IX. Issuance of the Proposed Alternate
The proposed decision and the alternate proposed by President Loretta Lynch were issued on May 9, 2001. Parties filed and served comments on the proposed decision on May 10 and May 11 and appeared for final oral argument (FOA) before a quorum of the Commission on May 11. Section 311(e) generally requires, in matters that have gone to hearing, a minimum 10-day period between service of a Commissioner's alternate decision and the Commission's issuance of the decision. However, Section 311(e) allows the period to be reduced or waived by the Commission "in an unforeseen emergency situation."
Although not expressly stated in Section 311(e), the 10-day period provides an opportunity for parties to comment on the proposed decision. In this proceeding, we are considering the rate design to apply to the three-cent surcharge adopted in D.01-03-082. One of the stated goals of this rate design is to encourage conservation to help Californians avoid, to the extent possible, rolling blackouts during the summer months. Given the fact that the Independent System Operator (ISO) has identified over 30 days19 in which it predicts rolling blackouts to occur, and the State of Emergency called by Governor Davis on January 17, 2001, we believe that this constitutes an unforeseen emergency for these purposes. Such blackouts threaten to severely impair public health and safety.
Accordingly, we will reduce the 10-day advance publication period of Section 311(d) to five days, and will allow parties to file and serve written comments on May 10th, followed by final oral argument on May 11th and Commission consideration of the decision on May 14th.
1. Prices in California's wholesale electric market are not necessarily based on production costs. The allocation of the utilities' wholesale power costs to customers, therefore, would not represent an allocation of the costs of energy production.
2. Reducing energy consumption will help protect Californians from blackouts and reduce the state's liability for electricity purchases.
3. PG&E and Edison have the largest supply shortfall projected during summer peak purchases and intend to rely on CDWR and the ISO to purchase that shortfall.
4. Energy prices for summer 2001 are forecasted to be high, especially during peak periods.
5. Increasing rates during peak periods for customers on TOU schedules will maximize the value of conserving energy at peak times.
6. The Governor's 20/20 program is designed to reward customers who reduce their overall electric consumption by 20% this summer. This incentive, along with customer education, energy efficiency programs and higher rates promote conservation.
7. Business customers generally place a high value on reliability and are most likely to benefit from peak reduction programs and the interruptible programs adopted in R.00-10-002.
8. The delivery forecasts presented by Edison and PG&E are adequate for the limited purpose of calculating utility revenue requirements.
9. AB1X prohibits increases to rates, effective as of January 5, 2001, applicable to residential usage below 130% of baseline levels. Usage below 130% is not exempt from the one-cent surcharge. Usage below 130% of baseline usage is exempt from the three-cent surcharge.
10. The one-cent surcharge is reflected in the rates that are the foundation for the rate design adopted in this proceeding.
11. On the basis of the adopted delivery forecast, a three-cent per kilowatt rate increase provides an annual revenue increase in Edison's service territory of $2.513 billion.
12. On the basis of the adopted delivery forecast, a three-cent per kilowatt hour rate increase provides an annual revenue increase in PG&E's service territory of $ 2.46 billion.
13. Allocating the surcharge revenue requirement on an equal cents per kilowatt hour is equitable and simple.
14. CDWR presented a summary forecast revenue requirement to the Commission on May 2, 2001, which totals $9.2 billion through June 2002. The Commission has not had an opportunity to analyze this forecast for purposes of the allocation and rate design matters addressed in this proceeding.
15. Residential sales that are not part of the AB1X exemption from further rate increases total only 11% of all electricity sales in PG&E and Edison territory based on 2000 data.
16. Allocating the revenue shortfalls that arise from sales that are exempt from rate increases to remaining residential sales results in unreasonably high rate increases to residential customers without concomitant conservation benefits because non-exempt residential sales eligible for such allocation total only 11% of all sales.
17. Because of the extraordinary size of the rate increase, it is reasonable to exempt customers who have usage above 130% of baseline due to medical conditions.
18. It is equitable to spread the revenue shortfalls one-third to each of the three main customer classes -- commercial, industrial and residential. Those shortfalls are associated with the exemptions for residential sales below 130% of baseline amounts, medical baseline customers and CARE customers, bill limiters and the cap on agricultural rates.
19. Direct access customers do not impose liabilities on CDWR, PG&E or Edison for procuring power.
20. It would be inequitable for direct access customers to pay for their own cost of procurement and a share of the costs incurred on behalf of customers who purchase power from PG&E, Edison and CDWR.
21. A twelve month amortization period for the collection of the revenue associated with applying the three-cent surcharge to all sales from March 27, 2001 to the day utilities begin collecting the surcharge will mitigate the impact of already high rates compared to applying a shorter amortization period.
22. Shifting customers to time-of-use metered schedules promotes conservation during periods of peak demand when prices are typically highest and supplies are short. The costs of specific programs have not been compared to the potential benefits in this proceeding.
23. Bill limiters would mitigate the impact of rate increases on individual customers.
24. The revenue shortfall from implementing bill limiters is likely to be small and may be recovered by way of accounts that track the undercollection.
25. Rates that increase as usage increases equitably allocate cost liability among residential customers because customers who use more power pay increasingly higher rates.
26. It is reasonable to adopt a 5 tier-rate design with incremental block tiers with the following tiers:
a. Tier 1 Up to the baseline amount
b. Tier 2 From 100% - up to 130 % of baseline
c. Tier 3 From 130% - up to 200 % of baseline
d. Tier 4 From 200% - up to 300 % of baseline
e. Tier 5 In excess of 300% of baseline.
27. The components of the rate increase in tiers 3, 4 and 5 include the residential class allocation, and the residential class' share of the shortfalls due to CARE and medical baseline exemptions, the 130% exemption, and the agricultural rate caps.
28. Schedule E-8 energy rates do not recover the costs of serving schedule E-8 customers.
29. The conservation benefits of tiered rates for nonresidential classes may not offset the practical problems of implementing tiered rates and informing customers of their potential impacts before summer 2001.
30. A uniformly applied rate increase of 3¢/kWh to the nonresidential class provides a reasonable incentive for those customers to conserve electricity.
31. Data about utility customers' usage may permit the Commission to determine whether a more detailed system of rate design by SIC classification would serve the public interest.
32. Neither Edison nor PG&E can implement tiered commercial TOU rates by June 1, 2001 because of billing system constraints.
33. Allocating 70% of the non-residential, non-TOU commercial customer revenue requirement to summer use and 30% to winter use balances the year-round need for conservation, with a stronger conservation signal during the peak summer months.
34. Declining block rates should be eliminated in favor of increasing rate blocks to improve conservation incentives.
35. A rate increase that is spread equally across all time periods does not sufficiently promote conservation during the hours of peak demand for those TOU customers with the ability to respond to peak periods.
36. Establishing a 3-hour super on-peak period for the food processing industry would create a revenue shortfall that other customers would have to assume.
37. Many agricultural customers depend heavily on summer on-peak usage and have a limited ability to shift their demand to other periods.
38. Agricultural customers are disproportionately affected by the rate increases in this year because the impacts of the energy crisis are compounded by drought.
39. Capping agricultural rate increases at a range of 15-20% will mitigate the effects of the rate increase.
40. Capping industrial rates at 12.3¢/kWh for PG&E and 12.9¢/kWh for Edison will mitigate impacts on the California economy.
41. A bill limiter of 250% for agricultural customers will mitigate the liability of some customers for extraordinary cost increases.
42. It would be inequitable for master metered customers to be exempt from paying the surcharge while charging their tenants for the surcharge.
43. Mater meter customers will have until July 17, 2001 to revise their billing systems and to comply with this decision.
44. The rate increase adopted today, in combination with energy efficiency programs, will prompt cities and counties to invest in the more efficient street lighting equipment.
45. Interruptible customers receive a substantial pricing incentive, which cannot be altered until March 31, 2002, pursuant to § 743.1(b).
46. To the extent customers receive information about their usage patterns and prices they are better able to change their usage patterns and conserve, and do so in cost-effective ways.
47. Real time pricing may reduce energy costs to customers and system wide because such pricing will enable to customers to control the timing of their energy use and reduce peak load.
48. The customer bill format must communicate the direct correlation between electricity supply, price, usage, and consumption patterns in order to promote price-responsive behavior.
49. Consumers are most likely to respond to price signals when their bills provide sufficient detail allowing consumers to identify and understand pricing structures.
50. The customer bill does not provide sufficient space to accommodate comprehensive information about the rate increase.
51. FERC representatives have publicly advocated in favor of customers facing the actual cost of wholesale power purchases as they are incurred.
52. A review of PG&E's and Edison's rate schedules and rate design in early 2002 will permit the Commission to determine the impact of today's order on customers and the costs and reliability of the electric system.
53. The ISO has predicted more than 30 days of rolling blackouts of electricity supply over the upcoming summer.
54. Electricity supply blackouts can severely impair public health and safety.
55. On January 17, 2001, Governor Davis declared a State of Emergency due to the energy shortage in California.
1. Water Code § 80110 exempts all residential usage below 130% of baseline from any increase in electricity charges after January 5, 2001.
2. It is reasonable to allocate the three-cent per kilowatt hour surcharge on an equal cents per kWh basis to protect vulnerable customers and to mitigate the potential for extreme hardship on individual customers.
3. It is reasonable to adopt revenue allocation and rate design that: (1) reduces energy use and California's liability for electric power costs; (2) allocates the costs of this generation in a fair and understandable manner to all customers; (3) protects the most vulnerable customers; (4) mitigates the hardship that individual customers experience, and (5) provides customers ways to manage energy usage and reduce their energy bills.
4. The revenue requirement shortfall created by exempting residential sales below 130% of baseline amounts and CARE rates from increases, and by adopting agricultural rate caps should be allocated to all other sales, one-third to each of the three customer classes, commercial/agricultural, residential and industrial.
5. Customers with medical conditions should be exempt from rate increases. The revenue shortfall from this exemption should be allocated consistent with the allocation of the CARE exemption shortfall.
6. The revenue associated with applying the three-cent/kWh surcharge to all non-exempt energy sales from March 27, 2001 to the day utilities begin collecting the surcharge should be added to each utility's revenue requirement and amortized over a twelve month period.
7. The surcharge adopted in D.01-03-082 should not apply to direct access customers because they are not relying on CDWR or the utilities to obtain their power.
8. It is reasonable to adopt the use of bill limiters of 300% for all rate classes other than agriculture and 250% for the agricultural class, relative to the class average rate. A lower limiter for the agricultural class is reasonable due to the higher than normal water pumping requirements forecast for this summer. The shortfall should be allocated consistent with the allocation of the shortfall occurring as a result of the CARE rate increase exemption.
9. PG&E and Edison should be ordered to file proposals for pilot rates for federal agencies that reflect concurrent wholesale market prices.
10. Pursuant to § 368(a), PG&E's and Edison's residential and certain small commercial customers currently receive a 10% reduction to their electricity rates, financed by rate reduction bonds issued pursuant to § 840-847, and orders of this Commission. The 10% rate reduction applies through the end of the transition period established in § 368(a), i.e., through March 31, 2002.
11. The Commission should not resolve in this proceeding issues relating to the 10% RRB-financed rate reduction.
12. Because the ISO has predicted rolling blackouts on 30 days in Summer 2001 and the Governor called a State of Emergency on January 17, 2001, an unforeseen emergency as provided in § 311(e) exists for purposes reducing the 10-day advance publication period of Section 311(e) to five days, and to allow parties to file and serve written comments on May 10th, followed by final oral argument on May 11th and Commission consideration of the decision on May 14th.
13. This order should be effective today in order to allow the adopted rate design to be implemented expeditiously.
14. By implementing the more precise methodology for remitting funds to CDWR concurrent with collection of the 3 cent surcharge, we provide for the utilities to remit to CDWR the surcharge (including amortization amounts) on the electricity supplied by DWR after they have collected the money from customers.
IT IS ORDERED that:
1. Within seven days of the effective date of this decision, Pacific Gas & Electric Company (PG&E) and Southern California Edison Company (Edison) shall file compliance advice letters with complete tariffs to implement the rate design changes adopted herein. PG&E's advice letter shall become effective on June 1, 2001 subject to Energy Division determining that it is compliant with this Order. Edison's advice letter shall become effective on June 3, 2001 subject to Energy Division determining that it is compliant with this Order. PG&E and Edison shall include with their advice letters detailed and complete work papers showing the revenue allocation and rate design calculations underlying the new rates for each rate schedule. On the same day that they file their advice letters, PG&E and Edison shall serve electronic copies of the work papers on Energy Division and all active parties in this phase of the proceeding. Specifically, PG&E and Edison shall file tariffs that effect the following principles:
a) The revenue allocation and rate design applies to the 3 cents/kilowatt-hour (kWh) surcharge adopted in Decision (D.) 01-03-082.
b) The incremental revenue requirement associated with the 3¢/kWh surcharge adopted in D.01-03-082 shall be based on applying the surcharge to forecast system-wide deliveries including delivery to direct access customers. The annual system-wide sales forecasts are 81,991 Gigawatt-hours (GWh) for PG&E, and 83,780 GWh for Edison. The annual incremental revenue requirements are $2.46 billion for PG&E, and $2.513 billion for Edison. The incremental revenue requirement shall be allocated only to bundled service customers. The rates attached to this Order reflect revenue allocation and rate design including direct access customers. Thus, in work papers supporting their advice letters, PG&E and Edison shall show the level of direct access sales removed from the sales forecast in developing the revenue allocation, rate design, and resulting rates.
c) The incremental revenue requirement associated with the 3¢/kWh surcharge adopted in D.01-03-082 shall be allocated among the customer classes based on the proportional number of bundled service kilowatt-hours (kWhs) each class is forecast to consume during calendar year 2001 (i.e., equal cents per kWh allocation).
d) CARE customers, residential usage below 130% of baseline, and medical baseline customers are exempt from any revenue allocation associated with the 3¢/kWh surcharge authorized by D.01-03-082. PG&E and Edison's work papers shall show the sales associated with medical baseline customers, and how the rates were adjusted to reflect exemption of these customers from the surcharge.
e) The revenue resulting from applying the 3¢/kWh surcharge approved in D.01-03-082 to forecast sales to residential customers below 130% of baseline, CARE customers, non-CARE medical baseline customers, bill limiters, agricultural and industrial rate caps shall be reallocated to each of the three customer classes equally one-third to each, and not to sales that are exempt from rate increases.
f) Rates shall include an allocation of shortfalls resulting from the application of the bill limiters adopted herein. PG&E and Edison's work papers shall show how they developed the amount of the bill limiter shortfalls and how these shortfalls are reflected in the revenue allocation, rate design, and rates within each rate schedule.
g) Edison and PG&E shall reflect a 5 tier-rate residential rate design with incremental block tiers with the following tiers:
a. Tier 1 Up to the baseline amount
b. Tier 2 From 100% - up to 130 % of baseline
c. Tier 3 From 130% - up to 200 % of baseline
d. Tier 4 From 200% - up to 300 % of baseline
e. Tier 5 In excess of 300% of baseline.
The surcharge rates for usage in Tiers 3, 4, and 5 should be set for the residential class as a whole, based on the combined tiered billing determinants for the entire residential rate class.
h) For small and large commercial customers with seasonal designation, 70% of revenue requirement shall be allocated to the summer period and 30% to the winter period.
i) All rate classes other than agriculture shall have a bill limiter of 300% of class usage.
j) Rate schedules that incorporate declining blocks shall be modified to be an increasing block structure.
k) Agricultural rate increases shall be limited as set forth herein for both time-of-use and non-time-of-use customers, with the resulting revenue shortfall to be spread over the eligible sales of all three customer classes, one third of the shortfall to each.
l) Agriculture rates shall be subject to a bill limiter of 250% on energy charges.
m) The surcharge revenue requirement shall be allocated to the streetlight, traffic signals and outdoor lighting schedules on equal cents per kilowatt-hour basis.
n) The 10% RRB-financed reduction to rates shall apply to rates in effect prior to implementation of the 1¢/kWh and 3¢/kWh surcharges.
o) The bill format shall incorporate the rate increase through the applicable baseline tiers, mid-, off-, or on-peak classifications, or other appropriate usage-based component.
p) The bill format shall provide the customer a line item or items for energy charges, separate from all non-energy charges.
q) The average industrial rates for PG&E shall be capped at 12.3¢/kWh and for Edison at 12.9¢/kWh.
2. PG&E and Edison shall amortize the revenue associated with applying the 3¢/kWh surcharge to all non-exempt energy sales from March 27, 2001, to the day utilities begin collecting the surcharge over a 12-month period beginning with the date the utilities begin collecting the surcharge.
3. PG&E and Edison shall collect SIC classification data from their customers in an effort to understand whether a more detailed system of rate design by SIC classification should be available in future rate design proceedings.
4. Master meter customers shall revise their billing systems to incorporate this surcharge, and to comply with Water Code § 80110 and Pub. Util. Code § 739.5, by July 17, 2001.
5. PG&E and Edison shall file proposals consistent with this order for a pilot rate design for federal agencies that incorporates federal policy to the effect that customers pay wholesale prices as they are incurred.
6. PG&E and Edison shall post on their respective web sites: (1) dynamic load profile information for all rate groups for which such information is available, (2) pricing information, as it becomes available, (3) day-ahead ISO price for electricity daily, and (4) such other information as may be useful to customers in controlling their energy usage and bills.
7. PG&E and Edison shall prepare bill inserts notifying customers of the need for the rate increase, tiered rate structure, usage levels not impacted, customer exemptions, the need for conservation and information about the CARE, medical baseline and California 20/20 Rebate programs. The bill insert will be submitted to the Public Advisor for review and approval by May 18.
8. Concurrent with their implementation of today's rate design and recovery of those sums from customers, PG&E and Edison shall switch to the more precise methodology of segregating, holding in trust, and remitting funds to CDWR described in D.01-03-081. The method for calculating the number of CDWR-supplied kilowatt hours under this more precise methodology is spelled out in the text of D.01-03-081.
9. Within 15 days of the effective date of this Order, PG&E and Edison shall file an advice letter to implement bill limiters by July 1, 2001. PG&E's and Edison's advice letters shall be effective on July 1, 2001 subject to Energy Division determining that the bill limiter mechanisms addressed in these advice letters are consistent with the objectives set forth in this decision. In their advice letters, PG&E shall establish a balancing account to track the actual bill limiter shortfalls required pursuant to Ordering Paragraph 1. Balances in these accounts will be reviewed in PG&E's and Edison's next respective electric rate design proceedings. PG&E and Edison shall consult with ORA and Energy Division in preparing their advice letters.
10. No later than June 1, 2001, Edison shall notify its non-CARE medical baseline customers that they are exempt from the surcharge approved in D.01-03-082. Edison's notice shall also indicate that its non-CARE medical baseline customers shall receive a credit on their September 2001 bills for any payments they made related to the surcharge while Edison was making the necessary billing modifications to reflect their exemption from the surcharge.
11. The credit that direct access customers receive shall not reflect the surcharges imposed on others by today's decision, which direct access customers do not pay.
This order is effective today.
Dated May 15, 2001, at San Francisco, California.
LORETTA M. LYNCH
President
CARL W. WOOD
GEOFFREY F. BROWN
Commissioners
I will file a dissent.
/s/ RICHARD A. BILAS
Commissioner
I will file a dissent.
/s/ HENRY M. DUQUE
Commissioner
A.00-11-038 et al.
D.01-05-064
Commissioner Henry M. Duque, dissenting:
There are several reasons why I cannot support the order of today's majority. First, the rate design emanates from assumptions with which I cannot agree. Second, the rate design does not treat this energy crisis seriously. Third, a rate design can only work as part of a coherent energy policy, and California still lacks one.
In my view, the rate design in the majority's order assumes that the consumption of electricity is a moral activity that divides the good from the bad. The policy seeks to punish those it deems bad and protects those it deems good. We see it throughout the order. Residents who consume more than twice their baseline usage face staggering rates. The federal government is uniquely targeted for high rates. Although real time pricing should be pursued, singling out the federal government, as a target of special rates is discriminatory and diminishes the importance of this program. In addition, this order requires that businesses pay not only for their electricity use, but must also subsidize the usage of those residential customers deemed especially deserving. This order has a clear morality -the bad include businesses of any type and those residential customers who consume more electricity than we deem acceptable.
These assumptions are false. Consider the working poor who make too much money to qualify for subsidies but rent apartments with appliances that use a lot of electricity. Are these families less deserving than a neighbor who lives in an apartment with a new refrigerator? Are they less deserving than families who receives welfare payments? I don't think so, but the rate design punishes the first families, who pay not only their own costs, but also the electricity of others. It's only electricity, and using it doesn't make one bad, and not using it does not make one good.
Second, the rate design and the policies in today's order do not treat our electricity crisis as seriously as we should. Consider what Californians do when we have water shortages. Policymakers go out of the way to treat everyone equally - allotments are commonly based on how many live in a household. Those who consume too much pay penalties, or we restrict their water supply with flow controls. We do not divide households between the good and the bad, and set rates accordingly. We recognize that all have legitimate claims to water, and that all must help out.
If this is a real electric crisis, and it most certainly is, why don't we have rate policies based on treating all Californians equally, rather than protecting some and punishing others? Last summer, when all San Diegan's faced the real cost of electricity, with bills doubling, they cut electricity use by 10 percent. This experience with higher rates only strengthens my belief in the value of real time pricing for all users. In the San Diego crisis, all customers experienced the burden of real prices and they all the shared in the burden of reducing consumption. Would they have cut their consumption so dramatically if we exempted over 60 percent of residential customers from rates? In response to these high prices, California imposed a price cap to lower rates, and consumption shot right back up. In my view, San Diego's initial high rates treated a much smaller crisis more fairly and effectively than the rates proposed for today. As we have so many times in this process, we threw away the solution.
Third, a rate design makes sense only in the context of a coherent policy. Unfortunately, California's electricity policy is to subsidize consumption, and this policy is incoherent in the face of supply shortfalls. When this crisis began last summer, some in this Commission denied that there was a supply shortage - there would be no blackouts, no rate increases, and no bankruptcies. Instead of addressing this problem, California's first policies sought to subsidize rates from company earnings - legislation capped PG&E's and SCE's rates and new legislation was passed to cap SDG&E's rates. That policy eventually failed, leading to two insolvent and one bankrupt utility.
With amazing consistency, California energy policy turned to the taxpayers as a new source of subsidies to avoid unpopular rate increases. This policy has now consumed the entire state budget surplus.
As tax funds dry up, today's order turns to the subsidy strategy once again. This time it asks small business and some residential consumers to subsidize others. Will these be the next to suffer a financial crisis? They could well be.
Moreover, should we be surprised that the result of our policy to subsidize consumption leads to more consumption, not conservation? Today's majority order is just another step in encouraging energy consumption and discouraging the conservation that prices based on current costs would produce.
From the beginning of this crisis, it has been clear what California needed to do - build new supply and conserve. This is electricity, not water - we can build plants, we do not need to wait for it to rain. Nonetheless, we have done very little to encourage production. Instead, we have offered a $50 million bounty to anyone who helps California get the goods on a generator. We also plan to hire 50 deputies to inspect power plants. We have also blamed the problems on FERC for not limiting prices, for our logic dictates that price controls will lead to fewer blackouts. It is most certainly not my position to defend either generators or FERC, but should we be surprised that generators are slow to enter California markets, or that FERC fails to take California's actions seriously?
In conclusion, can this really be a crisis if we exempt 60% of all residential customers from any rate change and another 15% receive an increase of less than 12%? Second, can this really be a sustainable policy if commercial and industrial customers must now bear these costs that have led three utilities to insolvency and consumed the
entire state budget surplus? This is sure to darken California's commerce twice, first as businesses turn off their lights, and then, as they close their doors.
For these reasons I must respectfully dissent.
_/s/ HENRY M. DUQUE______
Henry M. Duque
Commissioner
May 15, 2001
San Francisco
A.00-11-038 et al.
D.01-05-064
Commissioner Richard A. Bilas, dissenting:
Once again I must decry the lack of meaningful comment and input by the parties on today's Proposed and Alternate Decisions (decisions). Over 20 parties addressed the Commission in final oral argument Friday morning, May 11. That was less than 24 hours after the alternate decision was finally completed and posted on the web. The comments filed late Thursday were less than 24 hours after both extremely complex decisions were released on the web, the alternate in incomplete form and both decisions with missing tables. These releases were 5 days after the scheduled May 4 release date. They were released 10 hours after a press briefing on their anticipated content that was not noticed to the parties. The press briefing packet used was not served on the parties. The record of this proceeding contained many rate design scenarios presented by the parties. I asked for rate tables for several of them to be run. I was furnished only the EPUC proposal, Sunday May 13 just before I left Mendocino to drive to San Francisco for the May 14 meeting. I prefer it to any other proposals I have seen, but I was given no opportunity to offer it as an alternate decision. The Commission needed more time to run and analyze the rate impacts of a variety of alternative scenarios. We were not given it. Substantive changes in both the PD and alternate and their rate impacts arrived the late Monday before the May 15 continuation meeting. We have had less than 24 hours to review the substantive revisions and the impacts in the rate tables.
Once again we were told that we must vote. This Commission should not be pressured into doing something so potentially detrimental to the State and its economy just so we can make the increases effective on June bills. Frankly, I do not think it matters that these new rates will be on the June bills, because the increases on the average residential bill will not accomplish the level of conservation the State needs. We need negawatts this summer. This decision will not get us enough. So the Commission voted hurriedly on a decision that will not make things better this summer and will send the California economy into a recessionary death spiral.
The Commission's decision is a prescription for a deeper recession than Californians already face. Although the alternate has been revised to treat industrial customers somewhat better than before, when you look at the rate tables, you will see that these changes are largely symbolic. They do not translate into meaningful changes on bills. In fact, the tables show that the approximately twelve dollar rate cap for the industrial class gives them far less benefit than the generous 15 to 20 percent rate caps for the agricultural class. The devil is in the details of the rate tables, rather than the alternate's narrative percentage increases. While something has been done to tone down the massive increase on industrial customers, these changes come at the expense of the small and medium commercial class that is the bulk of businesses in the State. They will pay more so big industrial customers can pay less. This is not fair nor is it equitable.
With these rate design allocations that place a disproportionate burden on business, we risk plunging the state back into the same recessionary conditions with high commercial rates that set the stage for electric restructuring in the first place. History will repeat itself. Businesses will flee the state or shut down entirely. This means jobs and taxes are lost. Unemployment compensation won't pay the power bills. These crippling rate increases on business and industry will have ripple effects throughout our economy as costs get passed on. Consumers will ultimately bear the burden of cost increases, including CARE and medical baseline customers exempt from today's increases. We should have stepped back and reflected on our actions before implementing such a disastrous rate design. As an economist I cannot and will not be roped into voting for a decision that I strongly believe will push the State into a deep recession.
Today's Commission decision does more than merely allocate the 3 cents surcharge from Decision 01-03-082. It establishes an entirely new rate design that substantially changes the existing rate relationships absent any cost data to support them. It creates unprecedented cross subsidies among ratepayer classes. This is not surcharge allocation, it is a rate increase rate design. This is political and social policy masquerading as economics. It will not work.
There is no reason to alter the existing rate allocation structure, especially because we have no reliable cost data. The existing allocation scheme is based on some form of cost analyses. That is a far better basis for allocation than unreasonable and arbitrary assignment of cost and responsibility as if the costs were the same for every class of user at every time of day. They are not. The decision is internally inconsistent on this point. It first allocates the increase on an equal cents per kilowatt hour basis because it refuses to recognize these differentials. But, it goes on to set rates that are skewed toward peak usage because the peak costs more price and reliability wise. While the Commission's decision looks for business and industry to pay more and more, we are not giving them any trade off by way of enhanced reliability for the high rates. The least we can do is black them out last on a predictable schedule to mitigate their losses. I urge my colleagues to carefully consider this idea.
Today's misguided policy decisions can and should be avoided. I would look to the Top 100 hours methodology that this Commission employed in its PTR 2
Decision 00-06-034 last June. I cannot resist noting that it was this same 3 to 2 decision that broke the PX monopoly buy requirement because of the rising trend of PX prices. It was this same PTR 2 decision that caused legislators to pass a law to prevent the PX monopoly from being broken, a law they quietly repealed in January of this year, after it was too late to help. So we have precedent for the Top 100 hours. It is egregious that we do not have in the record the DWR cost data to implement it properly. We should also have looked at the equal percentage of generation revenues methodology which many parties espoused. Because of time constraints, we have done neither by way of rate table analyses. This is a grave mistake.
I am pleased with the Commission decision's treatment of direct access (DA) customers. It is correct to exempt DA customers from the surcharge because the utilities do not buy power for them. DA customers do not add to the net short position that DWR is covering and this rate increase is meant to repay. However, the Commission should have gone further on the record of this proceeding to adopt a bottoms up approach and simply charge direct access customers for everything except generation. I intend to sponsor such a decision on a future agenda.
I strongly dissent against any consideration of a mandatory federal real time price generation rate for federal agencies and facilities. Singling out the federal agencies for a mandatory pilot program on market rates is both discriminatory and punitive. It is regulatory blackmail. And, it could cost California our 55 megawatt contract with Bonneville Power and result in military base closures. First, such a rate pilot does not pass Constitutional muster. Second, it does not comport with our own statutes. Public Utilities Code section 453(a) states that utilities cannot, as to rates, subject any corporation or person to any prejudice or disadvantage. Section 453(c) declares that no utility shall establish or maintain any unreasonable difference as to rates, as between localities or classes of service. A mandatory program is a violation of these provisions. Additionally, section 451 states that any unjust and unreasonable charge demanded or received by a utility is unlawful. FERC has ruled that wholesale generation prices are unjust and unreasonable. This Commission has argued that it is not required to pass on such costs and refused to declare the rate freeze over. Therefore how can we pass on these unjust and unreasonable rates to one subset of customers while exempting the rest? There is no excuse except partisan mudslinging. Finally, section 454(a) states that a utility cannot change any rate except upon a Commission finding that the new rate is justified. I do not see how we can justify such a mandatory, discriminatory pilot program. We should not even consider it. I also disassociate myself from the inflammatory comments made in the decision regarding the FERC. Regulatory brawls only descend statesmanship into the gutter.
I am in favor of the decision's conclusion that we tie receipt of CEC interval meters to mandatory time of use pricing, rather than market rates. We should do nothing to discourage customers from getting these meters. By buffering the rate shock of moving directly to market rates, I hope we have accomplished this goal. I applaud the pilot program to have real time pricing tariffs which will be voluntary. We have heard from consumers that believe real time pricing should be used. However, let's have a pilot program to allow anyone to sign on, including the federal authorities. If the federal authorities do not, I agree they are hoist by their own market philosophy petard. I urge this Commission to adopt tariffs based on real market rates. I regret that the Commission has waited so long to recognize the value of real time meters. Dr. Borenstein and others at my 1999 demand responsiveness roundtable advocated interval meters as the solution to wholesale market imbalances. I am convinced we would not have today's dysfunctional market had interval meters been implemented sooner.
I also must object to the special caps and lower bill limiter for agriculture customers. Unlike the dollar caps for industrial customers, these 15 and 20 percent caps make a substantial difference in bills. We should be giving preferential treatment to no one. In this same proceeding others such as hospitals, essential local government services, and water districts made pleas for special treatment based on public health and safety. They were not given special treatment. There is no justifiable reason to single out agriculture and industrial for caps, especially when other businesses such as retail stores, groceries and restaurants contend they too must operate during the peak. All of California is in this together. We must all shoulder the burden.
While I disagree with the concept of bill limiters, absent a better rate allocation than is before us today, one bill limiter for all is the only fair way to treat everyone equally, not rate or percentage caps. My fear about bill limiters is that they are counterintuitive to our goal of incenting conservation. Hardship situations should be assessed on a case by case basis by some sort of review procedure tied to remedial measures rather than by setting blanket bill limiters. Payment plans can be worked out and remedial energy efficiency corrective actions taken. If the situation causing the bill limiter to be triggered is not mitigated, the limiter should no longer apply. Also, I think customers are going to find bill limiters very confusing since they are based on class average rates. I agree with Mr. Adams who has been urging us to make it simple for the customers to understand their bills and conserve. Bill limiters do not meet this test. By setting unlimited blanket bill limiters we are setting the system up for gaming. It seems to me electric restructuring was set up to allow gaming which is what got us into this mess today.
Today's decision is momentous for California and Californians. The public participation hearings have made it clear that the concept of baseline in dealing with the crisis is woefully inadequate. The AB 1X legislation, which exempted up to 130% of baseline, has grossly unfair and disproportionate impacts on our coastal versus inland residents. This exemption also prevents us from properly incenting conservation in the residential class, which has the highest demand elasticity by exempting over 60 percent of residential sales from increases. It creates a subsidy that the Commission's decision unfairly spreads among all customer classes, contrary to what I believe was the Legislature's intent. It is, in essence, a hidden tax on all non-residential users. Residential tiers 3, 4 and 5 are not high enough to produce the level of conservation the State needs to get through this summer. Consumer advocates and economists agree on this point. Indeed, Dr. Bornstein has stated that residential rate increases of 75% are the required level in order to obtain necessary conservation. Today's decision to spare residential ratepayers at the expense of business will simply make a bad situation worse. It is a rush to poor judgment.
The State's coffers are rapidly being emptied. The DWR bond measure is now up to $13.4 billion dollars, an historic figure. The bonds have been delayed from a May issuance to an August issuance, a traditionally bad time to float a bond issue. Long term DWR negotiated power contracts may be vitiated by failure to issue the bonds by July 1. DWR and ISO power costs will keep rising. Absent drastic conservation efforts, more rate hikes are on the horizon. State budget deficits have been forecasted into the 2002 fiscal year. And today we drive business, industry and military bases and their much needed tax dollars from the State. What we have here is an economic recipe for disaster. I respectfully dissent.
/s/ RICHARD A. BILAS
RICHARD A. BILAS
Commissioner
San Francisco, California
May 15, 2001
