BILL ANALYSIS �
SB 1090
Page A
Date of Hearing: June 23, 2014
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
SB 1090 (Fuller) - As Amended: May 27, 2014
SENATE VOTE : 37-0
SUBJECT : Electricity: rates: default time-of-use pricing.
SUMMARY : Requires the California Public Utilities Commission
(PUC) to explicitly consider whether hardship will be caused to
customers living in hot, inland areas before imposing default
time-of-use (TOU) rates. Specifically, this bill :
1)States the PUC shall not require or authorize an electrical
corporation to employ default TOU pricing for residential
customers unless it has explicitly considered whether hardship
will be caused on the following:
a) Customers located in hot, inland areas, assuming no
changes in overall usage by those customers during peak
periods.
b) Residential customers living in areas with hot summer
weather, as a result of seasonal bill volatility, assuming
no change in summertime usage or in usage during peak
periods.
EXISTING LAW :
1)Requires that all rates for any service or product charged by
an electrical corporation be just and reasonable. (Public
Utilities Code � 451)
2)Permits the PUC to authorize an electrical corporation to
offer residential customers the option of receiving service
pursuant to time-variant pricing, as defined, and to
participate in other demand reduction response programs, but
prohibits the PUC from authorizing an electrical corporation
to employ mandatory or default time-variant pricing for any
residential customer, except that beginning January 1, 2018,
the PUC may require or authorize an electrical corporation to
employ default time-of-use pricing for residential customers,
subject to specified limitations and conditions. (Public
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Utilities Code �745)
FISCAL EFFECT : Unknown.
COMMENTS : The author notes " while we are hopeful that rate
reform will help my constituents and others in the inland areas
of the state with regard to heavy air-conditioning bills, we are
still very concerned about the potential hardships of default
time-of-use rates on very hot climates in which there may be
little ability to adjust electricity usage. This bill continues
and is consistent with the rate reform process, which stemmed in
part from the concerns of the Central Valley over high summer
electricity bills. SB 1090 extends rate reform to require the
PUC to do a more thorough examination of the impact of one part
of that reform, the potential for default time-of-use rates, in
terms of the hardships which may be caused in hot climates".
1)Background . During the 2000-2001 energy crisis, AB 1 X1
(Keeley), Chapter 4, Statutes of 2001, protected ratepayers
from rampant price fluctuations due to a dysfunctional
wholesale electricity market. Among other stabilizing
efforts, AB1 X1 prohibited the PUC from increasing rates for
usage under 130% of baseline until DWR bond charges are paid
off. These restrictions did not apply to customers of
publicly owned utilities - about 25% of electricity customers
in California. Subsequent legislation (SB 695, Kehoe, Chapter
227, Statutes of 2009) removed the freeze on Tiers 1 and 2 and
allowed very limited rate increases.
On June 28, 2012, PUC initiated a proceeding (R. 12-06-13) to
examine current residential electric rate design, including
the tier structure in effect for residential customers, the
state of time variant and dynamic pricing, potential pathways
from tiers to time variant and dynamic pricing, and preferable
residential rate design. This proceeding is open to the
public and allows interested parties opportunities to
participate by making comments on PUC rulings, making rate
design proposals, commenting on proposals made by others,
commenting on proposals made by staff, and commenting on any
decision made by PUC. However, the PUC is limited in the way
it can implement changes to rate design because of the
statutory restrictions on Tier 1 and 2 rates.
With the passage of AB 327 (Perea, 2013), many of the
statutory restrictions on rates were lifted, and the authority
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to institute preferred rate designs was returned to the PUC,
with limitations. The bill authorizes the PUC to establish
default TOU rates no sooner than 2018. AB 327 makes
significant changes to the types of residential rate
structures that are permitted and also contains limits
designed to protect certain classes of vulnerable customers.
The enactment of AB 327 prompted the PUC, in January 2014, to
release a staff proposal for residential rate reform with both
a recommended residential rate structure and a tool for
evaluating proposed residential rate designs which has formed
the foundation of its rulemaking to reform residential rates.
The PUC goal is to reach a decision this year implementing
wholesale rate redesigns for the large IOUs, likely based on
TOU rates, to take effect January 1, 2018, with a phase-in
commencing in 2015.
2)Benefits of TOU rates. TOU rates attempt to capture the
predictable time-variations in marginal cost with a minimum of
complexity. In other words, utility ratepayers pay varying
prices for electricity usage depending on the time of day and
season. Some benefits of TOU rates, if designed and utilized
properly, could reduce peak demand, conserve natural gas
consumption thereby decreasing greenhouse gas emissions.
Furthermore, TOU rates could promote efficient electric grid
operations, which could result in more stable, and possibly
lower electric rates over time.
Most small and medium business and agricultural customers of
the IOUs have already transitioned to TOU rates, including
those located in the inland areas of California .
3)Impact of TOU rates on residential customers . The IOUs
currently offer TOU rates as a voluntary option for
residential customers. As previously mentioned, the PUC may
order the IOUs to establish default TOU rates for residential
customers after January 2018. Once default TOUs are
implemented, residential customers would be automatically
switched to these rates unless they take action to
affirmatively notify the utility company to opt-out.
The Utility Reform Network (TURN) notes that under one
currently pending proposal for the establishment of default
TOU rates, approximately 97% of PG&E residential customers in
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the Bakersfield area would experience higher summer bills with
almost 60% paying at least $30 more per month during the
summer compared to 2013 rates.
While this proposal may be pending, this does not mean the PUC
will adopt it.
4)Predicting the outcome of the PUC's rate design proceeding?
According to the PUC proceeding, "the Commission is interested
in exploring improved residential rate design structures in
order to ensure that rates are both equitable and affordable
while meeting the Commission's rate and policy objectives for
the residential sector". In that proceeding, the PUC is
considering whether to implement default TOU rates in 2018 as
prescribed by AB 327. However, the PUC has yet to adopt such a
policy. Although the proceeding will consider default TOU
rates, the evidentiary record has not yet been developed, and
no decision considering default TOU rates is expected.
A 2011 analysis<1> of rate designs examining regional effects
of alternative retail electricity rates found that "contrary
to frequent assertions, IBP [increasing-block pricing] does
not penalize customers in high-use (i.e., hot) areas on
average because the baseline quantities for IBP reflect
regional differences in average consumption." While this study
was based on the current rate design, it is instructive in
demonstrating that whether or not a rate design creates a
penalty for customer in high-use areas is not a fait accompli
if TOU rates are imposed.
SB 1090 requires the PUC to explicitly consider whether
hardship will be caused on customers located in hot, inland
areas, assuming no changes in overall usage by those customers
in peak periods. The bill also requires the PUC to consider
residential customers living in areas with hot summer weather,
as a result of seasonal bill volatility, assuming no change in
summertime usage or in usage during peak periods.
5)Is a report necessary ? As proposed by the bill, the PUC would
be required to submit its findings to the Legislature not less
---------------------------
<1> E3WP-024:Regional and Income Distribution Effects of
Alternative Retail Electricity Tariffs, Borenstein, October
2011. http://www.uce3.ucsb.edu/WP_024.pdf
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than 12 month prior to authorizing the IOUs to employ TOU
rates for residential customers. A reporting requirement might
delay the residential rate design proceeding should the PUC
move forward with ordering the IOUs to implement TOU rates in
the future. Interested parties, stakeholders as well as the
public will have the opportunity to submit comments on any
policy decision proposed by the PUC. Therefore, the author
and this committee may wish to strike on Page 4, lines 5-8,
specifically:
(e) The commission shall submit its findings made pursuant to
subdivision (d) to the Legislature not less than 12 months
prior to requiring or authorizing an electrical corporation to
employ default time-of-use pricing for residential customers.
6)Support and opposition. Supporters state it is important for
the PUC to consider the impact of default TOU on vulnerable
families living in hot climate zones.
REGISTERED SUPPORT / OPPOSITION :
Support
AARP California
The Utility Reform Network (TURN)
Opposition
None on file.
Analysis Prepared by : DaVina Flemings / U. & C. / (916)
319-2083