current regulatory actions, theintroduction of distribution competitioncould have the largest effect onCalifornia electric customers. TheCPUC has been examining this topic andinvestigating how distributed generationcan be deployed in the competitiveenergy structure. These will remaincontentious issues for the investorowned utilities because it is the oneservice area where they currently face

only limited competitive threats andchallenges.

Opening electric distribution tocompetition would alter the marketstructure dramatically. It is unlikely thatwidespread construction of newcompetitive distribution facilities willoccur. However, it is likely that therewould be significant changes to theexisting structure, including the creationof mini-utilities.

Theoretically, competition in thedistribution sector could bring lowerprices and services better tailored todifferent customer needs. However, theeconomic and political implications ofdistribution restructuring are large andthe regulatory process addressing theseissues will likely be prolonged.

P o s t R a t e F r e e z e R a t e m a k i n g

The CPUC is currently examining utilityrates and ratemaking mechanisms thatwill be applicable after the rate freezesend. The results of these proceeding willdirectly impact customers by defininghow electric rates will be structured,including the establishment ofperformance incentives to keep rates aslow as practicable.

M a t u r i n g M a r k e t s

Uncertainty and confusion accompanychange from a highly regulated industryto one dominated by competitive forces.This is to be expected as manyentrepreneurs try to establish their placein the new structure while traditionalproviders try to protect their historicbusiness opportunities. Legislators andregulators are also watching closely and


modifying the rules, as appropriate, topromote the continued development ofefficient competitive markets.

Customer exposure to price volatility is afact we now have to accept. Thoughcompetitive providers will developincreased confidence in the generaltrends and behaviors of the markets,weather is a key driver in the demand forelectricity and it remains unpredictableon a long-term basis. Though proposeddevelopments of new high-efficiencyelectric generation facilities will createdownward pressure on prices duringmuch of the time, investors will need torecover their investments. They can takeadvantage of opportunities to extracthigher prices when demands are highand/or supplies not as abundant. Thiswill create a key opportunity forconsumers to demonstrate pricesensitivity by managing theirconsumption.

Though price volatility will be the norm,the passage of time should lead to anincreasing level of stability in the newmarket structure. Customers shouldexpect a continuous level of creativity inservice offerings as competitive firms tryto improve their market position andmarket share. Being proactive inpushing new ideas and maintaining anappropriate degree of flexibility willallow you to take advantage of newinnovations as they occur.One of the more interesting areas ofdevelopment is expected to be in thearea of metering. New technology incollecting data and using it on a real-time basis to make energy use decisionswill continue to emerge. This“communications” related service may

be bundled with other services byinnovative providers. “Smart” houses ofthe future will surely include thistechnology allowing consumers tooptimize their energy usage based ontheir personal preferences, priorities, andwillingness to pay.

Supplement 2 � Frequently Asked Questions Page 61

SUPPLEMENT 2 – FREQUENTLY ASKED QUESTIONS

The restructuring of the electric industryis not an easy topic to follow. Thecomplexities and ongoing changes in themarket have created a number ofmisconceptions and half-truths. Thefollowing questions and answers aredesigned to clarify some of the morecommon misconceptions.

Can I get a better price for electricitythan my current provider offers?There are no guarantees that you will beable to get lower prices by switching to acompetitive energy supplier. The bestway to ensure you are not paying morefor energy services is to proactivelymanage your energy usage in addition toevaluating your supply options.

The factors that a competitive supplierwill consider in making an offer includeyour load factor, the size of your load,your ability to respond to price signals,and your willingness to take marketprice volatility risks. Additionally, theability of new suppliers to competeduring the transition to a fullycompetitive market is impacted by therate freeze, the 10 percent discount forresidential and small commercialcustomers, and the competitiontransition costs.

After the rate freeze ends, you will besubject to the full volatility of acompetitive market even if you stay withyour current provider. This allowscompetitive suppliers to offer supplyalternatives that can mitigate some ofthis market risk. Default service ratesare based on rate class averages. If your

load profile and usage patterns aredifferent from your rate class averages,you may be able to obtain better pricesfrom competitive suppliers.

Am I required to choose an energysupplier because of industryrestructuring?There is nothing in the restructuringlegislation that requires you to switchenergy service suppliers. It is strictlyvoluntary on the part of each individualconsumer.

Will our electricity be as reliable if webuy it from someone other than ourtraditional local utility?Yes, most electrical outages that occurare a result of failures in the localdistribution system. The CaliforniaPublic Utility Commission (CPUC)continues to regulate the distributionsystem and the utility distributioncompanies who own and operate thewires. Thus, the distribution systemreliability should not be adverselyimpacted. In fact, it may be improvedbecause the cause of outages will bemore readily assigned to the variousproviders. Reliability may also beimproved because of the emergingpresence of successful competitivealternative distribution service providersin some areas.

When you purchase electricity from acompetitive supplier, they provide onlythe electric commodity, or powerportion, of your electric service. Thispower is delivered through the samepower lines as before restructuring. The

Supp

lem

ent

2


key difference is that the transmissionsystem throughout the state is mostlyoperated as one integrated system by asingle entity, the California IndependentSystem Operator (ISO). The ISOensures that power is delivered to theend use customer despite any failure onthe part of the commodity supplier tocorrectly forecast or schedule the powerthey need to serve their customers. Anysupplier who does not purchase thepower necessary to serve its customerswill have to replace it at market cost atthe time it is used.

The reliability of your power supplyunder the restructured market shouldstay the same or may even improveunder the new system due to a higherdegree of correlation betweenperformance and payment. TheCalifornia Energy Commission isforecasting reduced amount of availablepower supplies for the next few years.This is due to California’s recent robusteconomic development. There areseveral thousand megawatts of newcapacity that have been proposed fordevelopment in California to meet thisgrowing demand and compete in the newmarketplace. In order for these newfacility owners to pay for theirinvestments, they will have to operatereliably and deliver the scheduledamounts of power to their customers.

Under restructuring will we achievesignificant savings whether we staywith our utility supplier or switchproviders?Exact savings levels are difficult toforecast; however, the market has shownsavings can be achieved, although not asdramatic as had been previously

predicted. As the utilities complete theircompanies collection of the “strandedcosts”, you could see reductions in yourenergy bill whether you changeproviders or not. For details on thesecosts, see Supplement I-B: Componentsof Electric Service.

Many public agencies that switched tocompetitive suppliers after the marketrestructured are realizing energy costsavings from one to five percent on theirutility bills. These savings depend onseveral factors including the number ofaccounts, their energy usage levels andconsumption patterns, and whether thesupplier believes strategic or marketpresence value will be created. On theother hand, some agencies thatconsidered buying electricity fromcompetitive suppliers found that thesmall savings did not warrant the effortsto switch. Administrative costs,contracting efforts, and ongoing programmaintenance could negate any costsavings.

A public agency should not set its utilitybudget expecting significant savings offits energy bills as a result of switching toa competitive provider, unless thesupplier is willing to guarantee thesavings. However, there is theopportunity to achieve significantlyhigher savings through a total energyprogram that also includes energyefficiency.

Are there any guaranteed electricitysavings?Depending on your electric usagepatterns, there may be vendors willing tooffer guaranteed savings off your totalbill. Of course, a competitive offer and


any guarantees need to be carefullyanalyzed to fully understand the overalllevel of savings and whether it is yourbest option.

If I purchase power from someone else,will I have to continue dealing with mycurrent utility company?Even if you choose to purchase powerfrom a competitive supplier, you willstill receive some services from the localutility. In most cases, the local utility isstill responsible for providing theinfrastructure that delivers the power andfor collecting various charges such as thepublic purpose program charges. If yourpower goes out or you have a problemwith reliability, you should call yourlocal utility distribution company, just asyou have always done.

Additionally, a public agency thatchanges suppliers may still receive a billfrom the local utility for either allelectric services received including theelectric commodity (a consolidated bill),or a bill for only the specific servicesstill provided by the utility.

Can new energy providers be trusted?There is a lot of uncertainty in any newmarket, and few of the new competitivesuppliers are household names with longtrack records. However, since themarket opened in March 1998, therehave been a number of new providers,both independent and utility affiliated,who have proven their commitment tothe market by their financial andinfrastructure investments.

Before signing any contracts, however,you should verify that a potential

provider is legitimate by conducting theappropriate reference and backgroundchecks. Public agencies can also protectthemselves by requiring performancebonds or other forms of guaranteesagainst contract breach or vendor failure.

Is procuring an energy contract with anew supplier like any otherprocurement process?Many public agencies that have gonethrough an energy procurement processand have signed a contract, say that theprocess is different.

Choosing a competitive electricitysupplier requires consideration of morethan the price of the end-usecommodity/product. Complexities ofunbundling the restructured market,changing timeframes and regulations,and new risks makes the evaluation ofcompetitive offers difficult. Manyagencies have found the need for outsideassistance to evaluate the differentofferings.

In addition, price offers often are onlyvalid for a short duration, typically oneto five days. Public agencies may find itdifficult to respond, with board approval,to these price proposals. This could beaverted if the public agency can delegatethe decision making to a sole individualor if pre-approval to sign a contract canbe obtained for a certain price level.

Is green or renewable power moreexpensive?The total cost of producing green poweris typically greater than the cost of othersources of power. This is a result of thehigher capital cost of green generating


resources compared to the cost of naturalgas or other fossil fuel supplies.However, there are environmentalbenefits resulting from purchasing greenpower. Power plant emissions are arecognized contributor to acid rain inmany parts of the US and they alsocontribute to global climate change.

The California Energy Commission issupporting the renewable market byoffering a rebate from a fund created byAB 1890 to customers who buy greenpower. About $75 million has been putaside for this purpose until 2002.Pending legislation (AB 995) mayextend the collection of these funds andthe program to January 1, 2012. Thislegislation, may also prohibit publicagencies from being eligible to receiverenewable consumer credits afterJanuary 1, 2002. After this date, cities,counties and other public agenciespurchasing green power may no longerbe eligible to receive this credit.

As a result of this rebate, somecustomers have purchased green powerand reduced their total electricity cost.The existence of this fund and othermarket conditions will ultimatelydetermine the long-term prices for greenpower in California’s competitivemarket.

If customers in my city switch energyproviders, will we lose our franchisefees and utility user tax revenues?The CPUC has directed that allcustomers continue to be responsible forall applicable fees, surcharges, and taxesauthorized by law. In fact, existing law(SB 278, Beverly, Chapter 233, Statutesof 1993) already requires the addition of

a surcharge equal to the energycomponent of a franchise fee if acustomer buys the electricity and naturalgas from a third party. Also, utilities arerequired to provide cities withinformation on customers purchasingpower from third parties so that the citiescan enforce their utility user’s taxes. Toaccount for those customers choosing asupplier other than the existing utility,the local utility will bill the supplier forall applicable franchise fees (i.e. thesurcharge authorized under SB 278 andremit the revenue to the city).

The competitive supplier and the utilitywill each be responsible for calculatingany other fees, taxes, and surcharges fortheir respective services. Customers willbe responsible for paying these chargesand the money will be distributedappropriately to local agencies and otherrecipients.

One factor that could impact the amountof revenue collected through a utilityusers’ tax and franchise fees is areduction in electricity prices. Absent anincrease in the tax rate, revenues fromutility users’ taxes will decline asregulatory and market forces cause areduction in electricity prices. On theother hand, if lower prices stimulateeconomic activity, as is predicted andresult in more electricity use, thengeneral revenues could increase.

Will we have to replace all our meters ifwe switch energy providers?Only large meters classified as “over 50kW” are required to be replaced whenparticipating in direct access. Theselarger meters are defined as those thatmeasure more than 50 kW of maximum


demand in four of the previous twelvemonths or over 80 kW in any one month.Many of the larger public agencies havefound that 5 to 10 percent of all theirmeters exceed the 50 kW criteria.Smaller agencies will likely have fewermeters requiring replacement. Somelarge meters may not need to be replacedbecause they already measure kWdemand or others may be exemptbecause they are in a rate class that isexempt from the requirement.

New meters typically cost from $400 to$1,500. The costs of new meters andmeter reading are additional costs thatneed to be factored into any decision toswitch suppliers. Refer to Section III,C-1 for information regarding meter-reading capabilities of energy serviceproviders and utilities.

The CPUC plans to revisit the criteriafor installing new meters in 2001.

Need more information?

To find out more on restructuring visitthe California Energy Commissionwebsite at:

http://www.energy.ca.gov/restructuring/index.html

or the CPUC website at:

http://www.cpuc.ca.gov

Additional information on otherresources is found in Appendix A.


Appendix A -- Information Sources Page 67

App

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A

APPENDIX A -- INFORMATION SOURCES________________________________________________________________________


California Energy Commission

1516 Ninth Street

Sacramento, CA 95814

Topic InformationAvailable

Web Address Telephone #

Main Website http://www.energy.ca.gov/index.html

Price Forecast http://www.energy.ca.gov/energyoutlook/index.html

(916) 654-4791Electricity/GasInformation

Restructuring http://www.energy.ca.gov/restructuring/index.html

(916) 654-4791

GeneralInformation

http://www.energy.ca.gov/renewables/index.html

(800) 555-7794

Customer CreditProgram

http://www.energy.ca.gov/greenpower/index.html

(916) 654-4735

RenewableEquipment Rebate

http://www.energy.ca.gov/greengrid/index.html

(916) 653-2834

Renewable Energy

List of RenewableEnergy Providers

http://www.energy.ca.gov/greenpower/providers.html

(916) 653-5851

GeneralInformation

http://www.energy.ca.gov/efficiency/index.html

(916) 654-5013Energy Efficiency

Public AgencyPrograms

http://www.energy.ca.gov/commission/programs/index.html

(916) 654-4089

EnergyCooperatives

GeneralInformation

http://www.energy-co-op.net

(916) 654-4815

EnergyManagementHandbooks

See page 27 forlisting.

http://www.energy.ca.gov/reports/efficiency_handbooks/index.html

(916) 654-4008


WEBSITES

1. C P U C

http://www.cpuc.ca.gov (Main Site)

http://www.cpuc.ca.gov/published/ESP_lists/esp_udc.htm (Listing of Registered Energyservice providers)

2. U T I L I T I E S

http://www.pge.com (Pacific Gas and Electric Company)

http://www.edisonx.com (Southern California Edison Company)

http://www.sdge.com (San Diego Gas and Electric Company)

http://www.socalgas.com (Southern California Gas Company)

http://www.sierrapacific.com (Sierra Pacific Resources)

http://www.pacificorp.com (Pacific Corp)

http://www.bves.com (Bear Valley Electric)

3. A S S O C I A T I O N S

http://www.ucan.org (The Utility Consumers’ Action Network)

http://www.turn.org (The Utility Reform Network)

http://www.cacities.org (League of California Cities)

http://www.cmua.org (California Municipal Utilities Association)

http://www.meug.com/deregulation/deregulation.htm (web-based information site)

http://www.csac.counties.org (California State Association of Counties)

http://www.ncpa.com (Northern California Power Agency)

http://www.appa.org/energy/pubs.html (The Assoc. of Higher Education Facilities Officers)

4. P U B L I C A G E N C Y P R O G R A M S

http://www.spurr-remac.org (School Project for Utility Rate Reduction / Regional EnergyManagement Coalition, gas purchasing)

http://www.acwanet.com/index1.html (Association of California Water Agencies, electric)

http://www.abag.ca.gov/services/power/epool.html (Association of Bay AreaGovernments, electric site)

http://www.abag.ca.gov/services/power/gas.html (Association of Bay Area Governments,gas site)

http://www.sandag.cog.ca.us/projects/regional_planning/electric_restructuring.html. (SanDiego Association of Governments)

http://www.resd.dgs.ca.gov/Energy/electric.asp?mp=electic.asp (Department of GeneralServices, electric site)

http://www.resd.dgs.ca.gov/Energy/naturalgas.asp?mp=gas.asp (Department of GeneralServices, gas site)


PERTINENT CPUC DECISIONS

D.97-10-08 Opinion Regarding the Load Profiling Workshop Report and ItsSupplements

D.97-10-087 Opinion Regarding the Direct Access Implementation Plans and RelatedTariffs

D.97-12-048 Opinion Regarding the Meter and Data Communications

D.97-12-088 Opinion Adopting Standards of Conduct Governing RelationshipsBetween Utilities and Their Affiliates

D.98-03-072 Opinion Regarding Consumer Protection

D.98-07-032 Opinion Resolving Outstanding Matters in Revenue Cycle Services

D.98-09-070 Opinion on Revenue Cycle Unbundling

D.99-05-051 SDGandE Ends its Rate Freeze

PERTINENT LEGISLATION

Electr ic

• SB 278, Beverly, Chapter 233, enacted in 1993; protects local governments from theloss of franchise fees and user’s taxes

• AB 1890, Brulte, Chapter 854, enacted in September 1996; restructures the electricindustry in California.

• SB 477, Peace, Chapter 275, enacted in August 1997; defines energy serviceprovider registration requirements.

• SB 90, Sher, Chapter 905, enacted in October 1997; provides guidelines for therenewable program under AB 1890 and authorizes the California EnergyCommission to administer the funds collected for renewable energy technologysupport.

• SB 1305, Sher, Chapter 796, enacted in October 1997; requires retail suppliers ofelectricity to disclose the sources of generation to customers and report fuel typeand consumption information, emissions, purchased power, losses, and retail salesinformation.

• AB 995 (pending), extends programs funded with public good charges.

Gas

• AB 1421, Wright, Chapter 909, enacted in October 1999; restricts provision of coregas meter reading services to gas utilities.

• SB 278, Beverly, Chapter 233, enacted in 1993; protects local governments from theloss of franchise fees and user’s taxes


Appendix B -- Glossary of Terms Page 71

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APPENDIX B -- GLOSSARY OF TERMS________________________________________________________________________

AB 1890: Assembly Bill 1890, signed into law on September 23, 1996, as Chapter 854of the Statutes of 1996. AB 1890 provides the legislative guidance forrestructuring of the electric industry in California.

Ancillary Services: Services supplemental to normal commodity services which theIndependent System Operator ensures are available and which are necessary tosupport the delivery of energy from the generation sources to the loads whilemaintaining reliable operations of the transmission grid. The services consist of:

• Regulation - A mechanism to keep generation within certain levels,

• Spinning reserve - See below,

• Non spinning reserve - See below,

• Replacement reserve - The ability to replace used spinning reserve,

• Voltage support – A service required by generating units to maintain requiredgrid voltage criteria.

• Black start - The ability to supply power from a generator that does notrequire using electricity from the system to start.

Aggregator: Any marketer, broker, public agency, city, county, or special district, thatcombines the loads of multiple end-use customers in facilitating the sale andpurchase of electric energy, transmission, and other services on behalf of thesecustomers.

California Energy Commission (CEC or Energy Commission): An administrativeagency with primary energy policy and planning agency charged with ensuring areliable and affordable energy supply. Created by the Legislature in 1974, andlocated in Sacramento, the CEC’s five major responsibilities are: 1) forecastingfuture energy needs and keeping historical energy data; 2) siting and licensingpower plants; 3) promoting energy efficiency through appliance and buildingstandards; 4) developing energy technologies and supporting renewable energy;and 5) planning for and directing state response to energy emergencies.

California Public Utilities Commission (CPUC): An administrative agency establishedto regulate privately owned utilities and to secure adequate service to the public atrates which are just and reasonable both to customers and shareholders of theutilities.

Competition Transition Charge (CTC): A non-by-passable charge to customers ofinvestor owned utilities to recover generation investments and other commitmentsmade prior to restructuring plus certain utility costs associated with transitioningto the new structure. The majority of the CTC will end no later than March 31,2002. These will end, as the investor owned utilities finish collecting strandedcosts. San Diego Gas and Electric has declared its stranded costs collected andhas ended the majority of its CTC as of July 1, 1999.


Demand: The amount of electricity delivered to an end user at a given point in time.Electric demand is expressed in kilowatts and is also sometimes referred to asload.

Direct Access (DA): The ability of customers to purchase electricity directly from thewholesale market rather than through a traditional local utility.

Direct Access Service Request (DASR): A service request form submitted to the localutility distribution company requesting participation in Direct Access.

Energy Service Provider (ESP): An entity which provides electric service to a retail orend-use customer, but which does not fall within the definition of an electricalcorporation under Public Utilities Code Section 218. This Section defineselectrical corporation as one that: “includes every corporation or person owning,controlling, operating, or managing any electric plant for compensation withinthis state, except where electricity is generated on or distributed by the producerthrough private property solely for its own use or the use of its tenants and not forsale or transmission to others.”

Independent System Operator (ISO): A state chartered, nonprofit market institutioncreated by AB 1890 that is responsible for centralized control of the statewidetransmission grid in order to ensure reliable operation of the transmission systemin an efficient and nondiscriminatory manner. The ISO is responsible for thescheduling of deliveries between suppliers and consumers over the high voltagetransmission network.

Investor Owned Utility: There are seven investor owned utilities who are required torestructure as a result of AB 1890. The three largest ones, Pacific Gas andElectric Company, Southern California Edison, and San Diego Gas and Electricprovide service to 10 million customers in the state.

Kilowatt (kW): Often referred to as electric demand, kW is the amount of energy drawnby a customer at a specific time.

Kilowatt-hour (kWh): The most commonly used unit to measure electricity consumedover time. It means one kilowatt of electricity supplied for one continuous hour.One kilowatt-hour equals one thousand watt-hours. One megawatt-hour equal amillion watt-hours or one thousand kilowatt-hours.

Load Factor: A ratio that reflects the variability in electric demand over a given timeperiod. Load Factor is expressed in percentages and is a ratio of a customer'sactual energy consumption (kWh) during a given time period to the consumptionthat would have occurred had consumption been fully sustained at the customer'smaximum demand (kW) level during the same time period. This is also equal tothe ratio of the average demand to the maximum demand. Higher load factorsrepresent a more even distribution of load over the time period measured.

Load: The amount of electricity being used at a specific time. Load is often referred toas demand.

Load Profiling: The process of graphing a customer’s electric demand or load over aperiod of time, typically one day, one season or one year.


Marketer: Any entity that buys electric energy, transmission, and other services fromtraditional utilities and other suppliers, and then resells those services.

Non-spinning reserve: Reserve capacity made available from generating units that are off-line but which can come on-line within 10 minutes. This is one of the components ofancillary services managed by the Independent System Operator.

Power Exchange (PX): A state chartered, nonprofit market institution created by AB 1890that is charged with providing an efficient, competitive auction to meet the electricityloads of customers that is open on a nondiscriminatory basis to all electricityproviders. The PX runs auctions that determine the hourly market prices forelectricity at which supply is equal to demand.

Public Goods Charge (PGC): A non-by-passable surcharge imposed on all retail electriccustomers in a local distribution utility’s territory to fund various activities such aspublic goods research, development and demonstration, energy efficiency activities,promotion of renewable resources, and support of low income assistance programs.

Qualifying Facility (QF): A small-power producer or co-generator that meets certainguidelines and thereby qualifies for exemption from certain federal and stateregulations and is authorized to sell electric power to retail electric distributionutilities which must purchase this power at avoided cost prices. QFs were created bythe Public Utility Regulatory Policies Act (PURPA) of 1978.

Rate Reduction Bonds (RRB): Bonds (and certain other forms of indebtedness) authorizedby AB 1890 to finance the 10% rate reductions received by the residential and smallcommercial customers in California. Repayment of the bonds is from a non-by-passable charge to customers that receive the 10% rate reduction.

Real Time Pricing: Pricing for utility service that varies over very short time periods,typically an hour. Real time pricing can be advantageous for large energy consumerswho can change usage patterns in response to current energy prices.

Scheduling Coordinator (SC): An entity certified to act as a liaison with the IndependentSystem Operator on behalf of generators, supply aggregators (wholesale marketers),retailers, and customers to schedule the delivery of electricity over the transmissionsystem.

Spinning Reserve: The percentage of an online generating unit’s electric generating capacitywhich is immediately available to meet changes in demand and is available for aminimum of two hours. This is one of the components of ancillary services managedby the Independent System Operator.

Utility Distribution Company (UDC): The entity that provides facilities and services for thedelivery of electricity to customers over low voltage distribution facilities. Thisentity may also be referred to as a Local Distribution Company or simply the localutility. For most of California’s energy consumers, the Utility Distribution Companyis also an Investor Owned Utility.

Virtual Direct Access: A rate option that allows customers to purchase electric power fromthe local utility at the applicable Power Exchange hourly price. This service requirescustomers to have hourly interval metering capabilities. This rate class must berequested by the customer and is also known as the hourly PX rate option.


Appendix C -- Summary of Aggregation Programs Page 75

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APPENDIX C -- AGGREGATION PROGRAMS SUMMARY

Program Name Billing andMetering

GreenOption

ServicesOffered

Who Can Join Costs toJoin

Contact Information

Association ofBay AreaGovernments(ABAG) - Electric

ABAGconsolidatedbilling

Individuallyresponsible formetering costs

Yes Commodity

Transmission

Load Mgnt.

Billing

ABAG members,cooperating BayArea members andspecial districts andlocal governmentsin PG&E’s NorthernCA territory

Individualmeteringcosts

Phone - (510) 464-7900

Website -www.abag.ca.gov/services/power/

Association ofBay AreaGovernments(ABAG) – Gas

ABAGconsolidatedbilling

NA Commodity

Billing

Core and noncoreaccounts of localgovernments andspecial agencies inPG&E’s territory

1.3 cents pertherm inrecent past

Varies byyear

Phone (510) 464-7900

Website -www.abag.ca.gov/services/power/gas.html

Association ofCalifornia WaterAgencies(ACWA-USA) –Electric

ESP consolidatedbilling

Individuallyresponsible formetering costs

No Commodity Regular and affiliatemembers ofACWA, membersmay sponsor non-members in theirconstituencies

ACWAmembershipplusparticipationfee

Phone - (916) 441-4545

Website - www.acwanet.com

Association ofCalifornia WaterAgencies(ACWA-USA) –Gas

Commodity andtransportationservices billedseparately

NA Commodity Regular and affiliatemembers of ACWA

ACWAmembership

Phone - (916) 441-4545

Website -

www.acwanet.com

CommunityCollege League ofCA – Electric

ESP consolidatedbilling

UDC metering

No Commodity CommunityColleges

None Phone – (916)-444-8641

Department ofGeneral Services(DGS) – Electric

No customers arecurrently servedunder thisprogram.

ESP consolidated

No metering yetbut testing NV-90unit

Yes Commodity

Pricingupdates

Load analysis

Economicanalysis.

Any public sectorentity within CA

None Phone - (916) 322-8808

Website –

http://www.resd.dgs.ca.gov/Energy/electric.asp?mp=electic.asp

Department ofGeneral Services(DGS) – Gas

UDC consolidatedbilling

NA Commodity

Transportation

Scheduling

Risk mgmt.

Supplyanalysis

Monitor prices

Noncore publicsector customers inCA

0.65 centsper therm

Phone - (916) 324-1283

Website –

http://www.resd.dgs.ca.gov/Energy/naturalgas.asp?mp=gas.asp

Appendix C -- Summary of Aggregation Programs Page 76

San DiegoAssociation ofGovernments(SANDAG) –Electric

UDC consolidatedbilling

$22/mo to leasemeter whererequired

Yes Commodity

Meter data

San Diego Countygovernmentagencies

Meteringcosts

Phone - (619) 595-5346

Website -

http://www.sandag.cog.ca.us/projects/regional_planning/electric_restructuring.html.

Program Name Billing andMetering

GreenOption

ServicesOffered

Who Can Join Costs toJoin

Contact Information

School Project forUtility RateReductions(SPURR)/Regional EnergyManagementCoalition(REMAC) – Gas

Members receiveone bill for all gasservices.

NA Commodity

Consideringexpanding toalternative fuel(such as oiland diesel gas)and electricservice

Noncore and corepublic schools (K -colleges), educationoffices, state andfederal facilities,cities, counties, andspecial districtsoperate under aseparate JPA knownas the CaliforniaUtility Buyers.

Core: 1.35cents/therm

Noncore:

0.675cents/therm

This variesby year andincludesotherservices aswell.

SPURR Phone - (925) 743-1292

REMAC Phone – (562) 922-6144

Appendix D -- Sample Customer Data List Page 77

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APPENDIX D -- SAMPLE CUSTOMER DATA LIST

Account Number Identification code used to identify the customer account.

Meter Number Identification code used to identify the meter.

Premise Identification of specific location of meter.

CustomerAddress

Physical location of customer

Mailing Address Location for which bills are mailed to (may be different thancustomer address)

Bill Period Period of billing.

$/kWh Price charged for the consumption of energy

$/kW Price charged for demand levels

Description The short title and description of the two to four digit SIC code.

City The City associated with the customer’s meter. This field identifiesthe premise location and not the mailing address, which could be adifferent city.

Rate class The rate class that is associated with the particular meter.

Date read Meter read date.

Interval Reported number of days between meter reads.

KWH Reported total kilowatt-hours for the designated period (on-peak,mid-peak, and off-peak breakdown may be provided in some cases).

Max kW The maximum demand as reported for that particular period. This isnot necessarily provided for all rate classes.

Billing Amount The dollar amount the utility charged the customer for thatindividual meter over the billing period.

Voltage Phase The voltage phase used to calculate a specific charge that isdependent on the voltage level for which the customer is beingserved. This is not applicable to all rate classes.

Connected Load Expressed in horsepower (HP), Connected Load is used to calculatea charge dependent on how much load would ever potentially haveto be prepared to supply the customer. This is not applicable to allrate classes.

Billing HP Expressed in HP, Billing Horsepower is used to calculate specificcharges. This is not applicable to all rate classes.

ContractDemand

Expressed in kW, Contract Demand amount is applied to low loadfactor customers who use power only certain months of the year.This is not applicable to all rate classes.

Appendix D -- Sample Customer Data List Page 78

ExcessTransformationCapacity

Expressed in kilovolt-amperes (kVA), Excess TransformationCapacity is used to calculate a charge levied for any extra costs itincurs to serve a customer who needs new or additional services dueto new construction. This is not applicable to all rate classes.

Power Factor A measure of the amount of power usage associated with real power.A charge is made for some customers who have a high reactivepower demand.

Firm ServiceLevel

Expressed in kW, the level of firm service an interruptible ratecustomer agrees to operate at during a power interruption. This isnot applicable to all rate classes.

Appendix E -- Sample Data Request and Data Response Page 79

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APPENDIX E -- SAMPLE DATA REQUEST

Appendix E -- Sample Data Request and Data Response Page 80

Customer Information Service RequestPlease Print or Type

I, , EDISON CUSTOMER OF RECORD CONTACT TITLE (IF APPLICABLE)

of in the city of ADDRESS

and the county of , in the State of California, do hereby appoint

of NAME OF ENERGY SERVICE PROVIDER/THIRD PARTY ADDRESS

CITY STATE ZIP

CONTACT NAME TELEPHONE NUMBER

to act as consultant and perform the following specific acts and functions:• Request and receive billing records and history of my account(s) as specified below, basic existing

meter information, services furnished by Southern California Edison (Edison”); and• Request and receive copies of specific correspondence in connection with my account(s).

CUSTOMER ACCOUNT NUMBER SERVICE ACCOUNT NUMBER SERVICE ADDRESS



(FOR MORE THAN THREE ACCOUNTS, PLEASE PROVIDE THE INFORMATION ON AN ATTACHED SHEET)

Information Requested:

• Standard confidential customer information and basic existing meter data 12 months 24 months 36 Months

• Standard Interval Load Data (if used for billing & if applicable) 12 months 18 months

• Request information to be returned via: Hard Copy (if applicable) Diskette E-Mail Address I authorize Edison to release requested information on my account or facilities to the above agent andconsultant who is who is acting on my behalf regarding the matters listed above. I will advise my agentand consultant to treat this information as proprietary and confidential and not release it to others in anymanner. I release, hold harmless, and indemnify Edison from any liability, claims, demand, cause ofaction, damages, or expenses resulting from unauthorized use of this information by my agent andconsultant. I further certify that my agent and/or consultant has authority to act on my behalf and requestthe release of information for the accounts listed on this form. I understand that I may cancel thisauthorization at any time by submitting a request in writing.

I authorize the release of my account information: One-time only (immediate release)

One year authorization - Information requested above will be released upon request at any time withinthe next 12 months.* Note: Any information requests differing from this written authorization must besubmitted in writing.* Edison will provide customer information without charge, up to two times within a 12 month period per service account. Aftertwo requests in a year I understand I am responsible for charges that may be incurred to process this request

Mail this form to: Southern California Edison Company

AUTHORIZED SIGNATURE OF CUSTOMER OF RECORD Customer Billing Center Attn: 3rd Party Authorization Desk

TELEPHONE NUMBER P.O. Box 57017Executed this ___ day of ______, _____ Irvine, CA 92619-7017

MONTH YEAR

Appendix F -- Sample Request for Proposal Page 81

App

endi

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APPENDIX F -- SAMPLE REQUEST FOR PROPOSALS


Key Information

11/20/98 Proposerssubmit Intent toRespond

12/1/98 Pre-ProposalConference

Ken Edwards Center

1527 4th Street

Santa Monica, CA 90401

12/15/98 Responses due

1/15/99 Notification ofproposer shortlist

November 9, 1998

REQUEST FOR QUALIFICATIONS AND PROPOSALSFOR

COMPETITIVE ENERGY SERVICES

EXECUTIVE SUMMARY

The City of Santa Monica (City) is inviting energy service providers (ESPs), interested utilitiesand municipal districts to join the City in bringing long term and sustainable economic,environmental and energy efficiency benefits to its various constituents. This Request for

Qualifications and Proposals (RFQ/RFP) begins a process thatis expected to culminate in March of 1999 when the Citybecomes the first municipality in the United States to satisfyall of its electricity needs from renewable sources to theadvantage its citizens, today and in the future. This RFQ/RFPand the direct benefits the City expects to receive from itsexecution will play a major role in support of the SantaMonica Sustainable City Program, an effort developed inSeptember of 1994 with the goals of reducing resourceconsumption, reducing waste generation and pollution,reducing the use of hazardous materials and safeguarding thelocal environment and public health.

The City offers this opportunity to Proposers to share in itsvision of a more sustainable energy future for the City and itsconstituents. The success of this program will be seen byother cities in California and across the United States as apivotal event in the evolution of the green power market. Theprovider that delivers certified green energy to Santa Monicawill have an excellent opportunity to build on the success ofthis effort with other like-minded cities. It is the City’s

intention to partner with a provider that understands the importance of renewable resources andthe role it plays in the protection and preservation of the environment.


In its entirety, the City-owned facilities and all the accounts of the City’s other constituentsrepresent over 797,000 MWh of load and incur energy expenditures of $82 million dollarsannually. This RFQ/RFP is seeking proposals or qualifications to serve the residential,commercial, industrial and public agency constituents of the City with either renewable or a mixof renewable and non-renewable resources to meet their electricity needs. An outreach programis being conducted to determine the level of interest of the City’s non-municipal constituents injoining the program. The inclusion of these groups would greatly increase the size and scope ofcustomers available to the selected service provider.

This RFQ/RFP is also seeking firm bids for all City owned facilities which constituteapproximately 500 accounts with annual billings of over two million dollars and an approximatepeak demand of five MW. The City is seeking proposals that contain full ESP services and isalso interested in investigating options that may transition some of the services initially providedby the selected service provider to the City itself. The selection of a supplier and City Councilapproval is planned for January 26, 1999. When making its selection, the City will consider,among other things, a proposal’s generation source(s), the competitiveness of the proposal’spricing structure and the overall ability of the proposal to meet the needs of the City and itsconstituents.


A. INTRODUCTION AND OBJECTIVESThe City of Santa Monica is seeking qualifications and proposals from energy services providers,interested utilities and municipal districts to assist the City in its efforts to protect theenvironment through the consumption of renewable electricity supplies. The City officiallyembraced the purchase of power from renewable resources for City-owned facilities and istaking a leadership role in support of its Sustainable City Program; a key program developed tocomprehensively address environmental, economic, and social concerns within the City. Theoverall objective of this solicitation is for the City to realize benefits resulting from therestructuring of the electric industry while supporting emissions reductions and renewablegeneration sources in the State of California.

The City will only switch electricity providers if can realize the long term and sustainableeconomic and environmental benefits it is seeking. The City’s initial directive includes theadministration of the solicitation process for Request for Qualifications and Proposals andnegotiations on behalf of its own loads. While the City is only seeking specific price proposalsfor its loads at this time, it is considering expanding the program and providing similar options toits constituents (residents, businesses, and other public agencies). The City is currentlyconducting an outreach program to determine if there is a similar momentum for its constituentsto switch to more environmentally friendly electricity. The City looks forward to bringingadditional customers to the service provider that best demonstrates a commitment to the future ofthe City of Santa Monica.

The qualification process resulting from this solicitation will not only be key in selecting avendor to serve the City’s loads, but will also be used in selecting qualified vendors to serve anyadditional loads if the program is expanded. The City does not intend to conduct another formalqualification process if expansion of the program is desired. Specific price proposals to serve itsresidential, commercial, industrial and public agency constituents with either renewable or a mixof renewable and non-renewable sources are strictly optional.

The City of Santa Monica is a municipality with approximately 90,000 residents located in thegreater Los Angeles metropolitan area. The City started the Santa Monica Sustainable CityProgram in September of 1994 with goals of reducing resource consumption, reducing wastegeneration and pollution, reducing the use of hazardous materials, and safeguarding the localenvironment and public health. As a result of this environmental and social effort, the SantaMonica City Council voted on October 13, 1998 to purchase power from renewable resources2

for all City facilities and prepare this RFQ/RFP for that end. After the City obtains results fromits outreach program, it will determine whether or not to expand similar options to itsconstituents. Potential additional participants cover the following categories: public agencies,

2 Generation from renewable resources is defined here pursuant to California Public Utility Code 383.5 (a) asmeaning biomass, solar thermal, photovoltaic wind, geothermal, small hydropower of 30 megawatts or less, wastetire, digester gas, landfill gas and municipal solid waste generation technologies.


residential, commercial and industrial electric customers. All of the City’s loads and the potentialadditional participants reside in the retail service area of Southern California Edison.

B. INVITATIONIn its entirety, the City-owned facilities and all accounts of the City’s other constituents representover 797,000 MWh of load and incur energy expenditures of $82 million dollars annually. Theresidential sector represents 25% of the load and the commercial, industrial and municipal sectorconstitutes the other 75% of the load. A sector by sector breakdown is as follows:

Santa Monica City Energy Usage by Sector

Sector

Numberof

AccountsAnnual

kWhAnnual$ Spent

Average$/kWh

AverageAnnual

kWhper

Account

AverageMonthly kWhper Account

Residential 45,883 199,426,245 $25,562,842 $.13 4,346 362

Commercial 5,230 505,125,916 $49,346,609 $.10 96,582 8,049

Industrial* 259 52,521,264 $3,401,402 $.06 202,785 16,899

Municipal 511 39,944,229 $3,786,316 $.09 78,169 6,514

Total 51,883 797,017,654 82,097,169 $.10 15,362 1,280

*Includes only non temporary industrial accounts

While specific price proposals are not required for all potential participants, at a minimum, theCity is seeking firm proposals for power from renewable resources for its City-owned facilities.The following table illustrates the City’s exact loads, which are comprised of 485 meters havingannual electricity usage of 21,395,642 kWh and an approximate peak demand of 5.3 MW.

City of Santa Monica (City-owned Loads) Energy Usage

Number ofAccounts Annual kWh Annual $ spent

Average

$/kWh

Greater than 50 kWmeters

26 8,978,793 941,321 $.105

20 kW to 50 kW meters 12 6,791,003 611,246 $.090

Less than 20 kW meters 447 5,625,846 690,453 $.123

Total3 485 21,395,642 2,243,020 $.105

3 Based on detailed monthly usage information received from Southern California Edison.


The City will switch energy providers given that it can enter into a partnership with a companythat will allow the City to achieve long term and sustainable economic, environmental andenergy efficiency benefits that will contribute to the social well being of the City and its variousconstituents. The City will compare the benefits of the proposed offerings with benefits that areavailable through other regional and state direct access opportunities developed by variousinterest groups. One existing environmental offer is available through the State of CaliforniaDepartment of General Services/Office of Energy Assessment (DGS/OEA).

If price proposals are submitted for the other potential participants, it is important that allresponses are competitive with the existing options available to the constituents.

C. SOLICITATION PROCESS AND SCHEDULEThis solicitation process begins on November 9, 1998, with the mailing of this RFQ/RFP andcontinues until 4:00 p.m. Pacific Standard Time (PST) on December 15, 1998, the closing dateand time for submission of proposals. Proposals received after 4:00 p.m. PST on the closing datewill be deemed non-responsive to this RFQ/RFP and will receive no consideration in thissolicitation process. Proposers are encouraged to submit a Notice of Intent to Respond, (NIR-seeAttachment A), by November 20, 1998. All Proposers that submit an NIR will be placed on amailing list and will receive relevant correspondence including any amendments to theRFQ/RFP.

A pre-proposal conference will be held for potential Proposers on December 1, 1998. A time forthe conference will distributed as soon as it is established. The conference is scheduled to beheld at the Ken Edwards Center at 1527 4th Street in Santa Monica. Any changes to the locationwill distributed to all Proposers. Questions to be addressed prior to the proposal responsetransmittal date may be submitted in writing (e-mail is acceptable) by December 1, 1998.

Proposers are not limited to one proposal. Each proposal must be submitted separately and willbe evaluated separately. For each proposal, Proposers shall submit one original proposal andeight (8) copies in a sealed envelope sent by Registered Mail or Express Mail and received by nolater than December 15, 1998, at 4:00 p.m. PST. Proposals received by fax are not acceptableand will not be considered.

The City will evaluate proposals and may compile a short list of the most qualified Proposers.Interviews may be conducted with the selected short list of Proposers. Proposers whosesubmittals are, in City’s sole judgment, most likely to yield the greatest value to the program willbe notified by January 8, 1999. Proposers must be prepared to begin negotiations on the termsand conditions of an Agreement for Power Purchase immediately following the vendor short listnotification.


The City specifically reserves the right to discontinue or terminate negotiations with anyProposer, at its sole discretion, at any time without notice or reason. Proposers expressly agree asa condition of their response to this RFQ/RFP that they waive any right that they may have,whether in law or equity, to assert any claim against the City or any other entity associated withthe administration of this RFQ/RFP, for any costs, damages or other relief with regard to thisRFQ/RFP. The City reserves the right to modify the RFQ/RFP process and/or requirements atany time.

The City reserves the right to deem any proposal with incomplete responses as non-responsiveand to give that proposal no further consideration. Alternatively, the City also reserves the rightto request clarifications or additional information from any Proposer. Any requests foradditional information are expected to be transmitted to Proposers in writing and postmarked nolater than December 22 , 1998. All such requests so mailed will be deemed to be timely received.Failure of a Proposer vendor to provide the information requested seven calendar days from dateof notification may result in the proposal being deemed non-responsive and the proposal may begiven no further consideration. No modifications of proposals or resubmittals will beconsidered.

All proposals and supporting information shall become the exclusive property of the City.Information considered confidential by the Proposer must be clearly identified as such. The Citywill use all reasonable efforts to protect the confidentiality of information contained in proposals.The City may be required to release proposal information in order to meet regulatory or legalrequirements. The City and/or the participating public agencies will not be held liable fordamages resulting from the disclosure of confidential information pursuant to regulatoryrequirements or as part of a legal proceeding.

Although the City is committed to participating in this RFQ/RFP process, this solicitation doesnot commit the City to purchase capacity, energy or any other service from any Proposer. TheCity and its constituents reserve the right to purchase the power or services solicited in thisproposal from any source regardless of the outcome of this solicitation.

The City reserves the right to select one or any combination of proposals submitted in responseto this RFQ/RFP for further consideration and negotiations of specific agreements and waive anyminor informality or irregularity in any proposal. The City also reserves the right to reject anyand all proposals or portions thereof received in response to the RFQ/RFP, and may, for anyreason, decide not to award an agreement(s) as a result of this RFQ/RFP.

The terms and conditions of final negotiated contracts will be subject to approval by the City.

Proposers are responsible for any and all costs associated with responding to this RFQ/RFP andrelated activities including, but not limited to, responding for requests for additional information,responding to modifications of the RFQ/RFP, attending meetings and/or interviews, negotiations,etc.


Summary of Schedule

Timeframe Required Events

November 9, 1998 City Issues RFQ/RFP

November 20, 1998 Proposers Submit Notice of Intent to Respond

December 1, 1998 Proposers Submit Written Inquiries

December 1, 1998 Pre-Proposal Conference

December 7, 1998 City Issues Transcripts from Pre-Proposal Conference andAnswers to Written Inquiries

December 15, 1998 Proposer Responses Due

December 16 � January15, 1999

Evaluation of Responses

December 22, 1998 Request for Additional Proposer Information

January 5, 1999 Additional Proposer Information Due

January 8, 1999 Notify Short List of Proposers

January 11-13, 1999 Interviews

TBD Negotiations

January 26, 1999 City Council Approval.

First Quarter 1999 Agreement(s) for Service Executed

First Quarter 1999 Submit Application(s) for Direct Access

First Quarter 1999 Begin Service

D. DESCRIPTION OF LOADSCustomer specific data from Southern California Edison (in electronic – CD-ROM format or ondiskette) will be provided to Proposers at the pre-proposal conference.

E. SCOPE OF SERVICESThe overall objective of this solicitation is for the City to realize benefits resulting from therestructuring of the electric industry while supporting its long term social, energy and economicgoals. These efforts will result in an increased quality of life for the City and serve as anexample for other cities and municipalities attempting to bring the same benefits to itsconstituents. The first priority for the City is to qualify vendors and procure electricity fromrenewable resources for its City-owned facilities in support of its Sustainable City Program.Secondly, the City is interested in leveraging the qualification process if it chooses to bringenvironmental options to its constituents. Upon conclusion of the RFQ/RFP process, the City


intends to select one or more of the Proposers to provide electrical services to the City. The Citywill negotiate a single contract (Agreement) with the selected Proposer(s).

Proposers are required to complete the qualification process and provide specific price proposalsthat addresses the City’s own loads. Proposers may submit more than one bid; however, one bidmust fully meet the load and energy service requirements of the City. Proposers are encouragedto describe qualifications that also meet the needs of the residential, commercial, industrial andpublic agency loads. Any price proposals for the additional potential load are strictly optional. Inlieu of specific bids, it would be appropriate for vendors to describe the factors that wouldinfluence prices for the different sectors and describe in broad terms potential pricing strategies(by segment, minimum load requirements, number of customers, etc.).

The City anticipates purchasing renewable electric services by the end of the first quarter of 1999or as soon as is feasible. Therefore, the City is requiring vendor proposals to contain full ESPservices as is described in detail below. However, over the long term, the City is consideringvarious scenarios in regards to its role in procuring renewable electric supplies for its loads andpotentially its constituents. The City may organize itself as a “limited energy service provider”(Limited ESP) and assume some electrical service responsibilities in order to take advantage ofpotential wholesale offerings. Alternative proposals that do not contain full ESP requirementsmay supplement the proposer’s response. If such offers are proposed, the vendor must clearlyidentify which functions would be the responsibility of the City and which functions would beprovided by the vendor. A transition plan from providing full ESP requirements to the Citytaking on more electrical service responsibilities will need to be addressed.

FULL REQUIREMENT ESP SERVICES - Proposals shall include the following:

1. Power Supplies and DeliveryThis may include a power brokering arrangement, wholesale arrangement or power generation.The Proposer should describe its renewable generation offer in detail to meet the needs of theCity-owned facilities. Proposers are required to complete Attachment D, which addressesrelevant environmental factors important to the City.

Note that any Proposer selected or its contractor shall absorb all financial risk or penaltyassociated with non-performance, including any penalties levied by the ISO.

2. Scheduling CoordinationCapability to provide the ISO with balanced hourly schedules for the City. Please note whetheryour company will serve as the scheduling coordinator for the City or if your organization willcontract with a certified schedule coordinator. Describe certification to act as a schedulingcoordinator (SC) or provide current contracts/agreements with scheduling coordinators.


3. Ancillary ServicesProposers shall describe any agreements or contracts for ancillary services including spinningreserve, replacement reserve generation, replacement reserve dispatchable load, regulation, non-spinning reserve generation and non-spinning reserve dispatchable load.

4. BillingIf offering billing services, Proposers must describe their strategy for billing management,account settlement, and payment collection. Proposers shall demonstrate experience as a billingagent and describe the proposed billing method: Utility Distribution System (UDC) consolidatedbilling or Energy Service Provider (ESP) consolidated billing. Separate UDC/ESP billing is notdesired and a standard billing format is preferred. In addition, there is a strong interest to haveaccess to historical billing data in electronic format and to have consolidated billing for multipleaccounts/meters. Include the availability of electronic customer billing data in your response andthe capability to conduct consolidated billing.

5. Direct Access Service Requests (DASRs) SubmittalProposers shall provide a description of process, in particular responsibility of the City, andestimated time involved for submitting DASRs to Southern California Edison.

6. Energy Management (Conservation/Demand-side Management)The City is interested in exploring ways to take an active role in the management of its overallenergy use. Proposals are encouraged to include any cost effective solutions and strategies thatwould enable the City to use energy as efficiently as possible while reducing the City’s relianceon non-renewable energy resources. These strategies can include but are not limited to energyaudits to identify areas that may require energy management solutions, equipment retrofits toincrease the life and efficiency of facilities and the use of load shaping to control total energycosts. The City is also interested in the role that new and emerging energy technologies can playas it attempts to reduce its use of non-renewable energy sources. These distributed generationtechnologies often consist of photovoltaics, solar thermal electric, fuel cells and small windturbines.

7. Load ProfilingProposers shall describe their methodology for allowing small accounts (< 50 kW) designated bythe California Public Utilities Commission (CPUC) to participate in direct access through the useof load profiling. The City is interested in procuring renewable power supplies for all of itsloads. For all City loads to participate in direct access, load profiling will have to be conductedon over 58% of its load.

8. Metering


Describe the Proposer’s plan for meeting required hourly interval metering (installation, testing,and maintenance) and data communication for individual service accounts not eligible for loadprofiling4. The metering proposal should endeavor to minimize or eliminate capital costs for theCity. Proposers should define and describe their authority to act as a meter service provider(MSP) or any relationship with an organization that is certified to provide such services.

9. Meter Reading/Data ManagementDefine the Proposer’s strategy for required meter reading of individual service accounts formetered accounts and load profiles accounts. Proposers should define and describe theirauthority to act as a meter data management agent (MDMA) or any relationship with anorganization who is certified to provide such services.

10. Other Value-Added ServicesProposers shall describe in detail any other services that would add value to the City such asfinancing services, willingness to invest in distribution infrastructure, substations, distributedgeneration and co-development of existing public agency-owned facilities. Proposers may alsoinclude strategies to solicit and distribute funds collected through the Public Goods Charge to beused in the City. Proposers shall also include any value-added services or products it offers thatwould use or take advantage of other renewable funding sources.

F. RESPONSE FORMATQualifications and proposals shall have an 8 1/2 by 11 inch paper size with a cover page clearlydisplaying 1) the company name of Proposer and 2) contact person’s name, address, phone, faxnumber, and e-mail address. Only that information which is essential to an understanding andevaluation of the proposal shall be submitted. The proposal shall be concise, well organized anddemonstrate the Proposer’s qualifications and experience applicable to providing energyservices. Type size and margins for text pages shall be in keeping with accepted standardformats for desktop publishing. All pages are to be consecutively numbered. No limitation onthe content of the proposal is intended and the inclusion of any pertinent data or information ispermitted. Mark all confidential material as CONFIDENTIAL in the upper right hand corner ofthe page. The maximum number of pages allowed in the proposal exclusive of attachments andforms is twenty (20) pages.

It is strongly encouraged that Proposers comply with following submittal form guidelines:

4 Southern California Edison defines the customers eligible for load profiling as residential orsmall commercial customers in its Rule 1 – Definitions as Small Customer/Applicant: Applicantsfor service and customers served under Domestic Rate Schedules and Schedules GS-1, TOU-GS-1, TOU-EV-3, PA-1, AL-1, LS-1, LS-2, LS-3, OL-1, and TC-1.


• Use recycled and/or tree free paper.

• Print double sided.

• Use report covers or binders that are recyclable, made from recycled materials and/or easilyremovable to allow for recycling of the report pages. Reports with glued bindings that meetall other requirements are acceptable.

• The use of plastic covers or dividers should be avoided.

• Unnecessary attachments or documents not specifically asked for should not be submitted.Avoid superfluous use of paper (e.g.; separate title sheets or chapter dividers).

These guidelines were developed as part of Santa Monica’s Sustainable City Program to promotewaste reduction and resource conservation within the community. Thank you for yourcooperation in this important effort.

The proposal and all attachments shall be complete and free of ambiguities, alterations, anderasures. In instances where a response is not required, or where material is not applicable to theproposal, a response such as “no response required” or “not applicable” is acceptable. Theproposal shall be executed by a duly authorized officer or agent of the Proposer. In the event ofconflict between words and numerals, the words shall prevail.

The content of the proposal shall be organized as follows:

Executive SummaryInclude an overview of the entire response to the RFQ/RFP describing the most importantelements (two-page maximum).

1. Identification of the Proposer (Attachment B)Complete fully and attach Proposer Information Form here. Proposers shall indicate whether thecompany has submitted an energy service provider Agreement to Southern California Edison andprovide the CPUC registration number. If the provider of ESP services in the proposal is notcurrently registered as an ESP with the CPUC, please provide a copy of the application andanticipated time frame for submittal.

2. Understanding of the Requested ServicesProvide a statement demonstrating an understanding of the energy services requested in theRFQ/RFP.

3. Services Offered by the Proposer (Attachment C)Proposers shall identify each of the services listed in Section E that the company (or VendorTeam) proposes to offer to the City. If Proposer (or Vendor Team) submits a supplemental offer


that does not include the full requirements, please note that as the case and list which serviceswould be the responsibility of the City. The Proposal shall also demonstrate the company’s (orVendor Team’s) qualifications for providing each service.

Proposers shall also describe in detail the factors affecting the assurance of the supplyarrangements. The discussion shall include detailed information regarding contractualarrangements for power supply, the transmission arrangements, the certainty of fuel supply andprice (if costs are not fixed), the potential environmental considerations, if any, the reservesarrangements, the emergency power arrangements and the vendors Proposer’s ability to dealwith contingencies on a real-time basis.

4. Generation Sources (Attachment D)Proposers shall fully disclose all matters relating to the generation sources that will be used tosatisfy the needs of the City and potentially its constituents as described herein. Among otheritems, the description shall include the type and percentage of power from renewable resources.The description shall also include the Proposers status as a CEC certified in-state renewableprovider and its plan for the provision of any applicable credits to end use customers. TheProposer shall also describe how the premiums paid by the City are supporting renewablegeneration sources inside or outside the State of California.

5. Schedule for ServicesThe City anticipates taking advantage of direct access by purchasing renewable power suppliesby the end of the first quarter of 1999 or as soon as feasible. Proposers shall provide a detailedschedule with all the steps required to implement direct access (including meter installation asappropriate) by the desired date or by an alternate proposed date. Also provide a schedule toimplement energy services (if any proposed) other than procurement of commodity supplies fordirect access.

6. Declarations - Proposals shall contain the following:a. A statement that this RFP shall be incorporated in its entirety as a part of the Proposer’s

bid.

b. A statement that this RFP and the Proposal will jointly become part of the Agreementfor electrical services for this project when said Agreement is fully executed by theProposer and the City.

c. A single and separate section with the heading “EXCEPTIONS TO CITY’S REQUESTFOR PROPOSAL” containing a complete and detailed description of all of theexceptions to the provisions and conditions of this request for Proposal upon which theProposal is contingent and which may take precedence over this RFP. If the Proposal


contains no exceptions to this RFP, the Proposer shall include this section and indicate“No Exceptions.”

d. If applicable, a statement that the Proposer shall collect and remit all approved localfranchise fees, utility user taxes, and business license taxes that are currently collectedby the Investor Owned Utilities. This statement shall be in direct correlation withPublic Utilities Code, Sections 6350 and 6354, and for fees as set forth in the PublicUtilities Code Sections 401 and 410 as stated in the League of California Cities letterdated December 4, 1997.

7. Pricing (Attachment E)Proposers shall describe all costs for each proposed service on the Proposers Costing Form.Under direct access, it is assumed that transmission, distribution, public goods, and CTC charges,as well as local franchise fees and utility user taxes will be paid to Southern California Edison.Proposers may submit fixed and/or variable price proposals. Prices tied to an index or marketmay be proposed. Any “shared-savings” or other innovative proposals shall identify the methodused to calculate the benefits to all the participating agencies of the City as well as to theProposer. The proposals shall specify the rates charged for time-of-use or seasonal pricing ifapplicable.

The proposal shall clearly state the term of the proposed prices for City owned loads.Proposals shall be prepared in the provided format to facilitate direct comparisons with existingSouthern California Edison rate schedules. If Proposers Costing Form (Attachment E) is notcompleted, the proposal will be considered non–responsive. For escalated pricing, Proposersshall provide a projection of the expected escalation factors along with support for the factor oruse of a particular index. Any limitations on City’s ability to vary the amount of the proposedsupply must be explicitly defined.

Proposers shall separate the cost of each service function. If offering additional services, providea detailed price and fee structure for each proposed service. It is the City’s desire to haveBilling, Metering, Meter Reading/Data Management, Load Profiling, DASR Submittal, EnergyManagement, and Other Value-added Services as described under Section E – Scope of Servicespriced separately.

Proposers shall also specify how the risk for the City will be minimized. All proposal pricessubmitted in response to this RFQ/RFP shall be valid for a reasonable period of time and shall beapplicable for a 90-day period of time to allow for City review and commitment. State aminimum and maximum load threshold for which pricing is valid. For evaluation purposes,provide individual costs for each service offered as well as a total price. The City recognizes thatpricing is subject to change given daily market conditions. Prices will be evaluated subject tocurrent market factors and other available competitive bids.

8. Qualifications (References)


In this section, Proposers shall outline their qualifications for providing electrical services to theCity. Proposers (or Vendor Teams) must document their operating authority, financial strength,and experience. Provide three current references (preferably California retail or wholesalecustomers) for which you have provided services similar to those requested by the City. Includecompany name, contact person, type and length of service provided, phone number and authorityto contact individual. If using subcontractors, submit one additional reference for eachsubcontractor. In addition, demonstrate and describe your firm’s (or vendor

a) Operating Authority to do business in the State of California

i. Business authority to operate in California and provide the services offered.

ii. Possession of appropriate FERC authorizations.

iii. Authority as a Scheduling Coordinator or possession of a contractual relationshipwith such an organization.

iv. Unless Proposer is a Utility Distribution Company (UDC), the authority to act as anMSP or MDMA or contractual relationship with such an organization.

v. Unless Proposer is a Utility Distribution Company (UDC), registrations with theCPUC as an ESP or possession of a contractual relationship with such.

vi. Compliance with any applicable environmental requirements.

b) Financial StrengthThe stability and financial strength to meet obligations to the City and any other potentialparticipants in the program. This portion of the proposal will be held confidential and willbe returned or destroyed immediately following the conclusion of the RFQ/RFP process.Responses that shall be considered acceptable include:

i. Audited financial statements for the last three years, pre-tax earnings, net workingcapital and cash flow data.

ii. Profit and Loss Statement.

iii. Balance Sheet.

iv. Credit rating by nationally recognized firm (e.g. Dun & Bradstreet, Moody’s,Standard and Poor’s), or equivalent, if available.

v. A detailed plan which clearly indicates the means to support the respondent’sproposed contractual obligations.

vi. A summary of financial arrangements addressing indicators such as interest rate,level of equity investment, debt term, debt structure, capitalized interest, etc.

vii. A description of any adverse material changes in financial position since the end ofthe most recent fiscal year.


viii. A letter from a bonding agency stating that performance and payment bonds for theproposed services will be provided.

ix. Discussion of the proposed financial arrangements between the vendor teams asthey relate to liability to City and the participants for work to be performed underthis project.

c) ExperienceProposers shall provide descriptions of the following:

i. Past and present performance in the energy industry, including any informationdescribing current direct access customers receiving competitive services from yourfirm. Include in this description the number of customers receiving power fromrenewable resources and the percentage and type of renewable resources thosecustomers are receiving.

ii. Presence of well developed power supply/planning/operating guidelines.

iii. Established relationships with reliable power suppliers including those fromrenewable resources.

iv. Corporate ownership and clear long term business plan (5 year if possible).

v. Ability to provide performance bonds, corporate warranties or other guarantees toinsure that the City and participants will not be subject to penalty payments to theState Power Exchange or ISO, or other costs associated with the vendor’s

vi. All pending civil or breach of contract legal actions with potential liability above$50,000 and all criminal legal actions above $50,000 or involving any period ofimprisonment now pending or which have occurred in the past 10 years against thecompany or any official, officer or employee of the company submitting a proposal.

d) Management TeamDescribe the proposed organization, including a diagram with subcontractors and keycompany personnel. Identify responsibilities of key personnel, including:

i. Name of Contract Administrator

ii. Office Location

iii. How services will be administered

iv. Roles and responsibilities of contractor and all subcontractors

v. Staffing levels for the project


Provide resumes of all key personnel who will be assigned to complete the work.

G. BONDS AND INSURANCEThe Proposer shall describe its ability to provide performance bonds, corporate warranties orother guarantees to insure that the City and any of its potential participating constituents will notbe subject to penalty payments to the State Power Exchange or ISO, or any other costs (such asthe cost of conducting another RFQ/RFP process) associated with the Proposer’s failure toperform. This shall include a statement that the Proposer is ready and able upon request toprovide to the City a letter from a bonding agency stating that performance and payment bondsfor the proposed services will be provided.

H. EVALUATION CRITERIAThe City will evaluate responses to this solicitation to determine which proposals appear mostlikely to provide the overall greatest value. All proposal attributes including price will be used toscreen the proposed responses and develop the short list of qualified vendors. Some of thespecific criteria to be considered in the evaluation of the proposals are:

1. Generation Source – The City will consider such factors as the environmental sensitivityof the generation source and the actual percentage of the entire power supply that isderived from renewable resources. The City will also take into consideration thegeographic source of the generation (in state vs. out of state) and any contribution to newrenewable resources. There will also be an evaluation of what role the City will be able toplay concerning the distribution of any financial premium it is paying for power fromrenewable sources.

2. Competitive Pricing – Although the City realizes the marketplace has priced generationfrom renewable resources at a premium, the ability of a Proposer to offer green power at acompetitive price is certainly of the utmost importance to the City. The City will alsoconsider the ability of the Proposer to offer credits to the City from the California EnergyCommission’s (CEC) Renewable Resource Trust Fund. Southern California Edison’scurrent tariff rates and charges will be the basis for determining the attractiveness of anoffering.

3. Competitive Offer – The ability to respond to the minimum requirements of the requestedservices as well as provide competitive offers to the otherwise available programs in thecurrent market.

4. Requirements Met - The demonstration by the Proposer of the ability to meet therequirements of the RFQ/RFP. This criterion will involve an assessment of the Proposer’sexperience in providing the types of services solicited in this RFQ/RFP, the Proposer’s


organizational stability, and supply attributes such as 1) the resources supplying thepower, 2) reserve support and arrangements and, 3) any other supply reliability relatedservice arrangements, and 4) the financial guarantees provided with the proposed services.

5. Favorable Terms - Favorable terms and conditions in the power purchase agreement.Power supply arrangements and pricing terms which provide the City flexibility, value,and minimal risk will also be afforded consideration in the selection process.

These criteria are not necessarily listed in order of priority nor indicate the weight that thedifferent criteria will receive in the evaluation of the responses.


NOTICE OF INTENT TO RESPOND (Attachment A)

Please place my name on the distribution list for further notices or correspondenceregarding this RFQ/RFP

Name: ____________________________________

Company: ____________________________________

Address: ____________________________________

____________________________________

____________________________________

Telephone: ____________________________________

Fax: ____________________________________

I plan to attend the Pre-Proposal Conference on December 1, 1998

Yes _______, # of Attendees ________


Proposer Information Form (Attachment B)

Statements shall be complete and accurate and in the form requested. Omission,inaccuracy or misstatement may be cause for the rejection of a proposal.

Legal Name of Firm Date Established Under Current Name

Street Address Firm’s Telephone Number

City/State/Zip Firm’s Fax Number

Type of Organization Firm’s World Wide Web Address(Corporation, Sole Proprietorship, Partnership, etc.)

Parent Company (if any)

r Yes (date) r No Registered to do business in California Affiliated Energy-related Companies

Business License (Documented) Taxpayer ID Number (Federal)

Name of Principal Contact Title of Principal Contact

Direct Phone Number of Contact Principal Contact E-mail Address

Address for Correspondence City/State/Zip for Correspondence

r Yes r NoRegistered as a disadvantaged/minority/woman -owned business Enterprise in California Energy Service Provider Registration #

FERC Registration # SEC Registration #

Date IDExecuted Scheduling Coordinator AgreementWith ISO

List any subcontractors proposed, their phone numbers, and areas of responsibility:


Proposer Information Form (cont.)

Has the organization been the subject of litigation for the failure to meet contracted obligations to deliveror supply electricity within the last 3 years? r Yes r No(If yes, give details in attached statement)

Has the organization filed for bankruptcy, or is it currently in default of business loans, or is it responsiblefor undisputed payments to suppliers or transporters which are over 60 days past due? (If yes, givedetails in attached statement) r Yes r No

Have any agreements held by the organization for providing electricity services ever been canceled? (Ifyes, give details in attached statement) r Yes r No

Is the organization currently engaged in merger or acquisition negotiations, or does it anticipate enteringinto merger or acquisition negotiations within the time period of this RFQ/RFP? (If yes, give details inattached statement) r Yes r No

Do you have a California or West Coast office? r Yes r No (Attach address and phone if different from previous page)

What year did your company begin selling electricity to theWholesale market? (date)Retail market? (date)

What is your volume of electric generation owned or dedicated under firm long-term supply contracts?Specify fuel type for each source of supplies (Coal, natural gas, diesel, solar, etc.).

California Western States International Total

Provide your total electric sales in dollars and in energy units for 1995 and 1996.1995

Total California1996

Total California

The undersigned hereby declares under penalty of perjury that all statements, answers andrepresentations made in this questionnaire are true and accurate, including all supplementarystatements hereto attached. In the case of a corporate proposer, the signature of one dulyauthorized representative is sufficient.

Signature/Date Signature/Date

Proposer’s Typed Name and Title Proposer’s Typed Name and Title


Services Offered by Proposer (Attachment C)

Table shall be complete and accurate and in the form requested. Omission, inaccuracyor misstatement may be cause for the rejection of a proposal. Please check theappropriate box identifying provider of each individual service.

Offered by

REQUESTED SERVICES

Prime

Proposer

Subcontractor

(name provider) OtherAlternatives5

SERVICES

Power Supplies o o o

Scheduling Coordination o o o

Ancillary Services o o o

Meter Reading/Data Management o o o

Load Profiling o o o

Billing o o o

Metering o o o

DASR submittal o o o

Energy Management(Conservation/Demand-sideManagement)

o o o

Other Value-Added Services(Describe in detail)

o o o

5 Describe options for procuring this service if proposal team does not offer it. (May include Power Exchange,UDC, or other options).


Generation Information Form (Attachment D)

Statements shall be complete and accurate and in the form requested.Omission, inaccuracy or misstatement may be cause for the rejection of aproposal.

Describe the type (hydro, solar, wind, geothermal, etc.) of renewablegeneration that will be used to meet the needs of the City as defined inthis RFP/RFQ:

• Describe the actual percentage of renewable generation that will be used to meet theneeds of the City as defined in this RFP/RFQ:

• Provide a statement as to whether or not the renewable generation that will be usedto meet the needs of the City as defined in this RFP/RFQ are from sources locatedwithin the State of California:

• If the renewable sources are located within the State of California, state whether ornot the Proposer is registered with the CEC as an in-state renewable supplier:

• If credits from the CEC are available to the City and/or its constituents, describe howthe Proposer plans to distribute the credit rebates to the appropriate parties. State ifthe Proposer has applied for and/or received such credits within the past six months.


• Describe the Proposers’ willingness to allow the City to determine how the premium itwould be paying for green power is allocated (i.e. specific technologies, specificgeneration plants):

Describe whether the premium the City would be paying would be distributedtowards developing new renewable generation resources or supporting existingrenewable generation resources. Also describe if these generation sources areinside or outside the State of California:

State if the power that will be used to meet the needs of the City asdefined in this RFP/RFQ is Green-e certified:


Proposer Costing Form (Attachment E)

Statements shall be complete and accurate and in the form requested. Omission, inaccuracy ormisstatement may be cause for the rejection of a proposal.

1. Enter supply bid for the entire load of combined constituents that have signed letters ofinterest (required). Additional supply bids may be submitted for the potential additional load.

2. Enter separately renewable resource supply bids for the entire load or for increments inblocks of loads (optional). An additional supply bid may be submitted for the potentialadditional load.

3. All supply bids must include power supplies, schedule coordination, and ancillary services todeliver actual power supplies through Direct Access. These required services must be pricedseparately and prices should not be bundled with the other offered services.

4. Proposers have flexibility to structure bids (e.g., fixed, indexed, TOU-independent, etc.).Any “shared-savings” benefits should be in addition to the quoted prices.

5. Enter minimum threshold load required to hold offered prices (if any).

6. Enter maximum capacity available (if any).

7. Enter the proposed contract term (e.g., 1 yr renewable, 4 yr, or specify number of years forlonger term).

8. Where demand charges do not apply, “NA” is an acceptable response.

9. Supply bid alternatives may be submitted. Copy the form to submit alternative bids.

10. Provide a detailed price and fee structure for each additional proposed service: Billing,Metering, Meter Reading/Data Management, Load Profiling, DASR Submittal/VerificationAgent (if required), Energy Management, and Other Value-added Services as described underSection 4.

Summer WinterEnergy Charge

($/kWh)Energy Charge

($/kWh)

Supply Bid(inclusive of powersupplies, schedulecoordination, andancillary services)

DemandCharge($/kW-

mo)On-

PeakSemi-Peak

Off-Peak

DemandCharge($/kW-

mo)On-

PeakSemi-Peak

Off-Peak

MinimumThresholdload (kWh

& kW)

MaximumcapacityAvailable

(kW)

ProposedContract

Term

Non-renewableResource

RenewableResource

Non-renewableResource

RenewableResource

Billing

Metering

MeterReading/DataMgmt.

Load Profiling

DASR Submittal

Energy Mgmt.

Other Value-added Services

Appendix F -- Public Agency Resources Page 106

Definitions (Attachment F)

AB 1890: Assembly Bill 1890 which was signed into law on September 23, 1996 asChapter 854 of the Statutes of 1996. AB 1890 provides the legislative guidance forrestructuring of the electric industry in California.

Ancillary services: A series of services self provided by the Scheduling Coordinatorsor procured by the ISO that support the transmission of energy from the generationsources to the loads while maintaining reliable operations of the ISO controlled grid.The services consist of:• Regulation - A mechanism to keep generation within certain levels,• Spinning reserve - See below,• Non spinning reserve - See below,• Replacement reserve - The ability to replace used spinning reserve,• Voltage support – A service required by generating units to maintain required grid

voltage criteria.• Black start - The ability to supply power from a generator that does not require using

electricity from the system to start.

Aggregator: Any marketer, broker, public agency, City, county, or special district, thatcombines the loads of multiple end-use customers in facilitating the sale and purchaseof electric energy, transmission, and other services on behalf of these customers.

California Public Utilities Commission (CPUC): An administrative agency establishedto regulate privately owned utilities and to secure adequate service to the public at rateswhich are just and reasonable both to customers and shareholders of the utilities.

Committed agencies: One of 29 agencies that have committed their load to theprocess.

Competition Transition Charge (CTC): A nonbypassable charge on each customer ofthe distribution utility, including those who are served under contracts with nonutilitysuppliers, for recovery of the utility’s transition costs.

Demand: The rate at which energy is delivered to loads and scheduling points bygeneration, transmission or distribution facilities. It is the product of voltage and the inphase component of alternating current measured in units of watts or standardmultipliers thereof, e.g., 1,000W=1kW etc.

Dispatchable load: Load which is the subject of an adjustment bid.

Direct Access (DA): A service election which allows customers to purchasecompetitive energy services from non-utility entities registered with the State ofCalifornia known as ESPs.


Direct Access Service Request (DASR): A service request form submitted to the UDCby the customer's authorized ESP requesting participation in Direct Access.

Energy Service Provider (ESP): An entity which provides electric service to a retail orend-use customer, but which does not fall within the definition of an electricalcorporation under Public Utilities Code Section 218.

Independent Third-Party Verification Agent (IVA): A company that obtains thecustomer's oral confirmation regarding any desired changes to obtain energy servicesfrom a different electric utility.

In State Renewable Supplier: A supplier of in state renewable generation that isregistered with the California Energy Commission as such.

Kilowatt (kW): Often referred to as electric demand, kW is the amount of energy drawnby a customer at a specific time.

Kilowatt-hour (kWh): Electric energy expressed in kilowatt-hours is measured bymultiplying the amount of electric power delivered (measured in watts) by the amount oftime over which the energy was consumed (measured in hours). Kilowatts equal onethousand watt-hours. Megawatts equal a million watt-hours or one thousand kilowatt-hours.

Load Factor: Load factor indicates to what degree a customer's actual energyconsumption (kWh) during a given time period to the consumption that would haveoccurred had consumption been fully sustained at the customer's maximum demand(kW) level. Load factors are expressed in percentages, and higher load factorsrepresent a more even distribution of load.

Independent System Operator (ISO): The ISO is responsible for the operation andcontrol of the statewide transmission grid.

In State Renewable Generation: Those renewable generation sources describedherein that are generated within the State of California.

Load Profiling: The process of graphing a customer’s demand for energy over a periodof time, typically a day, season or year.

Marketer: Any entity that buys electric energy, transmission, and other services fromtraditional utilities and other suppliers, and then resells those services at wholesale or toand end-use customer.

Non-spinning reserve: Reserve capacity of those generating units that are off line thatcan come online within one day.


Power Exchange (PX): The California power Exchange Corporation, a state chartered,non profit organization charged with providing the day ahead and hour ahead forwardmarket for energy and ancillary services, if it chooses to self provide in accordance withthe PX Tariff. The PX is a scheduling coordinator and is independent of the ISO andother market participants.

Potential Agencies: One of the 170 public agencies that may choose to participate inthe future.

Public Goods Charge (PGC): A nonbypassable surcharge imposed on all retail salesto fund public goods research, development and demonstration, and energy efficiencyactivities, and possibly to support low income assistance programs.

Qualifying Facility (QF): A small-power producer or cogenerator that can sell itselectricity to public utilities.

Rate Reduction Bonds (RRB): Bonds, notes, certificates of participation or beneficialinterest, or other evidences of indebtedness or ownership, issued pursuant to anexecuted indenture or other agreement of a financing entity, the proceeds of which areused to provide, recover, finance, or refinance transition costs and to acquire transitionproperty and that are secured by or payable from transition property.

Renewable Generation: Generation from biomass, solar thermal, photovoltaic, wind,geothermal, small hydropower (30 megawatts or less), waste tire, digester gas, landfillgas and municipal solid waste generation technologies.

Scheduling Coordinators (SCs): Entities certified by the Federal RegulatoryCommission that act as a go-between with the ISO on behalf of generators, supplyaggregators (wholesale marketers), retailers, and customers to schedule the distributionof electricity.

Spinning reserve: The percentage of an online generating unit’s electric generatingcapacity which is immediately available to meet changes in demand and is available fora minimum of two hours. This is one component of ancillary services as defined by theISO.

Utility Distribution Companies (UDCs): The entities which will continue to provideregulated services for the distribution of electricity to customers and serve customerswho do not choose direct access.

Vendor teams: Two or more potential service providers who plan to combine to provideelectricity and related services in response to a Request for Proposal.

Virtual Direct Access: Also known as the hourly PX rate option. This rate optionallows customers to purchase electricity on a rate schedule that reflects their usage inreal time or time of use increments based on the PX price.


For comparison purposes, all time periods are defined by the following table:

Summer (1st Sunday in Juneto 1st Sunday in October)

Winter (1st Sunday in October to 1st

Sunday in June )

On-Peak 12 pm – 6 pm Weekdays

Mid-Peak 6 pm – 11 pm

8 am – 12 pm

Weekdays 8 am – 9 pm Weekdays

Off-Peak 11 pm – 8 am

All day

Weekdays

Weekends&Holidays

9 pm – 8 am

All day

Weekdays

Weekends &Holiday


Appendix G -- Public Agency Resources Page 111 App

endi

x G

APPENDIX G – PUBLIC AGENCY RESOURCES

This appendix contains a partial list of public agencies that have released RFP/RFQ’sfor energy service providers.

Organization Contact Telephone Number

City of Oakland Scott Wentworth (510) 615-5421

City of Santa Monica Susan Munves (310) 458-8229

City of San Diego David Stucky (619) 685-1328

City of Long Beach Joan Collier (562) 570-2051

City of San Jose Rita Norton (408) 277-3861

City of Concord Peter Dragovich (925) 671-3085

Somona County Ardeth Andrew (707) 565-2906

University of California/California State University

Gary Matteson (UC) (510) 987-9268

Cove Communities Catherine Mitton (760) 324-4511

San Diego Regional EnergyOffice

Kurt Kammerer (619) 595-5630

San Diego Association ofGovernments

Steve Sachs (619) 595-5346

For information on how the Energy Commission's Energy Efficiency Programs

can help you reduce energy cost in your facilities, contact us at:

California Energy Commission

Nonresidential Buildings Office

1516 Ninth Street, MS 26

Sacramento, CA 95814

Telephone: (916) 654-4008

FAX: (916) 654-4304

Visit our Web Site:

http://www.energy.ca.gov/efficiency

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