7. Assignment of Proceeding
Michael R. Peevey is the assigned Commissioner and Thomas R. Pulsifer is the assigned ALJ in this proceeding.
1. PG&E's current residential rate structure utilizes a four-tier inverted structure based on customer usage.
2. Customers with the lowest consumption (in Tiers 1 and 2) pay the lowest per-kWh rates while customers pay higher per-kWh rates for the additional usage applicable to higher tiers.
3. Over the past decade, the rates charged for upper tier-usage have borne all increases in residential costs, while lower-usage rates remained frozen through 2009. Consequently, over a period of several years, a growing divergence developed in the rates charged for lower-usage versus higher-usage.
4. Residential rate increases are constrained by statutory limitations under the CARE program which provides assistance to low-income electric and gas customers with annual household incomes no greater than 200 percent of the federal poverty guideline levels.
5. Approximately one-quarter of all residential usage (i.e, non-CARE households consuming in Tiers 3, 4, and 5) absorbed all residential rate increases between 2001 and 2009.
6. PG&E's rate design proposals are largely aimed at narrowing the divergence between upper- and lower-tiered rates so that rates align more closely with costs of service.
7. PG&E's package of rate design proposals would cause 40 percent of above-average CARE users to see bill increases of over 14 percent, averaging approximately $11.60 per month.
8. Residential customers in general, and low-income customers in particular, have experienced increasing difficulty in affording utility service in recent years, as evidenced, for example, by the increasing rates of service disconnections due to non-payment of utility bills.
9. For low-income customers that are struggling to afford payment of utility bills in today's difficult economy, dollar increases in utility bills that may appear relatively minor to more affluent customers may represent a significant financial burden.
10. Although PG&E incurs fixed costs to service each customer account, current residential rate design recovers those fixed costs entirely through volumetric rates based on usage.
11. Customers residing in warmer climate zones, such as Kern County residents, may experience disproportionately high bill impacts resulting from the inverted tier rate structure.
12. PG&E's proposal to apply a fixed customer charge would more closely match rate design with costs of service, increasing bills for low-usage customers and decreasing bills for high-usage customers.
13. Shifting revenue recovery from a volumetric rate to a fixed customer charge produces a bill impact that cannot be avoided by changing usage patterns or being more energy efficient. A customer charge thus offers no price signal to be more energy efficient.
14. PG&E's customer charge would have the greatest percentage impact on customers that use the least energy. Imposing a customer charge on CARE rate schedules would raise energy bills for vulnerable customers that are least economically able to afford the increased charge.
15. A CARE customer using only baseline amounts in climate zone T would see an increase greater than 10 percent in their monthly bill as a result of the customer charge. A non-CARE customer using only baseline amounts in climate zone T would see an increase of almost 10 percent as a result of the customer charge.
16. PG&E's proposal to institute a CARE Tier 3 rate would increase CARE rates for usage above 130 percent of baseline by 2.9 cents/kWh in 2011, with additional increases of 1.5 cents/kWh in 2012 and 2013, respectively.
17. PG&E's proposed CARE Tier 3 rate is a 57 percent discount from the current non-CARE Tier 3 rate, 57 percent discount (12.5 cents to 29.1 cents) and a 56 percent discount (12.5 cents to 27.6 cents) from the proposed non-CARE Tier 3 rate.
18. The cumulative three-year increase due to PG&E's proposed CARE Tier 3 rate would be 50 percent, producing undue rate shock.
19. A CARE Tier 3 rate provides an incentive for CARE customers to be more energy efficient for usage that exceeds 130 percent of baseline.
20. PG&E's proposal to collapse Tiers 3 and 4 into a single tier would move closer to a cost-based rate structure since Tier 4 rates exceed the corresponding marginal cost of service.
21. PG&E's proposal to collapse Tiers 3 and 4 would help to mitigate the volatility in bills associated with the current four-tier structure.
22. Consolidating Tier 4 would remove the price incentive to be more energy efficient for usage that exceeds 200 percent of baseline.
23. The continuation of a four-tier rate design will preserve a price signal to encourage customers to install solar photovoltaic facilities and promote progress toward achieving the CSI goal of creating a self-sustaining residential solar photovoltaic market. Promoting the market for residential PV helps advance the state's loading order, meet greenhouse gas emission reduction goals, and achieve RPS compliance
24. PG&E's proposal to reduce baseline quantities from 60 to 55 percent of average usage would reduce total baseline quantities by an average of 4.5 percent (CARE) to 5.8 percent (non-CARE). The reduced baseline percentage moves more usage into the higher-rate Tier 3 rate.
25. Increasing the usage billed as Tier 3 will generate additional revenue from lower-usage customers to be used to lower rates for upper-tier usage customers, thus reducing the disparity between upper and low tier rates.
26. Setting a 55 percent baseline for PG&E is consistent with the baseline percentages adopted for SCE and SDG&E, and thus results in a more consistent treatment of PG&E ratepayers relative to those of SCE and SDG&E.
27. PG&E's proposed baseline reduction would cause customers with usage confined to the current Tier 1 and 2 quantities to see rate increases attributable to the incremental usage to be billed at Tier 3 rates.
28. 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 was put into the generation and the distribution component of PG&E's rate.
29. PG&E proposes to implement flat generation and distribution rate components and to apply inverted tiers via a new CIA rate component.
30. Since PG&E proposes to calculate the CIA component on a residual basis, the proposal to implement flat generation and distribution rate components would have no bill impacts for bundled utility customers.
31. Under the existing tiered rates, higher-use residential customers pay a significantly higher average generation rate than lower use customers. ESP or CCA can offer generation rates to their DA or CCA customers that are not tiered as are PG&E's generation rates.
32. The use of inverted tiers for generation rates makes higher-usage bundled customers artificially attractive to ESPs/CCAs.
33. The flattening of generation rates would help to level the playing field between PG&E and energy service providers/community choice aggregators (ESPs/CCAs) by ensuring that generation rates do not vary by tier.
34. DA and CCA Customers could experience bill impacts with implementation of the CIA rate component. MEA's current customers would experience an average cost increase of 25 percent as a result of having to pay a CIA rate if MEA does not alter its current rates.
35. While per kWh generation costs can increase during certain hours as usage increases, no evidence shows that per kWh generation costs correlate with increases in usage measured on a monthly basis.
36. The generation component of unit rates is billed based on monthly usage data.
37. 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.
38. Solar Alliance has not demonstrated that PG&E's TOU rates provide an insufficient incentive to install solar.
39. Schedule E-6 TOU price differentials are based on actual marginal cost differences.
40. Artificially increasing the TOU differentials would result in cost shifting because TOU customers' changes in usage would produce bill savings that exceed PG&E's avoided cost. Such cost differences would thus be shifted to other customers.
41. Solar Alliance failed to show that the Commission uses EPMC to scale marginal costs up to recover the additional non-marginal costs in the revenue requirement.
42. 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 and would result in cost shifting.
43. PG&E's proposal 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 is reasonable.
1. Residential rate design principles must conform to applicable statutory restrictions and must be applied in a manner consistent with just and reasonable standards under § 451.
2. The determination of rate design principles involves a balancing of countervailing public policy goals and interests. These principles include considerations of equity so that rate levels change in relation to costs of service, while preserving affordability of essential service levels consistent with universal service obligations.
3. PG&E's rate design proposals in this application should be evaluated within the context of economic and regulatory trends affecting residential customer rates over the past decade, as well as expected trends in prospective economic conditions going forward.
4. Recognizing that electricity is a basic necessity, the Commission is responsible for ensuring that low income ratepayers are not jeopardized or overburdened by monthly energy expenditures. In meeting its responsibility to ensure that electric rates do not overly burden PG&E's low income customers, however, the Commission must also ensure that PG&E's overall rates are just and reasonable for all PG&E customers.
5. The Commission's authority to adopt rate design is constrained by applicable statutory restrictions. In particular, Commission authorizations to change rate levels for Tier 1 and 2 usage are constrained by Pub. Util. Code § 739.9(a) and (b).
6. Based on accepted standards of statutory construction, a fixed customer charge is included in baseline rate limitations "for electricity usage up to 130 percent of the baseline quantities" as prescribed in §§ 739.1(b)(2) and 739.9(a).
7. Any ambiguity in statutory language limiting rate increases for baseline usage should be interpreted in a manner consistent with the legislative intent to avoid rate shock and promote rate stability.
8. Consistent with legislative intent, the rate restrictions in §§ 739.1(b)(2) and 739.9(a) should be interpreted as including fixed customer charges as an unavoidable rate element for usage within baseline.
9. Compliance with the inverted rate structure requirement of § 739.7 is accomplished based on a comparison of the baseline rate (Tier 1) to the average of all non-baseline rates.
10. Although the Commission is prohibited under §§ 739.1(b)(2) and 739.9(a) from approving PG&E's residential customer charge proposal, the proposal would also conflict with relevant ratemaking principles intended to protect customers against undue rate shock.
11. PG&E's proposal for a fixed customer charge should be denied on policy grounds in view of the undue risk of rate shock, particularly for low-income and/or low-usage customers.
12. Section 739.1(b)(5) does not preclude the Commission from approving additional interim increases beyond in a CARE Tier 3 rate during 2012 or 2013.
13. Section 739(a)(1) which specifies that the baseline percentage be set between 50-to-60 percent of average residential consumption. PG&E's baseline proposal would set the electric baseline percentage at the middle of this authorized range.
14. Further steps are warranted to identify potential misuse of the CARE discount by excessive energy users, as indicated by the unusually high-usage reported for CARE customers in a limited number of rural regions, and to remove customers from the CARE rate schedule that are not eligible for it. To this end, PG&E's proposals to address the potential misuse of the CARE program as referenced in A.11-05-022 for PG&E's 2012-2014 CARE budget should be investigated further.
15. A four-tier rate structure should continue as a means of promoting a price signal conducive to energy efficiency and a self-sustaining photovoltaic solar market.
16. Section 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."
17. PG&E's proposal for a CIA should be implemented in a manner that promotes a fair competitive and cooperative environment among community choice aggregators and the utility and in accordance with the ordering paragraphs below.
18. PG&E's Schedule E-6 and E-7 tariffs are consistent with the provisions of Senate Bill 1, codified as Pub. Util. Code § 2851 (a)(4), regarding the Commission's authority to develop a time-variant tariff that provides the maximum incentives for ratepayers to install solar energy systems.
IT IS ORDERED that:
1. The revised rate schedules for Pacific Gas and Electric Company's electric residential retail service as set forth in Appendix Table A of this decision, illustrating the effects of the rate design measures approved in this order, are hereby adopted.
2. Within 45 days of the date this order is mailed, Pacific Gas and Electric Company shall file a Tier 1 advice letter in compliance with General Order 96-B. The advice letter shall include revised tariff sheets to implement revised residential rate schedules in accordance with Appendix Table A, and consistent with the ordering paragraphs below.
3. The tariff sheets shall be made effective subject to Energy Division determining that they are in compliance with this order. No additional customer notice need be provided pursuant to General Rule 4.2 of General Order 96-B for this advice letter filing.
4. Pacific Gas and Electric Company's request to implement a fixed customer charge is hereby denied.
5. Pacific Gas and Electric Company's (PG&E) proposal to adopt a Conservation Incentive Adjustment (CIA) is approved, subject to a one-year waiting period before the adjustment is to implemented. PG&E shall be authorized to file an advice letter implementing flat generation and distribution rate components and implementing the CIA, all to become effective one year from the issuance date of this decision.
6. Pacific Gas and Electric Company shall file appropriate tariffs to implement the Conservation Incentive Adjustment together with flat generation and transmission rates to take effect on July 1, 2012, as a date certain.
7. Within 30 business days of the issuance of this decision, Pacific Gas and Electric Company (PG&E) shall meet and confer with the Commission's Energy Division staff, together with Marin Energy Authority, City and County of San Francisco representatives, to agree on a process and schedule to verify that PG&E's billing system can accurately bill the Conservation Incentive Adjustment and flat generation and transmission rate components. In particular, PG&E shall verify that its billing system can accurately decouple the generation versus non-generation charges billed to Community Choice Aggregation customers.
8. Pacific Gas and Electric Company is authorized to implement a Tier 3 rate applicable to California Alternate Rates for Energy customers, to be set equal to 150 percent of the Tier 1 rate.
9. Pacific Gas and Electric Company's (PG&E) request to increase the California Alternate Rates for Energy (CARE) Tier 3 rate by additional interim amounts during 2012 is denied. PG&E's request to raise the CARE Tier 3 rate by 1.5 cents per kilowatt-hour in 2013 is approved.
10. Pacific Gas and Electric Company's (PG&E) request is approved to reduce electric baseline quantities from 60 percent to 55 percent of average usage for basic customers, except for all-electric baseline quantities in the winter season, which PG&E proposes to set at 65 percent of average usage for all-electric customers during the winter season per Public Utilities Code Section 739(a)(1).
11. Pacific Gas and Electric Company is directed to evaluate the effects of implementing a four-month summer period and an eight-month winter period for baseline measurement purposes, and to present the results of its evaluation in its 2012 Rate Design Window proceeding.
12. Pacific Gas and Electric Company's request to collapse Tier 4 into Tier 3 is denied. The Tier 3 versus Tier 4 differential shall be reduced, however, consistent with the rate tables set forth in Appendix A.
13. California Alternate Rates for Energy eligibility requirements are hereby revised for nonprofit group living facilities and qualified agricultural employee living facilities to enable them to become eligible to qualify for service under Schedule EML. Pacific Gas and Electric Company's gas and electric Rule 19.2, Section B.4 and 19.3, Section B.4 are hereby modified with the following text replacement. The text is revised as follows:
The total gross income for all persons residing in each household at a Facility may not exceed the following:
Is replaced with -
The total gross income for all persons residing at a Facility may not exceed the following:
14. Pacific Gas and Electric Company (PG&E) is authorized to update baseline usage quantities using the same methodology approved in Decision (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, and using the most recently available four years of seasonal data (which is November 2005 through October 2009). Revenue-neutral rate adjustments will apply an equal cents-per- kilowatt-hour change to PG&E's non-California Alternate Rates for Energy rates for usage in excess of 130 percent of baseline.
15. Pacific Gas and Electric Company's proposed changes are adopted for Schedules E-9A and E-9B which are used by residential customers who own electric vehicles.
16. Pacific Gas and Electric Company's proposal is adopted to continue its current approach to rate design for Schedules E-6 and EL-6.
17. Schedule E-7 and EL-7 baseline credits are eliminated, rolling them into the baseline rates. Experimental Schedules EA-7 and EL-A7 are also eliminated.
18. E-9A and B baseline credits are eliminated by rolling them into existing baseline rates.
19. Pacific Gas and Electric Company shall continue to leave open the current Tariff Schedule E-9B pending further examination and disposition of the relevant issues in Rulemaking 09-08-009.
This order is effective today.
Dated May 26, 2011, at San Francisco, California.
MICHAEL R. PEEVEY
President
TIMOTHY ALAN SIMON
CATHERINE J.K. SANDOVAL
MARK J. FERRON
Commissioners
I abstain.
/s/ MICHEL PETER FLORIO
Commissioner
I reserve the right to file a concurrence.
/s/ Timothy Alan Simon
Commissioner
Appendix Table A | ||||||
Adopted Rate Design, A.10-03-014 | ||||||
Schedule E-1 | ||||||
1/1/2011 Rate Design |
Adopted in Phase 2 GRC, A.10-03-014 | |||||
Tiers |
Sales Forecast (kWh) |
Rate per kWh |
Tiers |
Sales Forecast (kWh) |
Rate per kWh | |
Tier 1 |
12,987,910,127 |
$0.12233 |
Tier 1 |
12,269,144,434 |
$0.12233 | |
Tier 2 |
2,291,968,697 |
$0.13907 |
Tier 2 |
2,318,560,849 |
$0.13907 | |
Tier 3 |
3,220,528,085 |
$0.28011 |
Tier 3 |
3,433,646,639 |
$0.28547 | |
Tier 4 |
2,700,992,738 |
$0.38978 |
Tier 4 |
3,198,969,686 |
$0.32547 | |
Customer Months |
39,139,413 | |||||
Customer Charge |
$0.00 |
Customer Charge |
$0.00 | |||
Schedule EL-1 | ||||||
1/1/2011 Rate Design |
Adopted in Phase 2 GRC, A.10-03-014 | |||||
Tiers |
Sales Forecast (kWh) |
Rate per kWh |
Tiers |
Sales Forecast (kWh) |
Rate per kWh | |
Tier 1 |
5,422,734,667 |
0.08316 |
Tier 1 |
5,183,217,041 |
0.08316 | |
Tier 2 |
843,742,942 |
0.09563 |
Tier 2 |
864,870,675 |
0.09563 | |
Tier 3 |
1,907,833,364 |
0.09563 |
Tier 3 |
2,128,221,336 |
0.12474 | |
Customer Months |
14,735,005 | |||||
Customer Charge |
$0.00 |
Customer Charge |
$0.00 | |||
(END OF APPENDIX A)
Concurrence of Commissioner Timothy Alan Simon
D.11-05-047: Decision Approving Residential Rate Design
I support this Decision34 that navigates challenging terrain to reach a rate design that achieves balance, equity, and progress toward our long term policy goal of moving electricity rates closer to the true cost of services. In doing so, this decision confronts issues of law and energy policy that have emerged and evolved over the past decade in the aftermath of the western states' electricity crisis. With the CPUC's successful efforts to execute the gradual novation of certain Department of Water Resource (DWR) contracts,35 and the signing of the landmark Senate Bill 695 (Kehoe), California has taken appropriate measures to begin alleviating the growing disparity in electricity rates, their impacts on certain residential customers, and the California economy. The Proposed Decision takes another step in the right direction by further levelizing cost, and thus represents progress - but I emphasize - not perfection!
The Marks of Progress in Our Rate Design
The inverted tier design set forth in this decision appropriately brings PG&E's rates closer to the true cost of service. When combined with our 2010 Decision to eliminate the Tier 5 rate (set at $0.50 per KWh), this decision presents substantial decreases to the new Tier 4 rate. These swift changes to PG&E's rate structure are absolutely essential to eliminating the widening gulf between lower and upper tier customers due to the provisions of Assembly Bill 1X (Keeley): a wedge that has pitted inland residents against those in coastal regions, particularly during times of peak usage. Additionally, this decision strikes an appropriate balance by continuing to promote energy efficiency and preserve an important conservation signal for our customers despite bringing down the upper tier.36
Accordingly, I remain sensitive to customers in Kern County and other such inland climate zones where usage spikes in the summer months mainly due to air conditioning needs result in adverse billing impacts. In addition, I appreciate the valued input of KernTax37 in this proceeding as a non-traditional intervenor, and believe that this decision provides measured relief for the ratepayers that KernTax represents. Moreover, this Commission can be proud of its efforts to rebalance PG&E's rate structure and promote a revenue allocation that maintains adequate protections for our low-income customers.
Legal Issues Addressed in the Decision
Where the PD and withdrawn Alternate PD part ways is in their alternative assessments of the legal and policy implications of PG&E's proposed customer charge. Based on legal advice and my review of this decision, I find that it is accurate and defensible in its interpretation of the relevant parts of Public Utilities Code Section 739, enacted as part of SB 695. Specifically, it is clear that, if adopted, PG&E's customer charge proposal would result in an annual rate increase that exceeds the winter and summer baseline rates by 5% (in all but two climate zones for the summer baseline).38 Contrary to PG&E's interpretation of the rules of statutory construction, customer charges are in fact a part of the definition of "rates" to which these restrictions apply.39
However, I want to be clear that I do not oppose fixed customer charges of this nature, and note that they are legal under statute.40 For example, Southern California Edison's rate structure includes a fixed customer charge to recover a portion of its fixed costs. For the reasons stated, I remain open to the use of customer charges in the future if they do not run afoul of our statutory requirements under SB 695.
The Full Fuel Life Cycle Cost of Our Electricity Resources
The Solar Alliance argues that the proposed inverted tier structure in either PD would fail to preserve the conservation signal of our existing and earlier rate structures.41 This, they argue, could have an adverse impact on the perceptions of the relative affordability of solar. While I am sympathetic to their concerns, collapsing our tiers and lowering the upper tier rate are essential to mitigating the perverse billing impacts associated with the provisions of AB 1X. I also disagree that the volumetric rates proposed will necessarily have a detrimental impact on the progress we have made in energy conservation.42 Quite the contrary; conservation of all fuel sources is more effectively achieved by the use of a full fuel life cycle analysis. The complete disclosure of the full fuel life cycle costs of our electricity resources creates greater awareness of the true cost of energy resources.43 This empowers consumers, and specifically, ratepayers, with the attributes of increased transparency. While I support our solar development and California's 33% Renewable Portfolio Standard, it cannot be enabled by reporting practices designed to shield embedded costs. Hence the effects of this decision will allow all electricity generation fuel sources to compete on their merits based on their respective costs and benefits, including, but not limited to environmental impacts.
Concluding Thoughts
Ultimately, I believe that this decision takes a major step forward in balancing the need to have upper tier rates more closely reflect the true costs of service with our desire to preserve an energy conservation signal. It also provides PG&E's ratepayers with a more equitable allocation across the board without violating of our statutory mandates.
Dated May 31, 2011, at San Francisco, California.
/s/ TIMOTHY ALAN SIMON
TIMOTHY ALAN SIMON
Commissioner
34 Decision Regarding Residential Rate Design (D.11-05-047), May 26, 2011.
35 A number of long term contracts signed by the Department of Water Resources (DWR) were novated in an effort to get us closer to meeting the provisions of Assembly Bill 1X in order to lift the freeze on Tiers 1 and 2, as required by AB 1X. In the interim, Senate Bill 695 set the stage for incremental progress toward cost-based rates for Tiers 1 and 2.
36 As the number one priority in our Energy Action Plan, energy efficiency is crucial to managing billing impacts and the forward-looking costs associated with our supply-side clean energy investments.
37 Kern County Taxpayers Association
38 See D.11-05-047 at pp.24-34.
39 Id.
40 See Public Utilities Code § 739.9(a).
41 See Comments of the Solar Alliance on the Proposed Decision of ALJ Pulsifer Regarding Residential Rate Design, April 25, 2011, at 2-5.
42 Maintaining artificially high upper tier rates or large gaps between tiers does not necessarily incent widespread and meaningful conservation practices, nor does it allocate the true costs of service in an equitable fashion.
43 See press release (and link to report) on the full fuel cycle approach to energy consumption at http://www8.nationalacademies.org/onpinews/newsitem.aspx?RecordID=12670.
