California Residential Electric
2001 during the energy crisis, California passed legislation that froze
volumetric electricity rates for a large portion of residential electricity
usage (i.e., usage less than 130% of the baseline energy allowance or customer
tiers 1 and 2). As utilities' costs increased over the years, because tiers 1
and 2 were frozen by law, increases could only be borne by those customers consuming
above 130% of baseline levels (or customers in tiers 3 and 4). As a
result, the difference between the lowest and highest tiers has become very
large, and rates for tiers 3 and 4 to more than double those for tiers 1
June 2012, the CPUC opened a Rulemaking to
examine existing 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.
October 7, 2013, Governor Brown signed into law AB
327 (Perea), which allows the CPUC
greater flexibility in setting residential rates, as well as:
rate increase limitations on energy usage tiers 1 and 2 (up to 130% of
baseline) to allow rate reduction in tiers 3 and above.
rates for low-income ratepayers, pursuant to the CARE
program such that the aggregate discount is between 30% and 35% the bill.
fixed charges to $10/month for non-CARE customers and $5/month for
charges may not increase by more than the consumer price index each
year, starting on January 1, 2016.
for a reduction in the number of energy usage tiers in residential rates,
but requires rates to have at least two tiers.
mandatory or default time-of-use pricing before January 1, 2018.
the CPUC to develop a new net metering rate, which would become available
on January 1, 2017.
response to AB 327, the CPUC issued a Ruling in
October 2013 and created two tracks for the Residential Rate Redesign
2014 Rate Changes
track addressed near-term issues of incremental changes to residential rates
in 2014 that would allow increases to rates for usage in the lower tiers.A
Agreement amongst the utilities, ORA, and
other consumer groups was filed with the CPUC in March 2014, which would
establish mechanisms to make progress in reducing the tier differentials while
taking into account the negative impacts the changes would make on some
customer bills. The CPUC issued a Final
Decision in June 2014, adopting the
Long-Term Rate Design Structure
this phase the CPUC considered 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.This longer term
track continues to examine optimal rate designs consistent with the 5 key
principles outlined in the CPUC’s 2008
Rate Design Decision:
Be based on marginal cost.
Be based on cost-causation principles.
Encourage conservation and reduce peak demand.
Provide stability, simplicity and customer choice.
Encourage economically efficient decision-making.
February 28, 2014 the utilities submitted Rate Design proposals to the CPUC,
quickly to undo a decade’s worth of rate increases on the upper tiers in
- Ramp-up quickly to statutory
maximum fixed charge of $10 per month for non-CARE, and $5 for CARE.
not address the effect of increasing rates on bill impacts, when
combined with expected revenue increases.
$10 fixed charge by 2017.
rate tiers from four to three in 2015, then to two tiers in 2018.
monthly fixed charge:
Years: inflation adjustment
fixed charge to $10 for non-CARE and $5 for CARE customers by 2017.
tiers from four to two between 2015 and 2018 and reduce the price
difference between the high tiers and low tiers to pre-energy crisis
monthly fixed charge:
$10 plus an inflation adjustment
to 2 tiers starting in 2015, with a 20% differential between the tiers by
Hearings on long-term rate design issues were held at the CPUC in November
July 3, 2015, the CPUC issued a revised Decision
that would order:
fixed Charges in Near Term: 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
Bills: Minimum bills are preferred to fixed charges in the short run,
and the limitation on fixed charges does not apply to minimum bills, but
it is reasonable to maintain the same cap.
Key next steps are to reduce the number of rate tiers to two. For a small
number of very large users (consuming at or above 400% of baseline), a
“Super-User Surcharge” would be added in 2017 to tiered rates but not
a transition to a 2-tiered structure (with a 25% differential) by 2019
was stated as a goal, annual increases in baseline rates are limited to
the residential average rate increase plus 5%. SDG&E is allowed to
transition to2 tiers more quickly than the other two utilities.
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).
TOU Pilots: Pilot studies testing various optional Time-of-Use
rate designs will be conducted in 2016 to 2018.
optional rates in a pilot should include rates a baseline credit.
without a baseline credit also are allowed.
in Residential Rate Reform” workshops will be held twice annually.
Working Groups were established for the Pilot and Marketing,
Education & Outreach.
3:A new third phase will be
established to investigate:
of state law required for vulnerable customer groups.
requirements for utilities' 2018 interim Residential Rate Design
requests, which will launch default Time-of-Use rates in 2019.
restructuring under AB
for leveraging the FERA, the federal low-income program, to provide
direct incentives to large income-qualified households.
supported the need for California to address the unintended consequences
of legislation passed in 2001 during the energy crisis that froze volumetric
electricity rates. ORA supports the need to reduce tier rate
differentials.However,ORA advocates that the CPUC consider
the cumulative rate impacts of correcting these rate differentials over time.
In order to make improvements to residential electric rate design, ORA worked
with other stakeholders to shape AB 327 as well as to develop a policy
framework that will allow the CPUC to consider residential rate designs that
utilize time-of-use meters (“smart meters”). This will 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
is advocating on these key policy issues for long-term rate
Fixed Charges: ORA opposes the imposition of new fixed charges
(monthly fees that will not vary based on customer usage) because fixed
charges reduce a customer’s incentive to manage their energy usage, conserve
energy, and would disproportionately harm customers that use the least amount
of energy per month.
Reducing Tier Differentials:
ORA supports carefully reducing tier differentials 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 approves large
utility revenue increase , the large bill impacts on low-usage customers will
need to be taken into account and more time will need to be taken in
Time of Use Pricing:
ORA supports moving to Time of Use pricing for residential customers, and
ensuring customers may choose an alternative tiered rate option. ORA supports a
gradual return to a two-two tier 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.ORA supports Time of use rates
that would have different rates for peak and non-peak consumption hours, as
opposed to tiered rates where a customer faces higher rates once a specific
amount of energy is consumed during a billing period.Time of Use rates
will more efficiently target the most expensive and polluting hours for
producing energy, and give customers greater ability to adjust their
consumption to reduce their bills.
ORA's June 11, 2015 Comments
on the Alternate Proposed Decision.
ORA's May 11, 2015 Comments
on the Proposed Decision.
ORA's May 18, 2015 Reply
Comments on the Proposed Decision.
ORA's January 5, 2015 Opening
ORA's September 15, 2014 Testimony
on 2015 Rates and Beyond: ORA Rate Design Proposals & Response to Scoping
ORA's September 22, 2014 Brief
on Time of Use Pilots.
Bill 695 (2009, Kehoe) – previous
California rate design Legislation.
of ORA's Position