ALJ/TRP/gd2 Date of Issuance 12/21/2009

Decision 09-12-048 December 17, 2009

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Pacific Gas and Electric Company for Expedited Authorization to Change Residential Electric Rates Effective January 1, 2010, as Permitted by Newly Enacted Public Utilities Code Section 739.9. (U39E)	Application 09-10-013 (Filed October 14, 2009)
And Related Matters.	Application 09-10-014 Application 09-10-015

DECISION REGARDING THE RESIDENTIAL ELECTRIC RATE
ADJUSTMENTS PURSUANT TO PUBLIC UTILITIES CODE SECTION 739.9

1. Introduction

This decision authorizes rate adjustments pursuant to Public Utilities Code Section 739.9 for Pacific Gas and Electric Company (PG&E), Southern California Edison Company, and San Diego Gas & Electric Company, as prescribed below. Each of the three utilities are authorized to implement residential rate changes effective on January 1, 2010 under provisions of Senate Bill (SB) 695 (Stats. 2009, Ch.337), by the amounts authorized in this decision. The utilities are authorized to propose future annual changes to residential rates pursuant to this statute by filing Tier 2 advice letters no later than November 15th of the year prior to when the rates are to change. Such future requests shall conform to the methodologies for measuring the applicable amounts of rate adjustments as prescribed in this decision. The authorized rate adjustments will have no effect on the overall level of revenues collected by each of the utilities, but will result in either increases or decreases in the monthly bill to individual residential customers depending upon the amount of electricity they consume.

Residential electric rates are designed in a multi-tiered structure based on the customer's quantity of electricity usage. Within prescribed usage tiers, the amount of electricity consumed is priced at increasing per-unit rates. Under current rate structures, customers with the lowest consumption (defined as Tiers 1 and 2) pay the lowest per-unit rates. Customers consuming larger amounts of electricity pay correspondingly higher per-unit rates for the additional usage, as prescribed by the higher per-unit rates applicable to the higher tiers. This decision does not alter that fundamental relationship. It does, however, address an anomalous situation in which certain rates were constrained from adjustment irrespective of changes in costs of energy over time.

Since February 2001, retail electric residential rates for Tiers 1 and 2 (for usage up to 130% of baseline quantities) have, with one exception, remained capped under statutory restrictions.¹ These restrictions were imposed in response to the energy crisis of 2000-2001 which led to extraordinary wholesale power cost increases. On February 1, 2001, Assembly Bill (AB) 1 from the First Extraordinary Session (Ch. 4, First Extraordinary Session 2001) (AB1X) was signed into law, implementing various measures to address the energy crisis. Among other measures, AB1X required the California Department of Water Resources (DWR) to step in to procure electric power supplies for California residential ratepayers to ensure the continued reliability of electric retail service.

AB1X also imposed a rate cap on residential rates for usage less than 130% of baseline quantities (defined as Tiers 1 and 2). Tier 1 applies to usage up to a customer's "baseline," a quantity specified in § 739(d)(1). Tier 2 applies to usage between the baseline and 130% of that amount.

Pursuant to AB 1X, the rate cap for Tiers 1 and 2 was to continue until the DWR recovered its costs to procure power on behalf of the state's electricity consumers. Yet, during this period, the utilities' overall operating and capital costs have continued to increase, resulting in significant increases in their utility revenue requirements. Since the Tiers 1 and 2 rate cap has remained in effect since 2001 (nearly nine full years), all subsequent revenue requirement increases assigned to residential customers have applied only to usage in Rate Tiers 3, 4, and 5 (which account for only about 30% of total residential usage). Consequently, the Tiers 1 and 2 rate restrictions have resulted in an increasing disparity between rates paid by customers in Tiers 1 and 2 and rates paid by higher usage customers in Tiers 3, 4, and 5.

As an example, the table below shows how PG&E's rates applicable to bundled service customers on Schedule E-1, its predominant non-CARE residential rate schedule, have changed since February 2001.

Rates Applicable to PG&E Bundled Service Customers on Schedule E-1 (cents per kilowatt-hour):

Tier	February 20012	June 20013	December 2009	Proposed by PG&E in A.09-10-013
1. (0-100% of baseline)	11.43	11.43	11.531	12.108
2. (101-130% of baseline)	12.989	12.989	13.109	13.764
3. (131-200% of baseline)	12.989	18.113	26.078	25.414
4. (201-300% of baseline)	12.989	22.506	38.066	36.182
5. (above 300% of baseline)	12.989	24.494	44.348	41.825

On October 11, 2009, SB 695 was signed into law as an urgency statute. SB 695, in pertinent part, removes the prior prohibition on Tier 1 and Tier 2 rate increases. SB 695 amends Public Utilities Code § 739.1, and adds § 739.9 to allow Tier 1 and Tier 2 rates to be increased within specific limits.

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 Consumer Price Index (CPI) from the prior year plus 1%, but not less than 3% or more than 5% per year. The annual percentage change in the CPI is to be calculated using the same formula used to determine the annual Social Security cost of living adjustment (COLA) on January 1, 2008.⁴ This process for setting rates applies until January 1, 2019, unless extended by a subsequent statutory change.

Accordingly, applicants seek authority to increase Tiers 1 and 2 rates by 5% pursuant to § 739.1 and § 739.9. Applicants concurrently seek to offset the increase to Tiers 1 and 2 with corresponding reductions to Tiers 3, 4, and 5 rates, so that the overall level of revenue collected from residential customers as a whole remains unchanged.

The utilities are further proposing procedures to implement similar subsequent yearly rate changes pursuant to SB 695 through advice letter filings.

The scope of these consolidated applications is thus to address the relevant issues relating to the applicable residential rate changes. As discussed below, in view of the applicable statutory provisions concerning the allowable magnitude of the maximum rate changes, we authorize for a rate increase for Tiers 1 and 2 of only 3% effective January 1, 2010, with a corresponding reduction to the higher-usage tiers, to result in no change in the overall amount of revenues collected from residential customers. We shall also require that the utilities' subsequent annual requests for rate adjustments pursuant to SB 695 utilize the most recently published figures for the prior year preceding the effective date of requested rate changes in accordance with the formula prescribed under the statute.

¹ SB 1, which established the California Solar Initiative (CSI) program, specifically allowed CSI costs to be allocated to non-California Alternate Rates for Energy (CARE) Residential customers' Tier 1 and Tier 2 usage. See Public Utilities Code Section 2851(d)(2).

² Rates shown for February 2001 include the 10%-legislated rate reduction pursuant to AB 1890 and the 1 c/kWh emergency procurement surcharge applicable to all non-CARE usage of PG&E and SCE customers assessed pursuant to D.01-01-018.

³ D.01-03-082 added a 3 c/kWh surcharge for non-CARE, non-medical baseline usage above 130% of baseline of PG&E and SCE customers. Tiered rate to implement this surcharge were developed in D.01-05-064 and became effective in June 2001 for usage above 130% of baseline. Rates shown for June 2001 include the 1 and 3 c/kWh surcharges.

⁴ The formula to determine the Social Security COLA is based on the CPI for Urban Wage Earners and Clerical Workers.