I. Summary

This proceeding was initiated to consider steps to make it easier for residential customers to afford their basic energy needs in light of the substantial rate increases and the multi-tiered rate structure implemented to meet utility obligations caused by the energy crisis. We have determined separately that a 20% discount on total energy bills and exemption from electric surcharges provides an appropriate level of assistance, through the California Alternative Rates for Energy (CARE) program, for low-income customers to reflect their level of need. In Phase 2, we evaluate the affordability of basic energy needs for customers who may be vulnerable for reasons other than being low income.

We adopt the program proposed by The Utility Reform Network (TURN) whereby lower-middle income large household participants will be charged Tier 2 electricity rates for their Tier 3 usage. Lower-middle income households with income levels between 175% and 250% of the federal poverty threshold, e.g., $32,500 to $46,500 for a household of four, are just above the CARE limits. We adopt this program for Pacific Gas and Electric Company (PG&E), Southern California Edison Company (SCE), and San Diego Gas & Electric Company (SDG&E). We do not extend it to customers of the smaller electric utilities, since their upper tier rates are not as high and they do not appear to have a comparable need for rate relief.

Utilities will notify residential customers of the large household program through annual bill inserts. Additionally, the utilities' customer service representatives must describe the program (1) whenever service is initiated, (2) upon customer request, and (3) whenever a customer contact is related to affordability. Utilities must also make program information available through their web sites and their automated customer service prompts and scripts. They should undertake additional outreach when it can be done at little cost, e.g., a brief statement in CARE-related literature.

We instruct Energy Division to hold a workshop within 45 days to finalize implementation and administrative procedures for the adopted large household program. PG&E, SCE, and SDG&E must implement the large household program for all customers within 20 weeks of the effective date of this order, with the first customers receiving bill inserts able to receive reduced rates 4 weeks earlier than that. The utilities are authorized to accrue program costs and related revenue losses in their baseline balancing accounts (BBAs).

We adopt the policy that the usage of seasonal residences should be excluded from baseline calculations in climate zones where its inclusion would cause a material reduction in baseline quantities. Seasonal usage should be excluded if its inclusion would decrease baseline quantities by 3% or more. Each utility except Maintain Utilities must file an advice letter demonstrating whether this materiality threshold is met in each climate zone. Baseline quantities are to be adjusted appropriately. While PG&E's proxy methodology for excluding seasonal residences from the baseline calculation is acceptable, utilities may propose alternative methods of exclusion. Utilities may accrue revenue losses due to these baseline adjustments in their BBAs.

We do not adopt a statewide requirement that baseline allowances be withheld from seasonal residences to the maximum extent permitted by Water Code § 80110, which was added by Assembly Bill (AB) 1 from the 2001 First Extraordinary Session (Stats. 2001, Ch. 4; hereinafter referred to as AB 1X) effective February 1, 2001. Instead, the question of whether baseline quantities should be withheld from seasonal residences should be assessed separately for each utility, taking into account the impact on permanent residents' bills, related administrative costs, and the complexities of identifying seasonal residences in an equitable manner. Each utility, including the companies that now restrict baseline quantities to only permanent residents, must submit in its general rate proceeding or other appropriate proceeding information that would allow us to assess such an exclusion. Pending this further review, SCE should not implement the policy adopted in Decision (D.) 96-04-050 that it withhold baseline quantities from seasonal residences in climate Zones 15 and 16.

We require that SDG&E, and any other electric utility that currently serves common area accounts through residential schedules, allow its residential common area electric customers the option to switch to commercial schedules, under terms comparable to the provisions found reasonable and adopted for PG&E in D.03-01-037. The utilities may track any revenue losses resulting from this treatment of common area accounts in Common Area Balancing Accounts (CABAs). These changes are to be implemented within 45 days of the effective date of this order.

We address the recovery of cost and revenue undercollections resulting from changes adopted in this proceeding. As a threshold matter, we determine that SDG&E's proposal to increase its distribution and competitive transition charge (CTC) rate components without offsetting decreases to other rate components for usage up to 130% of baseline amounts is counter to AB 1X and, further, that its current rates for usage up to 130% of baseline do not comply with AB 1X. We require each electric company that is bound by the rate protections in Water Code § 80110 to adjust its rates if needed to comply with this statute.

We do not find it reasonable to raise total electric rates at this time, since it may be possible to provide revenue neutrality for the electric changes adopted in this proceeding without an increase in total electric rates. Non-generation rate components should be increased if needed to maintain the revenue requirements adopted for these components, with equal and offsetting adjustments to generation rates (or commodity rates for SDG&E) so that total rates are unchanged. We defer issues regarding allocation of generation undercollections and rate design to recover such shortfalls to each company's general rate case or other appropriate proceeding.

Because the gas rate increases that are needed to maintain revenue neutrality for baseline-related changes are relatively small and will not cause excessive rate increases or threaten the affordability of gas for residential customers, we see no need to allocate them outside the residential class or to depart from adopted gas rate design procedures for their recovery. We authorize PG&E, SDG&E, and SoCalGas to use the rate design methodologies adopted in their most recent biennial cost allocation proceedings (BCAPs) to adjust residential gas rates to reflect baseline-related shortfalls on an on-going basis and to amortize gas BBA balances. The proposal of Southwest Gas Corporation (Southwest) to adjust its rates on an equal-cents-per-therm basis is reasonable. Other gas utilities may adjust their residential rates in a manner consistent with policies adopted in their most recent gas rate design proceedings or, if that is not feasible, on an equal cents-per-therm basis. The gas rate changes to establish revenue neutrality for the on-going effects of policies adopted in this proceeding are to become effective at the beginning of the first seasonal baseline period following their implementation. Amortization of BBA balances should commence at the time of the first seasonal baseline change or other change in residential gas rates after the final BBA balance is known.

Other Phase 2 proposals are not adopted for a variety of reasons, as explained in this decision.