BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 1041| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 1041 Author: Hueso (D) Amended: 4/7/16 Vote: 21 SENATE ENERGY, U. & C. COMMITTEE: 10-0, 4/19/16 AYES: Hueso, Cannella, Gaines, Hertzberg, Hill, Lara, Leyva, McGuire, Pavley, Wolk NO VOTE RECORDED: Morrell SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 SUBJECT: Energy: electric and gas rates: public elementary and secondary schools SOURCE: Author 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 SB 1041 Page 2 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 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. (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) 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. SB 1041 Page 3 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 nonresidential classes. (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.) 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 SB 1041 Page 4 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.:YesLocal: Yes SUPPORT: (Verified5/17/16) Association of California School Administrators San Diego County Office of Education San Diego Schools Coalition for Electricity Cost Reduction School Energy Coalition School for Integrated Academics and Technologies OPPOSITION: (Verified5/17/16) California Municipal Utilities Association Sacramento Municipal Utility District 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 SB 1041 Page 5 experience rates for electric service that are fair, just and reasonable. ARGUMENTS IN OPPOSITION: Opponents, representing POUs, contend that the rates set by POUs are, today, just and reasonable and express concern of a blossoming of legislatively mandated, customer-specific rate classes. Prepared by:Jay Dickenson / E., U., & C. / (916) 651-4107 5/18/16 16:27:54 **** END ****