6. Small Customer Rate Design

6.1 Residential Rate Tiers

Pursuant to § 739 and Water Code § 80110, we must establish a minimum of three residential rate tiers: up to baseline, baseline to 130% of baseline, and above 130% of baseline. SDG&E proposes adoption of the 5-tier rate design that was adopted in D.01-05-064 for PG&E and Edison. Because of the mandatory capping of prices in the first two tiers, i.e., all usage up to 130% of the baseline is capped at 6.5 cents per kWh, increases to the residential rate are limited to the upper three tiers, i.e., Tiers 3, 4 and 5. ORA believes that a four-tier structure provides sufficient flexibility in providing conservation incentives, but it does not oppose a fifth tier if the fifth-tier rate is not set too high. Similarly Aglet favors a four-tier structure but does not object to a fifth tier.

The record discloses no basis for adoption of a different structure than the five-tier structure that we adopted for Edison and PG&E in D.01-05-064. As we indicated in that decision, tiered residential rates are appropriate because of their conservation effects and the statutory exemption of consumption up to 130% of baseline quantities. We therefore adopt for SDG&E the five-tier structure that we established for Edison and PG&E. We turn to the establishment of rates for the uncapped tiers, i.e., Tiers 3, 4, and 5.

SDG&E and Aglet offer somewhat different approaches to setting rates within the top three tiers. Aglet seeks a progression in rate levels that is matched to the progression in the percentages of baseline quantities that define the tiers. In D.01-05-064, the Tier 3 to Tier 4 increase is double the increase from Tier 2 to Tier 3, and Tier 5 is residual to recover the class revenue requirement. SDG&E believes that Aglet's approach should be rejected because it uses an arbitrary mathematical relationship with no underlying causal basis, and does not adequately balance other ratemaking factors to set the tiers.

As the parties have recognized, the design of rates requires the exercise of judgment, and cannot rely solely on mathematical formulas. We have considered the concerns raised by SDG&E as well as Aglet, and we have also given consideration to the residential rates that we established for Edison and PG&E, as set forth in Table 1 of D.01-05-064 (at p. 36), as a further check on the reasonableness of rates that we establish for SDG&E. Based upon this consideration, we have exercised our institutional judgment and experience in designing a tiered residential rate structure that balances the need to provide conservation signals that increase in strength with increased consumption levels, the need to collect the revenue requirement allocated to the residential class, and the need to mitigate bill impacts. The following table sets forth the adopted residential rates for SDG&E, and also displays the equivalent rates adopted for Edison and PG&E.

Adopted Residential Rates - Cents/kWh

(Not Applicable to CARE-Eligible Customers or Medical Baseline Customers, Does Not Reflect Cost of Subsidies to Medical Baseline Customers)

In comments on the proposed decision, SDG&E raises the concern that Schedules DR-TOU and DR-TOU-2 do not reflect seasonally differentiated tiered rates, unlike non-TOU residential schedules. We do not find adequate billing determinant data in this record to address this problem. We may revisit this issue in a Rate Design Window or other appropriate proceeding.

While we are adopting rate increases that are necessary for collection of the DWR revenue requirement, it is not our intent that the five-tier residential rate structure be terminated with termination of the DWR revenue requirement. We intend to preserve this structure until we have had an opportunity to more fully consider SDG&E's rate design in a proceeding dedicated to that purpose.

Common areas in residential multifamily dwellings frequently have a single or few meters to measure a large amount of electricity usage (e.g., for swimming pools, lighting and common area appliances). The baseline quantities applicable to these meters are very low relative to the metered usage for the common area. Thus, the tiered residential rate design we adopt today will result in a significant increase in electricity bills for some common areas in multifamily dwellings. We intend to address this issue in our current baseline rulemaking, R.01-05-047 or another appropriate proceeding

6.2 Medical Baseline Customers

SDG&E stated in its testimony that due to billing system constraints, it may not be able to timely implement the medical baseline rate exemption. If it is unable to do so, SDG&E proposes that this exemption be implemented in two phases: (a) initial implementation of rate exemption in August; and (b) an applicable credit be applied on September bills for the amount previous billed in excess of the capped amount. While we would like to see this exemption implemented as soon as practicable, we recognize that billing system constraints may prevent that from occurring. We will therefore approve SDG&E's proposal to phase in the exemption if necessary.

The rate tables attached to this decision do not reflect an allocation of the revenue shortfall due to the medical baseline allowance, as the billing determinants are not in the record. We direct SDG&E to include such an allocation in its compliance advice letter filing.

Previous PageTop Of PageNext PageGo To First Page