BILL ANALYSIS Ó
AB 327
Page 1
ASSEMBLY THIRD READING
AB 327 (Perea)
As Amended April 23, 2013
Majority vote
UTILITIES & COMMERCE 15-0
APPROPRIATIONS 17-0
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|Ayes:|Bradford, Patterson, |Ayes:|Gatto, Harkey, Bigelow, |
| |Bonilla, Buchanan, | |Bocanegra, Bradford, Ian |
| |Chávez, Fong, | |Calderon, Campos, |
| |Beth Gaines, Garcia, | |Donnelly, Eggman, Gomez, |
| |Gorell, | |Hall, Rendon, Linder, |
| |Roger Hernández, Jones, | |Pan, Quirk, Wagner, Weber |
| |Quirk, Rendon, Skinner, | | |
| |Williams | | |
| | | | |
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SUMMARY : Modifies statutory requirements specific to
residential rate design applicable to the customers of Investor
Owned Utilities (IOUs). 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 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.
2)Requires PUC to consider specified principles in approving any
changes to electric service rates.
3)Requires 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 : According to the Assembly Appropriations
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Committee:
1)Unknown, potentially significant rate increase or decreases
among IOU customers.
2)Minor, absorbable costs to PUC to establish new rates.
COMMENTS :
1)Author's Statement . "The energy crisis is long over, but laws
meant to protect residential rate users are now preventing
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 2000-01. During the energy crisis, AB 1 X1
(Keeley), Chapter 4, Statutes of 2001, protected ratepayers
from rampant price fluctuations due to a dysfunctional
wholesale electricity market. AB 1 X1 authorized the
Department of Water Resources (DWR) to issue revenue bonds to
purchase power on behalf of the cash-strapped IOUs who could
not keep up with the volatile wholesale prices. Among other
stabilizing efforts, AB1 X1 prohibited 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), Chapter 337, Statutes of 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
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customers.
SB 743 (Steinberg and Padilla) of 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, this bill removes the
prescriptive statutes that restrict rate design, establishes
principles of rate design for PUC to follow, and directs the
PUC to develop the rates. Prior to the energy crisis, this is
how PUC designed and implemented IOU rate structures.
3)PUC Residential Rate Design Proceeding Underway . On June 28,
2012, 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 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.
In 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
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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 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 and Electric (SDG&E), and Pacific Gas and Electric
(PG&E). Yet some ratepayers 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.
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. This bill 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.
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This bill 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."
This bill places responsibility for rate design outcomes,
consistent with specified principles, on PUC.
5)Rate Reform Impacts on Low Income households . This bill does
not alter existing residential rates. Rather, this bill
provides 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 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.
6)AB 327 specifies Rate Design Principles . This bill 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 PUC's March 19,
2013, ruling in its rate design proceeding, PUC adopted rate
design principles based on PUC's consideration of stakeholder
suggestions and comments. The PUC's principles are identical
to the principles in this bill. These principals include
explicit protections for low income and medical baseline
customers and provides for transitions to new rate structures,
if adopted, to appropriately minimize bill impacts.
7)No Action is Action . For residential customers, rate
increases must be disproportionately placed on the price paid
for electricity by residential customers whose usage exceeds
their Tier 2 allocation.
SCE historical rate data shows the disproportionate 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.
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Until the statute restricting rate design is modified, this
will continue.
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.
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.
For SCE CARE customers, Tier 1 and 2 rates have decreased 16%
and 11%, respectively.
Those customers who are not CARE customers, or have usage
within 130% of baseline, or who do not have self-generation
must then pay PUC approved utility expenses.
In addition to CARE, the Legislature has authorized several
ratepayer funded programs to assist low income households,
procure energy efficiency, and develop new technologies and
business models. These include the Self Generation Incentive
Program (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, 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).
Analysis Prepared by : Susan Kateley / U. & C. / (916)
319-2083
FN: 0000652
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