V. Preliminary Matters in Rate Design

A. Moving to Time of Use Meters for Commercial Customers

One proposal before us would require certain commercial customers to shift from their current tariff schedules to time-of-use meters and rates. Requiring time-of-use meters would encourage customers to shift their energy use away from periods of peak demand. Such a shift away from periods of peak demand can be expected both to help avoid blackouts and to reduce system energy costs by reducing demand during periods where power is most expensive. It would also promote equity by requiring customers who are most responsible for usage during periods of peak demand to pay more of a share of the costs incurred during those periods.

While requiring large customers to shift to time-of-use meters is appealing, we are not prepared to make metering mandatory, partly because metering programs have not distributed sufficient supplies of meters to these customers to date, and partly because we do not wish to impose additional hardships on large customers. Instead, we encourage customers to choose service options that will reward them for energy conservation efforts. Over the next six weeks we will monitor the CEC's metering efforts and refine into concrete proposals the metering concepts discussed in briefs and at hearings in this proceeding.

We do find that customers who take advantage of the metering program offered by the California Energy Commission should be able to do so only if they also agree to shift to time-of-use rates. We look forward to the CEC's plan for its time-of-use meter installation program and will work with the CEC to assure that their programs and utility rate schedules are complementary.

B. Changing Agricultural Tariff Definitions

Several parties, including the California League of Food Processors, the Farm Bureau, and the Wine Institute, urge us to adopt the recommendation of Section 740.11 (added by SB 5X on April 11, 2001), by changing the definition of customers eligible to be served under agricultural tariffs to include agricultural commodity processing customers. Section 740.11 provides, in relevant part:

In recognition of the fact that agricultural and water supplier customers necessarily have high electricity usage during peak summer demand periods, the Legislature strongly urges the commission to consider providing the option to all agricultural commodity processing customers to be included in the definition of customers eligible to be served under agricultural tariffs, consistent with its other constitutional and statutory objectives, and to the extent it does not result in cost shifting to other customer classes.

We acknowledge the uniqueness of this industry, and its heavy dependence upon summer on-peak usage. Changing these tariffs deserves further immediate exploration. Such a change would require that we craft a new definition of "agricultural commodity food processors." While the parties presented some suggestions as to how to change the definition, we do not have before us a record that analyzes the ramifications of each alternative.

Further, we decline to rework this definition in this order because it might require other customers to assume a consequent revenue shortfall resulting in "cost shifting" that violates Section 740.11. The record in this proceeding does not provide a basis for finding that cost shifting will not occur.

Moreover, PG&E and Edison maintain that it is not feasible to adopt the proposed customer migration before summer's end. Agriculture-related commercial and industrial customers who qualify for transfer to agricultural tariffs need to be identified and the difference in their usage from that of other industrial customers better understood. Over the next six weeks, we will hold workshops and obtain evidence to analyze this proposal further, explicitly defining the type of customer eligible to migrate, and to examine the impact of cost shifting upon other customer groups.

C. Bill Limiters and Special Schedules

Some parties propose "bill limiters" to protect certain energy consumers from large increases. A "bill limiter" is simply an upper limit on the amount of increase a customer would realize in a single month. In the short term, we prefer the use of bill limiters to address transition concerns while the effects of migration are further analyzed. Customers who currently take service from industrial rate schedules should be protected by bill limiters. Edison and PG&E cannot change their rate schedules to reflect the special constraints of each industry before June 1, although further refining and obtaining industry-specific customer load data deserves further expedited consideration. Therefore, in order to mitigate rate shocks and to provide a transition period for customers to adjust their usage, we adopt the use of bill limiters of 300% for all rate classes other than agriculture and 250% for the agricultural class. While we understand that bill limiters may have some troubling conservation impacts, at some point price signals become unbearable for customers. Bill limiters will protect customers from the unanticipated impacts of increases in electric bills.

We acknowledge that implementing bill limiters may result in a revenue shortfall. We expect this shortfall to be small because bill limiters affect the bills of only a few customers with extremely high usage. PG&E and Edison should allocate shortfalls from bill limiters consistent with the allocation adopted for CARE medical and the 130% of baseline shortfalls. We have questions based on our record as to the specific bill limiter mechanism that will best meet our objectives. Therefore, we direct PG&E and Edison to work with the Energy Division and to propose a mechanism by advice letter within fifteen days of the effective date of this decision. Any bill limiter mechanism proposed should be fully implementable by July 1, 2001. The utilities should also establish a balancing account to track the amount by which these rates over- or undercollect the shortfall due to bill limiters. We will continue to monitor the balance in these accounts and will analyze the kinds of customers affected by bill limiters as well as the amounts affected.

D. Residential Rate Design

We adopt tiered rates for residential customers because of their conservation effects, and because AB1X requires that rates for residential consumption up to 130% of baseline may not increase above the rates in effect on January 5, 2001.

We adopt a 5 tier-rate design:

· Tier 1 applies to usage up to the baseline amount.

· Tier 2 applies to usage from 100 per cent of baseline up to 130 percent of baseline.

· Tier 3 applies to usage from 130 percent of baseline up to 200 percent.

· Tier 4 applies to usage from 200 percent of baseline up to 300 percent.

· Tier 5 applies to usage in excess of 300 percent of baseline.

As mandated by AB 1x, Tier 1 and 2 rates will not increase. The increase between Tier 3 and Tier 4 is approximately double the increase from Tier  2 to Tier 3. The Tier 5 rate is sufficient to allow recovery of the residual revenue requirement for the residential class. Thus, the rate increase allocated to the residential class falls most heavily on Tier 5 users, those residents who use more than 300% of their electricity baseline.

The components of the rate increase in Tiers 3 through 5 include the residential class allocation and the residential class' share of the shortfalls due to CARE and medical baseline customers, and the statutory exemption protecting usage up to 130% of baseline from further rate increases. Table 1 below, shows the new residential rates.

TABLE 1

NEW RESIDENTIAL E-1 RATES FOR PG&E AND EDISON

(Cents/kWh)

	PG&E	EDISON
TIER 1	12.6	13.0
TIER 2	14.3	15.2
TIER 3	19.3	19.7
TIER 4	23.6	23.7
TIER 5	25.8	25.9

Increasing the number of tier blocks, and thus the stratification of residential rates, is equitable because customers who are the heaviest users will pay more for power than moderate users. Consumers who use less place less strain on the grid and are rewarded with a lower rate for their usage. The tiered rate structure we adopt today is consistent with our goal of encouraging conservation through the imposition of higher rates above threshold amounts of electricity use.

E. PG&E's E-8 Schedules

The E-8 schedule for residential consumers was implemented well before the rate freeze.¹⁵ Schedule E-8 energy charges do not recover the costs of service to E-8 customers, requiring other customers to make up the difference. E-8 rates are 10% lower than schedule E-1 summer rates and schedule E-8's low winter seasonal rate is approximately 45 percent less than the schedule E-1 Tier 2 rate.

Schedule E-8 fails to meet the Commission's objectives of equity and conservation. While the changes we adopt today to these rates help mitigate these problems, we still find the E-8 rate to be problematic. Therefore, we will suspend the availability of this tariff to new customers until such time as the Commission performs a comprehensive review of PG&E's rate structures.