California Rate Reform Decision Will Slowly Change Electric Bills

PUCElectric bills for California investor-owned utility customers will not be changing dramatically, nor anytime soon.  However, changes are coming over the next five years. In June 2012, the CPUC commenced a regulatory process (R.12-06-013) to reassess residential electric rate design, with the intention of ensuring that rates are both equitable and affordable for the foreseeable future, including for low-income customers.   In July 2015, CPUC weighed in on whether alternative rate designs having fewer usage tiers can better achieve the state’s electric rate design objectives. The CPUC also considered whether and how the utilities should transition to time variant pricing, which is a pricing strategy where electric prices are based on the time when electricity is used.  Its answer:  “we have to make changes but they will not be dramatic and they will not be quick.”   (The Commission’s press release is here)

Leading up to this decision, the California utilities pushed to undo a decade’s worth of rate increases on the upper tiers in three years and ramp-up quickly to statutory maximum fixed charge of $10 per month for non-CARE, and $5 for CARE.   Specifically, SDG&E proposed a $10 monthly service charge and a transition to 2 tiers starting in 2015, with a 20% differential between the tiers by 2018.

On July 3, 2015, the CPUC issued a compromise decision that determined:

  • Minimum Bills Will Be Maintained: The reasonableness of monthly fixed charges is to be determined in future rate design proceedings. While rate flattening efforts are underway, it is a bad idea to impose new fixed charges immediately and will be reviewed in the future.  $10 minimum bills be implemented this year and continue at least until 2018.
  • Tiers: The decision reduces the number of rate tiers to two with 25% differential but also added a “Super-User Surcharge” would be added to tiered rates of 75% in excess of the second tier.   This effectively serves as a third-tier that will continue to send an important conservation incentive.   The SUE surcharge will apply to usage over 400 percent of baseline starting in 2017 (roughly equivalent to the top 2-10 percent of customers).Baseline allowances will be increased, as to be determined in future General Rate Case proceedings.
  • Default Time of Use (TOU) Rates: Utilities must file Rate Design Window applications with the CPUC by January 1, 2018 to roll-out default TOU rates in 2019 (and the utilities may propose fixed charges at that time).  Residential customers will default to time of use rates on January 1, 2019, but can opt to remain on the tiered rate structure.
  • Interim TOU Pilots: Should use a baseline credit, though options without a baseline credit are allowed. Defines a pilot structure.

SDCAN’s Policy Position

From its inception in 2012,  San DiegoCAN has urged the CPUC consider to consider residential rate designs that utilize time-of-use meters (“smart meters”) but do not punish customers who can’t avail themselves of this new time of use rate structure. This would allow California to benefit from ratepayers’ investment in this technology and encourage energy conservation by giving customers the tools needed to adjust energy usage to reduce bills.  SDCAN’s positions are summarized in its 2014 testimony and its 2013 Rate Design proposal.  In regards to the key controversial elements, SDCAN took the following issues:

Fixed Charges: The imposition of new fixed charges (monthly fees that will not vary based on customer usage) discourage customers from conserving energy and would disproportionately harm customers that use the least amount of energy per month.
Reducing Tier Differentials: SDCAN argued that reduction of tier differentials should be designed to avoid rate shock to customers. One factor that will affect the speed of reducing tier differentials is the increase in utility costs. If the CPUC adopted the utility proposals, low-usage customers would be unduly impacted.  This means seniors, minorities, and many of the state’s most vulnerable communities would be disproportionally punished.
Time of Use Pricing: SDCAN supports moving to Time of Use pricing for residential customers, and ensuring customers may choose an alternative tiered rate option. SDCAN supports movement to a three-tiered system (with a standard per kilowatt hour rate, and a lower rate for baseline energy usage) with the intention of moving to a “time of use” pricing structure.

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