VIII. Nonresidential Rate Design

A. Tiering

Parties generally agreed that nonresidential use should not be tiered. Nonresidential classes, both commercial and industrial, capture a diverse body of energy users. We agree that tiering classes heterogeneous in size is inequitable and does not send the appropriate conservation signal.

Parties who proposed tiered nonresidential rates, such as TURN and the Farm Bureau did so to conform to the specifications of the March 26 ACR. TURN proposes an extremely low first tier, where the majority of usage would be captured in the second tier. It is essential that all nonresidential consumers, without regard of size conserve, since all usage contributes to the amount procured by the CDWR.

The record provides us with no basis to assume that customers who use more energy are necessarily inefficient. Tiering would punish larger consumers to the benefit of smaller consumers within that class, without regard to their efficiency. As Mr. Sterzinger noted, tiering is not required to provide conservation incentives. We stress that a conservation signal must be sent to encourage all customers, regardless of size, to conserve during this summer's supply shortage. At this point, we determine that a rate increase of 3 cents provides the appropriate conservation incentive and discourages biases based upon the size of a business.

One alternative to tiering discussed in the hearing is special rates by SIC classification. Identification by SIC classifications do not solve the problems associated with tiering because they predict neither energy efficiency nor usage. Tiering based on SIC classification data available is not likely to be equitable, nor would it provide a meaningful conservation signal. There is neither appropriate time nor sufficient information to create specialized rates during this proceeding. Further, neither utility has the SIC classifications of their consumers and would require significant billing system changes before implementation. We reject tiering on the basis of industry codes at this time.

We intend to further investigate the idea of industry-specific rates. We are open to further investigate whether more specialized SIC classifications could help us develop a more equitable rate structure. We direct the utilities to 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.

Another tiering alternative discussed for nonresidential consumers is creating tiers based upon the customer's historic usage. This approach seeks to remove some of the unfairness in nonresidential tiering, but this indexing ultimately may present several problems. Possible problems arising from tiering by usage history include potential gaming of meters, punishment for seasonal variation, and the tiering would be difficult to implement for new or expanding businesses. In essence, selecting a baseline based upon prior year consumption punishes companies for expansion, regardless of their level of efficiency. We do not seek to penalize efficient business growth. The record does not support tiering by usage history, therefore, we reject it.

A tiering based upon baseline rates also would reward inefficient users compared to efficient users. Those most able to conserve are those customers who have not invested in energy efficient equipment. Those who remain efficient would see little benefit.

We reject tiering for TOU customers for the same reasons that we reject tiering for nonresidential, non-time of use customers. Time-of-use signals are more precise and encourage conservation at the appropriate times relative to the signals sent by tiering. Additionally, neither Edison nor PG&E can implement tiering for TOU customers on their billing systems by June 1.

B. Non-TOU Schedules

As discussed above, tiering for non-TOU schedules is rejected. Smaller amounts of usage are not necessarily more efficient. We agree with parties such as TURN and PG&E that conservation signals need to be sent to all customers, not just those customers who would fall into the second tier. We adopt the methodology proposed by ORA for nonresidential, non-TOU design. For small and large commercial customers with seasonal designation, 70% of revenue requirement is allocated to the summer period and 30% to the winter period. This approach is reasonable and consistent with our goals because it balances the year-round need for conservation, with a stronger conservation signal during the peak summer months.

This methodology reconciles differing proposals. Parties such as Kinder Morgan suggest spreading the rate increase to summer consumption only. We reject this proposition because of the need to encourage conservation at all hours, not just during the summer. As established this past winter, rolling blackouts can occur in any season, at any hour of the day. We encourage conservation at all times, and without adequate data from CDWR, we cannot advocate limiting price signals to one period only.

There will be no rate caps allotted to this customer class, however, the we will adopt bill limiters of 300% of class usage, as discussed above. These bill limiters protect customers who may be disproportionately impacted by the rate increase.

For larger customers with declining block schedules, such as GS-2 and PA-2 for Edison, the existing declining block structure shall be corrected to be an increasing block structure. Eliminating the declining block rate structure improves conservation incentives to this group of customers and adheres to our goal to discourage and reward customers for lower amounts of usage.

We also agree with ORA that large customers should be shifted to TOU schedules in order to send improved price signals and spur additional conservation. Pursuant to ABIX 29, RTP metering systems will be installed for all customers over 200 kW. These meters will enable customers to participate in RTP pricing programs. If these customers do not chose to use their RTP metering systems in this manner, the meters can also be used to track usage by TOU period. Therefore, as customers on non-TOU schedules receive these meters, they should be immediately switched to the appropriate TOU schedule.

C. Time of Use

Parties proposed three primary proposals for time-of-use rate design. The first, promoted by Edison, ORA and the Street Light Association, proposes an all hour increase. The second, proposed by EPUC and CIPA, places the bulk of the increase on summer on peak hours. The third, supported by TURN and CLECA, spreads the rate increase over all hours, with the largest increase during summer on-peak hours.

A simple all-hour rate increase does meet some of our rate design goals, yet we find that it does not sufficiently promote conservation during the hours of peak demand when the electric system is most stressed.

We reject the proposals that put the vast majority of the revenue requirement burden on summer on-peak consumption. Existing TOU rates are already heavily weighted to the summer on-peak period. We agree with TURN that peak conservation is of key importance, but extremely high peak period prices could be counterproductive. There is a significant risk of endangering revenue recovery by too much shifting off peak, because many customers will shift their load to avoid paying the highest rates.

We adopt the approach proposed by TURN and CLECA. This approach combines spreads the rate increases over all hours, yet the more of the increase falls upon summer on-peak usage. The differential between on- and off-peak usage is increased, but customers within this class will not be exposed to excessive on-peak prices. In addition, rate limiters shall be in effect to ensure that that customers shall not suffer undue price shocks.

D. "Super Peak" Rate

The California League of Food Processors proposes a three-hour super on-peak period for the food processing industry. The on-peak price proposed would be twice as high as the on-peak price for other members of their class during the traditional six-hour peak. The proposal offers off-peak rates during the remainder of the peak period.

We reject this proposal. This structure is designed to allow food processors to avoid the higher rates. The proposal would not be revenue neutral, as food processors would simply avoid the super-on-peak prices.²⁶ One of the main goals of this rate design proceeding is to collect the revenue requirement and we are not willing to adopt proposals that would jeopardize this objective.

E. County of Los Angeles' Proposal to Cap Rates for Essential Customers

We reject the County of Los Angeles' proposal to mitigate the impact the rate of increase on essential government facilities. The cap proposed would apply to facilities that have a limited ability to reduce consumption.

The impact of a rate increase is a concern shared by every customer group in this proceeding. Other than statutory mandates, we oppose preferential treatment for any customer class and will not establish a methodology to discern which group should be awarded special treatment. In the interest of both conservation and equity, local government agencies will be exposed to the same price signals as other customer groups.

F. Agricultural

Agriculture depends heavily on summer on-peak usage and a limited ability to load shift. Despite the special needs of this group, every eligible customer group contributing to the net short must assist in the conservation efforts of the state. Agricultural customers will be sent appropriate conservation signals and receive a fair share of the burden of increased rates.

The Governor's rate increase proposal, advocated by the Farm Bureau, proposal limits agricultural increases to 5% for TOU rates and 15% for non-TOU rates. We agree with the direction provided by the Governor's proposal, but will take additional steps to protect this class. We are sensitive to the needs of this customer class, especially in a drought year. We will cap agricultural rate increases at 30% for both TOU and non-TOU customers. The shortfall from the 30% cap is to be spread over all eligible customer classes, including streetlights and residential consumers above 130% of baseline.

In order to send an improved price signal and promote conservation, all agricultural customers with demand over 200 kW that are not on a TOU schedule should be switched when they are provided an interval meter. This is consistent with our treatment of non-TOU commercial and industrial customers.

We provide additional protection to agriculture customers by adopting a bill limiter of 250% on energy charges. Both the cap and the bill limiters will protect agricultural customers who are disproportionately affected by the rate increases in this unique year. In taking these actions, we both address the acute energy problems faced by agriculture customers and their unique risk for economic hardships from the combination of rate increases and drought and balance this risk with equity and conservation considerations.

G. Master Meter Customers

Master meter customers are required to revise their billing systems to address the rate increase. While they are engaged in that process, these customers must also comply with AB1X1, which exempts customers using less than 130% of baseline from the surcharge, and Pub. Util. Code § 739.5, which requires master meter customers to charge their park residents approximately the same rate they would have been charged if they took service directly from the utility.

We reject WMA's proposals to exempt master meter customers from any surcharge in the near future and to phase in a surcharge over a year. All eligible customer classes must share the burden of a rate increase. If WMA receives an exemption or an extension, park owners who quickly fix their billing systems could receive a windfall, since they would be exempt from the surcharge but would be charging it to the customers. It is inequitable to allow the master metered customers to reap the financial benefits of the sub-metering transaction without bearing the responsibility that comes with that transaction, i.e., the payment of the CDWR procurement cost.

We order a surcharge to appear on the master meter customer's bill, effective June 1. This approach ensures these customers are not exempted from bearing some portion of the energy procurement costs covered by the three-cent surcharge. We also give the master meter customers a strong incentive to take immediate steps to implement the necessary billing system changes. Over the longer term, we will continue to encourage movement away from the master meter system.

H. Streetlight and Traffic Light Schedules

We allocate a rate increase to the streetlight and outdoor lighting schedules on equal cents per kilowatt-hour basis. TURN proposes an alternative rate tiering method for streetlights, based on the type of lamp rather than the size of lamp or size of customer. The goal of TURN's rate design is to encourage the replacement of the more inefficient lighting technologies. We encourage the replacement of inefficient lighting technologies; however, we believe the rate increase itself will prompt cities and counties who employ streetlights to invest in the more efficient bulbs, and any conservation-minded tariff rate schedules would be unnecessary.

We also adopt an equal cents per kilowatt-hour design for traffic signals. We find tiering for traffic signals, such as the proposal by TURN, adds more complexity, but little value. We agree that cities and counties using traffic signals should join the conservation effort and switch to more efficient technologies. However, the summer initiative energy efficiency program (adopted in D.00-07-017) already provides communities with significant funding for investment in Light Emitting Display (LED) technology. In addition, these technologies were cost-effective, even before any rate increase, and providing a price break through a tiered rate design to encourage their deployment should not be necessary.

I. CIPA's Credit for Interruptible Customers

The California Independent Petroleum Association (CIPA) proposes that interruptible customers be exempted from a substantial portion of any surcharge, "as an investment in helping customers reduce their on-peak electrical demand." Ex. 86, p. 7. We reject this proposal of a rate surcharge credit.

Interruptible customers receive lower rates for energy in return for curtailing (interrupting) usage when called upon to do so to provide grid relief. The presence of the three-cent system wide surcharge will not change their interruptible status, or their obligation to comply with the tariff.

Interruptible customers already receive a substantial pricing incentive that recognizes their interruptible status. According to § 743.1(b), "In no event shall the level of the pricing incentive for interruptible or curtailable service be altered from the levels in effect on June 10, 1996, until March 31, 2002." CIPA proposes altering the calculation of the credit for these customers. Such alterations are currently prohibited by statute. As the calculation of the credit remains unchanged, an additional rebate or "surcharge discount" will not be given to each interruptible customer. The same credits will apply: customers whose credits are calculated by a percentage method will increase by an absolute amount. Customers with dollar credits will not increase as the same calculations for credits will apply.