BILL ANALYSIS �
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THIRD READING
Bill No: AB 1755
Author: Perea (D)
Amended: 6/6/12 in Senate
Vote: 21
SENATE ENERGY, UTILITIES & COMMUNIC. COMM. : 9-3, 6/11/12
AYES: Padilla, Fuller, Berryhill, De Le�n, DeSaulnier,
Emmerson, Rubio, Strickland, Wright
NOES: Corbett, Kehoe, Simitian
NO VOTE RECORDED: Pavley
ASSEMBLY FLOOR : 60-7, 5/17/12 - See last page for vote
SUBJECT : Electricity: rates
SOURCE : Pacific Gas and Electric
DIGEST : This bill permits the Public Utilities
Commission (PUC) to approved fixed per-customer charges for
residential customers beyond the statutory caps on rate
increases for tier 1 and 2 customers to cover the fixed
costs of electric service if commission finds the charges
are just and reasonable and will provide rate relief to
upper tier customers.
ANALYSIS : Existing law requires the PUC to establish the
California Alternate Rates for Energy (CARE) program to
discount rates for low-income gas and electric customers
defined as those with incomes no greater than 200 percent
of the federal poverty level and permit no more than three
CONTINUED
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rate tiers.
Existing law caps annual rate increases for CARE customers
to the increase in benefits under CalWORKs �California Work
Opportunity and Responsibility to Kids] with a hard cap of
three percent through 2018. Beginning in 2019 CARE rates
would be capped at a rate no higher than 80 percent of the
corresponding rates charged for non-CARE residential
customers. The cap is inclusive of increased fixed and
volumetric charges.
Existing law caps rate increases on the first two tiers of
electric and gas rates for non-CARE residential customers
to the annual percentage change in the Consumer Price Index
plus one percent with a restricted range of no less than
three percent and no more than five percent through 2018.
The cap is inclusive of increased fixed and volumetric
charges.
This bill:
1.States the intent of the Legislature that any fixed
per-customer charge be used to decrease the rates paid by
residential customers for usage in excess of 130% of
baseline amounts.
2.Requires the PUC to ensure that electricity rates are
affordable for qualified low-income ratepayers and would
require electrical corporations to offer discounts or
other ratepayer subsidies to ensure safe, reliable, and
affordable electricity to these customers so that these
customers are not at risk of service disconnections that
would cause them to sacrifice electricity service.
Background
Residential Electric Rates . Residential electric rates are
generally designed in a four or five-tiered structure based
on the customer's quantity of electricity usage. Within
prescribed usage tiers, the amount of electricity consumed
is priced at increasing per-unit rates. Under Existing rate
structures, energy charges for residential customers are
based on the quantity of electricity used by a customer,
and each successive block of electricity usage is billed at
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increased per-unit prices. Each block is referred to as a
tier. Tier 1 is the customer's "baseline" - 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. Baseline levels vary depending on the
climate of the region (e.g. hotter regions have a higher
baseline). This multi-tiered conservation pricing
structure grew out of the energy crisis. Prior to that
time, a two-tier pricing structure was common.
Rate Freezes . During the energy crisis in 2001, the
Legislature passed AB1X1 (Keeley) Chapter 4, Statutes of
2001, to protect California ratepayers from rampant price
fluctuations due to a dysfunctional wholesale electricity
market. AB 1X1 authorized the Department of Water
Resources (DWR) to issue revenue bonds to purchase power at
such prices the department deemed appropriate, on behalf of
the cash-strapped investor-owned utilities (IOUs) which
couldn't keep up with the volatile wholesale prices. Among
other stabilizing efforts, AB 1X1 included a provision that
prohibited the PUC from increasing rates for usage under
130% of baseline until DWR bond charges were paid off.
Those charges continue.
Because rates in the lowest tiers were frozen, increased
costs such as rising fuel prices, and legislatively
mandated and PUC-created programs, have been
disproportionately borne by those customers whose
electricity usage fell in the upper tiers. For example, in
Pacific Gas & Electric's territory, the 130% of baseline
quantities cost was about $0.11 per kilowatt hour (kWh),
while the top tiers went as high as $0.49 per kWh in 2010.
Similar impacts have been experienced in the territories of
Southern California Edison and San Diego Gas & Electric.
Freeze Lifted . In 2009, SB 695 (Kehoe), Chapter 337,
Statutes of 2009, was signed into law as an urgency
statute. Among other provisions, the bill removed the
freeze on tier 1 and tier 2 rates and was designed to allow
for gradual rate increases for all tier 1 and tier 2 rates
through 2018 at which time the formula for those increases
will sunset. A separate formula was established for CARE
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customers.
As a consequence, beginning January 1, 2010, the PUC could
grant increases in rates charged to non-CARE residential
customers for tier 1 and 2 rates by the annual percentage
change in the Consumer Price Index from the prior year plus
one percent, but not less than three percent or more than
five percent per year. Increases in tier 1 and 2 rates for
the residential CARE program were linked to annual cost of
living adjustments for the CalWORKs program not to exceed
three percent per year.
The effect of SB 695 was that the IOUs implemented a five
percent increase effective January 1, 2010, in tier 1 and 2
rates (excluding CARE customers) which resulted in a
commensurate decrease in tier 3, 4, and 5 rates pursuant to
the provisions of SB 695. The rate adjustments, overall,
were revenue neutral to the IOUs. The rates for CARE
customers have not increased due to the suspension of COLAs
for the CalWORKs program.
California Alternate Rates for Energy (CARE) . The CARE
program was designed to provide a 20 percent discount on
monthly gas and electric bills to income-qualified
customers at their primary residence and is funded through
a rate surcharge paid by all other utility customers. The
income cap on CARE eligibility is up to 200% above Federal
Poverty Guidelines, which are updated annually in June.
However, due to the rate freezes imposed during the energy
crisis, CARE rates have remained frozen for more than ten
years and resulted in assistance to CARE customers far
greater than intended.
PG&E Rate Case . In the spring of 2010 PG&E, as part of
its triennial rate case, applied to the PUC to establish a
fixed customer charge of $3 for all non-CARE residential
customers, and $2.40 for all CARE customers. Although the
PUC recognized a growing disparity in rates, they rejected
the charge on legal and policy grounds and characterized it
as "the most significant change in residential electric
rate design in the last decade."
Legally the PUC opined that the statutory caps on rate
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increases for tier 1 and 2 residential customers included
any new or increased fixed rate charges. They specifically
found that the commission was "prohibited by law from
approving PG&E's customer charge to the extent the total
bill impacts exceed these statutory limitations on baseline
rate increases."
The PUC also rejected the residential charge on policy
grounds concluding that the "proposed customer charge would
produce unacceptable rate impacts on those customers least
able to afford it. The customer charge also would conflict
with price signals that encourage conservation and
utilization of alternative resources such as solar."
PUC Rate Deliberations . Unofficially, the PUC has
announced that it will open rulemaking on policy guidance
for rate design this summer. They will consider how the
state's energy policy goals for 2020 are affected by retail
rate design and how rate design policies can and should be
sued to meet our long-term climate and energy policy goals
in an effort to align rates with policy objectives. One
significant element of that discussion will be fixed
charges.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee, potential
costs of $150,000 to $300,000 from the PUC Reimbursement
Account (special fund) beginning fiscal year 2013-14.
SUPPORT : (Verified 8/22/12)
Pacific Gas and Electric (source)
California Chamber of Commerce
Palm Desert Area Chamber of Commerce
San Diego Gas & Electric Company
Southern California Edison
OPPOSITION : (Verified 8/22/12)
AARP California
Division of Ratepayer Advocates
Greenlining Institute
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Natural Resources Defense Council
Sierra Club of California
The Utility Reform Network
ASSEMBLY FLOOR : 60-7, 5/17/12
AYES: Achadjian, Alejo, Beall, Bill Berryhill, Block,
Bonilla, Bradford, Buchanan, Campos, Carter, Cedillo,
Conway, Cook, Davis, Donnelly, Eng, Fuentes, Furutani,
Beth Gaines, Galgiani, Garrick, Gatto, Gorell, Grove,
Hagman, Halderman, Hall, Harkey, Hayashi, Roger
Hern�ndez, Hill, Huber, Hueso, Jeffries, Jones, Knight,
Lara, Logue, Ma, Mansoor, Mendoza, Miller, Mitchell,
Morrell, Nestande, Nielsen, Norby, Olsen, Pan, V. Manuel
P�rez, Portantino, Silva, Smyth, Swanson, Torres,
Valadao, Wagner, Wieckowski, Williams, John A. P�rez
NOES: Allen, Ammiano, Brownley, Butler, Chesbro, Feuer,
Huffman
NO VOTE RECORDED: Atkins, Blumenfield, Charles Calderon,
Dickinson, Fletcher, Fong, Gordon, Bonnie Lowenthal,
Monning, Perea, Skinner, Solorio, Yamada
RM:n 8/23/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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