BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS
                              Senator Ben Hueso, Chair
                                2015 - 2016  Regular 

          Bill No:          SB 1041           Hearing Date:    4/19/2016
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          |Author:    |Hueso                                                |
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          |Version:   |4/7/2016    As Amended                               |
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          |Urgency:   |No                     |Fiscal:      |Yes             |
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          |Consultant:|Jay Dickenson                                        |
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          SUBJECT: Energy:  electric and gas rates:  public elementary and  
          secondary schools

            DIGEST:  This bill requires each electrical and gas corporation  
          (IOU) in the state to develop and submit to the California  
          Public Utilities Commission (CPUC) for its approval a rate for  
          service applicable to public elementary and secondary schools  
          that reflects the cost of providing service to those schools,  
          and makes a parallel requirement of each local publicly owned  
          electric utility (POU).

          ANALYSIS:
          
          Existing law:
          
          1)Authorizes the CPUC to fix rates, establish rules, examine  
            records, issue subpoenas, administer oaths, take testimony,  
            punish for contempt, and prescribe a uniform system of  
            accounts for all public utilities, including electrical and  
            gas corporations, subject to its jurisdiction. (Article 12 of  
            the California Constitution) 

          2)Requires that all charges demanded or received by any public  
            utility for any product, commodity or service be just and  
            reasonable, and that every unjust or unreasonable charge is  
            unlawful. (Public Utilities Code §451) 

          This bill:

          1)Directs each IOU to develop and submit to the CPUC for its  
            approval a rate for service applicable to public elementary  








          SB 1041 (Hueso)                                       PageB of?
          
            and secondary schools that is just and reasonable and reflects  
            the cost of providing service to those schools.

          2)Makes a number of findings and declarations, including that it  
            is the intent of the Legislature that the CPUC, in reviewing  
            and approving the IOU rates applicable to public elementary  
            and secondary schools, act according to the cost-causation  
            principle.

          3)Requires each POU to develop and submit to its governing board  
            for its approval a rate for service applicable to public  
            elementary and secondary schools that is just and reasonable  
            and reflects the cost of providing service to those schools.

          Background

          Cost-causation guides the CPUC's ratemaking.  Statute charges  
          the CPUC with setting the rates charged by the state's  
          utilities, including its IOUs.  Statute requires that the rates  
          set by the CPUC be just and reasonable.  In fulfilling these  
          responsibilities, the CPUC is guided by the cost-causation  
          principle.  In simple terms, this principle states that  
          customers pay a fair rate that is based on the cost to serve  
          them.  The CPUC has confirmed its commitment to the  
          cost-causation principle, explicitly and implicitly, on numerous  
          occasions.<1>  Most recently, this principle, among others, has  
          been driving the CPUC's ongoing efforts to reform the  
          residential rate structure so that the price residential  
          customers pay for electricity better reflects the cost of  
          providing the electricity to those customers. 

          Electric customers charged for service based on rate class, some  
          established in statute.  IOUs divide their customers into  
          several distinct rate classes.  This division reflects the  
          recognition that different general categories of customers place  
          different costs upon the electrical system and, therefore, it is  
          appropriate to charge them differently.   Very broadly, the IOUs  
          divide their customers, for rate purpose, into residential and  







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          <1> See, for example, CPUC decisions D.93-06-087, D.92-12-058,  
          D.08-07-045, D.14-12-080 and D.14-06-029. 













          SB 1041 (Hueso)                                       PageC of?
          
          nonresidential classes.<2>  In addition, pursuant to legislative  
          requirements, the IOUs have established special rate classes,  
          such as rate classes for agricultural customers.

          Generally, the IOUs place public elementary and secondary school  
          customers in one of the nonresidential or commercial class  
          rates.  However, public elementary and secondary schools have  
          electricity use patterns that differ from the use patterns of  
          most of the other electricity users in their rate class.  For  
          example, schools typically experience a significant reduction in  
          demand for electricity in the mid-afternoon that is sustained  
          until early the next morning; many schools also dramatically  
          reduce their electricity use during hot summer months.

          Bill seeks relief for schools, consistent with cost-causation  
          principle.  The author reports of a number of schools in the San  
          Diego region that have recently experienced sharp increases in  
          their electricity bills.  According to representatives of those  
          schools, the increases have come about, in large part, because  
          of rate increases, in the form of "demand charges," placed upon  
          most or all commercial class customers that are meant to reflect  
          the costs to serve these commercial class customers.  However,  
          proponents contend that, in the case of schools, these demand  
          charges are unreflective of the costs to provide service.  

          This bill proposes creation of a rate class special to public  
          schools.  The author contends this is appropriate given schools'  
          unusual, possibly unique electricity use patterns, as well as  
          the state's financial and policy interest in ensuring public  
          schools have the resources they need to educate our children and  
          young people.    

          Prior/Related Legislation
          
          AB 2218 (Bradford, Chapter 581, Statutes of 2014) required  
          electrical and gas IOUs to develop and implement a program of  
          rate assistance to eligible food banks, subject to discretion  
          and supervision by the CPUC, and encourages the POUs to do the  
          same.

          FISCAL EFFECT:                 Appropriation:  No    Fiscal  
          Com.:             Yes          Local:          Yes

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          <2> This is a very generalized discussion of IOU rate classes.   
          The IOUs further distinguish their rate classes by many  
          criteria.  See, for example, PG&E's description of its customer  
          rate classes:  http://www.pge.com/tariffs/rateinfo.shtml.








          SB 1041 (Hueso)                                       PageD of?
          

            SUPPORT:  

          San Diego County Office of Education
          San Diego Schools Coalition for Electricity Cost Reduction

          OPPOSITION:

          None received

          ARGUMENTS IN SUPPORT:    According to the author, the state has  
          a unique interest in ensuring that public elementary and  
          secondary schools are able to dedicate their limited resources  
          to fulfillment of their core mission - the education of our  
          children and young people.  The electric rates paid by our  
          public schools should reflect the cost to provide service to  
          those schools, not the costs to serve commercial or industrial  
          class customers.  This bill directs the CPUC to follow its own  
          principle of cost causation to ensure our public schools  
          experience rates for electric service that are fair, just and  
          reasonable.
          
          
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