California Public Utilities Commission Residential Rate Structure Rulemaking R Status Update Low Income Oversight Board Meeting Gabe Petlin Analyst, Retail Rate Design Section Demand-Side Analysis Branch, Energy Division August 21, 2013

2 Brief History of California Residential Rates AB 1890 (1996) – the electric restructuring bill – reduced rates by 10 percent for residential and small commercial customers. AB 1X (2001) imposed rate caps on tier 1 and 2 rates – freezing these rates 10 percent lower than levels through SB 695 (2009) was intended to allow the utilities to rebalance lower-tier, upper- tier and CARE rates, but numerous restrictions in the bill have impeded the law from achieving its purpose: Non-CARE tier 1 and 2 rates can increase by 3 to 5 percent per year, but tier 1 rates cannot be greater than 90 percent of system average rates (this provision has limited tier 1 increases for SCE). CARE tier 1 and 2 rates can increase by up to 3 percent per year, but have not increased to date because they are tied to increases in CalWORKS benefits, which have been frozen by statute. As a result, the effective CARE electric discount is 30-47%

3 Residential Rate Design, not Total Cost, is the Primary Driver Causing Upper Tier Rates to Increase More Dramatically We expect this trend to continue, on average, with a slight increase due to a variety of factors. Absent legislative change, the disparity between residential upper and lower tier rates will continue to grow. Total IOU electric rates have roughly tracked inflation since 2003.

Current and Historic PG&E Residential Electric Rates 4

5 IOU Tiered Rate Structure, CARE and Non-CARE

6 PG&E Tiered Rate Structure, CARE and Non-CARE T1 kWh per month

7 Current Residential Rate Structure Is a Complex and Blunt Policy Tool Residential rates include CARE and non-CARE rates, 3 to 5 tiers, and baseline quantities that are defined by climate region. Current rate design has led to some customers paying far below average rates and others paying far above average rates. Tiered rates are only mildly effective at helping the average low-income customer; they help some customers and harm some. Recent research indicates that tiered rates are not resulting in net conservation: Some upper-tier users appear to conserve However, these savings are off-set out by lower-tier users who consume more than they would if their bills reflected true costs. Tiered rate design and legislative restrictions complicate the transition to dynamic and time-variant pricing: < 1% of residential customers on dynamic and time-variant pricing

8 The CPUC Opened a Rulemaking to Examine the Optimal Residential Rate Design The proceeding will examine the current residential electric rate design and possible residential rate designs to be implemented if statutory restrictions are lifted including time-variant rates. The Commission intends to ensure that rates are both equitable and affordable for low-income households while meeting the Commission’s rate and policy objectives for the residential sector. The Commission will take a fresh look at advancing the transition to dynamic and time-variant pricing while encouraging conservation and peak load reduction.

9 Schedule for Residential Rate Rulemaking (R ) June 2012 – OIR opened quasi-legislative proceeding August 2012 – Workshop on scope of proceeding. December 2012 – Workshops on terms and definitions, and bill impact calculator. March 2013 – Ruling on terms and definitions, bill impact calculator, requesting rate design proposals from parties. May 2013 – Rate design proposals served. Summer 2013 – Comment and briefing cycles on rate design proposals. Possible Energy Division staff proposal late summer. The Commission could issue a decision in late 2013 with a model rate design. Legislation would need to be passed concurrently in 2013 or after a decision in 2014 to enable CPUC to adopt optimal rate design. Soonest rates could reflect optimal rate design is late 2014 – 2016 depending on GRC and RDW schedules of IOUs.

10 Principles of Optimal Rate Design in R )Low-income and medical baseline customers should have access to enough electricity to ensure basic needs (such as health and comfort) are met at an affordable cost; 2)Rates should be based on marginal cost; 3)Rates should be based on cost-causation principles; 4)Rates should encourage conservation and energy efficiency; 5)Rates should encourage reduction of both coincident and non-coincident peak demand; 6)Rates should be stable and understandable and provide customer choice; 7)Rates should generally avoid cross-subsidies, unless the cross-subsidies appropriately support explicit state policy goals; 8)Incentives should be explicit and transparent; 9)Rates should encourage economically efficient decision making; and 10)Transitions to new rate structures should emphasize customer education and outreach that enhances customer understanding and acceptance of new rates, and minimizes and appropriately considers the bill impacts associated with such transitions.

11 Overview of Rate Design Proposals Submitted 13 different proposals received from parties for the default end-state rate structure which fit into the following categories:  Time-of-Use (TOU) Un-Tiered Rates – Four rate proposals from SDG&E, EDF, CLECA, and CFC. All but 1 allow opt out to non-time variant rate.  Time-of-Use (TOU) Tiered Rates – Four rate proposals from DRA, NRDC, SEIA/Vote Solar, and Sierra Club. All allow opt out to non-time variant rate.  Tiered Flat Rates – Five rate proposals from PG&E, SCE, TURN, CfAT/Greenlining Institute, and SDCAN.  SCE & PG&E: 2 tier rate structure proposed  TURN: 3 tier rate structure proposed  CfAT/GI: 3 tier structure with surcharges > 400%, > 600% of baseline  SDCAN: Retain current 4 tier rate structure

12 Other Rate Design Proposal Elements Customer Charges: Most oppose the use of fixed and demand charges:  Fixed Customer Charges – IOUs & CLECA in favor, all others opposed. Most support minimum bill in lieu of customer charge.  Demand Charges– SDG&E only party in favor. Transition Plans: Educating customers and providing a gradual transition to facilitate customer understanding and minimize potential bill impacts is a priority for all.  Transition plan proposals range from 1 to 7 years.  Several parties gradually adjust the current tiered rate structure prior to default to reduce the inequities of the current tier structure while also ensuring bill changes are gradual.  Many parties believe the cost-effective deployment of in-home devices (IHDs) will enhance customers’ load response to time-variant pricing plans.  Several parties propose an optional non-tiered cost-based TOU rate to be offered throughout the transition period to allow customers to benefit immediately from the transition to cost-based rates.

13 Vulnerable Customer Protections and CARE Rates Vulnerable Customer Protections: Medical baseline and third party notification customers would be exempted from defaulting to TOU rates due to concerns with potential adverse consequences for this limited group of special needs customers. CARE Rates: Proposal range from: status quo, straight 20% discount, institutionalizing current effective discounts, income sensitive discounts, usage sensitive discount, and fixed line item credits.  Status Quo – EDF, CFC, Sierra Club, SDCAN, and NRDC: CARE unchanged.  PG&E – Return to 20% of non-CARE bill, decrease from effective discount of 47%  SCE - Return to 20% of non-CARE bill, decrease from effective discount of 31%  SDG&E – Provide line item credit based on need, not on usage.  DRA – CARE effective discount stay the same for SCE & SDG&E (30%); Reduce discount for PG&E to 35%.  CLECA – Fixed line item bill credit not tied to rate schedule. If tiered rates continue then support declining discount based on higher usage. Explore cap on CARE discount.  TURN – Declining CARE discount based on usage fixed at: 50% for Tier 1, 30% for Tier 2, and 10% for Tier 3.  CforAT/GI – CARE discount stay the same, but not be tied to specific rate structure. CPUC may consider income sensitive discount or declining discount based on higher usage.  Joint Solar Parties – Keep current effective discounts, but make more consistent for IOUs

Thank you 14 Gabe Petlin Retail Rate Design Section, CPUC (415)