California Residential Electric Rate Redesign

Background

In 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 and 2.

In 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.

On October 7, 2013, Governor Brown signed into law AB 327 (Perea), which allows the CPUC greater flexibility in setting residential rates, as well as:

  • Repeals rate increase limitations on energy usage tiers 1 and 2 (up to 130% of baseline) to allow rate reduction in tiers 3 and above.
  • Revises rates for low-income ratepayers (CARE program) such that the aggregate discount is between 30% and 35% the bill.
  • Limits fixed charges to $10/month for non-CARE customers and $5/month for non-CARE customers.
    • Fixed charges may not increase by more than the consumer price index each year, starting on January 1, 2016.
     
  • Allows for a reduction in the number of energy usage tiers in residential rates, but requires rates to have at least two tiers.
  • Prohibits mandatory or default time-of-use pricing before January 1, 2018.
  • Requires the CPUC to develop a new net metering rate, which would become available on January 1, 2017.

In response to AB 327, the CPUC issued a Ruling in October 2013 for the Residential Rate Redesign proceeding.

Long-Term Rate Design Structure

In 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:

  1. Be based on marginal cost.
  2. Be based on cost-causation principles.
  3. Encourage conservation and reduce peak demand.
  4. Provide stability, simplicity and customer choice.
  5. Encourage economically efficient decision-making.

2015 CPUC Decision

On July 3, 2015, the CPUC issued a revised Decision that would order:
  • No 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 charges.
  • Minimum 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.
  • Tiers: 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 Time-of-Use rates.
    • Though 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 to 2 tiers more quickly than the other two utilities.
     
  • 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).
  • Interim TOU Pilots: Pilot studies testing various optional Time-of-Use rate designs will be conducted in 2016 to 2018.
    • The optional rates in a pilot should include rates a baseline credit.
    • Options without a baseline credit also are allowed.
    • “Progress in Residential Rate Reform” workshops will be held twice annually.
    • Stakeholder Working Groups were established for the Pilot and Marketing, Education & Outreach.
     

PHASE 3 Investigation (2015 – 2019)

  • Interpretation of state law required for vulnerable customer groups.
  • Data requirements for utilities' 2018 interim Residential Rate Design requests, which will launch default Time-of-Use rates in 2019.
  • Developing effective marketing, outreach, and education plans.
  • CARE restructuring under AB 327.

ORA Positions

ORA continues to participate in the statewide residential rate reform process. ORA’s overarching goals for the rate reform process is to ensure that residential customer rates remain stable and affordable, and that customers are able to understand their electric rates and have the tools to succeed on whichever rate structure they choose.

1) Time of Use (TOU) Rates
  • Default Pilots – ORA and other stakeholder parties are currently planning for implementation of default time-of-use pilots for each of California’s IOUs. These pilots will take place in 2018 and are designed to test IOU outreach and education efforts as well as operational readiness for the implementation of full default, currently scheduled for 2019.
  • Sec 745 Hardship Analysis – Public Utilities Code Section 745 requires that the Commission explicitly consider whether default time-of-use rates will cause hardship for vulnerable customers such as seniors, low income customers, and customers in hot climate zones. In April 2017, ORA submitted testimony analyzing the results of the opt-in time-of-use pilots and supporting broad participation of the default TOU.
  • TOU Marketing, Education & Outreach – ORA continues to participate in planning for statewide and utility specific outreach and education efforts in order to ensure that electric customers are aware of the upcoming transition to default TOU rates. In addition, ORA emphasizes the need for cost-effective outreach and education programs as well as demanding the utilities to retain clear auditing trail for the budgets and expenditure tracking. The Commission has approved PG&E, SCE, and SDG&E’s proposed ME&O plans.  

2) Tiered Rate Reform
  • The Commission has directed the IOUs to continue to simplify residential tiered rates in 2017, with the ultimate goal of creating a rate consisting of two tiers and a high user charge. ORA has been working promote strategies to ensure that customers are aware of the changes to their tiered rates, that customers are allowed a reasonable baseline quantity of electricity at an affordable price, and that any changes are made as gradually as possible in order to avoid customer rate shock.

3) Residential Fixed Charges
  • The Commission is currently considering whether IOUs can include a fixed monthly charge on customer bills, and what would potentially be included if such a charge were authorized. Fixed charges are meant to recover costs which vary by the number of customers, but do not vary with the volume or demand of electricity used by customers. ORA jointly provided testimony with The Utility Reform Network and the Solar Energy Industry Alliance, which argued for using a minimum bill rather than a fixed charge, and argued that should a fixed charge be implemented that only customer access related categories should be included from calculating the charge.

4) CARE Restructuring
  • Assembly Bill 327 and D. 15-07-001 mandate that the effective discount for low income (CARE) customers should be modified to fall within an overall discount level between 30% and 35%, without predetermining the structure of these new rates.
  • California ratepayers are facing a number of significant rate changes from ongoing tier-collapse and the upcoming implementation of default TOU rates. Low income ratepayers are among those most likely to be negatively impacted by the ongoing changes. ORA is analyzing utilities’ demographic and usage data to better understand the CARE population, as well as the impact of changing rates on their overall comfort and well-being. ORA will provide inputs to CARE restructuring working group meetings based on its review and analyses in late 2017 or early 2018. 

 


Proceeding Status

See the Proceeding docket.

 

Resources

Senate Bill 695 (2009, Kehoe) – previous California rate design Legislation.


History of ORA's Position


See ORA’s September 25, 2017 Reply Comments on the Proposed Decision on the Requirements of PU Code 745 For Default Time-of-Use Rates for Residential Customers


See ORA’s September 18, 2017 Comments on the Proposed Decision on the Requirements of PU Code Section 745 For Default Time-of-Use Rates for Residential Customers


See ORA’s August 3, 2017 Comments on DDB Budget Submission for Phase 1 Strategy and Content Development


See ORA’s June 29, 2017 Reply Brief on PU Code Section 745 Track


See ORA’s June 20, 2017 Comments on May 31, 2017 Proposed Decision Granting in Part and Denying in Part the Joint Petition For Modification of D.15-07-001


See ORA’s June 15, 2017 Opening Brief on the PU Code Section 745 Track


See ORA’s April 25, 2017 Opening Comments on the April 14, 2017 ALJ’s Ruling on Statewide Marketing, Education, and Outreach on Residential Rate Reform


See ORA’s January 27, 2017 Response to the Joint Petition For Modification of D.15-07-001 by SDG&E, PG&E, and SCE


See ORA’s March 15, 2016 Reply to the Response of PG&E to ALJ’s Ruling Directing PG&E to Show Cause


See ORA’s January 11, 2016 Reply Brief on PU Code Section 745 Issues


See ORA’s December 23, 2015 Opening Brief on PU Code Section 745 Issues


See ORA’s June 24, 2015 Amended Reply Comments on the Alternative Proposed Decision


See ORA’s June 16, 2015 Reply Comments on the Alternative Proposed Decision

 

See ORA's June 11, 2015 Comments on the Alternate Proposed Decision.

 

See ORA's May 18, 2015 Reply Comments on the Proposed Decision.


See ORA's May 11, 2015 Comments on the Proposed Decision.

 

See ORA's January 5, 2015 Opening Brief.

 

See ORA's September 15, 2014 Testimony on 2015 Rates and Beyond: ORA Rate Design Proposals & Response to Scoping Issues.

 

See ORA's September 22, 2014 Brief on Time of Use Pilots.