7. Assignment of Proceeding

Michael R. Peevey is the assigned Commissioner and Thomas R. Pulsifer is the assigned ALJ for these consolidated applications.

1. Residential electric rates are designed in a five tiered structure (four for SDG&E) based on customers electricity usage levels.

2. Among the tiers, the amount of electricity consumed is priced at increasing unit rates.

3. Since February 2001, retail utility electric residential rates for usage up to 130% of baseline quantities (Tiers 1 and 2) have, with one exception, remained capped under statutory restrictions.

4. Since the Tiers 1 and 2 rate cap began, all revenue increases assigned to the residential group have applied to usage in Rate Tiers 3, 4, and 5 (which account for only about 30% of total residential usage).

5. The Tiers 1 and 2 rate restrictions have resulted in an increasing disparity between rates paid by low-usage customers that fall only in Tiers 1 and 2 and rates paid by higher usage customers in Tiers 3, 4, and 5.

6. SB 695 amends Pub. Util. Code § 739.1, and adds § 739.9 to allow Tier 1 and Tier 2 rates to increase by specific percentages based on specific indices.

7. SB 695 was passed as an urgency measure immediately effective.

8. Pursuant to § 739.9, the Commission has the authority to grant increases in rates charged to non-CARE residential customers for electricity usage up to 130% of baseline quantities (Tiers 1 and 2) by the annual percentage change in the CPI from the prior year plus 1%, but not less than 3% or more than 5% per year.

9. Increases in Tiers 1 and 2 rates for the residential CARE program are authorized by SB 695 but linked to annual cost of living adjustments for the CalWORK's program; the increase in the COLA for the CalWORK's program is suspended for the 2009-2010 fiscal year.

10. This process for adjusting rates remains in effect until January 1, 2019, absent further legislative changes.

11. The utilities calculated the cost of living adjustment for purposes of the Tiers 1 and 2 rate increases by using the cost of living index effective on January 1, 2009, which amounts to 5.8%, and represents the index change from the third quarter of 2007 to the third quarter of 2008. Since the 5.8 index change exceeds the maximum annual percentage rate increase under the statute, the utilities proposed a 5% increase to Tiers 1 and 2 rates.

12. The utilities' use of a 5.8% increase as the basis for the "prior-year" change in the CPI is based on a wrong interpretation of the "prior year" that is inconsistent with the statute since it applies CPI figures reaching backward as early as part of 2007.

13. Since the effective date of the proposed Tiers 1 and 2 rate adjustments is January 1, 2010, the applicable CPI for the "prior year" is the percentage change from the third quarter of 2008 to the third quarter of 2009. The use of any earlier measurement periods to derive the increase would conflict with the statutory formula for computing the change in Tiers 1 and 2 rates based on the "prior-year" CPI change.

14. The authorized rate adjustments will have no effect on the overall level of revenues collected by each of the utilities, although individual customers' bills will vary depending on the amount of electricity they use.

15. The three applicant utilities concur with TURN's proposal that future advice letters implementing Tiers 1 and 2 rate adjustments be filed at least 45 days before their proposed effective date.

16. Since SB 695 was enacted as urgency legislation, a shortening of the 30-day review and comment period for the proposed decision as set forth in the Assigned Commissioner's Ruling of November 18, 2009, is in the public interest. Pursuant to Rule 14.6(c)(9), this shortening of time is warranted to enable the approved rate changes to be implemented more expeditiously, thus beginning to rectify the rate disparities that have developed since the Tiers 1 and 2 rate cap was imposed in 2001.

1. This decision does not alter the fundamental relationship among residential usage tiers in which tiers reflecting higher usage incur higher unit rates.

2. This decision does not alter the presently adopted revenue requirement for the residential class of customers for each of the three applicant utilities.

3. The rate adjustments authorized are appropriate and consistent with the intent of SB 695.

4. The COLA appropriately used to calculate the rate adjustment for Tiers 1 and 2 within the range authorized by SB 695 supports only a 3% increase effective January 1, 2010. The applicants' 5% proposed increase is based on a wrong interpretation of the prior-year CPI change that applies and thus the 5% increase should not be adopted.

5. The rate adjustments authorized herein pursuant to § 739.7 or 739.9 do not contravene any statute or Commission policy in favor of encouraging energy conservation.

6. Offsetting Tiers 1 and 2 increases with commensurate decreases in Tiers 3, 4, and 5 is reasonable and consistent with the statutory provisions of § 739.9.

7. The adjustments adopted for PG&E, SCE, and SDG&E are consistent with the Tiers 3, 4, and 5 (except for SDG&E, which does not have a Tier 5) relationships established in their most recent rate design proceedings.

8. No increase should be authorized for Tiers 1 and 2 rates for CARE customers.

9. Advice letters to implement Tiers 1 and 2 rate adjustments should be filed as GO 96-B Tier 2 advice letters, to allow for careful review by the Energy Division and to ensure that rates that become effective have been appropriately developed in accordance with the directives of this decision.

10. There is no need for evidentiary hearings.

11. Due to legislative intent manifested by SB 695 being an urgency measure and the public interest in having the proposed rate adjustments implemented as expeditiously as possible, it is reasonable to have a shortened comment period on this decision in accordance with Rule 14.6(c)(9).

12. SB 695 was adopted as an urgency measure.

ORDER

IT IS ORDERED that:

1. Pacific Gas and Electric Company is hereby authorized to increase its Tier 1 and Tier 2 rates by 3 % on all non-California Alternate Rates for Energy residential schedules, and to decrease the non-California Alternate Rates for Energy Tiers 3, 4, and 5 rates commensurately, and consistent with the Settlement Agreement on residential rate design adopted in D.07-09-004, to result in revenue-neutrality.

2. Pacific Gas and Electric Company is hereby authorized to incorporate the approved rate changes adopted in this decision into its late December 2009 update of the Annual Electric True-Up advice filing (Advice 3518-E) for rates effective January 1, 2010.

3. Southern California Edison Company is hereby authorized to increase its Tier 1 and Tier 2 rates by 3% on all non-California Alternate Rates for Energy residential schedules, and to decrease non-California Alternate Rates for Energy Tiers 3, 4, and 5 rates commensurately, to result in revenue neutrality. These rate changes shall occur in the first rate change that takes place in 2010. As required by the Settlement Agreement approved in D.09-08-028, SCE shall maintain a 3.5 cent/kWh differential between the rates applicable to SCE Tiers 3, 4, and 5.

4. San Diego Gas & Electric Company is hereby authorized to increase its Tier 1 and Tier 2 rates by 3% on all non-California Alternate Rates for Energy residential schedules, and to decrease non-California Alternate Rates for Energy Tiers 3, 4, and 5 rates commensurately. These decreases shall be consistent with the currently authorized rate design methodology adopted in D.08-02-034 (San Diego Gas & Electric Company's General Rate Case Phase 2) and D.09-09-036 (San Diego Gas & Electric Company's Rate Design Window). San Diego Gas & Electric Company is authorized to include these rate changes in its annual consolidated advice letter filing to implement electric rates effective January 1, 2010.

5. Future annual filing to implement proposed changes in residential rates as authorized by Senate Bill 695 (Ch. 337, Stats. 2009) shall be by Tier 2 advice letter as set forth in General Order 96-B, filed no later than 45 days before the proposed effective date.

6. All future requests for residential rate changes pursuant to this decision shall apply the change in Consumer Price Index from the immediately prior year measured on a consistent basis with the approach applied in this decision for the rate changes to take effect on January 1, 2010.

7. The consolidated Applications (A.) 09-10-013, A.09-10-014, and A.09-10-015, respectively, are closed.

This order is effective immediately.

Dated December 17, 2009, in San Francisco, California.

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