Consumer protection for electricity consumers has an interesting history in California. Assembly Bill 1890, the landmark electricity restructuring legislation which was passed unanimously by the California Legislature in August of 1996, directed the California Public Utilities Commission to implement the registration of would-be electric service providers (ESPs). The registration was mandatory for ESPs which wanted to sell power to residential and small commercial customers and optional for firms who intended to focus on larger customers. The Commission responded by issuing a simple one-page registration form which essentially required name, address, telephone number and the payment of a $100 fee in order to be registered in the state to sell electricity.

The Legislature later adopted more detailed consumer protection safeguards through its passage of Senate Bill (SB) 477. Among other things, SB 477 required that all ESPs offering electrical services to residential or small commercial customers provide "proof of financial viability" and "proof of technical and operational ability" as a precondition to registration. The bill also directed the Commission to develop uniform standards to determine these items.

This Commission’s usual deliberative process was accelerated by "l’affaire Boston-Finney." For those of you not familiar with this episode, a multi-level marketing firm headquartered in Pennsylvania and allegedly run by a 19 year old college dropout, registered with the CPUC and began offering distributorships, for a fee, to California consumers. Both the California Attorney General’s office and the Commission began investigating complaints about the firm. On February 19, the Commission issued a press release which stated, in part, that, "At a prehearing conference last week, CPUC staff charged Boston-Finney with violating the Public Utilities Code by misrepresenting the nature of its service and the level of savings to its customers; operating through dishonesty, fraud and deceit; and, lacking the financial and operational capabilities to provide service." The press release also said, "Boston-Finney has also been charged by the California State Attorney General with running an illegal pyramid scheme and making misleading or false claims." Boston-Finney’s license to market power in the state was revoked and investigations continue in both California and Pennsylvania.

This episode led to editorials in major California newspapers suggesting that the Commission wasn’t doing its job in terms of providing consumer protection to California electric customers. In response, the Commission issued a draft decision on consumer protection issues in early March, solicited comments from interested parties and issued a final decision in just twenty days. Decision 98-03-072 adopted interim standards for proof of financial viability and proof of technical and operational abilities. It also revised the ESP registration form and required all currently registered ESPs to supplement its registration information and to submit certain required documents. In addition, it established rules and procedures for ESPs to provide notices to consumers of the terms and conditions of service offered by the ESP as well as a requirement that standard service plans be filed with the Commission. All of these various rules and procedures had an immediate and direct impact on the operations of all ESPs serving residential and small commercial customers.

Effective immediately, the decision prohibited all currently registered ESPs who did not have a signed agreement with a California electric utility from marketing, advertising, or offering for sale any retail direct access electrical services to any residential or small commercial customers. In addition, all ESPs were required to supplement their ESP registration information by completing a new and much more detailed "Electric Service Provider Application Registration." ESPs are now required to provide a great deal of background information, including even a completed fingerprint card for managers, directors and officers.

All registered ESPs who have already signed up or initiated a direct access service request on behalf of a residential or small commercial customer, or who intend to do so, are also required to post with the Commission a cash security deposit or a financial guarantee bond in the amount of $25,000. As an ESP’s number of customers increase, the security deposit increases up to a maximum of $100,000. The decision also proposes a set of final standards regarding proof of financial viability and proof of technical and operational ability. After submission of comments by interested parties, the Commission will issue a decision adopting final standards.

In addition, each ESP is required to provide a copy of all of its agreements with its scheduling coordinators or declarations from each scheduling coordinator with which the ESP has an agreement. The ESP is also required to submit a copy of its notice of terms and conditions when it signs up its first customer or when the first standard service plan filing of the ESP is due, whichever is earlier. The failure of an ESP to update the required information or to provide the required information will lead to a suspension of the ESP’s registration. Any currently registered ESP that cannot comply with the revised registration requirements, or who does not want to market to residential and small commercial customers at this time, may request in writing that its registration be placed on "inactive status."

Although registration is clearly mandated for ESPs serving smaller customers, ESPs who intend only to serve large commercial (above 20kW) and industrial customers now need to decide whether continued registration is worth the hassle of complying with the foregoing requirements. While tedious, the registration requirements will not deter any established firm which can demonstrate its technical, operational and financial viability. In the long run, the new standards should operate to provide at least some degree of protection to consumers who might otherwise be taken advantage of by unscrupulous marketers. Interestingly, the Commission is now considering the adoption of similar standards in the natural gas industry, where previously there has been no registration requirements imposed on gas marketers.