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