VI. Applying the Rate Increase to Rate Design

SCWC states that it followed four general principles in applying the requested revenue requirement of $2.7 million to rate design. The four principles are:

1. Use the process described above to allocate the total revenue requirement to customer classes.

2. Mitigate the rate increase effects on low-income residential customers.

3. Design rates to encourage conservation.

4. Apply the rates in a straightforward fashion and simplify rates where possible.

SCWC explains that the first principle was the fundamental basis for determining the amount of revenue requirement borne by each customer class. In order to mitigate the rate increase on low-income customers, SCWC assigned a greater portion of the revenue requirement to the second and third residential rate tiers, and less to the first tier. Thus, low-income customers, who also tend to use less energy, will see less than the overall residential increase. Similarly, multi-family customers also benefit. SCWC also proposes placing the largest portion of the residential rate increase in the third tier, and thus encouraging conservation. Simplification of rate design was accomplished by not changing existing customer service charges, or demand charges, to interruptible customers, and maintaining the existing rate tier structure.

SCWC anticipated that the requested revenue requirement would be applied to 2005 kWh sales, and therefore, SCWC developed different models for each customer class other than street lighting.¹¹ The modeling procedures included normalizing sales for weather adjustments, and applying these calculations on a tier-by-tier basis to each customer class. An adjustment was made to residential sales to include the effects of residential customers qualifying for the California Alternative Rates for Energy program. SCWC explains that it increased second tier rates for permanent residential customers at the same percentage increase as the overall increase for this customer class. The remaining revenue requirement allocated to this class was included in the third tier, and the third tier rate also maintained parity with the energy rate for part-time or seasonal customers. Under SCWC's rate design proposal, part-time or seasonal customers will see an increase in their minimum bills from $23 (current) to $26 per month. This increase reflects slightly less than the overall 17% increase to this class, and minimizes the amount of increase allocated to the energy charge. Commercial and street lighting customers' rates were increased by an equal-cents-per kWh for all usage, while Large Power customers rates were also increased by an equal-cents-per-kWh for all usage including off-peak, mid-peak and on-peak. The effects of SCWC's proposed rate design on existing and proposed rates are shown below:

Monthly Bill Impact by Tariff (Source: Exhibit 1, pp 47-48)
Customer Class/Tariff	Typical Use (Kwh)	Present	Proposed	$ Increase	% Increase
Residential Customers
D	449	$ 62.31	$ 67.98	$ 5.67	9.10%
D-LI	343	$ 33.50	$ 34.84	$ 1.34	4.00%
DM	1,099	$ 108.71	$ 119.69	$ 10.98	10.10%
DMS	9,261	$ 945.74	$ 996.81	$ 51.07	5.40%
DO	148	$ 35.00	$ 40.88	$ 5.88	16.80%
Commercial Customers
A-1	909	$ 173.28	$ 183.33	$ 10.05	5.80%
A-2	6,805	$ 1,293.13	$ 1,368.39	$ 75.26	5.82%
A-3	42,961	$ 9,522.04	$ 9,997.19	$ 475.15	4.99%
Average Large Power/ Interruptible Customer	315,594	$ 39,254.00	$ 43,574.36	$ 4,320.47	11.00%

¹¹ SCWC notes that street lighting sales have remained relatively stable during the past years, and thus the forecast reflects 2003 actual sales.