BILL ANALYSIS                                                                                                                                                                                                    Ó

                   Senate Appropriations Committee Fiscal Summary
                            Senator Kevin de León, Chair

          AB 327 (Perea) - Electricity: natural gas: rates: net energy  
          metering: California Renewables Portfolio Standard Program.
          Amended: August 21, 2013        Policy Vote: EU&C 10-1
          Urgency: No                     Mandate: Yes (see staff comment)
          Hearing Date: August 26, 2013                     Consultant:  
          Marie Liu     
          Bill Summary: AB 327 would restructure the rate design for  
          residential electric customers, create a new net energy metering  
          program, and specify that California Public Utilities Commission  
          (CPUC) may require the procurement of eligible renewable energy  
          resources in amounts greater than what is required in statute.

          Fiscal Impact (as proposed to be amended): 
              Annual costs of approximately $116,000 from the Public  
              Utilities Reimbursement Account (special) for the workload  
              involved in conducting a triennial assessment of the needs  
              of low-income electricity and gas customers.
              Cost pressures in the millions to tens of millions of  
              dollars to the General Fund and various special funds to the  
              state as a ratepayer should the CPUC exercise the authority  
              in this bill to raise renewable energy procurement  
              One-time costs of at least $120,000 from the Public  
              Utilities Reimbursement Account for the development of a new  
              NEM standard contact and tariff, a transition period for  
              existing NEM customers, and the eligible period for a  
              fuel-cell standard tariff. 
              One-time costs of at least $120,000 and ongoing costs of up  
              to $120,000 from the Public Utilities Reimbursement Account  
              to review distribution resource plans and to establish  
              criteria on evaluating the success of investments made  
              pursuant to such a plan. 
              Cost pressures in the hundreds of thousands of dollars to  
              the General Fund and various special funds to the state as a  
              ratepayer to the extent that the distribution resources plan  
              proposals lead to necessary infrastructure spending that  
              will be paid by the ratepayers.


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          Page 1

          Background: Residential Electric Rates - Residential electric  
          rates in the territories of the three largest electric  
          corporations are generally designed in a four or five-tiered  
          structure based on the customer's quantity of electricity usage.  
          Within prescribed usage tiers, the amount of electricity  
          consumed is priced at increasing per-unit rates. Tier 1 is  
          baseline usage and tier 2 is 130% of baseline. 

          In response to the energy crisis, the Legislature froze rates  
          for tiers 1 and 2 in 2001. While rates to customers were frozen,  
          utilities continued to experience increased costs for  
          generation, distribution, transmission and new programs created  
          by the Legislature and the CPUC. These costs have been  
          disproportionally borne by customers whose electricity usage  
          falls in the upper tiers (3, 4, and 5). In 2009, the Legislature  
          passed SB 695 (Kehoe) Chapter 337/2009, which allowed the tiers  
          1 and 2 rates to gradually increase until 2018 at which time the  
          freeze would be completely lifted. These rate adjustments,  
          overall, were revenue neutral to the IOUs as increases in tiers  
          1 and 2 resulted in commensurate decreases in rate for tiers 3,  
          4, and 5.

          CARE Program- Existing law requires the California Public  
          Utilities Commission (CPUC) to establish the California  
          Alternative Rates for Energy or CARE program, which provides  
          assistance to low-income electric and gas customers with annual  
          household incomes less than 200% of federal poverty guideline  
          levels. The cost of this program is spread across multiple  
          classes of customers. CARE rates cannot exceed 80% of rates for  
          non-CARE residential customer and is exempted from certain  
          charges, including the charge to support CARE and the California  
          Solar Initiative (CSI).  CARE rates were also frozen in response  
          to the energy crisis, but SB 695 allowed the rates to be  
          increased at the same rate as increases in benefits under  
          CalWorks, not to exceed 3% through 2018. However, due to budget  
          impacts on the CalWorks program, there have been no increases in  
          benefits, thus effectively maintaining the freeze of CARE rates  
          at 2001 levels. 

          Existing law requires the CPUC to conduct an assessment of the  
          needs of low-income electricity and gas ratepayers with the  
          assistance of the Low-Income Oversight Board beginning in 2002.  
          To date, the CPUC has done conducted a comprehensive assessment  


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          Page 2

          twice and a narrowly targeted assessment once. 

          Time-of-use (TOU) pricing - SB 695 also prohibited the CPUC from  
          permitting a utility to employ mandatory or default TOU pricing  
          for any residential customer prior to January 1, 2014.  However,  
          mandatory or default TOU pricing can be authorized as early as  
          January 1, 2013 if the utility caps the customer's bill at the  
          level it would have been had the customer not changed his rate  
          schedule to TOU pricing.  Mandatory or default real-time pricing  
          may be permitted as early as January 1, 2020.  Beginning January  
          1, 2014, the CPUC may approve TOU pricing in a manner consistent  
          with the Public Utilities Act if the customer has the option not  
          to be subject to TOU pricing and that option can be exercised  
          without charge.

          Net metering - Existing law requires electric utilities to  
          credit all electricity generated by a customer-owned renewable  
          energy system against the customer's usage of electricity sold  
          by the utility, a procedure known as "net energy metering"  
          (NEM). Under the CSI, customers who install solar system receive  
          "full retail NEM" where the customer is exempt from paying  
          transmission and distribution costs on electricity provided by  
          the utility (the electricity from the grid that the customer  
          uses when his or her solar panels are not producing, like at  
          night). Every electric utility is required to develop a NEM  
          tariff to provide for net energy metering, which is available to  
          customers on a first-come-first-serve basis until the total  
          generating capacity exceeds five percent of the utilities'  
          aggregate customer peak demand.

          As transmission and distribution costs are typically one-half to  
          two-thirds of a residential customer's billing, full retail NEM  
          offers a substantial subsidy to NEM customers with the costs  
          being shifted to non-NEM customers. Given that rooftop solar now  
          generates 1,173MW in the IOU territories, the cost of full  
          retail NEM comes at a cost of approximately $60 million to  
          non-NEM customers across the state. The Legislature has in the  
          past justified this subsidy as it stimulates the solar industry,  
          helps the state reach its renewable energy goals, and provides  
          other external benefits. 

          Renewable Portfolio Standard - California's Renewable Portfolio  
          Standard (RPS) requires investor-owned utilities (IOUs),  
          electric service providers, and community choice aggregators to  


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          increase procurement from eligible renewable energy resources  
          along a statutorily determined schedule.

          Proposed Law:  Regarding residential rate design  - This bill  
          would delete all existing restrictions on rate increases. 

          This bill would allow the CPUC to adopt a fixed charge up to $10  
          per month or $5 per month for CARE customers for the purpose of  
          collecting a reasonable portion of the fixed costs of providing  
          residential electric service. The fixed charge must reasonably  
          reflect the different costs of serving small and large  
          customers, not unreasonably impair conservation and energy  
          efficiency incentives, and not overburden low-income customers.  
          Beginning January 1, 2016, the maximum fixed charge may be  
          adjusted annually to the Consumer Price Index. The CPUC would be  
          able to consider whether minimum bills are appropriate as a  
          substitute for fixed charge.

          This bill would delete the current restrictions on TOU pricing  
          and instead allow the CPUC, beginning January 1, 2018, to  
          require or authorize an IOU to use default time-of-use pricing  
          for residential customers. The TOU pricing would be subject to  
          specified conditions, including that it not cause unreasonable  
          hardship for senior citizens or economically vulnerable  
          customers in hot climate zones, that the customer be provided  
          with interval usage data before being subject to the TOU rates,  
          and that residential customers have the option to not receive  
          TOU rates without being subject to additional charges. Certain  
          residential customers, such as those receiving a medical  
          baseline allowance, would be exempt from any default time-of-use  

          This bill would direct the CPUC to establish rates for the CARE  
          program and delete the existing requirements on the CARE tiers  
          and rate increase limitations. For customers of the large IOUs,  
          the set rates must effectively give a discount between 30% and  
          35% to eligible customers. The discount would include any  
          charges that are not paid by CARE customers such as payments to  
          the California Solar Initiative and any discount in a fixed  
          charge. If an IOU is currently providing a benefit greater than  
          35%, it cannot reduce that benefit more than is "reasonable." 

          This bill would specify that the assessment of the needs of  
          low-income electricity and gas customers be done at least every  


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          three years.

           Regarding RPS  - This bill would explicitly allow the CPUC to  
          require the procurement of renewable energy resources in excess  
          than the statutorily required amounts.

           Regarding Net Metering  - This bill would specify the NEM cap for  
          the large IOUs is 607 MW for customers of San Diego Gas and  
          Electric Company, 2,240 MW for Southern California Edison  
          customers, and 2,409 MW for Pacific Gas and Electric customers.  
          This provision codifies the CPUC's current interpretation of the  
          NEM cap defined as five percent of the utilities' aggregate  
          customer peak demand.

          The CPUC would be required to develop a new standard contract or  
          tariff for new NEM customers of the large IOUs by July 1, 2015  
          that must be used beginning January 1, 2017 or earlier if the  
          NEM cap has been reached. The CPUC would be required to ensure  
          that the new standard contract or tariff for rates, terms of  
          service, and billing rules is based on the electrical system  
          costs and benefits received by nonparticipating customers and  
          prevents a cost shift to non-NEM customers.

          Existing NEM customers may continue to receive service under the  
          existing tariff until December 31, 2020, though the tariff  
          cannot be transferred with a change in customer or ownership of  
          the renewable electrical generation facility after January 1,  

          Staff Comments:  Regarding residential rate design  - In 2012, the  
          CPUC opened a proceeding in response to SB 695 to examine  
          current residential electric rate design to identify a system  
          that is both equitable and affordable for the foreseeable  
          future. The proceeding is examining whether the current rate  
          structure is meeting the CPUC's five guiding principles on rate  
          design that rates should: 
             (1)           Be based on marginal cost, 
             (2)           Be based on cost-causation principles,
             (3)           Encourage conservation and reduce peak demand,
             (4)           Provide stability, simplicity, and customer  
               service, and
             (5)           Encourage economically efficient  


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          The scope of this proceeding largely, if not entirely,  
          encompasses the changes to residential rate design required by  
          this bill. As such, the costs of enacting the residential rate  
          design portions of the bill are absorbable into the CPUC's  
          existing activities. As these rate design changes only affect  
          residential customers, this portion of the bill does not affect  
          the state as a ratepayer.

          This bill would establish a minimum frequency in which the CPUC  
          would have to complete a needs assessment of low-income  
          electricity and gas customers. By specifying a frequency, the  
          CPUC will likely need one dedicated PY for this responsibility  
          at a cost of $116,000 annually.

           Regarding RPS  - This bill does not in it of itself increase the  
          procurement requirements of renewable energy resources. However,  
          it does make it explicit that the CPUC can increase the RPS  
          requirements without Legislation. Should the CPUC exercise this  
          ability, there would be costs to the state as an electric  
          customer. Both the Public Utilities Commission and the Air  
          Resources Board have conducted studies on the ratepayer impacts  
          of various 33 percent Renewables Portfolio Standard scenarios.  
          According to those studies, in 2020, average retail electricity  
          rates (in current dollars) are projected to be between $0.006  
          and $0.011 per kilowatt-hour higher than they otherwise would be  
          under current law (including the existing 20 percent Renewables  
          Portfolio Standard). The cost to the state would depend on the  
          amount which the CPUC increases the procurement requirements and  
          on what schedule, but could total in the millions and tens of  
          millions of dollars. 

           Regarding Net Metering  -This bill would require the CPUC to  
          develop a new standard contract or tariff for NEM that prevents  
          a cost shift to non-NEM customers. This requirement will require  
          a proceeding to be conducted at a one-time cost of at least  

           Regarding the bill's state mandate  - This bill would impose a  
          state mandate on publicly owned utilities, which are local  
          government agencies. However, because publicly owned utilities  
          are able to pass any implementation costs along to their  
          customers, the bill does not impose a reimbursable state  


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          This bill would also impose a state mandate by changing the  
          definition of a crime as any violation of the Public Utilities  
          Act or any order, decision, rule, or requirement of the CPUC is  
          a crime. This bill does both. However, these costs are not  

          Proposed Author Amendments: Amends would:
           Regarding distribution resources: 
            Require IOUs to submit to the CPUC a distribution resources  
            plan proposal to identify optimal locations for the deployment  
            of preferred resources and specify information that must be  
            included in that proposal. Any necessary spending on  
            distribution infrastructure to accomplish the distribution  
            resources plan shall be considered as part of the next general  
            rate case for that IOU.
           Require the CPUC to review and consider approval of each  
            distribution resources plan proposal
           Require the CPUC to adopt criteria to evaluate the success of  
            any investment made pursuant to a distribution resources plan.

           Regarding net metering:
            Codifies the method on which "aggregate customer peak demand"  
            is to be calculated for the purpose of determining an IOU's  
            NEM program cap and specifies that the MW caps in the bill are  
            minimum caps under this calculation.
           Require that the CPUC develop a new standard contract or  
            tariff for new NEM customers by December 31, 2015 (instead of  
            July 1, 2015).
           Expand the requirements for the new NEM program including  
            requiring that the new standard contract or tariff must allow  
            projects to be built to the size of the onsite load, even if  
            it is greater than one MW, if there is not a significant  
            impact on the distribution grid and the project is subject to  
            reasonable interconnection charges under the CPUC's rules.
           Instead of grandfathering existing NEM customers until  
            December 31, 2020, allow the CPUC to establish the transition  
            period. The CPUC would be required to consider a reasonable  
            expected payback period.
           Explicitly prohibit a limitation on the amount of generating  
            capacity or the number of customer-generators eligible for the  
            new standard contract or tariff after July 1, 2017.


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           Regarding fuel-cells  :
           Delete the January 1, 2015 sunset date on existing law that  
            requires IOUs to offer a standard tariff for net energy  
            metering for eligible fuel cell customer-generators  
            (gen-to-gen NEM) that is currently being used by fuel cells  
            powered by natural gas.
           Allow the fuel cell customer-generator to be eligible for the  
            tariff for a period of time determined by the CPUC,