BILL ANALYSIS Ó SB 1041 Page A Date of Hearing: June 29, 2016 ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE Mike Gatto, Chair SB 1041 (Hueso) - As Amended April 7, 2016 SENATE VOTE: 33-4 SUBJECT: Energy: electric and gas rates: public elementary and secondary schools SUMMARY: 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 specific 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). 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. (California Constitution Article XII) SB 1041 Page B 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 Section 451) FISCAL EFFECT: Unknown. COMMENTS: 1)Cost-Causation Principle: Current law requires the CPUC to set the rates charged by the state's utilities, including its IOUs. Further, current law 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. 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 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. According to the Association of California School Administrators, electricity rates increased 39% in a one-year period for school districts in San Diego County while usage rose only 6%. Although rates have increased, neither the author nor support groups make a clear connection explaining why the rate increases should be considered unjust or unreasonable. If the rate increases are unjust, schools may -------------------------- <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 Page C open a rate case proceeding with the CPUC under current law. Further, it is unclear this bill would decrease rates for schools, including schools in the author's district of San Diego. In fact, this bill may increase energy rates for schools, which is explained in comment section three of this analysis. 2)Utility Rate Classes: IOUs divide their customers into several distinct rate classes. This division recognizes that different general categories of customers place different costs upon the electrical system; therefore, it is appropriate to charge them differently. IOUs divide their customers, for rate purposes, into residential and 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. According to the author, public elementary and secondary schools have electricity use patterns that may differ from the use patterns of most of the other electricity users in their rate class. The author contends that schools typically experience a significant reduction in demand for electricity in the mid-afternoon that is sustained until early the next morning, and that schools may also dramatically reduce their electricity use during hot summer months. However, this claim has not been substantiated by data provided by the author's office or supporters of the bill. It seems equally likely that schools may have similar or increased energy consumption after regular school hours due to after school programs, community use of facilities, and summer school programs. -------------------------- <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 Page D 3)Rates May Increase by 20 Percent: The author argues that creating a rate class special to public schools is appropriate given schools' possibly unique electricity use patterns. Even if one accepts the argument that schools are unique from other commercial customers, there is no way to guarantee this bill would decrease rates for schools. On the contrary, rates may increase if schools are separated into a special rate class. Los Angeles County Unified School District (LAUSD) relays this concern in their letter to the committee expressing a support if amended position. According to LAUSD, "Though the intent is admirable, the language does not guarantee elementary and secondary schools in POU territories will, in fact, receive a rate reduction. In fact, in discussions with the Los Angeles Department of Water and Power, the District could see a rate increase as much as 20 percent." Without clear data to substantiate the author's claims, it is impossible to conclude this bill would effectively address the issue of rate increases for schools in San Diego and other areas of the state. It has the potential to exacerbate the problem it seeks to address. Further, what the author sees as a solution to a San Diego problem may create severe negative impacts in Los Angeles County and other areas of the state, such as rural areas with fewer and smaller schools that may benefit from bring grouped in a nonresidational rate class. 4)Arguments in Support: According to the San Diego County Office of Education, "The 42 school districts in San Diego County have seen electricity raise 39% over just a one-year period. During this same one-year period (fiscal year 2014-15) electricity usage only rose by 6%. This energy rate shock resulted in nearly $30 million being diverted from educational programs to pay for additional, unplanned operational costs. Schools districts have few options for creating additional revenue in response to increased operational costs. Consequently, school districts must reduce expenditures in other areas in order to mitigate the impact, thereby SB 1041 Page E negatively affecting educational programs and services for students." 5)Arguments in Opposition: According to the California Municipal Utilities Association (CMUA), "CMUA members already adopt rate structures that are just and reasonable." Unlike IOUs, "POUs go through a transparent public process when adopting rate increases that are voted upon by a locally elected body." "The bill provides no guarantee for cheaper rates and the process once completed and approved may actually result in higher rates as schools will be their own stand alone rate case. While the exact circumstances leading to the energy rate hikes in the San Diego Unified School District are unclear to CMUA, the truth is energy rates are increasing, as complying with state energy goals and maintaining utility assets results in increased costs that must be borne on the electric rate-payer. "CMUA worries that special rates for public schools will translate very soon to special rates for hospitals, community centers, non-profit organizations, and many other customers that provide public benefits. However, pulling these customers out from their existing customer rate class may actually lead to higher energy rates not cheaper ones." 6)Prior Legislation: AB 2120 (Weber) of 2016: Makes school districts eligible to receive intervenor compensation from the CPUC for substantial contributions to rate cases on energy as specified. Pending in Senate Energy, Utilities, and Communications Committee. AB 2218 (Bradford), Chapter 581, Statutes of 2014: Requires 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 SB 1041 Page F same. REGISTERED SUPPORT / OPPOSITION: Support Association of California School Administrators Contra Costa County Superintendents' Coalition San Diego County Office of Education San Diego Schools Coalition for Electricity Cost Reduction School Energy Coalition School for Integrated Academics and Technologies Opposition California Municipal Utilities Association PacifiCorp SB 1041 Page G Sacramento Municipal Utility District Analysis Prepared by:Darion Johnston / U. & C. / (916) 319-2083