ALJ/TRP/avs Date of Issuance 6/2/2011

Decision 11-05-047 May 26, 2011

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Pacific Gas and Electric Company To Revise Its Electric Marginal Costs, Revenue Allocation, and Rate Design, including Real Time Pricing, to Revise its Customer Energy Statements, and to Seek Recovery of Incremental Expenditures. (U 39 M)

Application 10-03-014 (Filed March 22, 2010)

DECISION REGARDING RESIDENTIAL RATE DESIGN

TABLE OF CONTENTS

Title Page

DECISION REGARDING RESIDENTIAL RATE DESIGN 22

1. Summary 22

2. Procedural Background 33

3. Framework for Resolving Rate Design Proposals 55

3.1. Historical Context for Residential Electric Rate Configurations 55

3.2. Overview of PG&E's Proposals 88

3.3. Overview of Intervening Parties' Position 1010

3.4. Discussion 1515

4. Disposition of Specific Rate Proposals 1818

4.1. Residential Customer Charge Proposal 1818

4.1.1. Parties' Positions 1818

4.1.2. Discussion 2323

4.2. CARE Tier 3 Rate 3535

4.2.1. Parties' Positions 3535

4.2.2. Discussion 3838

4.3. Changes in Tier 4 Rate Differential for Non-CARE Customers 4242

4.3.1. Parties' Positions 4242

4.3.2. Discussion 4747

4.4. Proposal to Revise Baseline Quantity Allowances 4949

4.4.1. Parties' Positions 4949

4.4.2. Discussion 5555

4.5. Proposal for Flat Generation and Distribution Rates 5757

4.5.1. Parties' Position 5757

4.5.2. Discussion 6565

4.6. Schedules E-6 and EL-6 Rate Design 6868

4.6.1. Parties' Position 6868

4.6.2. Discussion 7171

4.7. Revising Electric Vehicle Schedules E-9A and E-9B 7272

4.7.1. Parties' Positions 7272

4.7.2. Discussion 7373

4.8. Closing Experimental Schedules E-A7 and EL-A7 7474

4.9. Changing Baseline Credit for E-7 and EL-7 7474

4.10. Other Uncontested Proposals 7575

4.10.1. Updating Baseline Quantity Calculations 7575

4.10.2. CARE Eligibility Requirements 7676

5. Categorization and Need for Hearing 7777

Title Page

6. Comments on Proposed Decision 7777

7. Assignment of Proceeding 7777

Findings of Fact 7878

Conclusions of Law 8383

ORDER 8686

APPENDIX - Table A - Adopted Rate Design, A.10-03-014

DECISION REGARDING RESIDENTIAL RATE DESIGN

1. Summary

This decision adopts residential electric rate design measures for Pacific Gas and Electric Company (PG&E) pursuant to its general rate case (GRC) Phase 2 application. These adopted measures shall apply in setting the rate structure for PG&E's residential electric customers over the next three-year cycle.¹ These adopted rate design measures are revenue neutral; this will not change the amount of residential revenues collected from PG&E customers, but will change the relative share of revenues billed and collected among lower-versus-higher usage customers. The rate changes resulting from the adopted residential rate design measures for Rate Schedule E-1 and EL-1 are set forth on an illustrative basis in Appendix Table A. The percentage effects on each customer's monthly bill will vary depending upon the customer's usage patterns and geographic region. The illustrative rates also do not incorporate any effects of increased revenues that may be adopted in PG&E's GRC Phase 1.

PG&E proposes the most significant changes in residential electric rate design in the last decade, largely aimed at addressing disparities between rate levels and the associated costs of service that have developed over the past decade. PG&E's residential electric rates are designed in an inverted four-tiered structure. Customers with the lowest usage (in Tiers 1 and 2) will pay the lowest per-kilowatt hour (kWh) rates while customers using more will pay higher per-kWh rates applicable to higher tiers. Over the past decade, the rates for higher-usage tiers have continued to rise while legislative restrictions kept lower-usage rate tiers frozen through 2009. Consequently, a growing disparity has developed in the rates charged lower-versus-higher-usage residential customers.

PG&E's proposals would generally increase utility bills for low-usage customers and reduce bills for higher-usage customers. Various intervening parties object that PG&E's proposed increases would a) produce unacceptable hardships on those low-income households least able to afford increases and b) that the proposed reductions for upper-tier usage customers would impair incentives to be more energy efficient.

The rate design measures adopted herein balance these conflicting interests, taking into account affordability, particularly for low-income households, while continuing movement toward a cost-based framework for rate design. We adopt a number of measures proposed by PG&E including creation of a Tier 3 for low-income households, reduction of baseline quantities, and adoption of a nonbypassable Conservation Incentive Adjustment (CIA). We also adopt PG&E's uncontested rate design proposals. We decline to eliminate Tier 4, but reduce the upper-tier differential. We decline to approve residential fixed customer charges.

¹ A subsequent decision in this application will address rate design for non-residential customers, electric marginal costs and principles for revenue allocation to the customer class level.