BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 327
                                                                  Page  1

          Date of Hearing:   May 15, 2013

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                  Mike Gatto, Chair

                    AB 327 (Perea) - As Amended:  April 23, 2013 

          Policy Committee:                              Utilities and  
          Commerce     Vote:                            15-0

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:              

           SUMMARY  

          This bill deletes specified electricity and natural gas rate  
          restrictions and establishes principles of rate design, and  
          directs the Public Utilities Commission (PUC) to establish new  
          rates.  Specifically, this bill: 

          1)Requires the California Public Utilities Commission (PUC),  
            when it approves changes to electric service rates charged to  
            residential customers, to determine if the changes are  
            reasonable, including whatever changes are necessary to ensure  
            the rates paid by residential customers are fair, equitable,  
            and reflect the costs to serve those customers. 

          2)Requires the PUC to consider specified principles in approving  
            any changes to electric service rates.

          3)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. 

          4)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. 

           FISCAL EFFECT  

          1)Unknown, potentially significant rate increase or decreases  
            among investor-owned utility customers.

          2)  Minor, absorbable costs to the PUC to establish new rates.








                                                                  AB 327
                                                                  Page  2


           COMMENTS  

           1)Rationale.   According to the author, the energy crisis is  
            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 in one day recently.   
            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.   
                
            This bill allows PUC to adjust the residential electric rate  
            structure.

           2)Background.   During the energy crisis, AB1 x1 (Keeley, 2001)  
            protected ratepayers from rampant price fluctuations in the  
            wholesale electricity market.  AB1 x1 authorized the  
            Department of Water Resources (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

           3)Support.   Numerous utilities, labor and business  
            organizations as well as local governments support this  
            legislation asserting current rates are punitive and  
            discriminatory at the top tier.  Families and businesses who  
            live in hotter, inland areas are subsidizing the rates for  








                                                                  AB 327
                                                                  Page  3

            cooler coastal residents.  
             
            4)Opposition.  This bill is opposed by senior organizations, the  
            Division of Ratepayer Advocates, and the Utility Reform  
            Network who assert the previous formula did not work and  any  
            changes to the law require further protections for low-income  
            households.

             
           
           Analysis Prepared by  :    Jennifer Galehouse / APPR. / (916)  
          319-2081