BILL ANALYSIS                                                                                                                                                                                                    1
1





   SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
                  DEBRA BOWEN, CHAIRWOMAN


 ------------------------------------------------------------ 
|SB 1159 - Sher                |Hearing Date:April 13,    | S|
|                              |1999                      |  |
|------------------------------+--------------------------+--|
|As Introduced:  February 26,  |                          | B|
|1999                          |                          |  |
|------------------------------+--------------------------+--|
|                              |                          |  |
|------------------------------+--------------------------+--|
|                              |                          | 1|
|------------------------------+--------------------------+--|
|                              |                          | 1|
|------------------------------+--------------------------+--|
|                              |                          | 5|
|------------------------------+--------------------------+--|
|                              |                          | 9|
|------------------------------+--------------------------+--|
|                              |                          |  |
 ------------------------------------------------------------ 

                         DESCRIPTION
  
  Current law  establishes procedures for a customer to change  
electric service providers and requires the electric  
service provider to contract with a third-party to verify  
that the customer intended to change electric service  
providers.

  This bill  deletes the third-party verification requirement  
for residential customers when the change is made via the  
Internet or via written transaction. When the change is  
made via the Internet, this bill requires the customer to  
be asked to respond to a separate screen acknowledging  
their desire to change electric service providers.  When  
the change is made via written transaction, this bill  
requires the customer to sign an acknowledgement that they  
do indeed want to change electric service providers.

  Current law  says that a change in electric power providers  
by an aggregator does not trigger the third party  











verification/confirmation procedures in current law.  

  This bill  deletes this provision.

  This bill  requires the aggregator or provider of electric  
power to keep a record of the verification or confirmation  
for two years and to make those records available to the  
California Public Utilities Commission (CPUC).

                         KEY QUESTION
  
1)Should the current requirement to verify a customer's  
  desire to change electric service providers be relaxed?

                          BACKGROUND
  
For telephone customers, the unauthorized switching of a  
customer's long-distance telephone company has been a  
rampant and persistent problem.  This problem, known as  
slamming, has been the most common complaint received by  
the CPUC over the past several years.  A series of federal  
and state laws have been enacted to attempt to get a handle  
on the problem and the change in state law that seems to be  
the most responsible for a decrease in slamming complaints  
is the requirement for third-party verification.

Under this requirement, a long-distance telephone company  
must use a third-party to verify the customer's desire to  
switch.  Concerns about similar slamming problems arising  
in the newly-competitive electric industry prompted a  
similar third-party verification requirement to be imposed  
when competition was first permitted in 1998.  

The author believes the current verification requirements  
are too strict and lead to customer frustration, and can  
delay, or in some cases prevent, a customer from switching  
electric service providers.  To overcome these problems,  
this bill eliminates third party-verification when a  
customer changes electric service providers through the  
Internet or in writing.  Under those circumstances, this  
bill requires customers to confirm their desire to switch  
providers by using a separate screen to confirm a switch  
order in the case of the Internet and, in the case of a  
written order, by requiring a separate signature set off in  










a box.  

Because the author believes slamming problems arise  
primarily in a telemarketing setting, this bill retains  
current law's third-party verification requirements when a  
customer is telemarketed.
 
                           COMMENTS
  
1)The supporters of the bill argue that the third-party  
  verification requirements are unnecessary, causing  
  unwanted telemarketing and unnecessary delay in switching  
  electric service providers.  This bill, according to the  
  supporters, does not unduly dilute consumer protections  
  because the third-party verification requirement remains  
  for telemarketers.  Further, according to the supporters,  
  this bill benefits electric service providers, because  
  their cost of acquiring new customers will be reduced.

2)While the supporters of the bill articulate a reasonable  
  case, it should be noted that  evidence that the  
  third-party verification slows down or prevents customers  
  from changing electric service providers is largely  
  anecdotal.  The traditional consumer protection groups  
  don't share the concerns of this bill's supporters,  
  though they do not oppose the bill.  Given the impending  
  lifting of the rate freeze in San Diego Gas & Electric's  
  service territory, customer confusion may be high for  
  some time which may create an atmosphere ripe for  
  consumer rip-offs. 

3)While it could be argued that "if third-party  
  verification is good enough for the telecommunications  
  industry, then it's good enough for the electric  
  industry," it should be noted that differences between  
  the two markets are significant:

     1.     Profit margins in telecommunications markets  
       are much higher than in electricity markets.

     2.     It's far easier to switch telecommunications  
       companies than electric service providers.   
       Telecommunications companies only require the  
       customer's telephone number to switch, while  










       electric service providers require the customer's  
       account number.

     3.     The qualifications to be registered as a  
       telecommunications company are far easier to meet  
       than the qualifications needed to be registered as  
       an electric service provider.

1)The bill deletes the third-party verification requirement  
  when a customer goes through a written transaction,  
  instead requiring the customer to confirm their desire to  
  switch by signing a separate line acknowledging that they  
  want to change electric service providers.  The  
  experience with the telecommunications industry has shown  
  that obtaining a customer's signature is far from being a  
  foolproof way to ensure that the customer knowingly wants  
  to switch providers.  Unscrupulous companies have  
  fraudulently obtained customer signatures by getting  
  customers to sign documents which are checks or look like  
  sweepstakes entries.  Unbeknownst to the customer, that  
  signature authorizes the switching of their service  
  provider.   The author may wish to consider an amendment  
  requiring the signature to be on a separate document, one  
  that isn't a check or sweepstakes form, clearly stating  
  the customer's acknowledgment and desire to change  
  providers  .

2)The bill deletes the third-party verification requirement  
  when a customer changes providers via the Internet,  
  instead requiring the customer to confirm their desire to  
  switch by responding to a separate screen.  However, when  
  dealing with sales over the Internet, the seller has no  
  way of knowing if they are dealing with the  
  decision-maker for the account.  On written documents,  
  signatures can be checked, but over the Internet no such  
  verification exists, absent the use of a digital  
  signature.  Indeed, because of the anonymity of the  
  Internet people feel freer to do or say things they would  
  never do or say in person.  Add to this the relatively  
  unregulated, untamed, caveat emptor world of the Internet  
  and the potential for problems is high.  These problems  
  could be mitigated by strengthening the penalty  
  provisions of current law, which impose a penalty when  
  verification procedures aren't followed.   The author may  










  wish to consider imposing the penalty when the customer  
  has been switched without their consent, and to not hold  
  the customer liable for any premium above what they would  
  have paid under their original provider  .

3)The bill also requires electric service providers to  
  retain their change confirmation records for two years  
  and to make those records available to the CPUC.   The  
  author may wish to consider amending the bill to also  
  make those records available to the customer upon  
  request  .

                          POSITIONS
  
  Support:
  California State Council of Laborers
Clean Power Campaign
Green Mountain Energy Resources
New Energy Ventures, Inc. (NEV)
Office of Ratepayer Advocates
Southern California Edison Company
  
Oppose:
  None reported to Committee.


Randy Chinn 
SB 1159 Analysis
Hearing Date:  April 13, 1999