BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 743|
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THIRD READING
Bill No: SB 743
Author: Steinberg (D) and Padilla (D)
Amended: As introduced
Vote: 21
SENATE ENERGY, UTIL. & COMMUNIC. COMM. : 11-0, 4/2/13
AYES: Padilla, Fuller, Cannella, Corbett, De León, DeSaulnier,
Hill, Knight, Pavley, Wolk, Wright
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : Electricity: rates
SOURCE : Author
DIGEST : This bill eliminates 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.
ANALYSIS :
Existing law:
1.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%
of the federal poverty level and permits no more than three
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rate tiers.
2.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.
3.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 3% 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 eliminates 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 existing 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, Chapter 4, Statutes of 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
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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 - SB 695 (Kehoe, Chapter 337, Statutes of 2009)
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 1%, but not
less than 3% or more than 5% per year.
Increases in tier 1 and 2 rates for the residential CARE program
were statutorily tied to annual cost of living adjustments for
CalWorks benefits not to exceed 3% 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 CalWorks program.
Consequently, assistance to CARE customers is far greater than
intended.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
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Local: No
SUPPORT : (Verified 4/16/13)
AARP
The Greenlining Institute
The Utility Reform Network
ARGUMENTS IN SUPPORT :
According to the author's office, 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%. The Utility
Reform Network (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.
JG:ej 4/16/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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