VII. Residential Rate Design

In the interest of promoting conservation, the March 26 ACR proposed a tiered rate structure. As we have discussed, our discretion in setting the tiers is framed by AB1X1, which requires that residential consumption up to 130% of baseline is not to see a rate increase.

We adopt a five-tier rate design with incremental block tiers. We use a methodology similar to the one proposed by Aglet. Tier 1 captures usage up to the baseline amount and Tier 2 represents usage from 100 percent of baseline to 130 percent of baseline. Tier 3 reflects usage from 130 percent of baseline to 200 percent, tier 4 captures usage from 200 percent of baseline to 300 percent, and tier 5 captures usage in excess of 300 percent of baseline. Tiers 1 and 2 shall not see a rate increase. The increase between tier 3 to tier 4 is set at a rate that is double the increase from tier 2 to tier 3. The Tier 5 rate is set to be sufficient to cover the residual revenue requirement for the class.

The components of the rate increase in the tiers 3 through 5 include the residential class allocation, and the residential class' share of the shortfalls due to CARE, medical baseline allowances, and the 130% exemption.

Increasing block tiers is most equitable from a revenue allocation standpoint. Prices for the residential customers who are the heaviest users will be higher than moderate users. This approach is more equitable than increasing rates for all levels of usage by the same amount. 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 to encourage conservation through higher rates above threshold usage.

CLECA/CMTA expressed concern that the exemption would dilute the conservation signal, because many customers would not see an increase on their bill. While we recognize this concern, the exemption AB1X1 is clear.

A. PG&E's E-8 Schedules

The E-8 seasonal schedule for residential consumers was implemented well before the rate freeze and was locked in when the freeze took effect. Schedule E-8 energy charges do not adequately represent the costs of serving schedule E-8 customers as compared to the costs of serving schedule E-1 customers; the rates in E-8 are too low. Because the residential core electric rates have not been adjusted since 1993, schedule E-1 customers pay higher rates to subsidize those customers on E-8. Schedule E-8 summer rates are 10 percent 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. This sends the wrong price signal to E-8 residential customers with heavy heating loads by encouraging them to increase their winter peak loads.

Schedule E-8 fails to meet the Commission's conservation objectives of equity and conservation. Conservation is essential during the upcoming months. Very few customers on E-8 schedules consume less than 130% of baseline during any month of the year. These large users must be given the appropriate incentive to conserve and must face the same rates as E-1 customers.

Therefore, we adopt TURN and PG&E's proposal to close schedule E-8 to new customers and adopt TURN's proposal for a two-tiered rate design for existing customers on schedule E-8.