BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 1755 (Perea) - Electricity: rates
Amended: June 6, 2012 Policy Vote: EU&C 9-3
Urgency: No Mandate: Yes
Hearing Date: August 16, 2012
Consultant: Marie Liu/Bob Franzoia
SUSPENSE FILE. AS PROPOSED TO BE AMENDED.
Bill Summary: AB 1755 would allow the California Public
Utilities Commission (PUC) to approve a fixed per-customer
charge, not based on usage, which applies to all residential
electrical customers, in order to recover fixed costs of
providing service.
Fiscal Impact: Potential costs of $150,000 to $300,000 from the
Public Utilities Commission Utilities Reimbursement Account
(special fund) beginning in FY 2013-14.
Background: Residential electric rates are generally designed in
a four or five-tiered structure based on the customer's
electricity usage with each successive tier of electricity usage
having an increased per-unit price. Tier 1 is the customer's
"baseline" and is the level deemed necessary to supply a
significant portion of the reasonable energy needs of the
average residential customer. Tier 2 applies to usage between
the baseline and 130% of that amount. The average customer
charges reach tier 3. Baseline levels depend on the climate of
the region. This multi-tiered pricing structure grew out of the
energy crisis. Prior to that time, a two-tier pricing structure
was common.
Also as a result of the energy crisis in 2001, the Legislature
prohibited the PUC from increasing rates for tiers 1 and 2.
Since the energy crisis, the cost of electricity has increased
as a result of rising fuel prices and legislative mandated and
PUC-created programs. As a result of the rate freezes in tiers 1
and 2, these costs have disproportionally borne by customers who
have electric usage in the upper tiers. In 2009, SB 695 (Kehoe)
Chapter 337/2009 allowed for a gradual rate increase for tier 1
and 2 rates as well as for rates under the California
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Alternative Rates for Energy (CARE) program. The controlled
increases in rates under SB 695 will sunset in 2018. Tier 1 and
2 rates have modestly increased (and tiers 3, 4, and 5 have
decreased) as a result of SB 695. CARE customers, however, have
still not seen any rate increases for more than ten years, as
CARE rate increases are linked to annual cost of living
adjustments for the CalWORKs program.
The PUC is aware that the existing tiered rate structure may not
be ideal for supporting the state's energy goals and may result
in inequitable treatment across customers and customer classes.
At its June 21st hearing, the PUC voted to open a rulemaking to
conduct a comprehensive examination of Investor-owned utilities'
(IOU) residential rate design, including the residential tier
rate schedule, the state of time variant and dynamic pricing,
potential pathways from tiers to time variant and dynamic
pricing, and preferable residential rate design to be
implemented when statutory restrictions are lifted. Rate
redesign will be made under the five following principles: (1)
rates should be based on marginal cost; (2) rates should be
based on cost-causation principles; (3) rates should encourage
conservation and reduce peak demand; (4) rates should provide
stability, simplicity, and customer choice; and (5) rates should
encourage economically efficient decision making. It is
anticipated that a significant element of these discussions will
be fixed charges.
Proposed Law: This bill would allow the PUC to approve a flat
rate charge on all residential electrical customers, including
CARE customers, in order to recover fixed costs of providing
service. This bill declares Legislative intent that any fixed
per-customer charge be used to decrease the rates paid by
residential customers who have usage in excess of 130% of
baseline amounts.
Staff Comments: Small flat rate charges can lead to significant
reduction high electricity users and modest decreases in the
average customer's bill. According to Pacific Gas and Electric
(PG&E), for every dollar of a fixed charged imposed on both CARE
and non-CARE customers, the tier 5 rate will be reduced 0.7
cents (from 33.9 cents currently). This translates to a net
decrease in the average customer's bill (Tier 3 user) of $6 to
$15 depending on what climate zone they live in. High-use
customers, who have usage in tier 5, may see savings in the
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range of $20 to $35 per month for every dollar in a flat rate
charge. In 2010, PG&E applied to the PUC to establish a fixed
customer charge of $3 for all non-care residential customers.
The PUC opined that they did not have legal authority to approve
a flat rate charge given the statutory limitations on baseline
rate increases. While these figures are for PG&E customers, they
are likely representative of impacts to Southern California
Edison (SCE) and San Diego Gas and Electric (SDG&E) customers as
well. While a flat-rate charge may bring down monthly bills,
especially for higher usage customers opponents to the bill note
concerns on the impact of fixed rate charges on low income
customers and the ability for customers to retain control over
their bills through energy efficiency and conservation measures.
Staff notes that this bill addresses only one of the potential
rate design changes that the PUC is likely to consider in its
recently opened rulemaking.
IOUs regularly take up rates before the PUC once every three
years in their General Rate Case. SDG&E and SCE are likely to
finish their triennial rate case soon. PG&E's General Rate Case
is scheduled to begin in November. Given the timing of the
General Rate Cases of the three large IOUs, it is very
conceivable, should this bill pass, that at least one of the
IOUs may come forward with a request to implement a flat rate
charge outside their General Rate Case, which would cause the
PUC to incur costs for an extra proceeding or two.at a cost of
$150,000 to $300,000.
The proposed amendments would address the PUC's concerns about
cost and flexibility.