VI. Non-Residential Rate Design

A. Tiering

Parties generally agreed that non-residential use should not be tiered at this time, given these expected evidentiary proceedings. TURN and the Farm Bureau proposed tiered commercial and industrial rates. TURN proposes an extremely low first tier, where the majority of usage would be captured in the second tier. We decline to adopt tiered rates for commercial and industrial customers at this time. Designing new tiered commercial schedules would present implementation hurdles for the utilities in the short term. We are also concerned that tiering would punish larger consumers to the benefit of smaller consumers within that class, without regard to their efficiency. Moreover, the utilities cannot provide adequate information to commercial customers by Summer 2001 regarding the potentially complex impacts of tiered rate design changes. For now, we believe a rate increase of 3 cents provides the appropriate conservation incentive for commercial and industrial customers. These price signals will combine with the myriad conservation and incentives program offered through legislation, and Commission order promote enhanced enervation measures for commercial and industrial customers.

One alternative to tiering discussed in our hearings involves specifying rates by SIC classification. While this proposal deserves further analysis and examination of implementation possibilities, at this stage we have neither sufficient time nor sufficient information to create specialized rates. Further, neither utility has all the SIC classifications of their consumers and both would require significant billing system changes before implementation. For these reasons, we cannot adopt 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 classifications could help us develop a more equitable rate structure. We direct the utilities to collect data from their customers necessary to analyze the feasibility of rate design by SIC classification.

We reject tiering for TOU customers for the same reasons that we reject tiering for non-residential, non-time of use customers. Time-of-use signals are more precise and encourage conservation at peak use and price periods. Moreover, we reject tiering for TOU customers due to practical implementation obstacles. Neither SCE nor PG&E can implement tiering for TOU customers on their billing systems by June 1.

B. Non-TOU Schedules

We adopt the rate design methodology proposed by ORA for commercial and industrial customers who do not use time-of-use schedules. For small and large commercial customers with seasonal designation, 70% of the 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.

We reject proposals for increases during summer months only because of the need for year-round conservation. Further, we are concerned about possible price spikes that could occur by limiting price increases to a single season . This methodology reconciles differing proposals.

For larger customers with declining block schedules, such as GS-2 and PA-2 for SCE, existing declining block rates shall be modified to become increasing block rates. 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.

C. Time of Use

Parties proposed three primary proposals to change rates for existing time-of-use schedules. The first, promoted by SCE, ORA and the Street Light Association, would increase rates in all hours. 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 rate increase spread over all hours has the virtue of simplicity but it does not sufficiently promote conservation during the hours of peak demand when the electric system is under the most strain.

We reject proposals that increase rates most during summer peak demand periods. Existing time of use rates are already heavily weighted to the summer on-peak period. Conservation during peak periods is essential but we balance this goal with that of avoiding extraordinarily high prices during any period. In doing so, we do not accept the methodology advanced in the rate design proposal published by the Assigned Commissioner Ruling on March 27, 2001.

We adopt the approach proposed by TURN and CLECA that spreads the rate increases over all hours, with a slight differential increase on summer on-peak usage. The differential between on- and off-peak usages 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 those customers do not suffer extraordinary price shocks.

D. "Super Peak" Rate

The California League of Food Processors proposes a 3-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.

At this time we reject this proposal. We are concerned that adopting the proposal would not be revenue neutral, as food processors would simply avoid the super-on-peak prices.¹⁶ Moreover, we believe that further facts are required as to specific customer load profiles to be able to implement these concepts. However, we recognize the creativity of this proposal and will continue this proceeding to obtain further evidence as to its operation and effects on certain industry segments and or overall revenue requirements.

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

The County of Los Angeles proposes a cap on rates applied 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. Local governments are not distinguished from any other customer. While we share the County's concern, we cannot justify providing it a special electricity rate. Thus we reject the County of Los Angeles' proposal to mitigate the impact the rate of increase on essential government facilities.

F. Federal Generation Based Tariffs

ORA proposed a rate for federal agencies that would reflect market prices for their electricity consumption. This proposal has considerable appeal because the federal government has publicly stated its support for customer rates to reflect the full market price of power. The Attachment presents FERC and federal, administration public statements supporting market rates. This record does not permit us to adopt any particular rate schedule at this time. We therefore order the utilities to create a new tariff that would apply to federal agencies and facilities taking electricity service from SCE or PG&E. The citizens of California should not have to subsidize the electrical consumption of federal agencies through CDWR's procurement of exceedingly expensive wholesale electricity.

However, this Commission possesses broad ratemaking authority to institute pilot programs. We believe testing the federal government's assumptions as to the benefits of passing through real time wholesale prices in retail rates deserves further consideration. We are unwilling to expose California businesses, farms or families to such price levels or price volatility. However, we recognize the federal government's stated preference for adoption of electric retail rates based on concurrent wholesale costs and we therefore propose to institute a pilot program to permit federal customers to implement the pricing theories that they espouse. We recognize that federal agencies take service under a variety of schedules. Setting rates that reflect market prices would be most meaningful if the facilities had real-time meters. We direct the utilities to propose ways to charge federal agencies so that: 1) federal facilities with real time meters will be charged real-time prices; 2) federal faculties with interval meters will be charged the average price over the interval; and 3) federal facilities without interval meters will be charged the monthly average wholesale rate for electricity usage.

G. Agricultural

Agriculture depends heavily on summer on-peak usage and some agricultural customers have a limited ability to shift demand to other periods. The Governor's proposal, advocated by the Farm Bureau, limits agricultural increases to 5% for time of use rates and 15% for non-TOU rates. We agree with the direction provided by the Governor's proposal because of the needs of this class of customers. We will also cap agricultural rate increases at 30% for both time-of-use and non-time-of-use 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.

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, which will present particular burdens because of this year's drought.

H. 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 could charge it to customers. 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.

I. 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, in combination with energy efficiency programs, will prompt cities and counties to invest in the more efficient street lighting. The summer initiative energy efficiency program 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. We therefore adopt an equal cents per kilowatt hour rate increase for streetlighting.

J. 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. Interruptible customers receive lower rates for energy in return for curtailing usage when called upon to do so to reduce the demands on the state's power grid. The three-cent surcharge will not change their interruptible status, or their obligation to comply with the tariff.

Interruptible customers already receive a substantial pricing incentive and we decline to provide any additional rate advantage.