BILL ANALYSIS Ó 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 743 - Steinberg & Padilla Hearing
Date: April 2, 2013 S
As Introduced: February 22, 2013 FISCAL B
7
4
3
DESCRIPTION
Current law requires the California Public Utilities Commission
(CPUC) to establish the California Alternate Rates for Energy
(CARE) program to discount rates for low-income gas and electric
customers defined as those with incomes no greater than 200
percent of the federal poverty level and permits no more than
three rate tiers.
Current law restricts rate increases on the first two tiers of
electric rates for non-CARE residential customers to the annual
percentage change in the Consumer Price Index plus 1%, but not
less than 3% and not more than 5% per year through 2018.
Current law restricts rate increases for CARE customers for
service in tiers 1 and 2 to the annual percentage increase in
benefits under CalWorks with a hard cap of three percent through
2018. CARE rates are also capped at 80% of the corresponding
rates charged to residential customers not participating in the
CARE program.
This bill 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.
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. Under current rate structures, energy
charges for residential customers are based on the quantity of
electricity used by a customer, and each successive block of
electricity usage is billed at increased per-unit prices. Each
block is referred to as a tier. Tier 1 is the customer's
"baseline" - the level deemed necessary to supply a significant
portion of the reasonable energy needs of the average
residential customer; Tier 2 applies to usage between the
baseline and 130% of that amount. Baseline levels vary
depending on the climate of the region (e.g. hotter regions have
a higher baseline). This multi-tiered conservation pricing
structure grew out of the energy crisis. Prior to that time, a
two-tier pricing structure was common.
Rate Freezes - During the energy crisis, the Legislature passed
ABx1 1 (Keeley, 2001) to protect California ratepayers from
rampant price fluctuations due to a dysfunctional wholesale
electricity market. ABx1 1 authorized the Department of Water
Resources (DWR) to issue revenue bonds to purchase power at such
prices the department deemed appropriate, on behalf of the
cash-strapped investor-owned utilities (IOUs) which couldn't
keep up with the volatile wholesale prices. Among other
stabilizing efforts, ABx1 1 included a provision that prohibited
the CPUC from increasing rates for usage under 130% of baseline
(tiers 1 and 2) until DWR bond charges were paid off. Those
charges continue.
Because rates in the two lowest tiers were frozen, increased
costs for generation, distribution, transmission and new
programs created by the Legislature and the CPUC, have been
disproportionately borne by those customers whose electricity
usage falls in the upper tiers.
Freeze Lifted - In 2009 SB 695 (Kehoe) was signed into law as an
urgency statute. Among its provisions, the bill removed the
freeze on tier 1 and tier 2 rates and intended to allow for
gradual rate increases through 2018 at which time the caps for
those increases would sunset. Different formulas were created
for Non-CARE and CARE customers.
As a consequence, beginning January 1, 2010, the CPUC could
grant increases in rates charged to non-CARE residential
customers for tier 1 and 2 rates by the annual percentage change
in the Consumer Price Index from the prior year plus one
percent, but not less than three percent or more than five
percent per year.
Increases in tier 1 and 2 rates for the residential CARE program
were statutorily tied to annual cost of living adjustments for
CalWork's benefits not to exceed three percent per year. The
IOUs were also permitted to add a third tier of rates for CARE
customers. Prior to SB 695, CARE customers were subject to
charges under only the first two rate tiers.
The provisions of SB 695 resulted in the following increases on
tier 1 and 2 rates for non-CARE customers that resulted in a
commensurate decrease in rates for tiers 3, 4, and 5. The rate
adjustments, overall, were revenue neutral to the IOUs. The
rates for CARE customers in tiers 1 and 2 have not increased due
to the suspension of COLAs for the CalWork's program.
Consequently, assistance to CARE customers is far greater than
intended.
2010 - 3%
2011 - 3%
2012 - 5%
2013 - 3%
Current residential rates for the electric corporations are:
----------------------------------------------------------------
|SDG&E | Non-CARE | | CARE |
----------------------------------------------------------------
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
| Year | Tier 1 | Tier 2 | Tier 3 | Tier 4 | | Tier 1 | Tier 2 | Tier 3 | Tier 4 |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
| Jan-10 | 12.867 | 14.884 | 31.139 | 33.139 | | 10.101 | 11.714 | 19.662 | 19.662 |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
| Jan-11 | 13.810 | 15.949 | 28.145 | 30.145 | | 9.959 | 11.621 | 16.988 | 16.988 |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
| Jan-12 | 14.334 | 16.580 | 24.834 | 26.834 | | 9.946 | 11.608 | 16.975 | 16.975 |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
| Jan-13 | 14.764 | 17.077 | 26.498 | 28.498 | | 9.946 | 11.607 | 16.974 |16.974 |
---------------------------------------------------------------------------------------------------
------------------------------------------------------------------
| PG&E | Non-CARE | | CARE |
------------------------------------------------------------------
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
| Year | Tier 1 | Tier 2 | Tier 3 | Tier 4 | Tier 5 | | Tier 1 | Tier 2 | Tier 3 |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
| Jan-10 | 11.877 | 13.502 | 27.572 | 40.577 | 47.393 | | 8.316 | 9.563 | 9.563 |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
| Jan-11 | 12.233 | 13.907 | 28.011 | 38.978 | 38.978 | | 8.316 | 9.563 | 9.563 |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
| Jan-12 | 12.845 | 14.602 | 29.518 | 33.518 | 33.518 | | 8.316 | 9.563 | 12.474 |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
| Jan-13 | 13.230 | 15.040 | 30.025 | 34.025 | 34.025 | | 8.316 | 9.563 |13.974 |
| | | | | | | | | | |
---------------------------------------------------------------------------------------------------
-------------------------------------------------------------------
| SCE | Non-CARE | | | CARE |
-------------------------------------------------------------------
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
| Year | Tier 1 | Tier 2 | Tier 3 | Tier 4 | Tier 5 | | Tier 1 | Tier 2 | Tier 3 |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
| Jan-10 | 12.162 | 14.153 | 20.822 | 24.323 | 27.823 | | 8.533 | 10.668 | 16.039 |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
| Jan-11 | 12.351 | 14.342 | 23.799 | 27.299 | 30.799 | | 8.533 | 10.668 | 18.238 |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
| Jan-12 | 12.597 | 15.511 | 23.801 | 27.301 | 30.801 | | 8.533 | 10.668 | 18.165 |
|---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
| Jan-13 | 12.849 | 15.976 | 29.281 | 32.781 | 36.281 | | 8.533 | 10.668 |20.000 |
| | | | | | | | | | |
---------------------------------------------------------------------------------------------------
CPUC Rate Deliberations - The lingering effects of the
deregulation of electricity are not the only impacts on
residential rate design. The CPUC initiated a rulemaking on
policy guidance for rate design in the summer of 2012. They
intend to consider how the state's energy policy goals for 2020
are affected by retail rate design and how rate design policies
can and should be used to meet long-term climate and energy
policy goals in an effort to align rates with policy objectives.
More specifically, the proceeding will examine "whether the
current tier structure continues to support the underlying
statewide-energy goals facilitates the development of
customer-friendly technologies, and whether the rates result in
inequitable treatment across customers and customer classes."
In 2007 the commission adopted principles for rate design and
expressed intent to use those as guidance in this proceeding:
1) Rates should be based on marginal cost;
2) Rates should be based on cost-causation principles;
3) Rates should encourage conservation and reduce peak
demand;
4) Rates should provide stability, simplicity and customer
choice; and
5) Rates should encourage economically efficient
decision-making.
COMMENTS
1. Author's Purpose . In 2009 the Legislature acted to lift
some of the emergency measures imposed during the energy
crisis that at the time helped stabilize rates. SB 695 was
intended to permit gradual rate increases in electric rates
for tier 1 and 2 customers to prevent sudden, dramatic
increases if the rate stabilization measures from 2001 were
suddenly released once the DWR bond charges were satisfied.
However, SB 695 is not working as intended for CARE
customers. This bill modifies the index to which CARE
customer rate increases are tied to meet the intent of SB
695. The index would be the same as for non-CARE customers
- the CPI - but rate increases would be capped at no more
than 4%. TURN writes in support of this bill that "the
result will be modest annual increases to CARE rates that
reduce the overall subsidy paid by the rest of the utility
customer base. This modification is fully consistent with
the intent of the original SB 695 agreement...it represents
a reasonable approach to fixing a broken index for the CARE
program."
There very well could be additional modifications necessary
to residential rates. Utilities, consumer groups, the
CPUC, and other interested parties agree that the current
residential rate design is not sustainable and modification
is needed. However, there is no agreement on how it should
be modified. The CPUC has a proceeding open to consider
this issue. Until that review is complete, at a minimum,
SB 695 should be amended to operate as intended.
2. Is It Enough ? The IOUs write that this bill is a good
start on residential rate design but is not the solution
and will support the bill if amended to address those
broader issues. They report severe rate distortions and
inequities for many customers that this bill will not
address and are supporting legislation in the Assembly that
will repeal the structure for gradual rate increases on
CARE and non-CARE customers in tiers 1 and 2 leaving that
decision to the CPUC. Additional statutory restrictions
remain including the preclusion of fixed charges and
mandatory time-variant pricing.
3. Ratepayer Impact . This bill will not increase revenues
to the utilities; it will however increase rates on CARE
customers and decrease rates on non-CARE customers in upper
tiers. Additionally, the cost of the CARE assistance
program is funded by a surcharge assessed on all IOU
customers including residential, commercial, agriculture,
and industrial. To the extent that the costs of the CARE
program are reduced as the tier 1 and 2 rates increase, the
surcharges paid by all customers would see a commensurate
reduction.
4. Related Legislation .
AB 327 (Perea, 2013) repeals statutory rate
increase restrictions on CARE and non-CARE customers.
Status: Referred to Assembly Utilities & Commerce
Committee.
AB 1755 (Perea, 2012) - authorized the CPUC to
approved fixed per-customer charges for residential
customers beyond the statutory caps on rate increases
for tier 1 and 2 customers to cover the fixed costs of
electric service if commission finds the charges are
just and reasonable and will provide rate relief to
upper tier customers.
POSITIONS
Sponsor:
Authors
Support:
AARP
Division of Ratepayer Advocates
Pacific Gas and Electric Company, if amended
San Diego Gas & Electric Company, if amended
Southern California Edison, if amended
The Greenlining Institute
The Utility Reform Network
Oppose:
None on file
Kellie Smith
SB 743 Analysis
Hearing Date: April 2, 2013