BILL ANALYSIS Ó
AB 327
Page 1
Date of Hearing: April 15, 2013
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
AB 327 (Perea) - As Amended: February 13, 2013
SUBJECT : Electricity: natural gas: rates.
SUMMARY : This bill modifies statutory requirements specific to
residential rate design applicable to the customers of Investor
Owned Utilities (IOUs). Specifically, this bill :
a)Requires the California Public Utilities Commission (PUC),
when it approves changes to electric service rates charged to
residential customers, to determine that the changes are
reasonable, including that the changes are necessary in order
to ensure that the rates paid by residential customers are
fair, equitable, and reflect the costs to serve those
customers.
b)Requires the PUC to consider specified principles in approving
any changes to electric service rates.
c)Requires the PUC to report to the Legislature its findings and
recommendations relating to tiered residential electric
service rates in a specified rulemaking by January 31, 2014.
d)Recasts and revises limitations on electric and natural gas
service rates of residential customers, including the rate
increase limitations applicable to electric service provided
to California Alternate Rates for Energy (CARE) customers.
EXISTING LAW
1)Requires the PUC to allocate a 'baseline quantity of
electricity based on 50% to 60% of average residential
electricity consumption for customers served with both gas and
electricity or 60% to 70% for all electric residential
customers and to take climatic and seasonal variations into
account. (Public Utilities Code 739(a)(1)
2)Requires the PUC to set rates for the baseline quantity to be
the lowest rate and to allow increasing rates for usage in
excess of the baseline quantify. (Public Utilities Code
739(d)(1))
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3)Requires the PUC to avoid excessive rate increases for
residential customers and to establish an appropriate gradual
differential between the rates for the respective blocks of
usage (Public Utilities Code 739(d)(1))
4)Requires the PUC to retain an appropriate inverted rate
structure for residential customers and that if the PUC
increases baseline rates revenues resulting from those
increases they are to be used exclusively to reduce
nonbaseline residential rates. (Public Utilities Code 739.7)
5)Allows the PUC to make higher allocations for persons with
medical needs, such as emphysema, pulmonary patients, or
persons on life-support equipment. (Public Utilities Code
739(c))
6)Restricts the PUC from approving IOU rates that increase the
residential rates for electricity usage up to 130 percent of
the baseline quantities, by the annual percentage change in
the Consumer Price Index from the prior year plus 1 percent,
but not less than 3 percent and not more than 5 percent per
year. The annual percentage change in the Consumer Price Index
is calculated using the same formula that was used to
determine the annual Social Security Cost of Living Adjustment
on January 1, 2008. This restriction sunsets January 1, 2019.
(Public Utilities Code 739.9(a))
7)Restricts approval of mandatory or default time-variant or
real time pricing, or critical peak pricing for residential
customers and establishes these as opt-in programs only. In
addition, requires that customers be provided with one year of
data and one year of bill protection and caps billings to no
more than they would otherwise have been under the customer's
previous rate schedule. Also exempts medical baseline
customers. (Public Utilities Code 745)
8)Further restricts rates charged residential customers for
electricity usage up to the baseline quantities, including any
customer charge revenues, to not exceed 90 percent of the
system average rate prior to January 1, 2019, and not exceed
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92.5 percent after that date. (Public Utilities Code 739.9(b))
9)Establishes a program of assistance to low-income residential
customers with annual household incomes no greater than 200%
of federal poverty guidelines which reflects discounts based
on level of need and allows limited rate increase of up to 3%
annually, subject to limitations. CARE rates cannot exceed 80%
of the corresponding rates charged to non-CARE customers
(excluding non-bypassable charges). (Public Utilities Code
739.1(b)(4)
10)Allows low income customers to be exempt from paying
Department of Water Resources bond charge imposed pursuant to
Division 27 (commencing with Section 80000) of the Water Code,
the CARE surcharge portion of the public goods charge, any
charge imposed pursuant to the California Solar Initiative,
and any charge imposed to fund any other program that exempts
CARE participants from paying the charge. (Public Utilities
Code 739.1(g), 2851(d)(3), 379.6(h)
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's Statement . "The energy crisis is long over, but laws
meant to protect residential rate users are now preventing the
CPUC from governing the rate structure and making necessary
changes for the thousands of middle to low income families
struggling to pay high energy costs. For example, the gap
between Tier 2 and Tier 5 increased from 5 cents per kWh to 15
cents per kWh today. Absent rate reform, the gap between Tier
2 and Tier 5 will double to nearly 29 cents per kWh by 2022
causing tens of thousands of customers to pay rates
significantly higher than the actual cost of electricity.
Without legislative changes, the CPUC has only very limited
ability to fix this unfair residential electric rate
structure."
2)Energy Crisis of 2000-2001. During the energy crisis, AB1 x1
(Keeley, 2001) protected ratepayers from rampant price
fluctuations due to a dysfunctional wholesale electricity
market. AB1 x1 authorized the Department of Water Resources
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(DWR) to issue revenue bonds to purchase power on behalf of
the cash-strapped investor-owned utilities who couldn't keep
up with the volatile wholesale prices. Among other stabilizing
efforts, AB1 x1 prohibited the PUC from increasing rates for
usage under 130% of baseline until DWR bond charges are paid
off. These restrictions did not apply to customers of publicly
owned utilities, about 25% of electricity customers in
California.
SB 695 (Kehoe, 2009) was intended to minimize spikes in
electricity rates and provide relative stability and
predictability. Among its provisions, the bill removed the
freeze on Tier 1 and Tier 2 rates and replaced it with
formulas intended to allow gradual rate increases through 2018
at which time the caps for those increases would sunset.
Different formulas were created for CARE and non-CARE
customers.
SB 743 (Steinberg & Padilla, 2013) would eliminate CalWorks as
the index for CARE rate increases and in its place tie
increases to the annual percentage change in the Consumer
Price Index with a maximum cap of 4% per year. SB 743 does not
currently address the restrictions applicable to non-CARE
customers.
Instead of the approach used by SB 743, AB 327 removes the
prescriptive statutes that restrict rate design, establishes
principles of rate design for the PUC to follow, and directs
the PUC to develop the rates. Prior to the energy crisis, this
is how the PUC designed and implemented IOU rate structures.
3)PUC Residential Rate Design Proceeding Underway. On June 28,
2012, the PUC initiated a proceeding to examine current
residential electric rate design, including the tier structure
in effect for residential customers, the state of time variant
and dynamic pricing, potential pathways from tiers to time
variant and dynamic pricing, and preferable residential rate
design. This PUC proceeding is open to the public and allows
interested parties opportunities to participate by making
comments on PUC rulings, making rate design proposals,
commenting on proposals made by others, commenting on
proposals made by staff, and commenting on any decision made
by the PUC. According to the public schedule, final rounds of
comments are due mid-summer 2013. This would be followed by a
draft decision, which is also open to comments.
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In the PUC's decision to open the residential rate design
rulemaking, it noted the following:
"For example, in Southern California Edison's (SCE's) service
territory, 66 percent of residential sales are in Tiers 1 and
2.As a result, the remaining revenue requirement is borne by
the remaining 34 percent of their sales. However, currently 51
percent of their non-CARE, non-coastal customers end up in
Tier 4 or above, compared to 37 percent of their non-CARE,
coastal customers. The end-result is that non-coastal
customers are responsible for a greater portion of the
residential revenue requirement not recovered from Tiers 1 and
2 than coastal customers, although adjustments to the baseline
quantities for the various climate zones could alter this
relationship?
"Without being able to exceed the statutory limits on the
rates in Tiers 1 and 2, a greater percentage of a utility's
revenue requirement must be borne by customers in Tiers 3 and
4, especially those that do not participate in NEM [Net Energy
Metering]. This results in a subsidy as customers in Tiers 3
and 4 pay a higher average price for the same kilowatt-hour of
electricity than Tiers 1 and 2, regardless of when or where
that kWh is consumed.
"As evidenced by SCE's experience, it appears that customers
living away from the coast who tend to use more electricity
have borne the brunt of rate increases to meet utilities'
revenue requirements, even accounting for the use of
baselines."
According to the PUC testimony provided to the Assembly Rural
Caucus, IOU electricity rates have roughly tracked inflation
since 2003 and average between $0.14 and $0.16 among SCE, San
Diego Gas & Electric (SDG&E), and Pacific Gas and Electric
(PG&E). Yet some ratepayers, because they use more than their
Tier 1 and 2 allocations, will pay more than double this
because of current restrictions on rate design.
In testimony provided to the Assembly Rural Caucus, SCE showed
that residential rates are currently deviating significantly
from cost and that a customer who uses 1,200 kilowatt-hours
per month is paying more than $1,000 over cost each year to
subsidize low-usage customers.
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SCE also provided historical rate data showing the percent
change in rates for each of its 5 rate tiers. While Tier 1 and
Tier 2 rates have increased 7% and 12.8% between 2000 and
2013, Tiers 3, 4, and 5 have increased 107%, 132% and 156%
over the same period.
For SCE CARE customers, Tier 1 and 2 rates have decreased 16%
and 11 percent, respectively.
4)The Subject is Residential Electricity Rate Design . According
to the author this bill is intended to address limitations
that impact residential electricity rate structures. In other
words, residential gas rates and general provisions that
ensure affordable energy bills for low income ratepayers were
not intentionally included in the revisions to the rate design
statutes. To the extent that rate design applicable to CARE
customers is included, it is specific to rate design: AB 327
includes language to maintain protections for low income
ratepayers to ensure affordable energy bills. It is important
to make a distinction between rate design and the customer's
bill . Redesigning rates does not necessarily result in a
change in the customer's bill.
AB 327 specifies that the PUC should approve rates that are
"reasonable, including determining that the changes are
necessary in order to ensure that the rates and charges paid
by residential customers are fair, equitable, and reflect the
costs to serve those customers."
AB 327 places responsibility for rate design outcomes,
consistent with specified principles, on the PUC.
5)Rate Reform Impacts on Low Income households. AB 327 does not
alter existing residential rates. Rather, AB 327 provides the
PUC the authority and principles to design and set residential
electricity rates, including providing protection and
affordability for low income households. Currently, CARE
customers receive a 20% discount off of their electric and gas
bills. However, because of the cap on Tiers 1 and 2, the
effective discount can be much higher if the CARE customer is
using more than 130% of the baseline allocation. In some
instances, PG&E has reported providing discounts in the range
of 60% off of the otherwise applicable bill.
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In addition to the CARE discount, federal energy assistance
programs fund the local Home Energy Assistance Programs
(HEAP), and provide free weatherization and up to $300 per
year to assist with energy bills if they meet the income
qualifications, have a high energy burden, or have a resident
in the household that is part of a vulnerable population (i.e.
seniors over 60 years of age, disable persons, and children
under 5 years of age).
6)AB 327 specifies Rate Design Principles . AB 327 includes 'rate
design principles' to direct the PUC's development of new
residential rate designs. These include protections for
low-income customers, encouraging energy conservation,
clarity, simplicity, avoidance of cross-subsidization, and
transparency if those cross-subsidies are to advance
residential electricity policy goals.
In the PUC's March 19, 2013 ruling in its rate design
proceeding, the PUC adopted rate design principles based on
the PUC's consideration of stakeholder suggestions and
comments. The PUC's principles are similar to the principles
in AB 327:
a) Low-income and medical baseline customers should have
access to enough electricity to ensure basic needs (such as
health and comfort) are met at an affordable cost;
b) Rates should be based on marginal cost;
c) Rates should be based on cost-causation principles;
d) Rates should encourage conservation and energy
efficiency;
e) Rates should encourage reduction of both coincident and
non-coincident peak demand;
f) Rates should be stable and understandable and provide
customer choice;
g) Rates should generally avoid cross-subsidies, unless the
cross-subsidies appropriately support explicit state policy
goals;
h) Incentives should be explicit and transparent;
i) Rates should encourage economically efficient
decisionmaking;
j) Transitions to new rate structures should emphasize
customer education and outreach that enhances customer
understanding and acceptance of new rates, and minimizes
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and appropriately considers the bill impacts associated
with such transitions.
1)Spiking the bill. The result of changing rate design could be
that some individual household energy bills would be lower and
some could be higher. For a household receiving significant
discounts it might be the more significant impact. AB 327
provides that the PUC would address the bill impacts of
transitioning to a new rate design.
2)No action is action. Every three years the IOUs file their
General Rate Cases and request authority to recover expenses
and collect revenues to cover those expenses. In these rate
cases the costs are separated by each customer class
(residential, commercial, agriculture, industrial, and street
lighting) so that no class subsidizes the other, with the
exception of CARE expenses. These expenses include the cost of
generation (utilities do not earn a rate of return from energy
sales) and the cost of building and maintaining the
transmission and distribution system and emergency response.
Additional expenses include public purpose programs, such as
the CARE program, energy efficiency incentives, the California
Solar Initiative, the Self Generation Incentive Program
(SGIP), and charges related to the 2000-2001 energy crisis
(the Department of Water Resources Bond Charge and the
Competitive Transaction Charge).
Each year the IOUs must file requests to recover their
expenses. For those expenses related to serving residential
customers, the majority of those expenses must be placed on
the price paid for electricity by residential customers whose
usage exceeds their Tier 2 allocation. Until the statute
restricting rate design is modified, this will continue.
One of the growing expenses for utility customers are support
for CARE customers. CARE support has grown, particularly
during the recent recession, from which California is
beginning to emerge. In SCE service area, CARE participation
represented 32% of all SCE residential customers. Together,
they received $342 million in discounts from their energy
bills. For PG&E and SDG&E, CARE participation represents 30%
and 25% of their residential customers.
In addition to CARE, the Legislature has authorized several
programs to develop new technologies and business models.
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These include the SGIP, the California Solar Initiative (CSI),
Energy Efficiency Incentive Programs (EEIP), the Energy
Savings Assistance Program (ESAP, free weatherization and
appliances for qualified low-income homes), and Net Energy
Metering. These programs are funded by California IOU
ratepayers. In addition to these Legislatively-authorized
programs, the PUC has authorized ratepayer funding for an
energy research center at Lawrence Livermore Nuclear
Laboratory and the Electric Program Investment Program (energy
research and development).
As more customers elect to reduce electricity consumption
through energy efficiency measures or on-site self-generation,
fewer customers will remain to recover service costs. This
will result in even higher rates for those customers in the
higher tier usage.
Those customers who are not CARE customer, or have usage
within 130% of baseline, or who do not have self-generation
must then cover PUC approved utility expenses.
3)Rate protections for low income customers, monthly charges,
and time of use rates . Opponents to AB 327 voice several
concerns:
a) Discounts for low-income families could be substantially
reduced and monthly bills for many CARE customers could
skyrocket. AB 327 provides direction to the PUC that
discounts for low income and medical households should have
sufficient affordable electricity.
b) AB 327 imposes large monthly fixed charges with no
limitations. AB 327 does not have a provision regarding
monthly fixed charges.
c) Customers could be forced onto default "Time of Use"
rates. AB 327 does not modify the current statutory
requirements that restrict approval of mandatory or default
time-variant or real time pricing, or critical peak pricing
for residential customers nor does AB 327 require time of
use rates.
1)Current rate design isn't working. According to supporters of
AB 327 they suggest that:
a) Current rate designs create "punitive,
discriminatory rates that at the top tier rate exceed
PG&E's cost by over 200%, for "normal" power
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consumption."
b) Families of all incomes who live in hotter, inland
are being penalized
c) Current rate design results in subsidies for Coastal
households that are paid for by Central Valley
households.
d) Reforms adopted in 2009 (SB 695, Kehoe) allowed
limited rate reforms and continued restrictions on the
PUC to implement rate design reforms.
2)Suggested amendments . The author may want to consider the
following amendments to clarify the intent to address
electricity rates rather than both gas and electric, reinforce
existing provisions in AB 327 that provide low-income
ratepayer protection, and, the author may wish to revise AB
327's principles so that they are identical to the principles
in the PUC's March 13, 2013 rate design ruling.
On Page 3, beginning at line 34 through line 4 on Page 4:
(3) Beginning January 1, 2019, the commission shall may,
subject to the limitation in paragraph (4), establish rates
for CARE program participants that pursuant to this section
and Sections 739 and 739.9, subject to both of the following :
(A) The requirements of subdivision (b) of Section 382 that
the commission ensure that low-income ratepayers are not
jeopardized or overburdened by monthly energy expenditures.
(B) The requirement that the level of the discount for
low-income electricity and gas ratepayers correctly reflects
the level of need as determined by the needs assessment
conducted pursuant to subdivision (d) of Section 382.
Page 6, line 22 through 25:
(g) It is the intent of the Legislature that the commission
ensure CARE program participants are afforded the lowest
possible receive affordable electric and gas rates service
that does not impose an unfair economic burden and , to the
extent possible, are exempt from additional surcharges
attributable to the energy crisis of 2000-01 .
Beginning on Page 8, line 30:
739.9. (a) In approving changes to the rates and charges to
residential customers for electricity usage pursuant to this
part, the commission shall determine that the changes are
reasonable, including determining that the changes are
necessary in order to ensure that the rates and charges paid
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by residential customers are fair, equitable, and reflect the
costs to serve those customers.
(b) In approving any changes to the rates and charges to
residential customers for electricity usage pursuant to this
part, the commission shall consider be consistent with the
following principles:
(1) Low income and medical baseline customers should have
access to a supply of electricity that is sufficient to ensure
basic needs at an affordable cost, including a reasonable
implementation schedule for changes in rates to ensure that
the implementation of rate changes to residential customers do
not unfairly burden low income customers and that sufficient
outreach and education is provided to the customers affected
by the changes.
(2) Rates should be based on marginal cost and cost causation.
(3) Rates should encourage conservation and energy efficiency,
including reduction of both coincident and noncoincident peak
demand.
(4) Rates should be understandable to consumers and provide
stability, simplicity, and customer choice.
(5) Rates should avoid cross-subsidies, unless the
cross-subsidies are reasonable, transparent to customers, and
support explicit state residential electricity policy goals.
(1) Low-income and medical baseline customers should have
access to enough electricity to ensure basic needs (such as
health and comfort) are met at an affordable cost;
(2) Rates should be based on marginal cost;
(3) Rates should be based on cost-causation principles;
(4) Rates should encourage conservation and energy
efficiency;
(5) Rates should encourage reduction of both coincident and
non-coincident peak demand;
(6) Rates should be stable and understandable and provide
customer choice;
(7) Rates should generally avoid cross-subsidies, unless the
cross-subsidies appropriately support explicit state policy
goals;
(8) Incentives should be explicit and transparent;
(9) Rates should encourage economically efficient
decisionmaking;
(10) Transitions to new rate structures should emphasize
customer education and outreach that enhances customer
understanding and acceptance of new rates, and minimizes
and appropriately considers the bill impacts associated
with such transitions.
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1)Related Legislation.
AB 1755 (Perea, 2012) authorized the PUC to approved fixed
per-customer charges for residential customers beyond the
statutory caps on rate increases for tier 1 and 2 customers to
cover the fixed costs of electric service if commission finds
the charges are just and reasonable and will provide rate
relief to upper tier customers.
SB 743 (Steinberg and Padilla, 2013) would eliminate CalWorks
as the index for CARE rate increases and in its place tie
increases to the annual percentage change in the Consumer
Price Index with a maximum cap of 4% per year. Status: Passed
from Senate Energy Utilities & Communications Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
100 Black Men of Long Beach
1st Guaranty Mortgage and Realty
Age Well Senior Services
American Family Housing
Antelope Valley Board of Trade
Assured Coin and Loan
Barstow Community Hospital Auxiliary
Barstow Unified School District
Blong Xiong, Councilmember, City of Fresno
Border Transportation Council
Building Industry Association of Fresno/Madera Counties
Building Industry Association of the Greater Valley
Business Resource Group
C&C Development (Affordable Housing)
California Asian Pacific Chamber of Commerce
California Black Chamber of Commerce
California League of Food Processors
California Manufacturers & Technology Association (CMTA)
California Retailers Association (CRA)
CAPC, Inc.
Cement Masons (Local 500)
Central Valley Opportunity Center, Inc.
City Fabric (Business)
City of Coalinga
City of Livingston
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City of Mendota
City of Reedley
Community Advocates for People with Choices (CAPC), Inc.
Community Women of San Gabriel Valley
Congress of California Seniors
Cortez Communications, LLC.
Costa Mesa Chamber of Commerce
County of Tulare Board of Supervisors
CTI Environmental, Inc.
Cyber Risk Insurance Brokers
Delhi Center
Donald Garcia, Former Mayor and Councilmember, City of Aliso
Viejo
Ed Gallo, Council Member, City of Escondido
El Concilio
Ernest Ewin, Council Member, City of La Mesa
FOCUSCOM, Inc.
Fresno Barrios Unidos
Fresno Metro Black Chamber of Commerce
Gardena Valley Chamber of Commerce
Gary Kendrick, City Council, City of El Cajon
Gi and Associates
GRCN Connecting Communities, Inc. (Child and Youth Services)
H.O.P.E. of the Mountain Empire
Harvey L. Hall, Mayor, City of Bakersfield
Hawthorne Chamber of Commerce
Helpline Youth Counseling (HYC)
Hilltop Group, Inc.
Hispanic Outreach Task Force
Independent Energy Producers Association (IEP)
Individual Letters- 9
International Brotherhood of Electrical Workers (IBEW Local 465)
International Brotherhood of Electrical Workers (IBEW Local 47)
International Brotherhood of Electrical Workers (IBEW Local 569)
James Dahl, Former Mayor and Councilmember, City of San Clemente
Jess E. Van Deventer, Sweetwater Authority Board
John F. Simon, Lumber Estimating Service
Kern County Taxpayers Association
Ledford Enterprises (LE)
Leticia Perez, Supervisor, Kern County
LifeHOUSE Management Services
Mark Muir, Council Member, City of Encinitas
Martinez Supply
Mary England, Former Councilmember, City of Lemon Grove
Meals on Wheels West (Los Angeles)
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Mercado Business Association
Mike Murphy, Council Member, City of Merced
Mountain Health & Community Services
Oliver L. Baines, Council Member, City of Fresno
Orange County Hispanic Chamber of Commerce
Orange Senior Center
Pacific Gas and Electric Company (PG&E)
Pringle Insurance Services, Inc.
Saddleback College Foundation
Sam Abed, Mayor, City of Escondido
San Diego Gas & Electric Company (SDG&E)
San Diego Habitat for Humanity
San Diego Regional Minority Supplier Development Council
San Joaquin Valley Clean Energy Organization
Santa Ana College Foundation
Save our Rural Community (S.O.R.E.)
SELAC Educational Foundation
Senior Advocates of the Desert
Sepulveda Group Enterprises, Inc.
Shirley Horton, Former Assemblymember 78th AD, and Mayor of
Chula Vista
Sierra Dawn Estates (Mobile Home Park)
Southern California Edison (SCE)
Stalwart Communications
The Center Long Beach
The San Fernando Valley Green Team
Thomas W. Amend Drywall Contractor
Trilogy PR Group
United Association of Food Trucks of San Diego
United Association of Plumbers and Steamfitters, Local Union 230
United Cambodian Community (UCC)
United Communities Network
Whittier Uptown Association
Opposition
AARP California
Division of Ratepayer Advocates (DRA)
The Greenlining Institute
The Utility Reform Network (TURN)
Analysis Prepared by : Susan Kateley / U. & C. / (916)
319-2083 `
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