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 the tariff schedules to which they currently subscribe to time-of-use meters. This change to 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 to both help avoid blackouts and 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 existing law provides that customers should have available to them the rate schedules available on June 10, 1996 during the rate freeze period, 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. We will move forward within the next six weeks to monitor the status of the CEC's metering efforts and to refine further the metering concepts discussed in briefs and at hearings into concrete implementation proposals.

We do find that customers who take advantage of the metering program offered by the 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 Energy Commission's plan for its time-of-use meter installation program and will work with the Energy Commission to assure that their programs and utility rate schedules are complementary.

B. Definitions for Agricultural Tariffs

Several parties, including the California League of Food Processors, the Farm Bureau, and the Wine Institute, urge us to adopt the recommendation of § 740.11 (added by SB 5X on April 11, 2001), and to change 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. Charging these tariffs deserves further immediate exploration. Making such a change would require that we craft a new definition of "agricultural commodity food processors." While the parties presented some suggestions on how to accomplish definitional changes, we do not have before us a record that analyzes the ramifications of each alternative.

Moreover, we decline to rework these definitions in this order because those changes may require other customers to assume a revenue shortfall, that is, it may permit "cost shifting" in violation of Section 740.11.

Moreover, PG&E and Edison maintain that it is not feasible to adopt the proposed customer migration before summer's end. Customers who qualify for the rate migration need to be identified and the difference in usage from other industrial customers understood. On an immediate basis over the next six weeks, we will hold workshops and obtain evidence to analyze this proposal further, explicitly specify the type of customer eligible to migrate, and examine the impact of cost shifting upon other customer groups.

C. Bill Limiters and Special Schedules

Some parties propose "bill limiters" to protect 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. Some parties have suggested special schedules to protect their constituents. In the short term, we prefer bill limiters to address the concerns of a particular group while the effects of migration are considered. Customers who currently take service from industrial rate schedules should be protected by bill limiters, which can help limit the hardship created by equal cents per kWh surcharge. SCE 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, 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 bill limiters may have some troubling conservation impacts, at some point price signals are unbearable for customers. Bill limiters will protect customers from unanticipated extraordinary bill impacts.

We acknowledge that implementing bill limiters customers may result in a revenue shortfall. We expect this shortfall to be small as bill limiters affect bills of only those few customers with extremely high usage-the outlier customer. PG&E and SCE should allocate shortfalls from bill limiters consistent with the allocation adopted for CARE and baseline shortfalls. 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

With these parameters we adopt tiered rates for residential customers because of their conservation effects and because AB1X1 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 captures usage up to the baseline amount.

· Tier 2 represents usage from 100 per cent 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.

· Tier 5 captures usage in excess of 300 percent of baseline.

Tiers 1 and 2 rates will not increase. The increase between Tier 3 and Tier 4 is double the increase from Tier 2 to Tier 3. The Tier 5 rate is sufficient to allow recovery 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 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 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 to encourage conservation through higher rates above threshold usage.

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. For that reason, we would eliminate residential Schedule E-8 at this time except that, as we discussed above, AB 1890 may operate to require that customers be offered the same services that were in effect on June 10, 1996 through the rate freeze period. In addition, we expect some conservation by customers on E-8 rates because so few consumers use less than 130% of baseline quantities. Therefore, these customers will realize substantial rate increases if they do not reduce energy consumption. We will revisit this issue during our mid-course correction proceedings in light of the conservation and equity effects of Schedule E-8.