BILL ANALYSIS � 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 142 - Rubio Hearing Date:
May 3, 2011 S
As Amended: March 29, 2011 FISCAL B
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DESCRIPTION
Current law requires the California Public Utilities Commission
(CPUC) 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 rate tiers.
Current law caps annual rate increases for CARE customers to the
increase in benefits under CalWorks 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.
This bill eliminates the cost caps on CARE rate increases in
effect through 2018.
Current 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.
This bill eliminates the rate increase cap for non-CARE
customers in the first two rate tiers.
Current law requires that the CPUC provide for baseline rates -
baseline quantity of gas and electricity which is necessary to
supply a significant portion of the reasonable energy needs of
the average residential customer.
This bill requires the CPUC to modify the current tiered
residential electric rates no later than June 1, 2012 and,
through 2014, transition the current rate structure to one that
reflects the actual cost of serving those customers.
BACKGROUND
Residential Electric Rates - Residential electric rates are
generally designed in a 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 current 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 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).
Rate Freezes - During the energy crisis in 2001, the Legislature
passed ABx1 1 (Keeley, 2001) to protect California ratepayers
from rampant price fluctuations due to a dysfunctional wholesale
electricity market. ABx1 1 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 IOUs which couldn't keep up with the volatile
wholesale prices. Among other stabilizing efforts, ABx1 1
included a provision that prohibited the CPUC 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 capped, increased costs
such as rising fuel prices, and legislatively mandated and
CPUC-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 are about $0.46 per kWh.
Also impacted by the rate freeze were the rates paid by
low-income customers who participate in the CARE program which
has only two or three rate tiers depending on the IOU territory.
Freeze Lifted - In 2009 SB 695 (Kehoe) was signed into law as an
urgency statute. Among other provisions, the bill removed the
freeze on tier 1 and tier 2 rates and allowed 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 customers.
As a consequence, beginning January 1, 2010, the CPUC 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 CalWork's 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 did
not increase due to the suspension of COLAs for the CalWork's
program.
COMMENTS
1. Author's Purpose . The author submits that the current
statutory rate structure which limits rate increases for
tier 1 and 2 customers according to statutory formulas
interferes with the ability of the CPUC to establish just
and reasonable pricing and rate designs. The bill is
sponsored by the author's constituents, the Kern County
Taxpayers Association, which argues that without this
proposed legislation "the continued extreme disparity in
electricity rates will unfairly burden an average
electricity ratepayer with high and volatile electricity
rates that far exceed the average cost of the utility
service being provided them, thus crushing them with more
and more 'price gouging' when thy can afford it less and
less."
2. Rate Shock . The rate freezes instituted during the
electricity crisis were designed to automatically expire
when the DWR bond charges were paid off which will not
occur for several more years. Although the intent of the
freeze was originally designed to protect customers from
the exorbitant and volatile rates brought by the
electricity crisis and to stabilize rates, at the time the
DWR bond charges were paid off those same customers could
be subject to huge rate increases due to expiration of the
freeze.
To prevent that rate shock on both CARE and non-CARE
customers, and to mitigate the growing disparity of rates
between tiers 1-2 and tiers 3-5, the Legislature in 2009
called for a gradual lifting of the rate freeze through
2018. The formulas in that legislation resulted from
months of discussion and analysis by members of the
Legislature, the IOUs, ratepayer groups, the CPUC and
others. This bill eliminates the gradual increases called
for by SB 695 and will instead likely result in rate shock
for those same tier 1 and 2 customers and will impact both
CARE and non-CARE customers. The Utility Reform Network
(TURN) reports that these provisions would immediately
increase rates on CARE customers by 20% and that its
research shows a "direct correlation between household
income and total usage. As a result, SB 142 would have
disproportionate bill and financial impacts on lower and
moderate income families."
The Legislature did jump into the middle of legislative
ratemaking with the rate freezes of 2001. Arguably this
bill is consistent with the Legislature's usual intent to
avoid legislative ratemaking and rely on the CPUC to
determine just and reasonable rates. However, the extreme
circumstances of the electricity crisis did call for
immediate intervention. With SB 695 the Legislature chose
to gradually address the unintended effects of that
intervention and transition back to ratemaking by the CPUC.
3. Ratepayer Impacts . TURN has released information that
shows, for instance, in Kern County 44 percent of customers
are enrolled in the CARE program which means that nearly
half of the customers in that county will experience a
significant rate increase immediately at the conclusion of
the CPUC's proceeding to implement rates called for in this
bill.
4. Look Before You Leap . The greatest unknown impact of
this bill is Section 3 which requires the CPUC to adjust
rates starting June 1, 2012 and transition rates to a new
structure that by 2015 would eliminate the current tiered
rate structure and set rates to reflect the actual cost of
serving customers. This provision appears to affect all
rate classes. This section appears to mandate time of use
pricing for all customers and customer classes which would
likely severely disadvantage customers in hotter regions
and higher air conditioning use.
This section also appears to override all current
ratemaking principles previously mandated by the
Legislature and also decided by the CPUC including pricing
adjustments for customers with unique medical needs that
increase usage and would also likely increase rates for
customers in rural areas which cost more to serve but have
rates which have been equalized over rural and urban areas.
Although some opine that the current rate structure is not
adjusted according to differences in climate, the
volumetric and tiered pricing structure in current use does
allow for greater usage in the lower tiers for hotter
climates than is allowed for cooler climates such as
coastal regions. It is not clear how this bill would
affect this distinction. The CPUC would be required to
"fairly and equitably reflect differences in climate and
other factors that are outside the control of a customer"
but at the same time set rates to reflect actual costs.
The two provisions are inconsistent.
The take away from this provision is that it will have
sweeping but unknown changes in the rate structure for all
IOUs across the state. To undertake such a dramatic shift
may require greater time and consideration including
technical analysis not currently available to the
committee.
POSITIONS
Sponsor:
Kern County Taxpayers Association (KernTax)
Support:
California Large Energy Consumers Association
DM Camp and Sons
H.M. Holloway, Inc.
Home Builders Association of Kern County
Kern County Department of Human Services
Pacific Gas and Electric Company
PETROtech Resources Company
Individuals (4)
Oppose:
Division of Ratepayer Advocates
Sierra Club California
The Greenlining Institute (unless amended)
The Utility Reform Network (unless amended)
Kellie Smith
SB 142 Analysis
Hearing Date: May 3, 2011