BILL ANALYSIS                                                                                                                                                                                                    



                                                                AB 327
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        CONCURRENCE IN SENATE AMENDMENTS
        AB 327 (Perea)
        As Amended  September 6, 2013
        Majority vote
         
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        |ASSEMBLY: |66-4 |(May 23, 2013)  |SENATE: |33-5 |(September 9, 2013)  |
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        |COMMITTEE VOTE:  |14-0 |(September 11,      |RECOMMENDATION: |concur    |
        |(U. & C.)        |     |2013)               |                |          |
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        Original Committee Reference:    U. & C.  

         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. 

         The Senate amendments  , substantively revise this bill by adding new  
        provisions related to the following:

        1)Require the IOUs to provide annual distribution plans and for the  








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          PUC to approve those plans, if it finds them reasonable, in each  
          IOU General Rate Case.

        2)Revise the current Net Energy Metering (NEM) statute to specify  
          the maximum program capacity for customers in IOU service areas,  
          require the PUC to develop a new NEM program by July 2015 and  
          establish a transition to the new NEM program by 2017.  The new  
          NEM program is to be based on electrical system costs and  
          benefits to nonparticipating ratepayers and remove both the total  
          system capacity cap and the one megawatt project size limit.   
          Existing NEM customers will be transitions no later than December  
          2020 to the new NEM.

        3)Provide the PUC with authority to require IOUs to procure  
          renewable energy generation above that which is required in the  
          33% Renewable Portfolio Standard.

        4)Authorize the PUC to approved fixed monthly charges no greater  
          than $10 for residential customers and $5 for low-income  
          customers beginning in 2016.

        5)Specify discounts for low-income customers are not to exceed 30%  
          to 35% of the average non-low-income customer.

        6)Establish that by 2018 the default rate schedule for residential  
          customers shall be based on Time of Use and establishes  
          provisions to protect senior or other vulnerable customers, in  
          hot climate zones, from unreasonable hardship. 

        7)Add technical amendments to the provisions related to residential  
          electricity rate reform.

         FISCAL EFFECT  :  According to the Senate Appropriations Committee: 

        1)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.

        2)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 PUC exercise the authority in this bill to  
          raise renewable energy procurement requirements.

        3)One-time costs of at least $120,000 from the Public Utilities  








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          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. 

        4)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. 

        5)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.

         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.  Subsequent legislation  
          (SB 695 (Kehoe), Chapter 227, Statutes of 2009) removed the  








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          freeze on Tiers 1 and 2 and allowed very limited rate increases.

         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.

         4)Residential Electricity Rate Design may not change the bill  .  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.  This bill includes language  
          to maintain protections for low income ratepayers to ensure  
          affordable energy bills.  

         5)Rate Reform Impacts on Low Income households  .  Currently, CARE  
          customers are to 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,  
          Pacific Gas and Electric (PG&E) has reported providing discounts  
          in the range of 60% off of the otherwise applicable bill.

         6)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. 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 addition to CARE, the Legislature has authorized several  








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          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. 
         

        Analysis Prepared by  :    Susan Kateley / U. & C. / (916) 319-2083


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