VI. Residential Tiering and Rate Design Proposals

In the January 26^th ACR, the Commission included in the scope of this proceeding the issue of tiered residential rates. Parties presented detailed proposals on this issue. At the February 2d PHC, TURN voiced its concern that if PG&E and Edison presented their originally served rate design testimony in Phase 1, this issue would be addressed at a level of detail which would be inappropriate and would extend hearings beyond the time available within the schedule. Subsequent to this discussion, PG&E and Edison all notified parties that they were withdrawing their rate design testimony based on TURN's comments and an understanding that if the Commission adopts a rate increase in this phase, the Commission must use some rate design and revenue allocation principles to allocate the increase.⁵⁵ All parties who address rate design in this phase, except FEA, propose we use the equal cent/kWh approach that we adopted for the EPS in D.01-01-018.

We do not adopt a rate increase here and therefore do not need to adopt a specific residential tiering and/or overall rate design proposal. However, we find it informative to present a summary of parties' proposals as these issues will be before us in other forums.

Greening/LIF supports the concept of residential tiering as set out in AB1X, and is open to it in a broader sense, with one important caveat: low-income households who -usually through no fault of their own - consume above the 130% baseline should be exempt from any further emergency or interim rate surcharges. Greenlining/LIF believes this can be done most efficiently by exempting CARE-eligible customers from any further emergency or interim procurement surcharges.

TURN proposes that any adoption of a further rate increase in this phase be allocated on an equal-cents-per-kilowatt-hour basis (except to CARE customers and residential load at less than 130% of baseline). Additionally, enactment of AB1X may have mooted the need to implement additional residential rate tiers in Phase I. However, TURN requests that the Commission be prepared to promptly revisit this issue, either to implement whatever additional legislation may be enacted in the current extraordinary session, or to consider the reasonableness and legality of further rate design changes at that time. TURN states that any rate increase ordered pursuant to AB1X should only be allocated among those customers eligible under AB1X to have their rates increased.

Aglet supports three-tiered rates for residential customers, but testifies that the Commission should recognize their implications. Aglet recommends that residential usage below 130% of baseline amounts be removed from consideration during the revenue allocation step.

ORA presents its residential rate design proposal to collect the entire residential class rate allocation in the third tier. CIU, CMTA, and Farm Bureau agree with this principle, stating that in the event of further rate increases, the Commission design the residential tiers such that the shortfall created by the 130% provision is recovered in a third tier rate for residential customers. CMTA states that no other customer classes be forced to subsidize energy costs associated with residential usage because doing so would send the wrong price signal to all classes constituting a major step backwards in coping with current supply shortage.

PG&E believes that in order to implement the residential tiering provisions of AB1X, any rate increase should be allocated to classes on an equal-cents-per-kWh basis, and then residential rates should incorporate the increase into a third tier for usage above 130 % of baseline.

Edison argues that implementation of a tiered rate design should be postponed until the Legislature provides anticipated policy guidance given the passage of AB1X and other proposals before the Legislature.

FEA does not present a residential tiering proposal but states that if the Commission should authorize a rate increase here, the increase should be applied as a uniform percentage increase to the generation component of current rates. TURN objects to this proposal, stating that current generation rates are a residual from the days of frozen rates, and therefore reflect an Equal Percentage of Marginal Cost (EPMC) share of total system marginal costs, with an implicit assumption of a marginal energy cost of approximately two-cents/kWh, and gas prices of $2/MMBtu. The marginal cost realities in today's energy market are very different.