4. Disposition of Specific Rate Proposals
4.1. Residential Customer Charge Proposal
PG&E proposes to institute a residential fixed customer charge applicable both for CARE and non-CARE customers. PG&E currently applies fixed customer charges only in non-residential customer classes, but recovers its fixed costs associated with servicing residential customer accounts through volumetric rates based upon usage.
PG&E does apply a minimum charge of $4.50 per month, which helps collect for facilities in place to serve residential customers. For customers with no or very low usage, the minimum charge functions like a customer charge and collects fixed revenues. Customers who use more energy (and whose bills exceed $4.50 per month) pay no minimum charge but pay for customer access only through volumetric rates. A minimum charge ensures that a customer who uses little or no electricity will contribute to customer access facilities.
PG&E proposes to reduce its current minimum charge to zero and to initiate a fixed customer charge of $3.00 per month for non-CARE customers and $2.40 per month for CARE customers. PG&E proposes to implement the customer charges in mid-2011 in addition to any authorized annual SB 695 increases to Tier 1 and Tier 2 rates. The revenues from a fixed customer charge would be used to reduce per-kWh rates for upper-tier usage. The Tier 3 and 4 rates would thereby decline by approximately 2 cents per kWh.
PG&E argues that imposing the customer charge will help contribute toward realigning rates more closely with costs of service. PG&E characterizes the customer charge impacts as small, accounting for only about $160 million out of almost $5 billion in annual residential revenues. PG&E argues that a fixed residential customer charge would mitigate swings in monthly revenue collections.
Various parties, including DRA, TURN, Greenlining, and DisabRA, oppose PG&E's customer charge proposal, both on legal and policy grounds. PG&E is supported in its legal and policy positions by SCE, Kern County, and Kern Tax.
TURN, in particular, argues that PG&E's customer charge proposal is contrary to Sec 739.1(b)(2) for CARE rates and 739.9(a) for non-CARE rates, both enacted as part of SB 695. TURN contends that the introduction of a fixed customer charge, combined with allowed increases in Tier 1 and Tier 2 volumetric rates, would exceed legal limits specified by these statutory requirements.11
TURN supports its position with the opinion of the Legislative Counsel Bureau (attorneys for the state Legislature). The Legislative Counsel opinion was produced in response to an inquiry from Senator Kehoe, the primary author of SB 695.12 The Legislative Counsel concluded that an electrical corporation formerly subject to Section 80110 of the Water Code may not increase or institute a fixed monthly customer charge in addition to increasing commodity rates by the maximum percentages provided under Sec. 739.1 and 739.9.
The pertinent provisions of Sec. 739.1(b)(2) authorize the Commission to grant increases in "rates in effect for CARE program participants for electricity usage up to 130 percent of baseline quantities" by prescribed amounts "not to exceed 3 percent per year."
Sec. 739.9(a) prescribes that any "increase [in] the rates charged residential customers for electricity usage up 130 percent of the baseline quantities" be capped at the "annual percentage changes in the Consumer Price Index from the prior year plus 1 percent, but not less than 3 percent and not more than 5 percent per year." TURN interprets these restrictions to include fixed customer charges. (TURN/Florio, Ex. 13, at 4.) TURN argues that under the referenced statutory requirements, fixed customer charge revenues must be included when calculating whether an increase in "rates for usage" meets the applicable percentage test. TURN thus contends that PG&E is foreclosed by law from implementing the proposed residential customer charge.
TURN contends that since PG&E has already been authorized to increase Tier 1 rate within the range specified by statute, any revenues produced by a new customer charge; together with the Tier 1 rate increase; would therefore produce composite "baseline rates" that exceed the specified percentage limits. A $3.00 monthly customer charge would increase winter baseline rates by more than 5 percent in every climate zone and would increase summer baseline rates above 5 percent in all but two climate zones.
PG&E disputes TURN's interpretation regarding the applicability of fixed customer charges to the baseline restrictions of Sec. 739.1(b)(2) and 739.9(a). SCE supports PG&E's legal interpretation. PG&E argues that the statutory language is plain that the rate percentage increase restrictions apply only to per kWh volumetric rates, but not to fixed customer charges. Because a customer charge is not based on the volume of energy usage, PG&E claims the prescribed percentage limits on annual rate increases have no relevance, and that fixed customer charges are excluded from the statutory limits.
PG&E and SCE both also observe that Sec. 739.9(a) omits explicit mention of a customer charge while Sec. 739.9(b) expressly identifies the customer charge. They argue that under rules of statutory construction, where the Legislature "has employed a term or phrase in one place and excluded it in another, it should not be implied where excluded." Pasadena Police Officers Assn. v. City of Pasadena (1990) 51 Cal.3d 564, 576. Applying this principle, they argue that the inclusion of the customer charge is not implied in Sec. 739.9(a).
PG&E agrees that the Legislature intended to allow customer charges plus increases in Tier 1 volumetric rates up to 90 percent of the utility system average rate, but argues that the Legislature did not intend to prevent the Commission from authorizing or increasing a fixed customer charge independent of volumetric charges authorized under Sec. 739.9(a). PG&E argues that its proposed customer charge is lawful so long as it can pass the test in Sec. 739.9(b) based on rates including customer charge revenue.
PG&E thus argues that the Commission has authority to approve PG&E's proposed customer charge, apart from any Sec. 739.9(a) rate restrictions. PG&E, with support from SCE, argues that legal standards of statutory construction support its interpretation that fixed customer charges are not included within the rate restrictions specified in Sec. 739.9(a).
TURN argues that PG&E's interpretation is inconsistent with the legislative intent underlying SB 695. TURN claims that it would be inconsistent with the legislative intent to control volumetric rate increases within a narrow annual range but then to ignore increases for access to the electric system via a customer charge. Allowing both Tier 1 and Tier 2 increases while also introducing a customer charge would not result in the narrow range of increases to the cost of access and the quantity of usage that covers basic needs. TURN argues that without access to the system, there can be no usage.
TURN also argues that PG&E's proposed customer charge contradicts past Commission precedent holding customer charges to be a component of baseline rates. PG&E argues that just because customer charge revenues have been treated as part of baseline for some purposes in the past does not mean that customer charges should be treated as part of the baseline rate for all purposes, or for the purpose of the Sect. 739.1(b)(2) and 739.9(a) formulas.
TURN also argues that the customer charge proposal is inconsistent with Sec. 739.7 in that it produces a tier differential below what was previously recognized as sufficient to comply with the statute. TURN believes that the Commission should compare an inverted Tier 1 composite rate with the customer charge against the Tier 2 rate to determine if the rate structure satisfies Sec 739.7's requirement that the Commission maintain an appropriate inverted rate structure. TURN claims that the differential must be at least 10 percent between Tiers 1 and 2.
PG&E has proposed Tier 1 and 2 rates that differ by 13.7 percent. Therefore, if the addition of the customer charge raises Tier 1 rates by a certain percentage, Tier 2 rates also must be raised in order to keep the tier differential greater than 10 percent. However, in some climate zones (Q, T, and Z) it is not possible to limit Tier 2 increases to no more than 5 percent as required by SB 695 while maintaining a Tier 2 - Tier 1 differential of at least 10 percent.
PG&E responds that the statutory language does not specify what tier or tiers to use to maintain an appropriate inverted tier structure. PG&E argues that the appropriate comparison should be based on all tiers above Tier 1, not just Tier 2, in order to reflect the complete effect of tier inversion. When composite tiers are used, PG&E's proposal meets the 10 percent differential.
Since SCE already has a residential customer charge, TURN's composite "baseline rate" interpretation of Sec. 739.9(a) would allow an increase both in SCE's Tier 1 rate and to the existing customer charge (or some combination of the two) because both components exist as part of the composite "baseline rates" that may be increased by 3-to-5 percent pursuant to Sec. 739.9(a). SCE argues that the rate differential disparity between the upper and lower tiers could be partially mitigated by allowing measured increases in the lower tiers as well as through allowing residential customer charges, provided the requirements of Sec. 739.9(b) are observed.
As a threshold matter, we consider whether the proposed increase resulting from instituting a customer charge is legally prohibited under Sec. 739.9(a). Specifically, the dispute involves whether the fixed customer charges are included within the baseline formula limiting increases in rates under Sec. 739.9(a). If we interpret that the statutory formula in Sec. 739.9(a) does include customer charges, we would next consider whether the proposed customer charge for 2011, would exceed statutory percentage limits. If so, the customer charge proposal must be denied. Alternatively, if we interpret Sec. 739.9 to exclude fixed customer charges from the limitations on permitted rate increases, we would next consider whether the customer charges would otherwise be justified under other applicable statutes and regulatory principles.
We find no statutory restrictions categorically prohibiting a fixed residential customer charge. Indeed, we acknowledge that SCE currently applies such a residential customer charge. The key legal question here, however, is whether the imposition of a fixed customer charge is included within the Sec. 739.1(b)(2) and 739.9(a) annual rate limitations applicable to electric usage up to 130 percent of baseline. Based on our analysis of the statutory provisions as discussed below, we do interpret Sec. 739.1(b)(2) and 739.9(a) as including fixed customer charges within the limitations on allowable percentage increases in "rates for usage." Thus, we are prohibited by law from approving PG&E's customer charge to the extent the total bill impacts exceed these statutory limitations on baseline rate increases.
In terms of its substantive merits, we likewise conclude that PG&E's proposed customer charge would produce unacceptable rate impacts on those customers least able to afford it. The customer charge also would conflict with price signals that encourage conservation and utilization of alternative resources such as solar. Accordingly, we decline to adopt the customer charge proposal on both legal and policy grounds.
We first address the legal disputes concerning the interpretation of Sec. 739.1(b)(2) and 739.9(a). We interpret these statutes by applying generally accepted principles of statutory construction. Statutory interpretation involves a three-step analysis. The Supreme Court of California has stated that to construe a statute, "we must `ascertain the intent of the Legislature so as to effectuate the purpose of the law.' The words of the statute are a starting point .... [And] they should be given the meaning they bear in ordinary use. If the language is clear and unambiguous there is no need for construction nor is it necessary to resort to indicia of the intent of the Legislature."13 If the language is ambiguous or allows more than one reasonable interpretation, courts look to other extrinsic sources, including the ostensible objects to be achieved and the legislative history.14
The key words of the statute in dispute involve the meaning of "rates" as used in Sec. 739.9(a). We find that ambiguity in this term does, in fact, exist. PG&E presents arguments interpreting the term "rates" narrowly so as to exclude fixed customer charges in contrast to volumetric-based charges. Yet, this narrow meaning is at odds with long-established Commission usage of the term "baseline rates" as including fixed customer charges. Therefore, we disagree with PG&E that there is no ambiguity in the statutory use of the term "rates."
Where ambiguity, doubt or uncertainty exists, statutory interpretation principles instruct that the next step is to look to the legislative history.15 In reference to the legislative history of SB 695, the Legislature has stated that "by restricting rate increases to an annual narrow range and controlling the increase within relatively small parameters, SB 695 is intended to minimize spikes in electricity rates and provide relative stability and predictability."16 Consistent with this express intent, the limitations in "rate" increases must be interpreted consistent with providing "relative stability and predictability" in customers' rates. Ignoring the effects of a fixed customer charge in assessing permissible statutory rate increases would conflict with this stated intent of SB 695. Otherwise, merely imposing limits on volumetric tiers would have little meaning if a fixed customer charge could be imposed without regard to such limits, and thereby undermine the intended overall rate stability. No customer using only baseline quantities could avoid the customer charge. Thus, it is logical to infer that the Legislature intended that all rate elements relevant to baseline usage be included for purposes of "restricting rate increases." Thus, by examining the legislative intent, we resolve the ambiguity in favor of interpreting customer charges as being included within the intended use of the term "rates" in Sec. 739.1(b)(2) and 739.9(a).
We disagree with PG&E that omission of the phrase "including any customer charges" from Sec. 739.9(a) means that the cap on the "increase [in] the rates" referenced therein applies only to the volumetric rate, but not to fixed customer charges.
Section 739.9(b) imposes a limitation on rate increases that expressly states that "rates charged residential customers for electricity usage up to the baseline quantities, including any customer charge revenues, shall not exceed 90 percent of the system average rate prior to January 1, 2019, and may not exceed 92.5 percent after that date." (Emphasis added.) Sec. 739.9(a) has similar language as Sec. 739.9(b), but omits the phrase "including any customer charge revenues."
PG&E argues that the inclusion of language in one section of a statute and its omission in another section is generally regarded as deliberate, especially when both provisions are enacted concurrently. (Wells, 39 Cal.4th at 1190.) PG&E thus argues that when two subsections use different terms (i.e. "rates" versus "rates. . . including any customer charge revenues"), applicable limitations are to be construed based on the different elements and "plain language" of the statute. The applicable legal principle is articulated as follows:
"It is not the proper function of the courts to supply legislative omissions from a statute in an attempt to make it conform to a presumed intention of the legislature not expressed in statutory language. They may not supply gaps in the law under the guise of interpretation, nor may they supply omitted words in order to rule in accordance with the contentions of a litigant. Indeed, if a statute on a particular subject omits a particular provision, inclusion of that provision in another related statute indicates an intent that the provision is not applicable to the statute from which it was omitted."17
PG&E and SCE argue that if the phrase "rates for electricity usage" in Sec. 739.9(a) necessarily includes customer charges, there would have been no need for the Legislature to add the phrase "including any customer charge revenues" to "rates for electricity usage" as identified in Sec. 739.9(b). They argue that such an interpretation would render such added words as "surplusage."18 PG&E and SCE argue that their interpretation avoids surplusage of words and harmonizes the separate provisions.
The California Supreme Court has noted, however, that statutory construction based upon alleged surplusage of words within a statute which defies common sense, or leads to mischief or absurdity, is to be avoided.19 Accordingly, inferences regarding alleged surplusage are not to be construed arbitrarily or out of context. In this instance, accepting PG&E's "surplusage" argument would produce an interpretation at odds with the express legislative intent. As noted above, we conclude that the legislative intent of SB 695 was to include fixed customer charges in determining the percentage rate limits under Sec. 739.1(b)(2) and 739.9(a). As such, consistent with accepted statutory construction, we are not persuaded by PG&E's and SCE's argument that the Sec. 739.9(b) phrase "including any customer charge revenues" implies an intent to exclude customer charges in Sec. 739.9(a).
Sec. 739(a) does not explicitly mention "customer charges", but does refer to "rates...for electricity usage up to 130 percent of baseline quantities..." The Commission has repeatedly recognized that baseline rates include any fixed customer charges. For example, in D.91107 (issued in 1979), the Commission stated:" [a]s the customer charge is an integral component of the lifeline charge, an increase in the customer charge is a disguised form of an increase in the lifeline rates."20
In 1980, the Commission stated, "[w]e fail to see how doubling the customer charge produces an inexpensive lifeline rate since the customer charge is part of the lifeline."21 In D.00-04-060 for a Southern California Gas Company (SoCalGas) Biennial Cost Allocation Proceeding, the Commission stated that Sec. 739(c) and 739.7:
"have been consistently interpreted to include the customer charge in determining whether the rate structure is, in fact, inverted. Under this `composite tier differential' approach, customer charges are considered part of the Tier I, or baseline, rate for the purpose of calculating tier differentials. (D.87-12-039, &_butType=3&_butStat=2&_butNum=32&_butInline=1&_butinfo=&_fmtstr=FULL&docnum=2&_startdoc=1&wchp=dGLzVlb-zSkAb&_md5=1209602708020150189c2ca340a3fe1b" target="_top">26 CPUC2d 213, 270; D.89-01-055; D.97-04-082, at 117-118.)
It is thus, reasonable to read the expression "rates for usage" as used in Sec. 739.9(a) in a manner consistent with how that term has been used in prior Commission decisions. Thus, we conclude that the Commission's longstanding definition of baseline rates is implicit in Sec. 739.9(a). There is no reasonable basis to conclude that the statutory references to "rates" in Sec. 739(b)(2) and 739.9(a) were intended to contradict the Commission's longstanding recognition that customer charges are an integral component of baseline rates.
As noted above, the Commission has previously recognized fixed customer charges as being inseparable from the Tier 1 usage-based rate for purposes of calculating and measuring bill impacts of tier differentials. In this context, although a fixed customer charge is not applied on a per-unit volumetric usage basis for billing purposes, the Commission has still recognized fixed customer charges in calculating customer-related bill impacts for usage within baseline quantities. Accordingly, even though the customer charge is not a volume-based billing determinant, the customer charge is still relevant in calculating the "rate for usage" in the context of identifying impacts on customers usage in Tier 1 (i.e., baseline quantities) or Tier 2 (up to 130 percent of baseline usage). Irrespective of whether rate design is configured to recover customer-related costs as a fixed amount or through a per-unit consumption rate, the customer impact is the same. The customer charge is thus included within the "rates... for electricity usage up to 130 percent of baseline usage..." as referenced in Sec. 739.1(b)(2) and 739.9 9(a).
In contrast to Sec. 739.9(a), the phrase "including customer charges" expressly appears in Sec. 739.9(b). At the same time, the rate limitation in Sec. 739.9(b) also excludes rates for second-tier usage (which were included in Sec. 739.9(a). Sec. 739.9(b) also prescribes a different formula for rate increases as a percentage of the "system average rate." Given the changing elements involved in the formulas compared between Sec. 739.9(a) and (b), the express mention of "customer charges" is useful. The explicit reference to "including any customer charges" conveys that customer charge revenues are a necessary element to calculate the percentage change relative to "the electric corporation's total revenue requirements for bundled service customers." We find no legislative intent to apply mutually inconsistent understandings of baseline rate elements between these adjacent statutory sections.
We find it noteworthy that the phrase "any customer charges" in Sec. 739.9(b) is defined as being "included in" rather than as being "in addition to" rates for usage. If the legislative intent was to exclude customer charges from "rates for usage," the phrase - "in addition to" - would have been a more logical choice. It is a principle of statutory construction that the terms "includes" and "including" are words of enlargement and not of limitation. The term "including" thus expands the definition of "rates" rather than limiting it to exclude customer charges.
We recognize that the prohibition on imposing residential charges that are "independent of consumption" set forth in Sec. 739(d)(3) expired on December 31, 2003. SCE argues that if Sec. 739.9(a) is interpreted to include fixed customer charges, it would logically imply an amendment or repeal of Sec. 739(d). Yet, the courts have found a basis for an implied repeal "only when there is no rational basis for harmonizing the two potentially conflicting statutes [citation] and the statutes are `irreconcilable, clearly repugnant, and so inconsistent that the two cannot have concurrent operation." (Garcia v. McCutchen (1997) 16 Cal.4th 469, 476-477, 66 Cal Rptr.2d 319, 940 at 2d 906.)
We disagree with SCE that interpreting Sec. 739(a) to include fixed customer charges necessarily implies repeal of Sec. 739(d)(3). These statutory provisions, taken together, merely indicate that Sec. 739(d)(3) does not categorically prohibit a fixed customer charge after December 31, 2003. At the same time, the extent to which a customer charge can be accommodated depends upon whether other statutory constraints come into play.
We disagree, however, with TURN's interpretation that the differential between PG&E's proposed Tier 1 and 2 rates, including any customer charge in Tier 1, must be at least 10 percent in order to comply with Sec. 739.7. We interpret Sec. 739.7 merely as requiring that an inverted rate structure be maintained. TURN relies largely on D.93-06-087 as the basis for its focus on a 10 percent tier differential. In that decision, the Commission concluded that a 10 percent differential between baseline and non-baseline rates was inadequate to provide a meaningful inverted rate structure and conservation signal. Yet, D.93-06-087 applied to a different rate structure than exists today. We agree with SCE that compliance with the inverted rate structure requirement of Sec. 739.7 is a comparison of the baseline rate (Tier 1) to the average of all non-baseline rates. Based on this comparison, the differential between PG&E's baseline and nonbaseline rates, both current and proposed, significantly exceeds the 10 percent differential cited in D.93-06-087.
Having concluded that customer charges must be included in calculating the limits prescribed in Sec. 739(a), we further find that the sum of the proposed customer charge, when added to Tier 1 and 2 rate increases already authorized for 2011 would exceed authorized statutory limits. Accordingly, the fixed customer charge cannot be approved.
Even if were we to conclude that Sec. 739.9(a) did not prohibit the Commission from considering approval of a fixed customer charge in addition to Tier 1 rate limits, the Commission would still exercise discretion to consider whether PG&E's customer charge proposal conforms to other relevant statutes and regulatory policy. Any adopted outcome must produces just and reasonable rates in accordance with Sec. 451.
We recognize that setting a customer charge to recover costs on a fixed basis has appeal in terms of the principle of cost-based ratemaking. We have previously approved a fixed residential customer charge for SCE. A fixed customer charge would more closely reflect cost causation and would more closely align PG&E's retail rates with costs, increasing bills for low-usage customers and decreasing bills for high-usage customers. PG&E estimates residential marginal customer costs at approximately $93 per year, covering functions that do not vary with usage, such as connecting a customer, maintaining the connection and servicing the account. These costs exist whether the customer uses electricity or not. Thus, customers with greater usage subsidize customers with lower usage.
PG&E has 4.575 million residential accounts and thus the $93 per-customer cost translates into roughly $425 million of fixed, unavoidable customer-related costs each year. The $425 million adds about 6.5 cents to the level of the non-CARE Tier 3 and 4 rates thereby contributing significantly to the level of the CARE discount and the CARE subsidy. CLECA/CMTA calculates that if those 6.5 cents were instead collected through a fully-compensating customer charge, the CARE subsidy would fall by more than $120 million.
We also consider, however, the potential adverse bill impacts of a customer charge, particularly on low-income households. Aside from any legal restrictions the fact remains that a fixed customer charge would be an unavoidable component of the bill of every residential customer, including those whose usage remained within baseline. Because a fixed customer charge cannot be avoided by a customer's reducing usage or being more energy efficient, the customer charge offers no conservation price signal. PG&E witness Faruqui performed no independent analysis of the impact of the customer charge on usage conservation.
Thus, recognizing the customer charge as an unavoidable element of baseline usage, we evaluate PG&E's proposal in terms of rate impacts on customers that utilize only baseline quantities. In this regard, a CARE customer using only 100 percent of the baseline amount in climate zone T would see an increase greater than 10 percent in their monthly bill as a result of PG&E's $2.40 customer charge. A non-CARE customer using only 100 percent of baseline in climate zone T would see an increase of almost 10 percent as a result of PG&E's $3.00 customer charge. Given the potential for the fixed customer charge to produce rate increases of up to 10 percent for those customers with the lowest usage and that are least able to afford it, we conclude that the customer charge proposal should also be denied on policy grounds. Even though PG&E represents the dollar amount of the customer charge as a modest amount, for low-income customers struggling to pay their bills in a difficult economy, a 10 percent bill impact could have unduly adverse effects.
At the same time, high-end energy users would see significant savings as a result of the customer charge proposal. Tier 5 customers (with usage above 300 percent of baseline) would experience savings from $13 to $23, with the greatest savings in Central Valley climate zones.22
TURN witness Marcus calculated that PG&E's proposed customer charge would produce expected revenue decreases from non-CARE customers ($25.3 million) that are almost offset by the increase for CARE customers ($21.0 million). The impact on CARE customers is uniform across baseline zones, with 100 percent receiving higher bills. The customer charge does not result in any material shifting of revenues between baseline territories.
In Kern County, the adoption of a customer charge would cause a 0.3 percent reduction in aggregate residential bills. However, all CARE customers and 46 percent of non-CARE customers would face higher rates. Among customers facing lower bills, almost 14 percent of the benefits would flow to only 0.8 percent of residential customers. Almost the entire remaining benefit would accrue to non-CARE customers, those with significant usage above 300 percent of baseline.
Nevertheless, we remain sensitive to the concerns of those Kern County residents whose bills remain disproportionately high due to their electricity needs, particularly during the summer season. However, the reduction in the Tier 4 rate adopted herein is an important step forward in addressing the disparities in billing impacts between CARE and non-CARE customers as we move rates incrementally closer to the cost of service. This continues the progress that we started with the elimination of Tier 5 in D.10-05-051. We will continue to monitor billing impacts for Kern County residents in future GRCs in an effort to sustain an appropriate and balanced rate design.
In summary, we deny PG&E's customer charge proposal on both legal and policy grounds, as explained above.
4.2. CARE Tier 3 Rate
PG&E seeks to implement a Tier 3 rate applicable to CARE usage above 130 percent of baseline. The 2011 CARE Tier 3 rate would be set equal to 150 percent of the CARE Tier 1 rate, increasing rates for usage above 130 percent of baseline by 2.9 cents per kWh for a total of 12.5 cents/kWh. PG&E further proposes that the CARE Tier 3 rate increase automatically by 1.5 cents/kWh in 2012 and 2013, respectively. By 2013, the Tier 3 CARE rate would be 15.5 cents, or 187 percent of the Tier 1 rate. PG&E's proposal would bring its CARE rate structure closer to that of SCE and SDG&E, both of whom already charge CARE Tier 3 rates. PG&E's proposed CARE Tiers 1, 2, and 3 rates will be lower than SCE and SDG&E's (see Quadrini testimony, Exhibit 2, at 3-15, Table 3-7; Figure 3-2, from Exhibit 2, at 3-19; and Table 3-1 and Table 3-3 in Quadrini rebuttal testimony. (See also PG&E/Faruqui, Ex. 2, at 3-16, Table 3-1 and at 3-17, Table 3-3; PG&E/Keane, Tr. at 262, lines 17 to 21.)
TURN does not oppose creation of a CARE Tier 3 rate set at 150 percent of the Tier 1 CARE rate, but does oppose additional annual increases in the Tier 3 rate prior to PG&E's next GRC. DRA conditionally accepts PG&E's CARE Tier 3 proposal only if the Commission concurrently rejects proposals to institute a customer charge and to change baseline allowances. Greenlining and DisabRA categorically oppose creation of a CARE Tier 3 rate.
Implementing the CARE Tier 3 rate will mean an increase of 30 percent for the first year for usage above 130 percent of baseline, with additional increases of more than 10 percent each for the next two years under PG&E's proposal.23 The CARE Tier 3 rate would thus increase by 50 percent over the next three years. DRA believes that a 50 percent Tier 3 rate increase over three years is too fast and will cause rate shock to the impacted customers. In their view, avoiding the associated bill impacts would require major lifestyle changes and home improvement, which would be difficult for customers to implement in a short time period in DRA's opinion. The CARE Tier 3 rates for SCE and SDG&E increased more gradually over a number of years.
Greenlining and DisabRA also oppose the CARE Tier 3 proposal, pointing to its effects on higher utility bills for low-income households already struggling with existing bills. They express concerns that a CARE Tier 3 rate will increase the risk that low-income customers may be unable to pay their bills and thus face service disconnection. PG&E has not conducted any studies to see how their new CARE rate proposal may impact the disconnection rate for CARE customers.24
Although progress has been made in reducing disconnection rates, the IOUs still disconnect at a much greater rate for low income customers than for non-CARE customers.25 PG&E and SCE's disconnection rates are higher than those of SDG&E and SoCalGas. The Commission opened R.10-02-005 to stem the increasing trend of utility service disconnections in the face of California's current economic problems. The Commission noted that it would investigate, in the next phase of the disconnections proceeding, the causes of the discrepancies between CARE and non-CARE disconnection rates as well as between PG&E, SCE and Sempra Utilities.26 PG&E has not conducted any studies to see how their new CARE rate proposal may impact the disconnection rate for CARE customers.27
PG&E's proposal would allow CARE rates to rise for the first time in many years, permitting PG&E to further escalate the Tier 3 rate prior to a full review in the next GRC. TURN opposes any increases to the Tier 3 rate prior to PG&E's next GRC. TURN opposes these automatic increases on legal and policy grounds. DRA likewise opposes any interim increases prior to the next GRC.
PG&E's non-CARE Tier 3 rate is currently 29 cents per kWh. The Tier 3 rate would be 29.7 cents per kWh without PG&E's proposed change in baseline allowances and without the proposed customer charge.28 DRA estimates that combining the CARE Tier 3 proposal with the baseline proposal would cause about 27 percent of CARE customers to see a 30 percent rate increase for incremental usage in Tier 3. DRA notes that PG&E has recommended capping the revenue allocation increases to streetlight customers at 7.5 percent to prevent the streetlight customer class from facing an undesirable higher revenue allocation increase of 12.6 percent.29
DRA thus infers that PG&E considers a revenue allocation increase greater than 7.5 percent to be undesirable. Following the same standard, DRA argues that it likewise would be unacceptable to impose a 14 percent average rate increase on CARE customers. DRA also notes that increased CARE rates will cause greater difficulties to low-income customers in paying their utility bills.
We find that, on balance, PG&E's proposal to institute a CARE Tier 3 rate at 150 percent of baseline is reasonable and hereby adopt it. The proposal is consistent with Sec. 739.1(b)(5) which permits an electric corporation to introduce a CARE Tier 3 rate provided that it does not initially exceed 150 percent of the CARE baseline rate.
We recognize that a CARE Tier 3 rate will cause some increase in the overall bill for CARE customers with usage above 130 percent of baseline. We recognize the need to maintain affordable rates for low-income households struggling in difficult economic times. We also remain sensitive to the effects of rising energy costs on risks of increasing nonpayment of bills and service disconnections. We find no inherent conflict, however, between approving the CARE Tier 3 rate and continuing to pursue measures to help low-income customers minimize the risk of service disconnection. The Commission places great emphasis on minimizing service disconnection because energy services are a necessity and losing energy services could cause health and safety hazard concerns.
The magnitude of the adopted CARE Tier 3 rate, however, is sufficiently modest so as to preserve affordability within reasonable limits. PG&E's proposed CARE Tier 3 rate is still a significant discount from the current non-CARE Tier 3 rate, (i.e. a 57 percent discount [12.5 cents compared to 29.1 cents] and a 56 percent discount [12.5 cents compared to 27.6 cents] from the proposed non-CARE Tier 3 rate). (See Ex. 2, at 2-8.) The sales-weighted overall CARE discount from non-CARE rates will be approximately 41 percent. (Quadrini/PG&E, Ex. 1, at 3-16, lines 6 to 8.) Even with the CARE Tier 3 increase, CARE customers will have significantly discounted rates for their usage.
At the same time, a CARE Tier 3 rate will move in the direction of bringing the rate tiers more into balance with the cost of service. SCE and SDG&E already have CARE Tier 3 rates. PG&E's CARE Tier 3 rate will still be lower than that of SCE and SDG&E. The SCE rate is about 50 percent higher than the level proposed by PG&E.
Raising the number of tiers for CARE customers from two to three will provide incentives to use less energy by a group of customers that account for about 29 percent of PG&E's current residential energy sales. PG&E claims that a higher Tier 3 rate is needed to motivate CARE customers to conserve. PG&E supported its claim with data showing CARE usage. Greenlining notes that that only a small group of CARE customers in four outlier counties with exceptionally high energy usage cause a significant skewing of the overall CARE usage data. For example, only 0.45 percent of the CARE population use more than one-third of total CARE usage in Tier 5. Greenlining thus argues that this small group is not representative of the actual energy usage of CARE customers and should not be treated as such for purposes of rate design. Greenlining observes that the highly skewed nature of the usage data for this small outlier group leads to the conclusion that many of these customers could be actually using electricity to engage in energy-intensive commercial activities. We conclude that additional steps are warranted to investigate this matter further, and to identify customers with unusually high usage receiving CARE discounts that may not actually qualify for the CARE discount. We note that PG&E has presented a proposal for its 2012-2014 CARE budget (in A.11-05-022) to take steps to ensure that the CARE program is being utilized only in a manner consistent with the program's overall statutory objectives. In A.11-05-022, PG&E proposes a new approach to address the top 1 percent of CARE households with extremely high usage that is atypical and inconsistent with usage consumption of typical CARE households. PG&E proposes a process to limit participation of egregious users - those households with greater than 600 percent of baseline.
PG&E also proposes to ensure that extreme users - those households with usage between 400 percent and 600 percent of baseline - demonstrate they are indeed income-qualified by providing standardized income eligibility documentation, and showing a commitment to becoming more energy efficient by agreeing to participate in the Energy Savings Assistance Program as a condition of continued participation in the CARE program. We agree that the problem of inefficient and/or unauthorized CARE usage must be addressed, and we look forward to consideration of PG&E's proposals in A.11-05-022. We agree with Greenlining that the referenced outlier data raises significant questions about the validity of PG&E's conclusions regarding average CARE usage, and we will not rely on such data. Nonetheless, we still believe that the CARE Tier 3 rate provides a useful incentive to encourage more efficient energy usage among CARE customers.
Low-income customers in PG&E's service territory have the potential to save, on average, 160 kWh per year through energy efficiency (Exh. 39, at 6-5, table 6-4; Tr. at 220, lines 19-24.) As long as CARE customer usage does not exceed Tier 2 usage, they will not be impacted by the CARE Tier 3 rate.
Sec. 739.1 (b)(5) limits the initial Tier 3 rate level to no more than 150 percent of the CARE Tier 1 rate, but does not specify any particular time interval for subsequent CARE Tier 3 rate adjustments. Thus, the Commission has discretion to consider subsequent interim increases in the CARE Tier 3 rate prior to PG&E's next GRC.
When combined with the initial CARE Tier 3 rate, the additional interim increases would be a cumulative increase by 50 percent over the next three years. We conclude that a 50 percent rate increase for CARE Tier 3 over three years increases rates is too fast and will risk undue rate shock to impacted customers. Measures to avoid the associated bill impacts would be difficult for customers to implement in a short time period. At the same time, we recognize value in making at least some progress toward cost-based rates during the three-year GRC cycle. Accordingly, we shall approve one additional interim CARE Tier 3 increase of 1.5 cents/kWh, starting in 2013, but we decline to approve the requested interim Tier 3 increase for 2012. Given the continued uncertainties regarding the pace of the current economic recovery, we consider this adopted approach to provide the most balanced result.
PG&E proposes to further flatten tier differentials by collapsing Tiers 3 and 4 to bring the non-CARE upper-tier rate to a lower level. This change would continue the consolidation of non-CARE tiers that began with D.10-05-051. PG&E's combined upper-tier rate would move into the range of SCE and SDG&E's upper tier rate instead of the current 40 cent rate which is 25-to-30 percent higher. PG&E argues that reducing the number of tiers for non-CARE customers will enhance the understandability of one of the most complex rate designs in the country.
The Tier 4 rate significantly exceeds the cost of service and is higher than the corresponding rates charged by any other California utility. As a result, PG&E residential households with consumption in the upper tiers (particular those in hot climate zones like the Central Valley) experienced extremely high summer bills particularly during 2009. PG&E filed A.10-02-029 seeking to lower the tier differentials as an interim means of lowering Tier 5 rates to provide summer rate relief primarily for customers in the Central Valley during 2010 and reduce month-to-month bill volatility. D.10-05-051 approved a Joint Settlement which consolidated Tiers 4 and 5 into a single Tier 4 and adopted a fixed differential between Tiers 3 and 4 to continue until the Commission issues a decision in this proceeding. PG&E's highest tier rate is still above 40 cents per kWh.
PG&E supports an inverted rate structure as an incentive for customers to conserve energy, but only to the extent that inverted rates are based on marginal costs. PG&E believes that rate design should not be determined based solely on conservation incentives for households with significant consumption in higher tiers. PG&E argues for greater emphasis on what it perceives as fairness of the rate structure and sending accurate price signals reflecting the costs of consumption.
Under PG&E's proposal, the remaining Tier 3 rate differential would be the same for all rate schedules, with two exceptions. The first exception would be for the Family Electric Rate Assistance (FERA) rates. FERA customers currently do not pay the Tier 3 rate for Tier 3 usage, but instead pay the Tier 2 rate. But they currently pay the same Tier 4 rate on their usage exceeding 200 percent of baseline as other non-CARE customers. PG&E proposes that FERA customers pay the proposed Tier 3 rates on all usage exceeding 200 percent of baseline. The second exception would be for Electric Vehicle tariff, E-9, as discussed below in Section 4.6.
PG&E argues that its proposal to collapse Tier 4 will mitigate volatility in bills associated with the current four-tier structure. Using a Kern County household as an example, PG&E calculated that at current rates, a 38 percent increase in consumption results in a 63 percent bill increase. Although this is an improvement over the 75 percent figure in 2009, PG&E's proposal would reduce the volatility further, with just a 50 percent bill increase in response to a 38 percent consumption increase.
Various parties oppose reducing the rate tiers to three, arguing that a four-tiered structure: 1) provides stronger conservation incentives to customers; 2) provides price signals that promote increased distributed renewable generation development among customers; and 3) minimizes potential customer confusion regarding PG&E's fluctuating residential electric rates. Advocates for low-income ratepayers oppose the consolidation of tiers because low-income customers with usage in Tier 3 would see higher rates, thereby making bills less affordable. They also argue that the four tiered structure has only been effective since June 1, 2010, allowing too little time to reasonably measure related customer impacts prior to implementing subsequent changes.
Some parties argue that PG&E's proposal would harm the solar industry. PG&E's proposed a top rate for Schedule E-1 customers of 27.6 cents per kWh significantly exceeds what is charged in every other state except Hawaii and Arizona, and is only slightly below the top rate charged by SCE and SDG&E (Faruqui, Ex. 2, at 3-18, Figure 3-1). Robust solar industry exists in the SCE and SDG&E service areas. Residential customers in SDG&E's service area have already moved into step 8 of the ten steps of the California Solar Initiative (CSI),30 only four years into this ten year program. Residential customers in SCE's service area are now in step six. (Tr. at 521, line 1 to Tr. at 523, line 7, Vote Solar/Rose.) In view of these solar program successes in Southern California, PG&E argues that reducing PG&E's top rate tier to the level proposed will not harm the solar program in PG&E's service territory.
DRA favors continuation of a Tier 4 differential, but supports a lowering of the magnitude of the differential from 40 cents to 34.7 cents/kWh. DRA's calculation, however, assumes that its revenue allocation is adopted, which shifts revenues from the residential class to other classes. DRA's recommended Tier 4 rate would still be more than 2.5 times the Tier 2 rate. DRA argues that collapsing non-CARE Tiers 3 and 4 rates would lead to higher non-CARE Tier 3 rates, and put pressure on increasing CARE Tier 3 rates in the future.
DisabRA notes that medical baseline customers currently do not pay rates higher than Tier 3 rates, and that the proposal to collapse Tiers 3 and 4 to form a new Tier 3 could result in a higher Tier 3 rate, leading to higher bills for medical baseline customers.
TURN opposes PG&E's proposal, arguing that it fails to provide sufficient conservation incentives, and may undercharge customers for the peak costly summertime usage that drives system-wide capacity additions. TURN argues that the elimination of Tier 4 would reduce the marginal price charged to larger residential consumers who are typically higher-income and more likely to have their usage correlated with system-wide peak demand (due to air conditioning). TURN believes that the current 4-tier structure provides effective conservation signals and should be retained.
TURN further argues that eliminating Tier 4 is unnecessary given the expected increases in lower-tiered rates authorized by SB 695 in 2011 and beyond. Moreover, TURN argues that the choice between 3 and 4 tiers makes practically no difference in terms of addressing the perception of inter-regional inequity by some customers in the Central Valley.
Solar Alliance argues that PG&E's proposed Tier 3 rate (which would become its highest tier) is as low as 27 cents per kWh, which would be below the marginal cost-based summer on-peak residential Time-of-Use (TOU) rate for Tier 1 usage, which PG&E proposes be set at 28 cents per kWh. Consequently, Solar Alliance argues, PG&E's highest tiered rate would be below, not above, its marginal cost of peak usage. The percentage of residential summer usage which falls into the on-peak TOU period - i.e., 20 percent - is approximately the same as the percentage of residential usage which occurs in the higher tiers.
The Solar Alliance and Vote Solar provided testimony showing how PG&E's proposal to collapse Tiers 3 and 4 could harm residential customers who have installed solar photovoltaic (PV) units. Solar Alliance, Vote Solar, and Sierra Club all argue that high Tier 4 residential rates help make solar PV more cost-effective to customers. (Sierra Club, Ex. 7, at 29 to 53.) Solar Alliance asks for the return of a Tier 5 rate.
Greenlining argues that moderate energy users will see "drastic" increases in their rates under the tier consolidation proposal. (Greenlining brief at 42.) Greenlining believes that tier consolidation could lead to escalating non-CARE Tier 3 rates, and ultimately increase CARE customers' bills if a CARE Tier 3 rate is approved. Greenlining argues that many CARE customers find it difficult to avoid usage between 130 percent and 200 percent of baseline. For example, CARE customers with large households and energy-inefficient homes might unavoidably consume energy up to 200 percent of the baseline amount. Such a customer would see a monthly bill increase ranging from $5.00 to $12.00, depending on their climate zone. Greenlining argues that such bill increases for CARE households struggling to pay their bills are untenable, especially if combined with the proposed customer charge and an additional bill increase from the baseline quantity reduction. Greenlining argues that the most conservationist customers - low-income customers in hot Central Valley climate zones - would be punished the most in order to placate the generally affluent excessive energy consumers in the Central Valley.
PG&E responds that the current Tier 3 rate is 29.0 cents per kWh, and its proposed new rate will be lower, at 27.6 cents per kWh. (PG&E/Quadrini, Ex. 1, at C-1.) While this proposal will result in higher rates for Tier 3 customers than they would otherwise pay, PG&E does not view the increase as "drastic."
TURN notes that the 27.6 cent per kilowatt hour rate proposed for Tier 3 and 4 usage may not cover the cost of generation in the highest peak hour of the year. (TURN brief at 23.) PG&E responds that the proposed Tier 4 rates far exceed the cost of service, and that TURN only compares this rate with the proposed TOU rate for peak periods. Solar Alliance notes that the proposed Tier 3 rate will be below the TOU peak period rate. (Solar Alliance brief at 14-15, claiming that the top tier TOU rate is PG&E's marginal cost.) The proposed 27.6 cent per kWh price will be charged for all non-TOU Tier 3 and 4 usage every single hour of the year. PG&E questions how a 27.6 cent price applicable at all times during the year will fail to cover costs when the average cost of service for residential customers is near 18 cents per kWh. PG&E claims that there is no cost basis for continuing with four tiers. (PG&E/Quadrini, Ex. 2, at 2-14, lines 8-10.)
We decline to adopt PG&E's proposal to consolidate Tiers 3 and 4. Currently there is an 11 cents per kWh differential between PG&E's residential Tiers 3 and 4. We recognize the need for some movement to more closely align Tier 4 with cost of service. We conclude, however, that a complete consolidation of Tiers 3 and 4 goes too far. Accordingly, we reduce the Tier 4 rate somewhat, but require that a Tier 4 differential of at least four cents per kWh be maintained between Tiers 3 and 4. PG&E's Tier 4 rate that results from our adopted rate design measures, as illustrated in Appendix Table A, is still higher than the residential top tier rates approved for SCE and SDG&E. (see PG&E Hearing Ex. 1, Attachment 11A, page 11A-2).
If Tier 4 were entirely eliminated, there would be no rate incentive to conserve for usage beyond 200 percent of baseline. Entirely eliminating Tier 4 could impede progress toward achieving the CSI goal of creating a self-sustaining residential solar PV market. By promoting the market for residential PV, we help to advance the state's loading order and meet AB 32 greenhouse gas emission reduction goals.
We recognize that utility bill savings are the most important driver of a customer's decisions to invest in PV. The amount of time it takes for bill savings to equal the total cost of a PV system is the payback period. The elimination of Tier 4 would cause a significant reduction in a customer's annual bill savings associated with PV installations, and thereby extend the customer's payback period.
We conclude that it is too early to assess the effects of consolidating Tiers 4 and 5, which only took effect on June 1, 2010. Rate design will play a larger role in the success of the CSI program as CSI incentive payments step down. As noted by Vote Solar, the success of the CSI program has led to steep incentives declines into step 8, or $0.35 per Watt, down from $2.50 per watt at the start of the program.
Sierra's Club argues that removing Tier 4 will reduce incentives to conserve. PG&E's witness, Dr. Faruqui, testified that PG&E's proposals, as a whole, have a small pro-conservation effect. Certain of PG&E's proposals which may reduce conservation incentives for some customers offset other elements which increase incentives for other customers.
TURN presented an analysis of revenue impacts on various rate design changes for Kern County. This analysis shows that the customer charge and the elimination of tier 4 have virtually no impact on the total amount of revenues collected from Kern County residential customers. For example, retaining a 4-tier rate structure would yield a net revenue reduction of $291,402 (or 0.17 percent of the total) for Kern County. Eliminating the customer charge and retaining a 4-tier rate structure would result in a $458,843 (or 0.27 percent) revenue increase relative to PG&E's base proposal.
We decline to adopt Solar Alliance's recommendation that PG&E return to a five-tier residential rate design with fixed and much smaller differentials between the Tiers 3, 4, and 5 rates. Solar Alliance argues that the differential between the Tier 3 and Tier 4 rates should be 3 cents per kWh, with a 7 cents per kWh difference between Tier 4 and Tier 5. The Solar Alliance proposal would reverse the direction that Commission has been pursuing in attempting to bring high-usage tiers more into line with cost of service. For the reasons discussed above, we favor continuing to move forward with narrowing upper tier differentials, not increasing them.
Baseline quantities are the designated daily amounts of electricity and gas considered necessary to supply a significant portion of the reasonable energy needs of the average residential customer. PG&E proposes to reduce the electric baseline quantity allowance from 60 percent to 55 percent of average usage for basic customers, except for all-electric baseline quantities during the winter season, which PG&E proposes to reduce from 70 percent to 65 percent of average usage, per Sec. 739(a)(1). Sec. 739(a)(1) specifies that the baseline percentage must be set between 50 and 60 percent of average residential consumption. PG&E's proposal would set its electric baseline percentage at the middle of the range allowed by law, and would reduce total baseline quantities by an average of 4.5 percent (CARE) to 5.8 percent (non-CARE). PG&E's proposed reduced baseline percentage moves more usage into the higher tiers. (Tr. at 24, lines 1 to 7, PG&E/Faruqui.) Usage no longer included in baseline would be billed at higher rate tiers.
The percentage change in CARE and non-CARE usage by tier is set forth below:
Impact of Proposed Baseline Quantities on Non-Care Usage | ||||
Line No. |
Tier |
Current Annual GWH |
Proposed Annual GWH |
Percentage Change |
1 |
Tier 1 |
13,618 |
12,834 |
-5.8% |
2 |
Tier 2 |
2,441 |
2,461 |
0.8% |
3 |
Tier 3 |
6,588 |
7,353 |
11.6% |
4 |
Total |
22,648 |
22,648 |
|
Impact of Proposed Baseline Quantities on Care Usage | ||||
Line No. |
Tier |
Current Annual GWH |
Proposed Annual GWH |
Percentage Change |
1 |
Tier 1 |
5,564 |
5,313 |
-4.5% |
2 |
Tier 2 |
875 |
895 |
2.3% |
3 |
Tier 3 |
2,025 |
2,256 |
11.4% |
4 |
Total |
8,464 |
8,464 |
|
*Source: PG&E June 30, 2010 Update, page 3-7
While residential and non-residential gas rate design issues are generally litigated in gas Biennial Cost Adjustment Proceedings, proposed gas target baseline quantities applicable for the 2011 GRC cycle are being addressed in Phase 2 of the 2011 GRC, as ordered in D.89-12-057.
Gas and electric baseline quantities were adjusted in D.02-04-026 in Phase 1 of R.01-05-047. We adopted PG&E's methodology of averaging the most recent four calendar years of baseline quantities, which were set at 60 percent of average usage, except for all-electric and gas baseline quantities in the winter season, which were set at 70 percent of average usage per Sec. 739(a)(1).
PG&E proposes changing in its baseline quantities by applying the same baseline methodology approved in D.02-04-026, adjusted for seasonal and vacation home usage as required by D.04-02-057 and modified in D.07-09-004, using the most recently available four years of seasonal data (i.e., November 2005 through October 2009).
This change in baseline quantities would reduce kWh usage in Tiers 1, and increase usage in Tier 2 and 3, thereby increasing the upper-tier usage over which any revenue increase can be allocated. Increasing the usage billed in Tier 2 and 3 has the effect of reducing PG&E's proposed non-CARE Tier 3 rate by approximately 2 cents per kWh, which helps reduce the rate disparity between upper and lower tiers.
PG&E's proposal would provide electric baseline quantities largely consistent with both SCE and SDG&E. In contrast, gas baseline quantities would continue to be set at 60 percent of average usage in the summer and 70 percent in the winter. Gas rates utilize only two tiers, Tier 1 and Tier 2, so non-CARE gas customers do not pay significantly higher rates for usage exceeding 130 percent of baseline. As a result, all residential gas customers pay the same rate for usage exceeding 100 percent of baseline.
Except for annual increases for CARE and non-CARE usage in Tiers 1 and 2, all rate increases currently must be absorbed by non-CARE usage greater than Tier 2. If baseline quantities are lowered as PG&E proposes, usage exceeding 130 percent of baseline increases by about 11 percent. Assuming no changes in baseline quantities, PG&E's proposed non-CARE Schedule E-1 Tier 3 rate of 27.6 cents per kWh would increase by roughly 2 cents to 29.6 cents per kWh.
PG&E proposes to implement the proposed gas and electric baseline quantities, together with any revenue neutral rate adjustments, in one step on the first day of the next available season after the effective date of this decision, either April 1 or November 1 for gas and May 1 or November 1 for electric.
PG&E proposes that electric baseline quantities, like gas, incorporate revenue neutral rate adjustments, by applying an equal cents-per kWh change to non-CARE Tier 3 rates for usage in excess of 130 percent of baseline.
TURN does not oppose adjusting baseline quantities to 55 percent for average usage for basic customers and 65 percent for all-electric customers. TURN witness Marcus states that PG&E's proposed changes in baseline quantities "clearly will increase conservation." (TURN/Marcus, Ex. 11, at 79, lines 7 to 8.) No party disputes that lowering the baseline percentage will tend to provide an energy conservation incentive. (SCE/Garwacki, Ex. 18, at 12.)
TURN believes, however, that the Commission should direct PG&E to consider changing the baseline seasons to allow for a shorter summer period (4 months) and a longer winter period (8 months) to more properly reflect higher usage by Central Valley customers during summer months. This is consistent with the practice of SCE. Such a modification would provide for higher baselines allowances during peak summer months and should help to mitigate high bills associated with concentrations of cooling degree days. TURN recommends that PG&E be directed to assess the feasibility of this change, consult with key stakeholders, and propose this modification through a Tier 3 Advice Letter filing during the current General Rate Case cycle.
DRA opposes PG&E's proposed decrease in the baseline percentage, arguing that it would raise bills for customers predominantly consuming in Tier 1, 2 and 3. DRA calculates that a customer consuming the maximum Tier 2 allowance would see a bill increase due to usage that would now be billed at 29 cents per kWh rather than the Tier 2 rate of 13.5 cents per kWh." (DRA/Khoury, Ex. 23, at 6-11, line 26 to at 6-12, line 3.)
DisabRA and Greenlining also oppose PG&E's 55 percent baseline proposal citing adverse impacts on CARE customers and customers whose usage does not exceed Tier 2. With a 55 percent baseline amount, some usage formerly in Tier 1 would now be in Tier 2 and some usage formerly in Tier 2 would now be in Tier 3. DisabRA and Greenlining are concerned that these customers likely could not adjust their usage to avoid the bill impact. (DisabRA brief at 22; Greenlining brief at 39 to 40.)
DisabRA and Greenlining argue that PG&E's proposals would put a greater burden on low-income customers and/or disabled customers. DisabRA relied on unverified survey responses and anecdotes claiming potential harm. (DisabRA, Ex. 19, at 12, Attachments A, B, C, and D.) Cross-examination of DisabRA's witness revealed a complete lack of customer usage data to back this up. (Tr. at 634, line 14 to at 635, line 7, and Tr. at 639, lines 18-22/DisabRA/Reyes.)
Greenlining likewise argues that the baseline allowance reduction would cause higher bills for low-income customers who currently confine their usage only to Tiers 1 and 2. Such customers would end up in the higher Tier 3 merely due to the lowering of the baseline percentage. Greenlining claims that CARE customers in the Central Valley would be particularly disadvantaged since they have relatively larger baseline quantities. Greenlining further claims that CARE and other lower income customers are making the greatest efforts to conserve energy and many of these customers would find it difficult to further reduce their use. (Greenlining, Ex. 14, at 3 to 9.) PG&E claims that Greenlining fails to recognize the increasing trend of usage by CARE customers since 2005. (PG&E/Quadrini, Ex. 2, at 2-10, Table 2-4, and at 2-9, lines 8 to 16.)
Solar Alliance also opposes baseline allowance reductions to 55 percent of average residential usage for the applicable climate zone. Solar Alliance believes that its E-1 rate design proposal provides adequate relief to high-usage residential customers so that no baseline percentage reduction is needed. (Solar Alliance brief at 7.) Solar Alliance proposes returning to a Tier 5 rate design with differentials between tiers 3 and 4 of 3 cents per kWh, and between tiers 4 and 5 of 7 cents per kWh. (Id., at 18 to 19.) Solar Alliance defends its proposal as advancing energy efficiency goals, while bringing Tiers 3, 4, and 5 closer together. (Id., at 19 to 21.)
The Tier 5 rate under Solar Alliance's proposal is approximately 41.5 cents per kWh, while the Tier 4 rate would be approximately 34.5 cents per kWh. (Solar Alliance/Beach, Ex. 26, Table 1, column Solar Alliance 5-tier.) PG&E argues that Solar Alliance's E-1 rate design proposal does nothing to protect against future increases that could quickly take the upper tier rates back to the high levels that generated protests in the Central Valley in 2009.
We conclude that PG&E's proposed baseline quantity reduction is reasonable and hereby adopt it. The reduction in baseline quantities will contribute to reducing the large disparity between PG&E's upper tier non-CARE rates and lower tier rates. For non-CARE, the Tier 3 usage increases by 11.6 percent, and for CARE usage, Tier 3 usage would increase by 11.4 percent. (PG&E/Quadrini, Ex. 1, at. 3-7, Tables 3-3 and 3-4, and lines 8 to 11.)
Setting 55 percent baseline for PG&E is consistent with the baseline percentages adopted for SCE and SDG&E. (PG&E/Quadrini, Ex. 1, at 3-6, lines 10 to 16.) The proposal thus results in a more consistent treatment of PG&E ratepayers relative to those of SCE and SDG&E, and results in upper versus lower tier differentials more similar to those of SCE and SDG&E ratepayers (see Tables 3-1 and 3-2 in PG&E/Faruqui, Ex. 2, at 3-18 and 3-19).
While the change in baseline quantities will cause some bill increases for customers to the extent that more usage will now be billed at Tier 3 rates, we conclude that the overall effects preserve affordability to a reasonable degree. As noted by PG&E witness Quadrini, with the proposed 55 percent baseline, the percentage of non-CARE Tier 3 usage would only go from 7.4 percent to 11 percent of total usage. For CARE Tier 3 customers, the increase would be to about 10 percent of usage. Table 2-7, Exhibit 2, at 2-25, shows that for CARE customers the monthly impact would be only $0.18 for Tier 2 and $1.61 for Tier 3. For non-CARE customers, the monthly bill impact would be only $0.33 for Tier 2 and $2.35 for Tier 3. (Quadrini/PG&E, Ex. 2, at 2-24, line 8 to at 2-25, line 7.)
We find merit in TURN's recommendation that PG&E consider changing its baseline seasons to a four-month summer period and a longer eight-month winter period. These revised periods would be more consistent with SCE's practice and could help mitigate high bills by resulting in higher baseline allowances during peak summer months. PG&E has agreed to evaluate this proposal further and to present its evaluation in a future proceeding. We direct PG&E to undertake such an evaluation and report its results in its next Rate Design Window.
PG&E's total bundled residential electric rates have been tiered since Lifeline rates were implemented in California in 1976. The tiering of rates is intended to further certain public policy goals, such as providing an incentive to conserve, and warrants intra-class subsidies. In 1998, when electric rates were unbundled as part of electric industry restructuring, one or more rate components had to remain tiered in order for the total rate to be tiered. Tiering then became effective in the generation and the distribution component of PG&E's rates. In the rate schedule E-l tariff used by most residential customers, approximately 45 percent of the rate differential among tiers is built into distribution rates and 55 percent is in generation rates. PG&E's residential rates thus incorporate tiered generation and distribution rates, while all other rate components are flat (i.e., do not vary by tier).
PG&E seeks authorization to implement flat generation and distribution rate components and to apply inverted tiers via a new Conservation Incentive Adjustment (CIA) rate component. For seasonal and TOU rates, PG&E proposes generation and distribution rates that vary by season and TOU period, but that do not vary from tier to tier. DRA and SCE support this proposal, while MEA, CCSF, and Sierra Club oppose it.
PG&E first presented a proposal to flatten generation rates in a December 17, 2009 Petition for Modification of D.07-09-044 in A.06-03-005. In D.10-06-030, the Commission rejected the petition and ordered that the proposal be addressed in evidentiary hearings in this docket.
PG&E's current per kWh generation and distribution rates vary widely by tier. For Schedule E-1 customers the generation rates vary from 3.5 cents (in Tier 1) to 17.5 cents per kWh (in Tier 4), with an overall average of 8.3 cents per kWh. The distribution rate tiers vary ranging from 3.6 cents (in Tier 1) to 17.8 cents (in Tier 4), with an overall average distribution rate of 6.7 cents per kWh. This demonstrates that lower-tier consuming households pay less than the average cost of generation and distribution service while upper-tier consuming households pay far more.
PG&E argues, however, that rate tiering should not be accomplished via a generation rate component that can be avoided by customers choosing Direct Access (DA) or Community Choice Aggregation (CCA) service. Otherwise, the upper-tier consuming households have an incentive to depart bundled service while the lower-tier consuming households do not. The result is a loss of generation revenue to the utility in excess of the avoided generation cost of service, which in turn requires generation rate increases for PG&E's remaining bundled residential customers. PG&E claims that the current approach leads to inaccurate generation and distribution price signals, which do not properly reflect cost of service. PG&E thus proposes to charge customers a flat generation and distribution rate that does not vary by tier, but that will more accurately track cost of service.
PG&E contends that placing the tiering exclusively into the CIA rates will result in more accurate and transparent price signals for customers. The CIA rate component would be charged to all bundled and DA/CCA customers.
PG&E argues that this adjustment will level the playing field between PG&E and non-utility generation suppliers by ensuring (as it has done for SDG&E and SCE) that generation rates do not vary by tier. By doing so, the Commission will eliminate the situation that exists today, where higher use bundled customers are artificially made more attractive to DA and CCA providers, and lower use bundled customers are made less attractive. PG&E argues that this change would provide all customers a fair and transparent choice between bundled and non-utility generation service, not distorted by subsidies built into the generation rate to achieve public policy goals. Through this change the Commission will also establish cost-based generation rates, and continue to maintain the conservation incentive for all customers (bundled and DA/CCA alike), through the utility's tiered CIA rate.
The CIA rate component would be similar to SCE's previously approved CIA rate and SDG&E's Total Rate Adjustment Component. After designing flat generation and distribution rates, the CIA rate would be calculated residually for each tier by subtracting all rate components (including generation and distribution) from the total rate by tier. Total rates will remain as designed, but the tiering will be accomplished exclusively via the non-bypassable tiered CIA rate component.
PG&E argues that the conservation incentive embodied in tiered rates could not be avoided by customers departing to DA/CCA service, since neither DA nor CCA providers are required to charge tiered rates.
The resulting tiered CIA rates would generally be negative in Tiers 1 and 2 and positive in Tier 3. The CIA rates are designed to have a net effect of zero on the residential class overall, neither increasing nor decreasing the revenue collected from the residential class. However, to the extent actual sales by tier vary from forecasted levels, the CIA may collect a non-zero amount of revenue-either a positive or negative amount.
PG&E proposes to combine any positive or negative CIA revenues with distribution for revenue accounting purposes. Thus, any CIA under-collection or over-collection would accrue to the Distribution Revenue Adjustment Mechanism (DRAM) on a monthly basis and be trued-up in PG&E's Annual Electric True-Up process. Appropriate changes will be made by advice letter upon approval and implementation of this proposal.
PG&E proposes to merge the CIA rate with the distribution rate until its billing system can be re-programmed to show the CIA as a separate line item on customer bills. However, the CIA rate will be shown separately on all residential tariffs.
PG&E's proposal to flatten generation and distribution rates does not affect the total rates, and there are no bill impacts to bundled customers. However, the CIA can impact DA/CCA bills. Because the CIA rate will be generally negative in Tiers 1 and 2 and positive in Tier 3, PG&E's proposal will generally reduce the bills of lower-tier consuming DA/CCA households and increase the PG&E bills of upper-tier consuming households. The overall effect on DA/CCA customers' bills (i.e., the combined PG&E and DA/CCA bill paid), though, will depend upon the rates charged by the DA/CCA provider.
DRA supports inclining block residential rates, and believes this can be achieved with PG&E's proposed CIA mechanism. DRA believes that tiered generation rate components made more sense during the energy crisis when the cost of electricity was manipulated and made artificially expensive. DRA is unaware of a need to collect generation costs via tiered generation rate components in the present environment.
MEA and CCSF take issue with PG&E's proposal, arguing that it is anticompetitive by attempting to undermine competitive generation service, particularly by CCAs. Sec. 366.2(c)(9) provides that "All electrical corporations shall cooperate fully with any community choice aggregators that investigate, pursue, or implement community choice aggregation programs." MEA argues, however, that PG&E's CIA proposal would inflict damage on MEA customers and would impose a barrier to MEA's future progress.
MEA and CCSF claim that the CIA proposal would impose disproportionate and unreasonable cost increases on CCA customers without any proportionate increases or enhancements in core utility services. They argue that incentives to conserve energy should be tied to the customer's consumption of the energy commodity, itself, and thus conveyed by the generation service provider.
CCSF argues that PG&E failed to sustain its burden of proving that generation costs do not vary with usage, or that the CIA proposal is necessary to remedy a problem with its current residential rate design. CCSF contends that PG&E's unit generation costs are likely to increase with usage. CCSF witness Meal testified that:
power supplies are dispatched in order from lowest cost to highest cost. As load (usage) increases, more expensive supplies are utilized. Conversely, as load decreases, the most expensive resources will be ramped off first. In any given time interval, unit costs will increase as the load increases and unit costs will decrease as the load decreases. Thus, a tiered generation rate reflects cost causation -- prices increase as usage increases. A flat generation rate, where prices do not increase with higher levels of usage, does not reflect generation cost causation. (Ex. 5/CCSF, at 4.)
CCSF claims that PG&E failed to present supporting evidence that its per kWh cost of generation does not vary as customers' usage increases. Even though the Commission ordered the CIA proposal to be evaluated in evidentiary hearings, PG&E did not introduce a cost of service study to support its position. CCSF asserts that PG&E's cost of supply likely increases as usage increases, and that tiered generation rates are consistent with generation costs that increase with usage. MEA and CCSF dispute the claim that a single flat generation rate would more accurately and equitably reflect cost of service than the current tiered generation rate components for Schedule E-1 which range from 3.5 cents per kWh in Tier 1 to 17.5 cents per kWh in Tier 4.
PG&E denies that there is any cost basis for tiering the generation rate based on monthly consumption. PG&E argues that CCSF skews the record about usage on an instantaneous or daily basis, versus usage on a monthly basis. PG&E's witnesses acknowledged that costs could increase in any given hour as usage increases, but contend that there is no such correlation with monthly usage. (See Tr. at 323 lines 1 to 3, at 326, line 26 to 327 line 1, at lines 4-7, PG&E/Keane; Tr. at 275, lines 1 to 3, PG&E/Faruqui, Tr. at 127, lines 7 to 17.)
PG&E witness Keane testified that absent TOU meters and rates, it is unknown whether incremental usage occurs during the on- or off-peak period and there is thus no cost justification for charging anything other than a flat rate. Even for TOU rate schedules, PG&E believes the generation rate component should be flat within each TOU period.
CCSF also argues that PG&E's CIA proposal would be anticompetitive by effectively foreclosing CCAs from building conservation incentives into their rates. CCSF claims that CCAs that attempt to use conservation-promoting tiered rates would be at a severe disadvantage in competing for customers with relatively high usage, precisely the customers that PG&E is most concerned about losing.
PG&E points out, however, that although MEA's rates to most of its customers have been above PG&E's rates for all but one month of the time it has been serving customers, MEA has experienced very little attrition in its customer base as a result. (PG&E/Keane, Ex. 2, at 1-26, line 19 to 1-27 line 2.) PG&E argues that there is nothing to stop a CCA from adjusting its own rates, and that the present PG&E rate structure enables a CCA to selectively serve only extremely large customers with high usage, as MEA is currently doing.
CCSF argues that PG&E's CIA would create counter-intuitive and confusing results. For customers who take service from a CCA, it will confusingly appear that PG&E provides its delivery services without charge, and that PG&E even provides a credit against the generation charges imposed by the CCA.
MEA commenced service to customers of its CCA program on May 7, 2010 within PG&E's service territory in consideration of AB 117 and related regulations. MEA claims that PG&E's proposal would impose disproportionate cost increases on MEA customers without any offsetting enhancements in core service. According to MEA, its current customers would experience an average cost increase of 25 percent as a result of CIA implementation.31 All prospective customers within MEA's member communities would experience an average six percent increase in costs as a result of the CIA. MEA testified that a significant "mid-stream" cost increase would encourage massive customer opt-outs as a result of these cost increases. MEA argues that such significant increases in customer opt-outs could inflict irreparable competitive harm on MEA and impose a barrier to MEA's future progress in furthering statewide environmental goals and objectives, causing delay in achieving certain of California's key broad-based policy objectives. MEA claims that PG&E's CIA proposal is anti-competitive, and creates cost-based inequities between specific communities (and groups of communities), resulting in discriminatory treatment of CCA customers. MEA has testified that substantial cost impacts would be imposed on its customers as a result of PG&E's CIA proposal, in excess of 30 percent. PG&E's analysis states that MEA's current customers would experience an average cost increase of 25 percent as a result of the CIA rate. PG&E's analysis also states that all prospective residential customers within MEA's member communities would collectively experience an average six percent increase in costs as a result of CIA implementation.
MEA testified that a significant, "mid-stream" cost increase would most certainly encourage massive customer opt-outs as a result of the previously described cost increases. Significant increases in customer opt-outs could inflict irreparable competitive harm to MEA, compromising its financial solvency while frustrating its progress towards the achievement of statewide environmental policy objectives, including the RPS and AB 32 Greenhouse Gas (GHG) emissions reductions targets.
MEA claims that flat generation rates would create a steep tiering of delivery charges such that delivery charges for lower usage customers under certain rate schedules would be significantly negative. For example, delivery charges for Schedule E-7 summer peak baseline usage would be a negative 11.8 cents per kWh, by virtue of the CIA of negative 27.2 cents. Similarly, the delivery charges for Schedule EL-7 (CARE) summer peak, baseline usage would be a negative 14.0 cents, primarily because of the CIA of negative 23.6 cents. For other rate schedules, delivery charges for baseline usage would also be negative, albeit in smaller amounts.
We conclude that PG&E's proposal to implement flat generation and distribution rates is reasonable. Adopting the CIA will maintain a conservation incentive for all customers (bundled and DA/CCA alike) through the utility's tiered non-generation rates. This rate design measure will also increase transparency for customers choosing between bundled and DA/CCA service by facilitating comparisons among generation rates. For customers taking bundled utility service, the effects of this change would not change their overall price levels or incentives to conserve. On the other hand, the adopted change will have effects on customers that take service from a CCA or Electric Service Provider (ESP).
In this regard, we recognize that potential rate disparities between PG&E and certain CCAs could exist, at least in the short-run, from replacing tiered generation rates by flat generation rates with the CIA, using nonbypassable tiered rates.
Under PG&E's existing tiered rates, higher-use residential customers pay a much higher average generation rate than lower use customers. ESPs and CCAs can offer generation rates to DA or CCA customers that are not tiered in the same manner as PG&E's generation rates and without being subject to Commission regulation of rates. They can offer an alternative generation rate that, while higher than the generation rate PG&E currently charges low-use customers, would be attractive to high-use customers. PG&E, by contrast, charge above-cost upper-tier generation rates under the present rate structure. By adopting flat generation rates for PG&E, we eliminate this potential source of disparity in PG&E's generation rate in relation to CCA rates.
The implementation of the PG&E proposal, however, could potentially impact how a CCA may design its own rates to compete for retail customers. Thus, while we find merit in PG&E's CIA proposal, we conclude that before the CIA rate component implementation takes effect, some period of time should be allotted to allow CCAs an opportunity to adjust their rate structures and billing practices in anticipation of the effects of PG&E's new CIA component on their customers. We therefore shall defer the implementation of the generation and distribution rate flattening for a one-year period in order to provide an adequate transition period for CCAs.
We hereby direct that PG&E file the tariff revisions implementing the flat generation and transmission rates together with the CIA to take effect on July 1, 2012. Establishing a date certain for these tariff changes to take effect will provide for more certainty with respect to preparations and plans for the rate transition. We also direct that within 30 business days of the issuance of this decision, PG&E meet and confer with the Commission's Energy Division staff, together with MEA and CCSF representatives, to agree on a process and schedule to verify that PG&E's billing system can accurately bill the CIA and flat generation and transmission rate components. In particular, PG&E should provide confirmation that its billing system can accurately decouple the generation versus non-generation charges billed to CCA customers. Ensuring verification of the accuracy of PG&E's billing system will help to customer confusion and minimize costs associated with the CIA implementation process.
The flattening of PG&E's generation rates will help level the playing field between PG&E and ESPs/CCAs by ensuring that generation rates do not vary by tier. With tiered generation rates, higher-use bundled customers are artificially made more attractive to ESPs/CCAs and lower-use bundled customers are made less attractive. By contrast, a flat generation rate is competitively neutral, as the Commission observed in approving such rates for SCE in D.09-08-028.
D.09-08-028 quotes TURN as follows:
TURN felt that it was important to have the differential in the distribution rate because if it's in the generation rate, it creates perverse incentives for certain customers to adopt direct access or community choice aggregation solely because of the rate design. So a customer that was high usage - if the tier differential was in the generation rate, they could switch away from bundled service solely to get a lower rate, and at the same time the low-usage customer would never want to leave bundled service because they would get a rate increase just by doing so. So it really makes the rate design competitively neutral to the extent that there are alternatives like CCA out there for residential customers.
We find no evidence that higher monthly customer usage is correlated with increasing costs, even though there are correlations between higher customer usage and generation costs for certain on-peak hours during a given month. Thus, absent time-of-use data linking incremental usage to off-peak versus on-peak periods, we find no basis for PG&E to charge customers anything other than a flat generation rate for monthly usage.
We are unpersuaded by claims that the CIA should be denied because it would create significant customer confusion, require extensive customer education and entail unknown costs. SCE and SDG&E implemented a similar proposal without indication of any significant customer confusion. PG&E should be able to realize similar results. Although for CCA customers, the bill components in some rate categories will be negative, PG&E has proposed implementing a zero minimum bill. (PG&E/Keane, Ex. 2, at 1-32, lines 5-15.) PG&E also explained that any negative components will generally be offset by positive rate components. PG&E has also explained that providing customer outreach to educate customers about the CIA rate component would be part of its general effort, and not subject to a separate special funding request.
PG&E proposes to continue its current approach to rate design for Schedules E-6 and EL-6, which are optional TOU schedules open to the residential class. PG&E currently designs its residential TOU rates by using its marginal costs to set the TOU components of the Tier 1 rate. PG&E then calculates the TOU rates for higher usage tiers by adding to all time periods (i.e., peak, partial-peak, off-peak) the same tier differentials used in PG&E's E-1 rates. The E-1 tier differentials are not differentiated by TOU period. In effect, PG&E designs its upper-tier residential TOU rates to recover in each TOU period the same amount of costs per kWh above its marginal costs.
Solar Alliance opposes PG&E's approach, and instead proposes increasing the TOU differentials for upper-tier usage under Schedules E-6 and E-7 by increasing on-peak and partial peak prices and lowering them for off-peak rates. The resulting rates would peak at over 70 cents per kWh in E-6 and over 90 cents per kWh in E-7. (Solar Alliance/Beach, Ex.-26, at 32 and following table; Tr. at 951, lines 22 to 27, Solar Alliance/Beach.)
Solar Alliance argues that applying the same flat amount of costs to each TOU period is not reflective of cost causation, which has the greatest amount of costs being incurred during peak periods. Solar Alliance claims this treatment is a deficiency in PG&E's TOU rates, rendering them noncompliant with the mandates of SB 1.32 Solar Alliance recommends the use of the equal percentage of marginal cost (EPMC) method to scale Tier 1 rates based on marginal costs up to equal the revenue requirement. Because Tier 1 rates are based on marginal costs, the higher rates for usage in Tiers 2-5 are, by definition, recovering non-marginal costs to serve the residential class. Solar Alliance believes that the use of EPMC best preserves the primary benefit of marginal cost based rates, which is to send an accurate marginal cost signal to encourage the economically efficient use of energy.
PG&E opposes Solar Alliance's proposal, arguing that it misapplies EPMC principles, and that using the Generation EPMC multiplier as proposed would actually require PG&E to lower the E-6 summer peak rates (Tiers 1, 2 and 3) by up to 4 percent, depending on the tier.
Solar Alliance claims that the Commission has a longstanding practice of using EPMC to scale marginal costs up to recover the additional non-marginal costs included in the revenue requirement. Solar Alliance further claims that PG&E uses exactly the same EPMC method to scale up its marginal generation energy costs in each TOU period to equal the generation revenues allocated to energy charges.
PG&E disputes this claim, stating that there are no additional non-marginal costs, such as non-bypassable charges, included in the generation revenue allocation. The generation revenue requirement is the generation revenue at current rates less non-allocated generation revenues. Once this is calculated, the generation revenue requirement for each rate schedule is adjusted upward or downward based on each schedule's actual marginal generation (energy and capacity) costs. The result is a small percentage adjustment, up or down. (WP 2-223-June 30, 2010 Update.)
Solar Alliance proposes that, to be consistent with the EPMC approach, the tier differentials in residential TOU rates should begin to move toward being based on an equal percentage of the underlying marginal costs for each time period, rather than on fixed differentials across all TOU periods. In this case, the Solar Alliance recommends setting tier differentials using 50 percent of the fixed E-1 tier differentials and 50 percent of an equal percentage of the Tier 1 rate for each TOU period. Solar Alliance argues that moving toward the use of EPMC tier differentials for each TOU period will send a stronger signal to TOU customers to minimize peak usage.
We adopt PG&E's proposal to continue its current approach to rate design for Schedules E-6 and EL-6. We are unpersuaded by Solar Alliance arguments that PG&E's rate does not provide the maximum incentive to install solar. As noted by PG&E, "the Commission does not agree with the narrow interpretation of SB 1 that a TOU tariff should merely provide the maximum incentives to install solar energy systems." (D.07-06-014, at 8.) Using EPMC allocators to design rates within monthly tier categories would not match marginal costs, would not be revenue neutral between TOU and non-TOU classes, would result in cost shifting.
PG&E's proposed TOU differentials for Schedules E-6 and E-7 are based on estimates of actual marginal costs. Although the residential TOU tariffs are designed to be revenue neutral relative to the residential E-1 tariff, customers who reduce their usage in higher TOU periods (or who produce solar energy during these periods) will receive bill savings based on the marginal cost based differentials reflected in the respective tiers. Artificially increasing these TOU differentials would result in cost shifting, because those who shift their usage would see their bills drop by more than the cost that PG&E avoids. This lost margin would have to be made up by other customers who may be unable to afford solar units for themselves.
Also, similarly situated customers but with usage in different tiers would see different savings from shifting the same amount of kWh from the peak to the off-peak. As witness Quadrini pointed out, two customers side by side who shift one kWh should receive similar incentives. (Tr. at 884, lines 9 to 22, PG&E/Quadrini.)
Schedules E-9A and E-9B are voluntary schedules for residential customers who own electric vehicles. Schedule E-9A is for the whole house and Schedule E-9B is for a separately metered electric vehicle (EV). There are 140 customers on E-9A and just 17 on E-9B. PG&E proposes four changes, only one of which is contested. First, PG&E proposes a Tier 3 rate design for Schedule E-9 that is different from the rest of the residential class. Rather than use the same Tier 3 differential as other customers, PG&E has designed a significantly higher Tier 3 differential for Schedule E-9 that makes Schedule E-9 revenue neutral with the total non-CARE class as a whole. Then, to remove the penalty that this significantly higher rate would create for incremental off-peak EV charging on Schedule E-9A, PG&E has lowered the E-9A off-peak rate so that most customers exceeding 130 percent of baseline would pay approximately 11 cents to 14 cents per incremental kWh for recharging their electric vehicles. (PG&E/Quadrini, Ex. 1, at 3-24, line 28 to at 3-25, line 2.) No party opposed this proposal.
Second, because there is no CARE electric vehicle schedule, PG&E proposes to waive the mandatory requirement for CARE customers temporarily. (Id., at 3-25, lines 19 to 22.) No party opposed this proposal. However, this proposal is moot as a result of the Commission's recent approval of PG&E's Advice Letter 3751-E.
Third, as with Schedule E-7, PG&E proposes to roll the baseline credit into Tier 1 rates so that Schedules E-9A and E-9B show the same Tier 1/Tier 2 rate structure as Schedules E-1 and E-6. (Id., at 3-25, lines 23 to 25.) No party opposed this proposal.
Fourth, PG&E proposes closing Schedule E-9B, the rate for those who separately meter their electric vehicles, because its off-peak rates are so far below PG&E's marginal cost to serve. (Id., at 3-25, line 26 to at 3-26, line 2.)
DRA opposed this proposal, stating that issues relating to electric vehicle rates are being considered in the Plug-in Electric Vehicle (PEV) R.09-08-009. DRA recommends leaving the current schedule E-9B open and examining this issue in the PEV Rulemaking. (DRA/Khoury, Ex. 23, at 6-16, line 25 to at 6-17, line 3.)
PG&E disagrees, arguing that it does not serve other PG&E's customers to put such customers on a rate schedule with such low rates. (PG&E/Quadrini, Ex. 1, at 3-25, lines 26 to 29.) PG&E argues that Schedule E-9B should be closed for now, and the Commission can decide the need for and design of a separately metered EV charging rate in the PEV proceeding. There was no dispute that these off-peak rates are far below PG&E's marginal costs of service.
We adopt PG&E's uncontested proposals for the electric vehicle rate schedules. PG&E's rationale for the proposed changes is reasonable and no party opposed them. As to the DRA opposition to PG&E's proposal for closing Schedule E-9B, we agree with DRA that the schedule should remain open for now. We agree with DRA that the PEV rulemaking (R.09-08-009) is a more appropriate place to examine electric vehicle rate design issues, and accordingly we will defer consideration of pending issues relating to Schedule E-9B to that proceeding. The Commission initiated R.09-08-009 to review existing utility electric vehicle tariffed rates, develop policies to facilitate the use of PEVs in the residential and non-residential setting and ensure that the electric charging of PEVs will not have adverse impacts on the reliability and safety of the state's electric system.
Accordingly, we direct PG&E to leave the current Schedule E-9B open pending further examination and disposition of the relevant issues in R.09-08-009. The need for and design of any separately metered EV charging rate should be taken up in the PEV proceeding.
4.8. Closing Experimental
Schedules E-A7 and EL-A7
Schedules E-A7 and EL-A7 are experimental schedules closed to new participants since January 1, 1996. These schedules were created to determine if remote-controlled thermostats could lower peak residential load enough to avoid adding substation capacity in the Antioch distribution area. Only 44 customers remain on these schedules. In addition, these schedules are not cost-based, but are subsidized by others in the residential class. Although this experimental program ended more than a decade ago, AB 1X prohibitions prevented this rate schedule from being eliminated. Now that AB 1X has been superseded by SB 695, PG&E requests that these schedules be eliminated and the affected customers transferred to either E-1/EL-1 or E-6/EL-6. (PG&E/Quadrini, Ex.-1, at 3-23, lines 12 to 23.) No party opposed this request. For the reasons cited by PG&E, we find the proposal reasonable and hereby adopt it.
4.9. Changing Baseline Credit for E-7 and EL-7
Schedules E-7 and EL-7 are TOU schedules that were closed to new customers in 2007 and replaced by cost-based Schedules E-6 and EL-6. PG&E proposes one rate design change. Rather than show Tier 1 rates lower than Tier 2 rates, as is done on Schedules E-1 and E-6, the Schedules E-7 and EL-7 have a "baseline credit" that produces the same result but in a convoluted and easily misunderstood manner.
In this proceeding, PG&E proposes to roll the baseline credits into Tier 1 rates so that Schedules E-7 and EL-7 show the same Tier 1 vs. Tier 2 relationship as PG&E's other residential rates. No party opposed this proposal. We find the proposal reasonable and hereby adopt it.
PG&E proposes updating its baseline quantity calculation for more recent usage data, as required by Pub. Util. Code § 739(a)(1). This proposal is consistent with prior precedent and is unopposed by any party. PG&E requests authorization of updated baseline usage quantities using the same baseline methodology approved in D.02-04-026, adjusted for seasonal and vacation home usage as required by D.04-02-057 and modified in D.07-09-004, using the most recently available four years of seasonal data, which is November 2005 through October 2009. (PG&E/Quadrini, Ex. 1, at 3-6, lines 4 to 9.) There is no dispute about PG&E's four years of average baseline data, adjusted for seasonal vacation homes. We hereby adopt it.
PG&E further proposes that electric baseline quantities incorporate revenue neutral electric rate adjustments. Consistent with the residential rate design guidelines presented in PG&E's overall showing, revenue neutral rate adjustments will be accomplished by an equal cents per kWh change to PG&E's proposed non-CARE rates for usage in excess of 130 percent of baseline. (PG&E/Quadrini, Ex. 1, at 3-8, lines 10 to 14). Therefore, we adopt the proposed target baseline quantities based on 2006 to 2009 usage for individually-and master-metered customers, as shown in Table 3-6 on page 3-9 of PG&E/Keane, Ex. 1.
PG&E proposes to change the CARE eligibility requirements for nonprofit group living and qualified agricultural employee housing facilities.33 PG&E notes that most of the facilities using more than 100,000 kWh per year take service on master-meter schedule EML which provides one baseline allowance for each housing unit in a multi-family residence metered by a single PG&E meter. Approximately 200 nonprofits with usage exceeding 25,000 kWh per year do not take service on Schedule EML, however. Unlike Schedule EML customers, most of their usage exceeds 130 percent of baseline because they are limited to one baseline allowance. As a result, such nonprofits could see significant rate increases under PG&E's proposal for a new CARE Tier 3 rate. If they could migrate to Schedule EML, PG&E calculates that their average bill would drop 2 percent compared with their current bills.
Electric and Gas Rules 19.2 and 19.3 currently prevent these nonprofits from taking service on Schedule EML or GML because each and every household must separately qualify for CARE in order for the entire facility to take service on those schedules. PG&E thus proposes that nonprofit group living facilities be allowed at the customer's option to elect to take service on Schedule EML under regular CARE income guidelines applied to the facility as a whole. PG&E also proposes to allow these customers to take service on gas Schedule GML even though the savings on the gas side would be significantly smaller.
We find PG&E's proposal reasonable and hereby adopt it. Implementing this change will substantially mitigate the effects of PG&E's CARE Tier 3 proposal that would otherwise occur. Accordingly, we adopt PG&E's proposed changes to gas and electric Rule 19.2, Section B.4 and 19.3, Section B.4.
11 TURN initially presented legal arguments in opposition to the customer charge in a motion to strike. Parties filed responsive pleadings. The Assigned Commissioner deferred ruling on the substance of the motion to strike, directing that legal and factual issues relating to PG&E's customer charge proposal be addressed in this decision.
12 See Ex. 13, Attachment A to Testimony of Michel P. Florio.
13 Wilcox v. Birtwhistle (1999) 21Cal. 4th 973, 977 [internal citations omitted].
14 Id.
15 Halbert's Lumber v. Lucky Stores (1992) 6 Cal.App.4th 1233, 1239.
16 Assem. Com. On Appropriations Analysis of SB 695 (2009-10 Reg. Sess.) August 19, 2009, at 2-4 see also Sen. Floor Analysis of SB 695, Sept. 2, 2009.
17 58 Cal. Jur. 3d 494-495, Statutes, Section 97.
18 See SCE Opening Brief at 17, citing the legal principle that every word of a statute should be given meaning to avoid a construction making any word surplusage. (Arnett v. Dal Cielo (1996) 14 Cal.4th 4, 22, 56 Cal.Rptr.2d 706, 923 at 2d 1.) State Office of Inspector General v. Superior Court (2010) 189 Cal.App.4th 695, 2010 WL 3898237, *9
19 California Mfrs. Assn. v. Public Utilities Com (1979) 24 Cal. 3d 836, 844.
20 D.91107, mimeo, at 143-144, 2 CPUC2d 596.
21 4 CPUC 2d 725, 824 (1980).
22 See Aguilar Testimony, Ex. 14 at 10, footnote 20.
23 Exhibit 1, at 3-13:9-14, PG&E intends CARE tier 3 rates become $0.125 in 2011, then add another $0.015/kWh in 2012 and 2013, respectively.
24 R.T. 895:1-4/PG&E Quadrini.
25 The Commission has noted: "While this disconnection discrepancy has decreased, we are concerned that low income customers continue to experience higher rates of disconnection as compared to non-CARE customers." (D.10-07-048, at 9.)
26 Id., at 27.
27 R.T. 895:1-4/PG&E Quadrini.
28 2 R.T. 400-401/PG&E Quadrini.
29 Exhibit 3, at 1-17:5-12.
30 The California Solar Initiative is legislatively mandated to provide incentives for installations of solar systems to customers of the state's three investor-owned utilities.
31 See Exh. 48.
32 SB 1, signed by the Governor in August 2006, set forth requirements for the California Solar Initiative.
33 Nonprofit group living facilities provide services such as homeless shelter, transitional housing, nursing home, or group homes for physically or mentally disabled people.
