BILL ANALYSIS �
SB 743
Page 1
SENATE THIRD READING
SB 743 (Steinberg and Padilla)
As Introduced February 22, 2013
Majority vote
SENATE VOTE :38-0
UTILITIES & COMMERCE 15-0APPROPRIATIONS 17-0
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|Ayes:|Bradford, Patterson, |Ayes:|Gatto, Harkey, Bigelow, |
| |Bonilla, Buchanan, | |Bocanegra, Bradford, Ian |
| |Ch�vez, Fong, | |Calderon, Campos, |
| |Beth Gaines, Garcia, | |Donnelly, Eggman, Gomez, |
| |Gorell, | |Hall, Holden, Linder, |
| |Roger Hern�ndez, Jones, | |Pan, Quirk, Wagner, Weber |
| |Quirk, Rendon, Skinner, | | |
| |Williams | | |
| | | | |
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SUMMARY : 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.
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
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agreement...it represents a reasonable approach to fixing a
broken index for the CARE program."
2)Overall Residential Rate Design . This bill 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 California Public Utilities Commission
(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 [Southern California Edison] 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.
3)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
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the PUC.
During the energy crisis in 2001, the Legislature passed AB 1
X1 (Keeley, Chapter 4, Statutes of 2001-02 First Extraordinary
Session) 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. The DWR bond charges are
expected to be paid in 2022.
AB 1 X1 only applies to customers of electrical corporations,
thus customers of publicly owned utilities (such as Sacramento
Municipal Utility District (SMUD), Los Angeles Department of
Water and Power (LADWP), etc.) are not subject to these rate
restrictions.
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 Pacific Gas and Electric (PG&E), San Diego Gas and
Electric (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
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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
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.
The electrical corporations were encouraged 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), Chapter 337, was enacted and
permitted rate increases for all Tier 1 and 2 customers to an
annual narrow 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.
4)Linking to the CPI using the Social Security Cost of Living
Adjustment (COLA) . This bill would allow the PUC to authorize
rate increases, but restricted to using a specified method of
calculating a COLA used by the Social Security Administration
in 2008.
According to the PUC, electricity rates have roughly tracked
inflation (CPI).
SB 743
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According to the Social Security Administration, its current
COLA is based on the CPI for Urban Wage Earners and Clerical
Workers (CPI-W) prepared by the Bureau of Labor Statistics
(BLS). The average CPI-W for the third calendar quarter of the
last year a COLA was determined is compared to the average
CPI-W for the third calendar quarter of the current year. The
resulting percentage increase, if any, represents the
percentage that will be used to increase Social Security
benefits beginning for December of the current year. If the
CPI-W increases by less than 0.05%, or if the CPI-W decreases,
there will not be a COLA. This method appears to be the same
as that which was used by the Social Security Administration
in 2008. Thus, this bill would restrict rate increases allowed
by the PUC to be calculated in this manner.
The Social Security Administration may at some time in the
future consider modifying the method to calculate the COLA,
possibly using other CPI indices, such as the CPI for Urban or
Elderly populations.
The Annual CPI and the Annual Social Security COLA do not
always increase or decrease at a similar rate.
The table below shows both the Bureau of Labor Statistics, the
average CPI for the last 10 years and the Social Security
COLA.
------------------------------------------------
| Year | CPI (%) | Social Security |
| | | Cost of Living |
| | | Adjustments (%) |
|-----------+---------------+--------------------|
| 2003 | 2.3 | 1.4 |
|-----------+---------------+--------------------|
| 2004 | 2.7 | 2.1 |
|-----------+---------------+--------------------|
| 2005 | 3.4 | 2.7 |
|-----------+---------------+--------------------|
| 2006 | 3.2 | 4.1 |
|-----------+---------------+--------------------|
| 2007 | 2.8 | 3.3 |
|-----------+---------------+--------------------|
| 2008 | 3.8 | 2.3 |
|-----------+---------------+--------------------|
| 2009 | -0.4 | 5.8 |
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|-----------+---------------+--------------------|
| 2010 | 1.6 | 0 |
|-----------+---------------+--------------------|
| 2011 | 3.2 | 0 |
|-----------+---------------+--------------------|
| 2012 | 2.1 |3.6 |
| | | |
------------------------------------------------
5)Related Legislation .
a) AB 1 X1 (Keeley), Chapter 4, Statutes of 2001-02 First
Extraordinary Session.
b) SB 695 (Kehoe), Chapter 337, Statutes of 2009.
c) SB 142 (Rubio) of 2011, died in the Senate Energy,
Utilities and Communications Committee.
d) AB 1755 (Perea) of 2012, died on the Inactive File.
e) AB 327 (Perea) of the current legislative session,
pending in the Senate Appropriations Committee.
Analysis Prepared by : Susan Kateley / U. & C. / (916)
319-2083
FN: 0001890