BILL ANALYSIS Ó
SB 743
Page 1
Date of Hearing: July 1, 2013
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
SB 743 (Steinberg) - As Introduced: February 22, 2013
SENATE VOTE : 38-0
SUBJECT : Electricity: Rates
SUMMARY : This bill revises existing authority increase
electricity rates charged under the California Alternate Rates
for Energy (CARE) program. Specifically, this bill :
a)Deletes requirement that restricts increases in CARE rates to
no more than the annual increase in benefits from the
California Work Opportunity and Responsibility to Kids Act
(CalWorks) but no greater than 3% per year.
b)Allows increases in electricity rates for low-income
households participating in CARE programs administered by the
regulated electrical corporations to increase at the same rate
as the Consumer Price Index (CPI) but no more than 4% per
year.
EXISTING LAW
1)Requires the California Public Utilities Commission (PUC) to
allocate a 'baseline quantity of electricity based on 50% to
60% of average residential electricity consumption for
customers served with both gas and electricity or 60% to 70%
for all electric residential customers and to take climatic
and seasonal variations into account. (Public Utilities Code
739(a)(1)
2)Requires the PUC to set rates for the baseline quantity to be
the lowest rate and to allow increasing rates for usage in
excess of the baseline quantify. (Public Utilities Code
739(d)(1))
3)Requires the PUC to avoid excessive rate increases for
residential customers and to establish an appropriate gradual
differential between the rates for the respective blocks of
usage (Public Utilities Code 739(d)(1))
4)Requires the PUC to retain an appropriate inverted rate
structure for residential customers and that if the PUC
increases baseline rates revenues resulting from those
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increases they are to be used exclusively to reduce
nonbaseline residential rates. (Public Utilities Code 739.7)
5)Allows the PUC to make higher allocations for persons with
medical needs, such as emphysema, pulmonary patients, or
persons on life-support equipment. (Public Utilities Code
739(c))
6)Restricts the PUC from approving IOU rates that increase the
residential rates for electricity usage up to 130 percent of
the baseline quantities, by the annual percentage change in
the Consumer Price Index from the prior year plus 1 percent,
but not less than 3 percent and not more than 5 percent per
year. The annual percentage change in the Consumer Price Index
is calculated using the same formula that was used to
determine the annual Social Security Cost of Living Adjustment
on January 1, 2008. This restriction sunsets January 1, 2019.
(Public Utilities Code 739.9(a))
7)Restricts approval of mandatory or default time-variant or
real time pricing, or critical peak pricing for residential
customers and establishes these as opt-in programs only. In
addition, requires that customers be provided with one year of
data and one year of bill protection and caps billings to no
more than they would otherwise have been under the customer's
previous rate schedule. Also exempts medical baseline
customers. (Public Utilities Code 745)
8)Further restricts rates charged residential customers for
electricity usage up to the baseline quantities, including any
customer charge revenues, to not exceed 90 percent of the
system average rate prior to January 1, 2019, and not exceed
92.5 percent after that date. (Public Utilities Code 739.9(b))
9)Establishes a program of assistance to low-income residential
customers with annual household incomes no greater than 200%
of federal poverty guidelines which reflects discounts based
on level of need and allows limited rate increase of up to 3%
annually, subject to limitations. CARE rates cannot exceed 80%
of the corresponding rates charged to non-CARE customers
(excluding nonbypassable charges). (Public Utilities Code
739.1(b)(4)
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10)Allows low income customers to be exempt from paying
Department of Water Resources bond charge imposed pursuant to
Division 27 (commencing with Section 80000) of the Water Code,
the CARE surcharge portion of the public goods charge, any
charge imposed pursuant to the California Solar Initiative,
and any charge imposed to fund any other program that exempts
CARE participants from paying the charge. (Public Utilities
Code 739.1(g), 2851(d)(3), 379.6(h)
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's Statement. "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 capped at no more than 4%. 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."
2)Background . Electricity rates are not based on income.
Electricity rates are based on the cost of generation.
Separate charges are applied for the cost of providing service
(i.e., transmission and distribution lines and maintenance)
and public purposes programs authorized by the Legislature and
programs created by the PUC.
During the energy crisis in 2001, the Legislature passed AB 1
X1 (Keeley, Chapter 4, Statutes of 2001) to protect California
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 at such prices the department
deemed appropriate, on behalf of the cash-strapped electrical
corporations that could not keep up with the volatile
wholesale prices. Among other stabilizing efforts, AB1 X1
included a provision that prohibited the PUC from increasing
rates for usage under 130% of baseline until the DWR bond
charges are repaid.
AB 1 X1 only applies to customers of electrical corporations,
thus customers of publicly owned utilities (such as SMUD,
LADWP, etc.) are not subject to these rate restrictions.
The DWR bond charges are expected to be paid 2022.
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California law requires that energy charges for residential
customers be based on the quantity consumed with higher rates
for higher quantities of usage. California law specifies that
the PUC establish a baseline quantity equal to average usage
in a similar region. California law then specifies a "tiered
rate structure" with each tier made up of a designated block
of electricity usage. The first tier is "the baseline"
representing 50-60% of average usage in a similar region and
each kilowatt-hour is billed at the lowest electricity rate.
The second tier is 130% of baseline and each kilowatt-hour
within that tier is billed at a slightly higher rate than the
rates charged for electricity in Tier 1. Each additional tier
is continues to reflect higher usage and higher rates.
Depending on what the PUC authorized, there are either 4 or 5
tiers in PG&E, SDG&E, and SCE service areas.
Because AB 1 X1 capped the lowest tiers, increased costs for
generation, distribution, transmission, public purpose
programs, and legislatively mandated and PUC-created programs,
were disproportionately borne by those residential customers
whose electricity usage falls in the upper tiers. In other
words, the rates paid by higher usage customers were no longer
governed by the cost of service.
Between 2000, when AB 1 X1 was enacted and 2009 the difference
in rates charged for each Tier increased to the point where
usage in the higher tiers resulted in dramatically higher
electricity bills.
In 2007, one electrical corporation provided information to
this committee revealing that income and usage are not
perfectly correlated. About 10% of those customers whose
usage pushed them into Tier-5 rates ($.31/kWh) generated an
annual income of less than $30,000. About 50% of residential
customers paying Tier-5 rates generated less than $100,000 in
annual income.
This committee encouraged that corporation to collaborate with
the other electrical corporations and consumer groups to
devise a strategy that would protect residential ratepayers
from sudden rate shock, while ensuring continued protection
for low-income ratepayers. Due to the significant complexity
of each of the issues associated with lifting the rate cap,
the parties negotiated about 90% of the provisions by the end
of the 2008 Legislative session.
In 2009, SB 695 (Kehoe) was enacted and permitted rate
increases for all tier 1 and 2 customers to an annual narrow
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range and controlled the increase within relatively small
parameters. The bill was intended to minimize spikes in
electricity rates and provide relative stability and
predictability. SB 695 tied those rate increases to two
different indices - one for CARE customers (tied to increases
in CalWORKs benefits) and one for non-CARE customers (tied to
increases in the Consumer Price Index).
However, CARE customer rates did not increase because no cost
of living adjustments were provided for CalWORKs benefits.
3)Overall Residential Rate Design. SB 743 addresses rate issues
related to the CARE program but does not address overall rate
design issues affecting all residential ratepayers.
On June 28, 2012, the 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. A draft decision is expected in
October 2013.
In the PUC's decision to open the residential rate design
rulemaking, it noted the following:
"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.
SCE also provided historical rate data showing the percent
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.
For SCE CARE customers, Tier 1 and 2 rates have decreased 16%
and 11 percent, respectively.
4)Linking to the Consumer Price Index. According to the Bureau
of Labor Statistics, the average CPI for the last 10 years has
been:
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------------------------
| Year | Percent |
|-----------+------------|
| 2003 | 2.3 |
|-----------+------------|
| 2004 | 2.7 |
|-----------+------------|
| 2005 | 3.4 |
|-----------+------------|
| 2006 | 3.2 |
|-----------+------------|
| 2007 | 2.8 |
|-----------+------------|
| 2008 | 3.8 |
|-----------+------------|
| 2009 | -0.4 |
|-----------+------------|
| 2010 | 1.6 |
|-----------+------------|
| 2011 | 3.2 |
|-----------+------------|
| 2012 |2.1 |
------------------------
According to the PUC, electricity rates have roughly tracked
inflation (CPI) over the same time period.
5)Related Legislation.
AB 1 X1 (Keeley, 2001), chaptered
SB 695 (Kehoe, 2009), chaptered
SB 142 (Rubio, 2011), died
AB 1755 (Perea, 2012), died
AB 327 (Perea), 2013, In Senate Energy Utilities &
Communications
REGISTERED SUPPORT / OPPOSITION :
Support
AARP
Division of Ratepayer Advocates (DRA)
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Latin Business Association
Pacific Gas and Electric Company (PG&E) (if amended)
San Diego Gas & Electric Company (SDG&E) (if amended)
Southern California Edison (SCE) (if amended)
The Greenlining Institute
The Utility Reform Network (TURN)
Opposition
None on File
Analysis Prepared by : Susan Kateley / U. & C. / (916)
319-2083