3. The Lifeline Rate Proposals

SCWC and ORA both support establishment of a lifeline rate program for eligible customers in Region III. They also agree that SCWC should file an advice letter to extend the lifeline program we adopt to Region II. As we discuss below, their primary disagreements focus on rate design, certain balancing account issues, and whether the costs of the program should be allocated within each region or on a company-wide basis. The third party in this proceeding, Western Manufactured Housing Communities Association (WMA), intervened to advocate the application of any lifeline program to the submeter customers at MHPs. We address WMA's concerns in Section 5.

SCWC has modeled its proposal for a lifeline water rate program after the California Alternative Rates for Energy (CARE) program that the Commission has approved for energy utilities in accordance with Pub. Util. Code § 739.1. SCWC has experience with CARE because it administers the program through Bear Valley Electric Company, which it owns. SCWC calls its water program proposal California Alternative Rates for Water, or CARW.

Mirroring the CARE program then applicable in the service territories of small energy utilities like Bear Valley Electric Company, SCWC's prepared testimony proposes to set CARW eligibility guidelines at 150% of the federal poverty level. In its proposed testimony, ORA agrees with these guidelines, which use gross annual income and household size to determine customer eligibility. However, effective June 1, 2001, the eligibility guidelines for energy utilities were increased to 175% of the federal poverty level, in accordance with the procedure established in Commission Resolution E-3524, dated February 19, 1998. 4 In its initial brief, SCWC notes this increase, which became effective after the distribution of prepared testimony in this proceeding, and asks that any water lifeline program incorporate the updated figures. No reason has been argued or established in this proceeding to set different eligibility guidelines for low-income energy and low-income water customers. We will require that eligibility for any SCWC lifeline rate program be based at 175% of the federal poverty level.

Attached as Exhibit B to SCWC's amended application is its draft Form No. 20, the proposed notice and application form for the CARW program. SCWC proposes to mail Form No. 20 to all of its current and future customers. A customer placed on the CARW rate would be required to notify the utility if he or she became ineligible. SCWC's witness' testimony clarifies that all customers on the CARW rate would be required to confirm continuing eligibility at least every two years.

The CARE discount provides low-income customers in the service territories of small energy utilities with 15% rate reduction on each bill component and SCWC has structured the CARW to provide eligible customers with a 15% discount on every component of the water bill, including all surcharges.5 Attached as Exhibit A to SCWC's amended application is its draft CARW tariff.

ORA disagrees that the rate discount should apply to all bill components. ORA proposes, instead, a discount on the service charge only, calculated as the amount equivalent to 100% of the current service charge for a 5/8 x ¾ inch meter in each of the eight districts within Region III. Regional rates are being phased-in over three years, so the service charges in these districts still differ at the present time. Because the typical residential meter is a 5/8 x ¾ inch meter, in most cases ORA's proposal would result in full waiver of the service charge. In Claremont, where the typical meter size is one inch, ORA's proposal would result in a discounted customer charge.

As their testimony makes clear, SCWC and ORA have approached calculation of a lifeline rate, or discount, from quite different perspectives. Their different approaches affect the magnitude of the rate reduction to each eligible customer and the resulting rate impact on other customers.

SCWC describes its proposal as a "customer assistance program intended to provide a measure of rate relief for its low-income customers." (Switzer prepared testimony, at 2.) This is what the Commission called for in D.00-06-075, SCWC points out, and the utility has responded to that charge by using the Commission-approved lifeline rate program for gas and electric customers as the basis for its CARW. As applied in each of the eight Region III districts, SCWC estimates that the CARW would yield savings to the average, eligible customer of $6 to $9 a month. SCWC estimates the cost to nonparticipating customers (residential and commercial) at $976,473 total (approximately $916,474 in discounts and $60,000 for administrative costs), or approximately $0.036 per ccf, resulting in an additional monthly charge to them of between 1.5% and 2.2%, depending upon the district. In Region II, the estimated benefit is approximately $8 per month for eligible customers, at a cost to other customers of $1,682,690 total (approximately $1,587,690 in discounts and $95,000 in administrative costs), or $0.069 ccf, resulting in a bill increase of approximately 3%.

SCWC cautions that actual program costs may differ from its estimates, depending upon the actual rate of participation by eligible customers and actual administrative costs, including those incurred for customer education. In formulating its estimates, SCWC has examined the participation rates and administrative costs for the CARE program offered by Southern California Edison Company (Edison) and Southern California Gas Company (SoCalGas), the energy utilities that serve subsets of SCWC's customer base. ORA accepts SCWC's cost estimating methodology.

ORA's alternative proposal, a discount equivalent to 100% of the service charge for a 5/8 x ¾ inch meter in each district, would provide eligible low-income customers in Region III with estimated monthly savings ranging from a low of $10.95 in Orange County to a high of $25.15 in Wrightwood. Described as a percentage of the average monthly bill, these discounts range from 17% in Claremont to 61% in Wrightwood. Though this approach would not grant every eligible customer a larger discount than the CARW, the total cost of the approach in each region is about $700,000 higher than the CARW, as ORA admits. ORA estimates the cost to nonparticipating customers at approximately $1,659,652 plus administrative costs, or $0.08 per ccf throughout Region III, resulting in an increase in the average monthly bill of 1.4% to 5%, depending upon the district.6 In Region II, ORA anticipates a cost of approximately $2,266,304 plus administrative costs, or $0.12 per ccf, resulting in a 5.2% increase in the average bill.

Of course, adjusting the eligibility guidelines from 150% to 175% of the federal poverty level will raise the income threshold for eligibility to participate in a lifeline rate program, regardless of the other components of its design. This likely will increase the total number of eligible customers and thus, increase the total cost of the subsidy somewhat.

ORA challenges the CARW on a number of grounds, including that it lacks a conservation incentive. SCWC counters that the CARW has been designed as a rate relief program, similar to CARE, and not as a conservation program. Nonetheless, ORA argues, its own service charge discount proposal will encourage conservation, and therefore is superior. While D.00-06-075 does not charge SCWC to develop a conservation program, established legislative policy underscores the importance of water conservation measures in this state.7 Though not fully developed on the record of this proceeding, ORA's criticism appears to suggest that basic differences between energy rate design and water rate design render CARE an inappropriate model for a lifeline program for water customers and one that violates § 701.10.

Water rate design typically includes a service charge structured to recover at least 50% of the utility's fixed costs and a quantity charge which applies to actual consumption on a volumetric basis. As a conservation incentive, a water utility's rate design may include more than one consumption block or tier, with higher consumption levels subject to higher rates. (See In re: California-American Water Company, Monterey Division, D.00-03-053,
mimeo at 22-25.)

Energy rate design, on the other hand, typically has a much smaller customer charge (the term service charge generally is not used) which is calculated on a per meter per day basis.8 Consumption is measured by volume, with the lowest rate applying to baseline quantities and higher rates applying to consumption levels (blocks or tiers) greater than baseline.

ORA's argument appears to rely on the perception that customer behavior will be different under the CARW than under the ORA proposal. While the CARW proposal to apply a 15% discount to every bill component, including the quantity charge, may not serve as a significant conservation incentive, the record does not establish that it will promote higher use. By the same token, neither does the record establish that by waiving or substantially discounting the service charge (and thereby leaving the customer to pay only for consumption), ORA's lifeline program proposal actually will promote conservation. Logically, if a customer's service charge has been waived, and if the customer then restricts water consumption, the resulting bill will be lower. Thus, as all parties admit, ORA's proposal provides a greater element of cost control to those low-income customers who are able or inclined to minimize consumption. However, for low-income customers with large households and larger water needs, the record is silent whether ORA's proposal provides any conservation incentive.

In California-American Water Company's Monterey district, a service territory plagued by critical supply shortage, the Commission has approved a lifeline rate program that waives the service charge and ORA cites it approvingly. (See 69 CPUC 2d 398, 404 (D.96-12-005), as further revised by D.00-03-053, mimeo.) However, that plan, known as the Program for Alternative Rates, or PAR, also includes a quantity charge tied to a carefully developed, inverted block rate structure which ties higher consumption levels to higher rates. All residential customers, not merely the low-income subset, pay higher rates for higher usage.

To date, the Commission has not directed SCWC to develop a conservation plan of this type and at least one customer service area in Region III, Calipatria-Niland, still offers residential service on a flat-rate basis, rather than metered. Under these circumstances, we are not convinced that the limited conservation incentive ORA's plan may offer to some low-income customers makes the plan preferable to the CARW. If ORA or any other party believes a comprehensive conservation plan should be implemented in Region III or any other part of SCWC's service territory, the issue may be raised in an appropriate general rate case proceeding.

ORA also criticizes the CARW for creating a "double subsidy," which ORA argues is discriminatory. As clarified by ORA's witness on cross-examination, in ORA's view the regional rate structure approved in D.00-06-075 creates the first subsidy, which flows from the lower-cost districts to the higher-cost districts within Region III. Imposition of a lifeline rate on top of this regional rate structure creates the second subsidy, which flows from the nonparticipating customers to those who receive the discount. We perceive several problems with this position. First, this proceeding is not the vehicle to revisit our policy to establish a region-wide tariff schedule in Region III. Second, as ORA's witness admitted, ORA's argument applies equally to its own proposal, which offers eligible customers in each customer service area a discount on the regional rate those customers would otherwise pay. Thus, for example, an eligible low-income customer in Wrightwood, a high-cost customer service area where rates have been reduced by the regional rate structure adopted in D.00-06-075, would pay still less if a lifeline rate becomes available there.

Finally, ORA argues that its service charge waiver proposal returns lifeline rate design to the cost of service principles which, it contends, the Region III regional rate decision has undermined. The record developed in this proceeding makes clear that ORA continues to disagree with D.00-06-075. For example, ORA's prepared testimony states:

Though not stated explicitly within the decision [D.00-06-075], ORA assumes that the purpose of the lifeline rate order was to provide relief to low-income ratepayers in every district of Region III and to restore the cost of service concept, in the context of the regional rates. (ORA report at 5-6.)

To the extent this argument is advanced as a collateral attack on D.00-06-075, it is beyond the scope of this proceeding. But to the extent it forms part of a good faith effort to design a lifeline rate which might be implemented within the approved regional rate structure, it lacks evidentiary support. ORA has not introduced any evidence in this proceeding to substantiate the contention that its service charge waiver proposal pays greater allegiance to cost of service principles than the CARW does, considering the number of unmetered (flat rate) accounts. Moreover, the record contains some evidence that at least part of ORA's proposal is contrary to cost of service principles. In Calipatria-Niland, for example, where approximately 900 of 1,100 customers have flat rate service, ORA would give eligible low-income customers a discount equivalent to the service charge for metered service. But it would levy the cost of the discount, calculated on a cents per ccf basis, against the 200 metered customers only, since these customers pay a quantity charge and flat rate customers - who may use much more water -- do not.

In sum, on this record we conclude the proposed CARW offers reasonable and even-handed, low-income rate relief on the basis of a 15% reduction of each bill component. We also conclude that the proposed CARW allocates the costs of this discount fairly and equably among nonparticipating customers. We do not suggest that CARW, which is a CARE-based approach, necessarily provides a model for low-income rate relief in all Commission-regulated water utilities of any size. We are persuaded on this record that it is in the public interest to implement CARW in SCWC's Region III and to authorize SCWC to file an advice letter for authority to implement CARW in its Region II.

SCWC and ORA agree that a CARW balancing account should be established to record the actual costs of providing a rate discount to eligible customers in Region III (and subsequently, in Region II). Once SCWC has gained experience with the lifeline rate program, it will be able to build program costs, including administrative costs and the revenue shortfall attributable to the discounts, into base rates. Both parties agree that the January 2002 general rate case for Region III will come too soon to provide meaningful experience with the CARW program. They suggest that each balancing account can be eliminated in the first general rate case that occurs after the program has been in existence in a given region for 18 months. This approach appears balanced and the timeline, reasonable.

ORA argues that ultimately, however, the lifeline rate program should be administered, and its costs recovered, on a company-wide basis. We discuss this issue in Section 4, below, together with the related issue of whether SCWC should develop a lifeline rate in Region I.

Community response to the lifeline rate application has been limited. The Commission has received several dozen letters from members of the affected communities, some supporting and some opposing establishment of a lifeline rate program. The two public participation hearings, in Apple Valley and Los Angeles, experienced extremely sparse community attendance. At the Apple Valley hearing, a representative of the Barstow Resident Advisory Group, a non-profit, community based organization that works with low-income people, offered support for a lifeline water rate and urged public outreach regarding the new program. SCWC proposes to track public education and outreach as administrative costs in the CARW balancing account.

4 At 175% of the federal poverty level, the eligibility guidelines include the following criteria for household income and household size:

5 D.89-09-044 determined that "[a] 15% discount on the main residential rate is a reasonable benefit to low-income customers". (D.89-09-044, Conclusion of Law #3.) D.01-06-010 increases the CARE discount to 20% in the service territories of the four largest energy utilities. SCWC proposes to increase the CARW discount to 20% if the Commission increases the small energy utility CARE discount to that level. 6 Though ORA's testimony indicates that it relied on SCWC's participation rate estimates as well as SCWC's estimates of the number of nonparticipating customers to calculate costs of its lifeline rate proposal, during cross-examination ORA's witness responded that the costs of lifeline rate subsidy programs are borne solely by residential customers. This is not how CARE works, and it is not how SCWC proposes CARW should work. However, ORA's witness testimony raises the specter that the SCWC and ORA cost comparisons actually compare "apples to oranges." While no party has argued this point, if ORA in fact prepared its subsidy costing based on the mistaken assumption that only residential ratepayers pay for low-income rate relief subsidies, the costs of ORA's approach would not be as high as the costs estimated above.

7 Pub. Util. Code § 701.10, effective January 1, 1993 states:

8 For example, Ex. 101, Edison's current domestic service tariff, has a "basic charge" for a single-family residence of $0.03300 per meter per day, as well as an "energy charge" which increases in each of four usage tiers above baseline. The tariff also includes a "minimum charge" which applies in defined low-usage circumstances to ensure a degree of fixed-cost recovery. Ex. 102, SoCalGas's current residential service tariff, includes a "customer charge" for individually metered customers of 16.438¢ per meter per day (the "minimum charge" is the same) and a "commodity charge" comprised of procurement and transmission components at baseline and above-baseline rates.

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