Under existing law, the Public Utilities Commission has regulatory authority over public utilities, including electrical corporations and gas corporations, as defined, while local publicly owned electric and gas utilities, as defined, are under the direction of their governing boards. Existing law authorizes the Public Utilities Commission to fix the rates and charges for every public utility, and requires that those rates and charges be just and reasonable. Existing law requires public utilities to develop programs in cooperation with local school districts to reduce their electricity and gas bills through conservation and improvements in efficiency.

This bill would require the commission to direct all electrical and gas corporations to evaluate, and report findings to the commission on, the feasibility and economic impacts of establishing a public school electric and gas rate that would reflect a discount from the current rate structure. This bill would require the commission to compile these reports and submit this compilation to the Legislature, by January 1, 2020. Because a violation of the commissions directions would be a crime, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Under existing law, the Public Utilities Commission has regulatory authority over public utilities, including electrical corporations and gas corporations, as defined, while local publicly owned electric and gas utilities, as defined, are under the direction of their governing boards. Existing law authorizes the Public Utilities Commission to fix the rates and charges for every public utility, and requires that those rates and charges be just and reasonable. Existing law requires public utilities to develop programs in cooperation with local school districts to reduce their electricity and gas bills through conservation and improvements in efficiency.

This bill would require the commission to direct all electrical and gas corporations to evaluate, and report findings to the commission on, the feasibility and economic impacts of establishing a public school electric and gas rate that would reflect a discount from the current rate structure. This bill would require the commission to compile these reports and submit this compilation to the Legislature, by January 1, 2020. Because a violation of the commissions directions would be a crime, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Under existing law, the Public Utilities Commission has regulatory authority over public utilities, including gas corporations, as defined, while local publicly owned electric utilities, as defined, are under the direction of their governing boards. Existing law authorizes the Public Utilities Commission to fix the rates and charges for every public utility, and requires that those rates and charges be just and reasonable. Existing law requires public utilities to develop programs in cooperation with local school districts to reduce their electricity and gas bills through conservation and improvements in efficiency.

This bill would require the commission to coordinate with direct all electrical and gas corporations to evaluate evaluate, and report findings to the commission on, the feasibility and economic impacts of establishing a public school electric and gas rate that would reflect a discount of at least 15% from the current rate structure. This report shall be submitted This bill would require the commission to compile these reports and submit this compilation to the Legislature, by January 1, 2020, and includes specified requirements. 2020. Because a violation of the commissions directions would be a crime, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Under existing law, the Public Utilities Commission has regulatory authority over public utilities, including gas corporations, as defined, while local publicly owned electric utilities, as defined, are under the direction of their governing boards. Existing law authorizes the Public Utilities Commission to fix the rates and charges for every public utility, and requires that those rates and charges be just and reasonable. Existing law requires public utilities to develop programs in cooperation with local school districts to reduce their electricity and gas bills through conservation and improvements in efficiency.

Under existing law, the Public Utilities Commission has regulatory authority over public utilities, including gas corporations, as defined, while local publicly owned electric utilities, as defined, are under the direction of their governing boards. Existing law authorizes the Public Utilities Commission to fix the rates and charges for every public utility, and requires that those rates and charges be just and reasonable.

This bill would require the commission to require electrical corporations to develop a rate for certain public schools that provides a 35% discount from the rate of a similarly situated class of ratepayers.

This bill would require the governing board of a local publicly owned electric utility to develop a rate for certain public schools that provides a 35% discount from the rate of a similarly situated class of ratepayers.

By imposing additional duties on local agencies, this bill would impose a state-mandated local program.

This bill would require the governing board of a school district to expend any monetary savings resulting from a rate discounted pursuant to the bill for the public school that is subject to the discounted rate. Because the governing board of a school district would be required to determine the monetary savings, this bill would impose a state-mandated local program.

Under existing law, a violation of any order, decision, rule, direction, demand, or requirement of the commission is a crime. Because a violation of an order or decision of the commission implementing the requirements of the bill would be a crime, the bill would impose a state-mandated local program by creating a new crime.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that with regard to certain mandates no reimbursement is required by this act for specified reasons.

With regard to any other mandates, this bill would provide that, if the Commission on State Mandates determines that the bill contains costs so mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

 THIRD READING  

Bill No: AB 2068

Author:

:

Vote:

SENATE ENERGY, U. & C. COMMITTEE: 11-0, 6/19/18

AYES: Hueso, Morrell, Bradford, Cannella, Hertzberg, Hill, McGuire, Skinner, Stern, Vidak, Wiener

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

ASSEMBLY FLOOR: 73-0, 5/17/18 (Consent) - See last page for vote

SUBJECT:

SOURCE: Author

DIGEST:

This bill requires the California Public Utilities Commission (CPUC) to direct each of the state’s electrical and gas investor-owned utilities (IOUs) to evaluate and report to the CPUC the feasibility and economic impacts of establishing discounted utility rates applicable to customers who are public schools. This bill requires the CPUC to compile these reports and submit this compilation to the Legislature, by January 1, 2020.

ANALYSIS:

Existing law:

1. Authorizes the CPUC to fix rates, establish rules, examine records, issue subpoenas, administer oaths, take testimony, punish for contempt, and prescribe a uniform system of accounts for all public utilities, including electrical and gas corporations, subject to its jurisdiction. (Article 12 of the California Constitution)
2. Requires that all charges demanded or received by any public utility for any product, commodity or service be just and reasonable, and that every unjust or unreasonable charge is unlawful. (Public Utilities Code §451)
3. Requires public utilities to develop programs in cooperation with local school districts in reducing their electricity and gas bills through conservation and improvements in efficiency. (Public Utilities Code §749)
4. Implements the California Clean Energy Jobs Act (Proposition 39) to provide up to $550 million annually, over five years, to fund projects that create jobs improve energy efficiency and expand clean energy generation at schools and other public facilities. (Public Resources Code §26200 et seq.)

This bill requires the CPUC to direct each of the state’s electrical and gas IOUs to evaluate and report to the CPUC the feasibility and economic impacts of establishing discounted utility rates applicable to customers who are public schools. This bill requires the CPUC to compile these reports and submit this compilation to the Legislature, by January 1, 2020.

Background

CPUC General Rate Case (GRC). All utilities regulated by the CPUC are required to undergo a GRC whereby the utility requests funding for distribution, generation, operation costs associated with their service. The GRCs are major regulatory proceedings, performed about every three years for each utility and conducted over 18 months. The GRC provides the CPUC and other stakeholders the opportunity to conduct a broad and detailed review of a utility’s revenues, expenses, and investments to establish a revenue requirement. The revenue requirement, also considered the size of the pie, determines how much the utility can collect from its customers to cover anticipated reasonable costs and the opportunity to earn a reasonable profit, as a business might in a competitive environment, for the next three years.

Electric customers charged for service based on rate class, some established in statute. Once the revenue requirement is established, Phase II of the GRC slices the “pie” among the different customer classes and the rates are set for each. Statute requires that the rates set by the CPUC be just and reasonable. In fulfilling these responsibilities, the CPUC is guided by the cost-causation principle. In simple terms, this principle states that customers pay a fair rate that is based on the cost to serve them. IOUs divide their customers into several distinct rate classes. This division reflects the recognition that different general categories of customers place different costs upon the electrical system and, therefore, it is appropriate to charge them differently. Very broadly, the IOUs divide their customers, for rate purpose, into residential and nonresidential classes, which might include further divisions between commercial and industrial. In addition, pursuant to legislative requirements, the IOUs have established special rate classes, such as rate classes for agricultural customers and food banks.

Schools generally treated as commercial/non-residential class. Generally, the IOUs place public elementary and secondary school customers in one of the nonresidential or commercial class rates. However, public elementary and secondary schools have electricity use patterns that often differ from the use patterns of most of the other electricity users in their rate class. For example, schools typically experience a significant reduction in demand for electricity in the mid-afternoon that is sustained until early the next morning; many schools also dramatically reduce their electricity use during the summer months, when electricity use for other customers in their class may be high.

San Diego Gas & Electric (SDG&E) Rate Case (D.17-08-030). The question of electric rates and schools was reviewed and debated in the most recent rate case for SDG&E. For background, system average rates increased by 43 percent in SDG&E territory since 2013. Filings in that proceeding show that as of early 2017, SDG&E schools paid about 29 percent more than the SDG&E system average rate, and 41 percent more than SDG&E’s medium/large, commercial/industrial customer average rate. These high rates were primarily due to the effects of time-of-use (TOU) and non-coincident demand charges (also called “maximum” demand charges, because the latter apply to a customer’s maximum kilowatt demand during the month, whenever it occurs). In recognition that schools have a very different hourly usage profile than typical medium commercial customers, and that schools are therefore disadvantaged by being lumped in with commercial customers (which may use significant amounts of energy during late afternoon and evening peak hours), the SDG&E rate design decision requires the utility to present a separate rate class for schools in its next rate proceeding. Additionally, the CPUC adopted a new 4 pm – 9 pm peak period for TOU rates, replacing the previous 11 am to 6 pm peak period. This change is expected to shift TOU from a cost to a benefit for schools because they use the bulk of their energy before 4 pm, thereby resulting in school paying mostly non-peak rates.

Bill requires evaluation and report to Legislature. A change in rates may affect each public school differently based on the school’s usage, whether they use solar, and other considerations. As such, this bill appropriately requires IOUs and CPUC to evaluate the effect of a specific rate for public schools (kindergarten through 12^th grade) rather than requiring a specific rate. Additionally, this bill requires this information to be reported to the Legislature which can inform future policy efforts to require specific school rates.

Related/Prior Legislation

SB 1434 (Leyva, 2018) requires the CPUC to direct electrical corporations with more than 100,000 service connections in California to file rate design applications specific to transit agencies as commercial customers that support and accelerate the deployment of zero-emission transit buses. The bill is pending consideration in the Assembly Committee on Appropriations.

AB 2431 (Weber, 2018) defines, for the purposes of establishing eligibility for the intervenor compensation program, a customer to include a public school district, county office of education, or community college district, or an authorized representative of one of those entities. The bill was held in the Assembly Committee on Appropriations.

SB 1041 (Hueso, 2016) would have required the CPUC to consider the effects of establishing a rate for electric service specific to public elementary and secondary schools. The bill was held in the Assembly Committee on Appropriations.

AB 2218 (Bradford, Chapter 581, Statutes of 2014) required electrical and gas IOUs to develop and implement a program of rate assistance to eligible food banks, subject to discretion and supervision by the CPUC, and encourages the publicly owned utilities to do the same.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 8/6/18)

Association of California School Administrators

California Association of School Business Officials

California Coalition for Adequate School Housing

California Federation of Teachers

California School Boards Association

School Energy Coalition

Sierra Club California

OPPOSITION: (Verified 8/6/18)

None received

ARGUMENTS IN SUPPORT: According to the author, “California schools are currently being charged the same utility rates as for-profit commercial entities -- spending a big portion of their general fund to keep their doors open, roughly $700 million per year. This amount equals to what schools dedicate to books and supplies for students. According to EdWeek, California ranked 46th out of 50 states in spending per student. The national average is $12,156 and California’s is $8,694 -- $3,462 less. Reducing burdens on school districts’ budgets would improve per pupil spending statewide. Therefore, California should consider a schools-only discounted utility rate to direct more funding to services for students.”

ASSEMBLY FLOOR: 73-0, 5/17/18

AYES: Acosta, Aguiar-Curry, Travis Allen, Arambula, Baker, Berman, Bigelow, Bloom, Bonta, Brough, Burke, Caballero, Calderon, Carrillo, Cervantes, Chau, Chávez, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Eggman, Flora, Fong, Frazier, Friedman, Gallagher, Eduardo Garcia, Gipson, Gloria, Gonzalez Fletcher, Gray, Grayson, Harper, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Mullin, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Rodriguez, Rubio, Salas, Mark Stone, Thurmond, Ting, Voepel, Waldron, Weber, Wood, Rendon

NO VOTE RECORDED: Cristina Garcia, Melendez, Muratsuchi, Santiago, Steinorth

Prepared by:

8/8/18 13:01:52

**** END ****

SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS

Senator Ben Hueso, Chair

2017 - 2018 Regular

Bill No: AB 2068 Hearing Date: 6/19/2018

SUBJECT: Electricity: rates: public schools

DIGEST: This bill would require the California Public Utilities Commission (CPUC) to direct each of the state’s electrical and gas investor-owned utilities (IOUs) to evaluate and report to the CPUC the feasibility and economic impacts of establishing discounted utility rates applicable to customers who are public schools. This bill would require the CPUC to compile these reports and submit this compilation to the Legislature, by January 1, 2020.

ANALYSIS:

Existing law:

1. Authorizes the CPUC to fix rates, establish rules, examine records, issue subpoenas, administer oaths, take testimony, punish for contempt, and prescribe a uniform system of accounts for all public utilities, including electrical and gas corporations, subject to its jurisdiction. (Article 12 of the California Constitution)
2. Requires that all charges demanded or received by any public utility for any product, commodity or service be just and reasonable, and that every unjust or unreasonable charge is unlawful. (Public Utilities Code §451)
3. Requires public utilities to develop programs in cooperation with local school districts in reducing their electricity and gas bills through conservation and improvements in efficiency. (Public Utilities Code §749)
4. Implements the California Clean Energy Jobs Act (Proposition 39) to provide up to $550 million annually, over five years, to fund projects that create jobs improve energy efficiency and expand clean energy generation at schools and other public facilities. (Public Resources Code §26200 et seq.)

This bill would require the CPUC to direct each of the state’s electrical and gas IOUs to evaluate and report to the CPUC the feasibility and economic impacts of establishing discounted utility rates applicable to customers who are public schools. This bill would require the CPUC to compile these reports and submit this compilation to the Legislature, by January 1, 2020.

Background

CPUC General Rate Case (GRC). All utilities regulated by the CPUC are required to undergo a GRC whereby the utility requests funding for distribution, generation, operation costs associated with their service. The GRCs are major regulatory proceedings, performed about every three years for each utility and conducted over 18 months. The GRC provides the CPUC and other stakeholders the opportunity to conduct a broad and detailed review of a utility’s revenues, expenses, and investments to establish a revenue requirement. The revenue requirement, also considered the size of the pie, determines how much the utility can collect from its customers to cover anticipated reasonable costs and the opportunity to earn a reasonable profit, as a business might in a competitive environment, for the next three years.

Electric customers charged for service based on rate class, some established in statute. Once the revenue requirement is established, Phase II of the GRC slices the “pie” among the different customer classes and the rates are set for each. Statute requires that the rates set by the CPUC be just and reasonable. In fulfilling these responsibilities, the CPUC is guided by the cost-causation principle. In simple terms, this principle states that customers pay a fair rate that is based on the cost to serve them. IOUs divide their customers into several distinct rate classes. This division reflects the recognition that different general categories of customers place different costs upon the electrical system and, therefore, it is appropriate to charge them differently. Very broadly, the IOUs divide their customers, for rate purpose, into residential and nonresidential classes, which might include further divisions between commercial and industrial. In addition, pursuant to legislative requirements, the IOUs have established special rate classes, such as rate classes for agricultural customers and food banks.

Schools generally treated as commercial/non-residential class. Generally, the IOUs place public elementary and secondary school customers in one of the nonresidential or commercial class rates. However, public elementary and secondary schools have electricity use patterns that often differ from the use patterns of most of the other electricity users in their rate class. For example, schools typically experience a significant reduction in demand for electricity in the mid-afternoon that is sustained until early the next morning; many schools also dramatically reduce their electricity use during the summer months, when electricity use for other customers in their class may be high.

San Diego Gas & Electric (SDG&E) Rate Case (D.17-08-030). The question of electric rates and schools was reviewed and debated in the most recent rate case for SDG&E. For background, system average rates increased by 43 percent in SDG&E territory since 2013. Filings in that proceeding show that as of early 2017, SDG&E schools paid about 29 percent more than the SDG&E system average rate, and 41 percent more than SDG&E’s medium/large, commercial/industrial customer average rate. These high rates were primarily due to the effects of time-of-use (TOU) and non-coincident demand charges (also called “maximum” demand charges, because the latter apply to a customer’s maximum kilowatt demand during the month, whenever it occurs). In recognition that schools have a very different hourly usage profile than typical medium commercial customers, and that schools are therefore disadvantaged by being lumped in with commercial customers (which may use significant amounts of energy during late afternoon and evening peak hours), the SDG&E rate design decision requires the utility to present a separate rate class for schools in its next rate proceeding. Additionally, the CPUC adopted a new 4 pm – 9 pm peak period for TOU rates, replacing the previous 11 am to 6 pm peak period. This change is expected to shift TOU from a cost to a benefit for schools because they use the bulk of their energy before 4 pm, thereby resulting in school paying mostly non-peak rates.

Bill requires evaluation and report to Legislature. A change in rates may affect each public school differently based on the school’s usage, whether they use solar, and other considerations. As such, this bill appropriately requires IOUs and CPUC to evaluate the effect of a specific rate for public schools (kindergarten through 12^th grade) rather than requiring a specific rate. Additionally, this bill requires this information to be reported to the Legislature which can inform future policy efforts to require specific school rates.

Prior/Related Legislation

SB 1434 (Leyva, 2018) would require the CPUC to direct electrical corporations with more than 100,000 service connections in California to file rate design applications specific to transit agencies as commercial customers that support and accelerate the deployment of zero-emission transit buses. The bill is scheduled to be heard in Assembly Committee on Utilities and Energy.

AB 2431 (Weber, 2018) defines, for the purposes of establishing eligibility for the intervenor compensation program, a customer to include a public school district, county office of education, or community college district, or an authorized representative of one of those entities. The bill was held in Assembly Committee on Appropriations.

SB 1041 (Hueso, 2016) would have required the CPUC to consider the effects of establishing a rate for electric service specific to public elementary and secondary schools. The bill was held in Assembly Committee on Appropriations.

AB 2218 (Bradford, Chapter 581, Statutes of 2014) required electrical and gas IOUs to develop and implement a program of rate assistance to eligible food banks, subject to discretion and supervision by the CPUC, and encourages the POUs to do the same.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

SUPPORT:

Association of California School Administrators

California Association of School Business Officials

California Coalition for Adequate School Housing

California Federation of Teachers

California School Boards Association

School Energy Coalition

Sierra Club California

OPPOSITION:

None received

ARGUMENTS IN SUPPORT: According to the author:

“California schools are currently being charged the same utility rates as for-profit commercial entities -- spending a big portion of their general fund to keep their doors open, roughly $700 million per year. This amount equals to what schools dedicate to books and supplies for students. According to EdWeek, California ranked 46th out of 50 states in spending per student. The national average is $12,156 and California’s is $8,694 -- $3,462 less. Reducing burdens on school districts’ budgets would improve per pupil spending statewide. Therefore, California should consider a schools-only discounted utility rate to direct more funding to services for students.”

-- END --

Date of Hearing: May 9, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 2068

Author:(Chu) – As Amended Ver:April 25, 2018

Urgency: No State Mandated Local Program: Yes Reimbursable: No.

SUMMARY:

This bill requires the California Public Utilities Commission (CPUC) to direct each of the state’s electrical and gas investor-owned utilities (IOUs) to evaluate and report to the CPUC the feasibility and economic effect of establishing discounted utility rates applicable to public school customers. The bill makes the IOU report due to the CPUC by January 1, 2020.

FISCAL EFFECT:

Minor, negligible costs to the CPUC.

COMMENTS:

1. Purpose. The author notes California schools provide a valuable public service, yet the state spends much less on public schools, on per-pupil average, than do many other states. The author further notes that California schools spend considerable amounts on energy and, recently, their energy costs have increased. The author intends this bill to require consideration, at least, of establishment of rates for electricity and gas service provided to public schools by IOUs, potentially leading to lower energy costs for schools.
2. Background. Statute directs the CPUC to approve the rates charged by the state’s IOUs, including electric and gas IOUs. Statute further requires all rates approved by the CPUC be just and reasonable.

Generally, the CPUC conducts a triennial “general rate case” (GRC) to establish and approve the rates each IOU may charge its customers. The GRC is a multi-party, technical, and contested judicial proceeding. To simplify matters, it is helpful to think of the GRC as a three-part making and serving of a pie.

In part one, the CPUC determines the size of the pie, that is, it determines the amount of revenue an IOU must recover to cover all of its costs, plus a profit. In part two, the CPUC slices the pie, that is, it determines the amount of the IOU’s revenue requirement is to be recovered from each customer class (residential, small commercial, medium/large commercial and industrial (C&I), agricultural, and streetlighting). In part three, at which point, frankly, the pie analogy falls apart, the CPUC designs the rates and fees the IOU will collect from customers within each class.

According to the CPUC, its goal in adopting particular rate designs is to ensure revenue collection equals the costs allocated to each customer class while simultaneously meeting the CPUC’s other objectives. Among the objectives articulated by the CPUC are:

1. 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 noncoincident peak demand.
6. Rates should be stable and understandable and provide stability, simplicity and choice.
7. Rates should generally avoid cross-subsidies, unless the cross-subsidies appropriately support explicit state policy goals.
8. Rates should encourage economically efficient decision-making.

In a recent decision, the CPUC noted that schools are generally included in the medium/large C&I customer class, yet schools may have an energy use profile very different from typical medium/large C&I customers. For this reason, the CPUC directed San Diego Gas and Electric, as part of the utility’s next GRC, to develop a schools-only rate separate from medium/large C&I rate.

The CPUC decision in question noted substantial cost increases experienced by San Diego-area schools in recent years. This bill seems motivated by such cost increases generally.

Indeed, the CPUC could develop and approve school-specific energy rates, and such rates might reduce schools’ energy costs, especially if the rates did not fully recover the cost of providing energy service to schools. However, establishment of school-specific rates, in itself, would not decrease an IOU’s overall revenue requirement. Therefore, an IOU would need to recover from its other non-school customers any reduction in revenue resulting from creation of school-specific energy rates. In this way, school-specific energy rates might necessitate subsidy of school energy costs by other energy customers.

The Legislature may support such subsidy, given the amount the state spends on education per pupil. Revenue from general taxes on all Californians, however, may be a more direct, efficient, and equitable way to cover schools’ energy costs.

Of course, it might be that school-specific energy rates make some, most, or all schools worse off. The CPUC is in the process of reforming rates, which includes time-specific rates, consistent with the cost-causation principal, under which many schools might experience energy bills that are lower than they otherwise would be. The evaluation and reports required by this bill should reveal the value—positive or negative—of school-specific energy rates.

Analysis Prepared by: Jay Dickenson / APPR. / (916) 319-2081

Date of Hearing: April 18, 2018

ASSEMBLY COMMITTEE ON UTILITIES AND ENERGY

Chris Holden, Chair

ABPCA Bill Id:AB 2068 (

Author:Chu) – As Amended Ver:April 3, 2018

SUBJECT: Electricity: rates: public schools

SUMMARY: Requires all electrical and gas corporations (IOUs) to evaluate the feasibility of discounting rates for public schools by at least 15 percent and for the California Public Utilities Commission (CPUC) to determine whether to adopt the discount. Specifically, this bill:

1. Requires the CPUC, as part of its ratesetting process, to direct the IOUs to evaluate and report on the feasibility and economic impact of establishing discounted electric and gas rates for public school of at least 15 percent.
2. Requires the evaluation to include commercial rate increases for the past five years that affected schools and the economic impact to all ratepayers if all public schools receive the discount.
3. Requires the CPUC to determine whether to adopt a special rate for schools 90 days after completion of the report.
4. Requires the CPUC to submit the report to the Legislature by January 1, 2020.

EXISTING LAW:

1. Requires that all charges demanded or received by any public utility for any product, commodity or service be just and reasonable, and that every unjust or unreasonable charge is unlawful. (Public Utilities Code § 451)
2. Implements the California Clean Energy Jobs Act (Proposition 39) to provide approximately $550 million annually to fund projects that create jobs improving energy efficiency and expanding clean energy generation at schools and other public facilities. (Public Resources Code § 26200 et seq.)
3. Requires IOUs to develop and implement a program of rate assistance to eligible food banks at a fixed percentage to be determined by the CPUC. (Public Utilities Code § 739.3)

FISCAL EFFECT: This bill is keyed fiscal and will be referred to the Appropriations Committee for its review of the fiscal effect of this bill. It is important to note however that the Appropriations Committee limits its analysis to the impact on overall state agency impacts and cannot assess the impacts of policy on the costs of electricity or gas service to ratepayers.

BACKGROUND:

IOU Ratemaking & the CPUC – Every three years each IOU submits an application to the CPUC requesting to collect a certain amount of revenue from customers. This amount of revenue is intended to cover the utility’s costs plus a pre-approved rate of return, established in the cost of capital proceeding. The CPUC reviews this request and approves or modifies the amounts requested. This is the General Rate Case Phase 1 Process and it basically determines the size of the “pie” that the utility can have.

Next, the IOUs submit an application to determine how much of the revenue (or “pie”) should be collected from different customers. For example, how much of the pie residential customers should pay for versus commercial or agricultural customers. This is determined by examining what and how much of each of the utility’s services are used by different types of customers. In most cases, all types of customers use all of the utility’s services, but some types of customers may use more or less of some services than others. This is part of the General Rate Case Phase 2 process or "slicing the pie."

Lastly, the IOUs propose different methods for collecting the 'slice' of the pie from each customer class (e.g. residential, commercial, agricultural). At its most basic, a utility divides the amount that needs to be collected from each class by the forecasted or historical amount of sales in that class, resulting in a cents per kilowatt hour (kWh) rate. Other rate components are also derived from this process.

Rate cases are done on a three-year cycle which includes several public hearings across the service territory of the utility, whereby the CPUC gathers input from the public, as well as evidentiary hearings where the IOU and all interested parties testify in a public proceeding before an administrative law judge. The CPUC then determines what revenues are necessary to maintain and upgrade the electric and gas systems. The CPUC's decision forms the basis for IOU customer rates. The IOUs are generally on different three-year cycles.

Rates Are Increasing for All Customers – Rates and trends are reported by the CPUC annually to the Legislature. The data is presented in many different ways but generally aggregated. Consequently, the impacts on different types of customers which all have different load characteristics are not apparent. The one thing that they do have in common is that all rates are increasing.

San Diego Gas & Electric Rate Case – The question of electric rates and schools was reviewed and debated in the most recent rate case for SDG&E. Filings in that proceeding show that as of early 2017, SDG&E schools paid about 29% more than the SDG&E system average rate, and 41% more than SDG&E’s medium/large, commercial/industrial customer average rate. These high rates were primarily due to the effects of time-of-use (TOU) and non-coincident demand charges (also called “maximum” demand charges, because the latter apply to a customer’s maximum kilowatt demand during the month, whenever it occurs).

The recent SDG&E rate design decision also requires the utility to present a separate rate class for schools in its next rate proceeding. This was done in recognition that schools have a very different hourly usage profile than typical medium commercial customers, and that schools are therefore disadvantaged by being lumped in with commercial customers (which may use significant amounts of energy during late afternoon and evening peak hours).

COMMENTS:

1. Author’s Statement. The author states that schools provide students with opportunities, valuable knowledge, and preparation for adulthood. Adequate funding for schools will ensure that there are enough skilled professionals to meet California’s increasing economic demands. However, California is behind on spending per student compared to other states and as lawmakers, we need to do more to move us ahead. Investing in education makes sense and investing in our kids will give them a competitive edge both nationally and internationally.
   

California schools spend an average of $700 million on energy per year. This amount is equivalent to their spending on books and supplies. In a report on EdWeek, a national newspaper covering K-12 Education, California ranked 46th out of 50 states in spending per student. The national average is $12,156 and California’s is $8,694 -- $3,462 less. While other studies suggest that California’s K-12 education spending has increased significantly since 2012-13, it continues to be behind other states. Schools in poor districts are especially suffering according to Education Trust-West, an Oakland-based nonprofit that advocates for education equity.

1. But Schools May See a Decrease. A 2017 CPUC decision^[1] adopted a new ratemaking framework, including guiding principles, for designing, implementing, and modifying the time intervals reflected in TOU rates with a specific goal to modify electric usage and supply.
   
   Of significance to this bill, is that the time frame for peak periods was shifted from mid-day (11 a.m. to 6 p.m.) to the late afternoon and evening (4 p.m. to 9 p.m.). This change is expected to shift TOU rates for schools from a cost, to a benefit, because they use the bulk of their energy before the new peak period starting at 4 p.m. Associated TOU hourly rates for earlier in the day will go down in comparison to the prior peak period.
   
2. Myriad Electricity Providers. This bill only applies to the IOUs and does not include publicly owned utilities such as LADWP and SMUD. In the IOU territories, increasing number of customers, including schools, receive electricity generation from community choice aggregators (CCAs) which are also not included within the scope of the required evaluation. Although generation costs are controlled by the CCA, the IOU does manage and charge CCA customers for transmission and distribution. The result is that some schools pay only distribution and transmission costs to the IOU with the generation charges going to a CCA. The evaluation should clearly delineate the impacts of a rate discount on schools that are customers of a CCA from those which are customers of the IOU. Gas service is entirely within the IOU.
   
3. Expand Study Scope. To ensure that the full impact of a rate discount is known, the committee may wish to consider expanding the scope of the study to also include the following elements:
   
   1. To understand the impact and equity of rates on the schools, the evaluation should also include rate impacts for all customer classes. The California Manufacturing & Technology Association writes in opposition to this bill that “California electricity rates are 45, 55, and 95 percent above national average for residential, commercial and industrial rate classes respectively;”
      
   2. When the Legislature modifies a ratemaking decision of the CPUC or the rates of an IOU, it’s like pulling a brick out of a wall. You cannot touch one aspect of the rate structure without creating a ripple effect, or cost shift, someplace else. This evaluation should also consider the cost-shifts that would occur, and to which customers, as a result of a discounted rate for public schools; and
      
   3. The CPUC has voted to shift the peak period from 11:00 a.m. to 6:00 p.m., to 4:00 p.m. to 9:00 p.m. Schools and other non-residential customers are currently charged higher rates during peak (TOU). The shift in peak periods to late afternoon and evening when most schools have very limited use is thought to result in a significant rate reduction for schools. This impact should also be considered and reported in the evaluation.
      
4. Look Before you Leap. This bill expresses the intent of the Legislature to establish a 15% rate discount for public schools and also requires the CPUC to determine whether to adopt a discount after the report is issued. The committee may wish consider amending the bill to eliminate these requirements and narrow the bill to just a study to enable the Legislature to receive the report and consider the consequences of the discounted rate.
   
5. Technical Changes. The committee may wish to consider these additional technical changes to the bill:
   
   1. Public schools should be defined as a public school, including a charter school, maintaining a kindergarten or any of grades 1 to 12 inclusive; and
      
   2. The findings and declarations state that schools do not have the ability to raise taxes or fees to meet budget shortfalls. Although politically challenging, schools do have some fee authority and can also seek the approval of voters for parcel taxes. This phrase should be deleted.
      
6. Related Legislation. AB 2541 (Weber) defines, for the purposes of establishing eligibility for the intervenor compensation program, a customer to include a public school district, county office of education, or community college district, or an authorized representative of one of those entities. Status: Set for hearing in Assembly Utilities & Energy Committee on April 18, 2018.

1. Prior Legislation.

SB 1041 (Hueso, 2016) Requires the CPUC to consider the effects of establishing a rate for electric service specific to public elementary and secondary schools. Status: Held in Assembly Appropriations Committee.

SB 2218 (Bradford, 2016) requires a rate assistance program for food banks at a fixed percentage to be determined by the commission. Status: Chaptered 581, Statutes of 2014

REGISTERED SUPPORT / OPPOSITION:

Support

Association of California School Administrators

California Association of School Business Officials (CASBO)
California Federation of Teachers
California for Adequate School Housing
California School Boards Association
School Energy Coalition

Opposition

California Manufacturing & Technology Association
PacifiCorp

Analysis Prepared by: Kellie Smith / U. & E. /

1. See D.17-08-030 ↑