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) 












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          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. 








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            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.










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          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  











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            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  











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            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












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          Sacramento Municipal Utility District 




          Analysis Prepared by:Darion Johnston / U. & C. / (916)  
          319-2083