(1)Under existing law, the Public Utilities Commission has regulatory authority over public utilities, including electrical corporations and gas corporations. Existing law authorizes the 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 the commission to designate a baseline quantity of electricity and gas necessary for a significant portion of the reasonable energy needs of the average residential customer and to establish a higher energy allowance above the baseline for residential customers dependent on life-support equipment. For these purposes, baseline quantity is defined as a quantity of electricity or gas allocated by the commission for residential customers based on from 50% to 60% of average residential consumption of these commodities, except that, for residential gas customers and for all-electric residential customers, the baseline quantity is required to be established at from 60% to 70% of average residential consumption during the winter heating season.

This bill would require the commission to make efforts to minimize bill volatility for residential customers, explicitly authorizing the commission to do this by modifying the length of baseline seasons or defining additional baseline seasons.

Existing law requires the commission to ensure that errors in estimates of demand elasticity or sales do not result in material overcollection or undercollection of rates and charges by an electrical corporation.

For each gas corporation and electrical corporation that, for some portion of residential customers, employs every-other-month meter reading and estimates bills for months when the customers meter is not read, the bill would require the commission to direct the gas corporation or electrical corporation to include in its tariffs the methodology it employs to estimate bills for those months during which the meter is not read.

Under existing law, a violation of the Public Utilities Act or any order, decision, rule, direction, demand, or requirement of the commission is a crime.

Because the provisions of this bill would be a part of the act and because a violation of an order or decision of the commission implementing its requirements would be a crime, the bill would impose a state-mandated local program by creating a new crime.

(2)This bill would incorporate additional changes to Section 739 of the Public Utilities Code proposed by AB 1292 to be operative only if this bill and AB 1292 are enacted and this bill is enacted last.

(3)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.

(1)Under existing law, the Public Utilities Commission has regulatory authority over public utilities, including electrical corporations and gas corporations. Existing law authorizes the 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 the commission to designate a baseline quantity of electricity and gas necessary for a significant portion of the reasonable energy needs of the average residential customer and to establish a higher energy allowance above the baseline for residential customers dependent on life-support equipment. For these purposes, baseline quantity is defined as a quantity of electricity or gas allocated by the commission for residential customers based on from 50% to 60% of average residential consumption of these commodities, except that, for residential gas customers and for all-electric residential customers, the baseline quantity is required to be established at from 60% to 70% of average residential consumption during the winter heating season.

This bill would require the commission to make efforts to minimize bill volatility for residential customers, explicitly authorizing the commission to do this by modifying the length of baseline seasons or defining additional baseline seasons.

Existing law requires the commission to ensure that errors in estimates of demand elasticity or sales do not result in material overcollection or undercollection of rates and charges by an electrical corporation.

For each gas corporation and electrical corporation that, for some portion of residential customers, employs every-other-month meter reading and estimates bills for months when the customers meter is not read, the bill would require the commission to direct the gas corporation or electrical corporation to include in its tariffs the methodology it employs to estimate bills for those months during which the meter is not read.

Under existing law, a violation of the Public Utilities Act or any order, decision, rule, direction, demand, or requirement of the commission is a crime.

Because the provisions of this bill would be a part of the act and because a violation of an order or decision of the commission implementing its requirements would be a crime, the bill would impose a state-mandated local program by creating a new crime.

(2)This bill would incorporate additional changes to Section 739 of the Public Utilities Code proposed by AB 1292 to be operative only if this bill and AB 1292 are enacted and this bill is enacted last.

(3)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.

(1)Under existing law, the Public Utilities Commission has regulatory authority over public utilities, including electrical corporations and gas corporations. Existing law authorizes the 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 the commission to designate a baseline quantity of electricity and gas necessary for a significant portion of the reasonable energy needs of the average residential customer and to establish a higher energy allowance above the baseline for residential customers dependent on life-support equipment. For these purposes, baseline quantity is defined as a quantity of electricity or gas allocated by the commission for residential customers based on from 50% to 60% of average residential consumption of these commodities, except that, for residential gas customers and for all-electric residential customers, the baseline quantity is required to be established at from 60% to 70% of average residential consumption during the winter heating season.

This bill would require the commission to make efforts to minimize bill volatility for residential customers, including by modifying the length of baseline seasons or defining additional baseline seasons.

Existing law requires the commission to ensure that errors in estimates of demand elasticity or sales do not result in material overcollection or undercollection of rates and charges by an electrical corporation.

For each gas corporation and electrical corporation that, for some portion of residential customers, employs every-other-month meter reading and estimates bills for months when the customers meter is not read, the bill would require the commission to direct the gas corporation or electrical corporation to include in its tariffs the methodology it employs to estimate bills for those months during which the meter is not read.

Under existing law, a violation of the Public Utilities Act or any order, decision, rule, direction, demand, or requirement of the commission is a crime.

Because the provisions of this bill would be a part of the act and because a violation of an order or decision of the commission implementing its requirements would be a crime, the bill would impose a state-mandated local program by creating a new crime.

(3)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. Existing law authorizes the 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 the commission to designate a baseline quantity of electricity and gas necessary for a significant portion of the reasonable energy needs of the average residential customer and to establish a higher energy allowance above the baseline for residential customers dependent on life-support equipment. For these purposes, baseline quantity is defined as a quantity of electricity or gas allocated by the commission for residential customers based on from 50% to 60% of average residential consumption of these commodities, except that, for residential gas customers and for all-electric residential customers, the baseline quantity is required to be established at from 60% to 70% of average residential consumption during the winter heating season.

This bill would require the commission to make efforts to minimize bill volatility for residential customers, including by modifying the length of baseline seasons or defining additional baseline seasons.

Existing law requires the commission to ensure that errors in estimates of demand elasticity or sales do not result in material overcollection or undercollection of rates and charges by an electrical corporation.

Under existing law, a violation of the Public Utilities Act or any order, decision, rule, direction, demand, or requirement of the commission is a crime.

Because the provisions of this bill would be a part of the act and because a violation of an order or decision of the commission implementing its requirements 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 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. Existing law authorizes the 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 the commission to designate a baseline quantity of electricity and gas necessary for a significant portion of the reasonable energy needs of the average residential customer and to establish a higher energy allowance above the baseline for residential customers dependent on life-support equipment. For these purposes, baseline quantity is defined as a quantity of electricity or gas allocated by the commission for residential customers based on from 50% to 60% of average residential consumption of these commodities, except that, for residential gas customers and for all-electric residential customers, the baseline quantity is required to be established at from 60% to 70% of average residential consumption during the winter heating season.

This bill would revise the definition of baseline quantity to provide that, for residential gas customers and for all-electric residential customers, the baseline quantity is required to be established at from 60% to 70% of average residential consumption during each month of the winter heating season. require the commission to make efforts to minimize bill volatility for residential customers, including by modifying the length of baseline seasons or defining additional baseline seasons.

Existing law requires the commission to ensure that errors in estimates of demand elasticity or sales do not result in material overcollection or undercollection of rates and charges by an electrical corporation.

This bill would require the commission, in approving rates and charges for an electrical corporation or gas corporation that are applicable to residential customers, if the rates and charges are regularly based upon estimated usage of electricity or gas, to ensure that energy usage estimates are based upon comparable historical usage or other data adjusted for the comparable time of year. The bill would authorize the commission to approve energy usage estimation methodologies and mechanisms to correct inaccurate energy usage estimates by advice letter filings or other processes determined to be appropriate by the commission.

Under existing law, a violation of the Public Utilities Act or any order, decision, rule, direction, demand, or requirement of the commission is a crime.

Because the provisions of this bill would be a part of the act and because a violation of an order or decision of the commission implementing its requirements 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 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. Existing law authorizes the 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 the commission to designate a baseline quantity of electricity and gas necessary for a significant portion of the reasonable energy needs of the average residential customer and to establish a higher energy allowance above the baseline for residential customers dependent on life-support equipment. For these purposes, baseline quantity is defined as a quantity of electricity or gas allocated by the commission for residential customers based on from 50% to 60% of average residential consumption of these commodities, except that, for residential gas customers and for all-electric residential customers, the baseline quantity is required to be established at from 60% to 70% of average residential consumption during the winter heating season.

This bill would revise the definition of baseline quantity to provide that, for residential gas customers and for all-electric residential customers, the baseline quantity is required to be established at from 60% to 70% of average residential consumption during each month of the winter heating season.

Existing law requires each electrical corporation and gas corporation, in a timeframe consistent with each corporations next general rate case, to disclose specified information on the billing statement of a residential customer.

This bill would require that the information disclosed include the expected electricity or gas usage, or expected bill amount based upon expected energy usage, in the next billing period based on historical energy usage data to the extent historical energy usage data is available.

Existing law requires the commission to ensure that errors in estimates of demand elasticity or sales do not result in material overcollection or undercollection of rates and charges by an electrical corporation.

This bill would require the commission, in approving rates and charges for an electrical corporation or gas corporation that are applicable to residential customers, if the rates and charges are regularly based upon estimated usage of electricity or gas, to ensure that energy usage estimates are based upon comparable historical usage or other data adjusted for the comparable time of year. The bill would authorize the commission to approve energy usage estimation methodologies and mechanisms to correct inaccurate energy usage estimates by advice letter filings or other processes determined to be appropriate by the commission.

Under existing law, a violation of the Public Utilities Act or any order, decision, rule, direction, demand, or requirement of the commission is a crime.

Because the provisions of this bill would be a part of the act and because a violation of an order or decision of the commission implementing its requirements 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 no reimbursement is required by this act for a specified reason.

Existing law establishes in state government the Strategic Growth Council, which is responsible for taking various actions related to supporting the planning and development of sustainable communities, including actions to reduce greenhouse gas emissions, promote water conservation, reduce fuel consumption, encourage infill development, and revitalize urban centers.

Existing law authorizes certain local agencies to form community revitalization and investment authorities within community revitalization and investment areas, as defined, to carry out provisions of the Community Redevelopment Law related to infrastructure, affordable housing, and economic revitalization.

Existing property tax law requires the county auditor, in each fiscal year, to allocate property tax revenue to local jurisdictions in accordance with specified formulas and procedures, subject to certain modifications. Existing law requires an annual reallocation of property tax revenue from local agencies in each county to the Educational Revenue Augmentation Fund (ERAF) in that county for allocation to specified educational entities.

The Bergeson-Peace Infrastructure and Economic Development Bank Act establishes the Infrastructure and Economic Development Bank within the Governors Office of Business and Economic Development. The bank is authorized, among other things, to issue bonds, approve the issuance of certain bonds, invest moneys, and make loans.

This bill, until January 1, 2025, would establish in state government the Local-State Sustainable Investment Incentive Program, which would be administered by the Strategic Growth Council. The bill would authorize cities, counties, city and counties, enhanced infrastructure financing districts, and community revitalization and investment authorities to apply to the Strategic Growth Council to participate in the program and would authorize the council to approve applications for projects meeting specific criteria on and after July 1, 2018.

The bill would require the Strategic Growth Council to adopt policies and procedures and approve no more than $10 million per year in reductions in annual ERAF contributions for applicants for projects approved through this program. The projects that could be eligible for funding would include, among others, projects providing facilities or services within a disadvantaged community and affordable housing projects.

The bill would require the Strategic Growth Council to circulate application materials and related analysis to the Department of Finance and the State Infrastructure and Economic Development Bank for review and would authorize the council to require the applicant to reimburse it, the department, and the bank for reasonable costs of review.

The bill would require the Strategic Growth Council, upon approval of a project application, to issue an order directing the county auditor to reduce the total amount of ad valorem property tax revenue otherwise required to be contributed to the countys ERAF from the applicant by the annual reduction amount approved. The bill would require a city or county, if the applicant is an enhanced infrastructure financing district or community revitalization investment authority, to transfer to the district or authority an amount of property tax revenue equal to the reduction amount approved by the Strategic Growth Council. The bill would authorize applicants to use approved amounts to incur debt or issue bonds or other financing to support the project.

The bill also would require each applicant that has received funding to submit annual reports, as specified, and would require the Strategic Growth Council to provide a report to the Joint Legislative Budget Committee that includes certain project information. By imposing additional duties on local officials, the 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, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

 UNFINISHED BUSINESS  

Bill No: SB 711

Author:

:

Vote:

SENATE ENERGY, U. & C. COMMITTEE: 10-0, 4/24/17

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

NO VOTE RECORDED: Morrell

SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/15/17

AYES: Lara, Bates, Beall, Bradford, Hill, Nielsen, Wiener

SENATE FLOOR: 37-0, 5/22/17

AYES: Allen, Atkins, Bates, Beall, Berryhill, Bradford, Cannella, De León, Dodd, Gaines, Galgiani, Glazer, Hernandez, Hertzberg, Hill, Hueso, Jackson, Lara, Leyva, McGuire, Mendoza, Mitchell, Monning, Moorlach, Morrell, Newman, Nguyen, Nielsen, Portantino, Roth, Skinner, Stern, Stone, Vidak, Wieckowski, Wiener, Wilk

NO VOTE RECORDED: Anderson, Fuller, Pan

ASSEMBLY FLOOR: 79-0, 9/13/17 - See last page for vote

SUBJECT: Electrical corporations and gas corporations: rates and charges

SOURCE: Author

DIGEST:

This bill requires the California Public Utilities Commission (CPUC) to make efforts to minimize utility bill volatility for residential customers of electric and gas corporations with specified actions.

Assembly Amendments remove the requirements to adjust the baseline quantity on a monthly basis during the winter months, remove the requirements to include on a customer’s utility bill the expected usage or expected bill amount for the next billing period, and remove the requirements on the CPUC to ensure that energy usage estimates are based upon comparable historical usage or other data adjusted for the comparable time of year. Lastly, the amendments include chaptering amendments with AB 1292 (Patterson).

ANALYSIS:

Existing law:

1. Requires all charges demanded or received by any utility for any product or commodity furnished or to be furnished or any service rendered or to be rendered shall be just and reasonable. (Public Utilities Code §451)
2. Defines “baseline quantity” of electricity or gas for residential customers to be based on from 50 to 60 percent of average residential consumption of these commodities, except that for residential gas customers and for all-electric residential customers, the baseline quantity is established at from 60 to 70 percent of average residential consumption during the winter heating season. Requires the CPUC in establishing baseline quantities, to take into account climatic and seasonal variations in consumption and the availability of gas service. Authorizes the CPUC to review and revise baseline quantities as average consumption patterns change in order to maintain these ratios.
3. Requires the CPUC to designate a baseline quantity of gas and electricity which is necessary to supply a significant portion of the reasonable energy needs of the average residential customer. Requires the CPUC, in estimating baseline quantities, to take into account differentials in energy needs between customers whose residential energy needs are supplied by electricity alone or by both electricity and gas. Requires the CPUC to develop a separate baseline quantity for all-electric residential customers. Requires the CPUC to take into account differentials in energy use by climatic zone and season.
4. Requires the CPUC to require every electrical and gas corporation file a schedule of rates and charges providing baseline rates which must apply to the first or lowest block of an increasing block rate structure.
5. States that nothing contained in this section shall be construed to prohibit experimentation with alternative gas or electric rate schedules for the purpose of achieving energy conservation. (Public Utilities Code §739)
6. Requires the CPUC to establish rates using cost allocation principles that fairly and reasonably assign to different customer classes the costs of providing service to those customer classes, consistent with the policies of affordability and conservation. (Public Utilities Code §739.6)

This bill:

1. Authorizes the CPUC to review and revise baseline quantities during the rate case or other ratesetting proceeding of a gas corporation or electrical corporation as average consumption patterns change.
2. Requires the CPUC to make efforts to minimize bill volatility for residential customers, including all-electric residential customers. Authorizes that those efforts may include modifying the length of the baseline seasons or defining additional baseline seasons.
3. Requires, as a chaptering amendment, the CPUC to appropriately account for any consumption that is met by residential customer generation located on the customer’s side of the meter when computing the average residential consumption of electricity and the “baseline quantity” for usage of electricity. Requires this bill to become operative only if both AB 1292 and this bill are enacted and this bill is enacted after AB 1292.
4. States the intent of the Legislature that to the extent practicable, the methodology for estimation be simple, transparent, and cost effective to the customer, and produce reasonably accurate results.
5. Requires the CPUC to direct gas and electrical corporations to include in the tariffs the methodology employed to estimate bills for those months during which the meter is not read when a corporation employs every-other-month meter reading and estimates bills for months when the customer’s meter is not read.

Background

Baseline quantity. Since the passage of the Miller-Warren Energy Lifeline Act in 1975, California has instituted residential electric and gas rates that are tiered, with the first tier intended to provide residential customers with necessary amounts of gas and electricity – the “lifeline quantity” – at a fair cost while also encouraging conservation of energy with higher rates for the higher usage tiers. Per the statute, the Lifeline quantities of electricity or gas would be allocated by the CPUC based on 50 to 60 percent of average residential consumption, with exceptions for residential gas customers and for all-electric residential customers which would be 60 to 70 percent of average residential consumption during the winter seasons. The statute requires the CPUC to take into account the climatic and seasonal variations in consumption of gas service. This allocation of gas and electric service is also known as the “baseline quantity” and varies by climate zone and season. Earlier this year, a flurry of customers expressed concerns, as reported in the media, regarding unexpectedly high winter heating bills. This bill attempts to alleviate and prevent future situations that result in unexpectedly high electric and gas utility bills by authorizing the CPUC to review and revise baseline quantities during the rate case or other ratesetting proceeding of a gas corporation or electrical corporation as average consumption patterns change.

Opting out of smart meters, but not metering. Additionally, the unexpected high utility bills earlier this year brought to light that some customers who had opted out of using smart meters, or did not yet have smart meters to remotely meter their energy usage, learned that their utility bills are based on estimated usage from the previous metered month during the months when their meters aren’t read, routinely every other month. As an example, a customer who experienced high usage in February due to a colder than expected month had their meter read that month, was then billed for similarly high usage in March when their usage was estimated based on a cold February, even if March was milder and therefore, actual usage may have been lower. The author of this bill appropriately proposes to bring more transparency regarding the methodology a utility is using to make bill usage estimations by requiring utilities to include this information in their tariff filings.

Chaptering amendments with AB 1292. This bill proposes to include language from AB 1292 requiring the CPUC to exclude residential customers that meet all or a portion of their demand for electricity using distributed generation resources when computing the baseline quantity. With the growth of distributed generation, particularly solar on residential homes, the author of this bill argues that it is unfair to include the usage of a resident with distributed generation in the utility’s calculation of the baseline quantity – 50 to 60 percent of the average residential consumption. The author may have a valid concern and one that is not without precedent. In the current Phase 2 General Rate Case for PG&E, the utility has proposed excluding residential homes in the northwest area of the state that use electricity for non-residential purposes– namely growing marijuana –from the region’s baseline quantity in order to reduce the baseline allowance. The approach in this bill would be consistent with the approach proposed by PG&E, although not, yet, approved by the CPUC, except this bill accounts for excluding homes that use less electricity than the average household due to their distributed generation installations.

Related/Prior Legislation

AB 1292 (Patterson, 2017) requires the CPUC when computing the average residential consumption of electricity, known as the baseline quantity, to exclude residential customers that meet all or a portion of their demand for electricity using distributed generation resources. The bill passed the Senate Committee on Energy, Utilities and Communications on a 10-1 vote.

AB 327 (Perea, Chapter 611, Statutes of 2013) restructured the rate design for residential electric customers.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local: Yes

According to the Assembly Appropriations Committee, increased CPUC costs of approximately $150,000 to undertake tasks related to recalculating baseline allocations (PUC Utilities Reimbursement Account).

SUPPORT: (Verified 9/13/17)

City of Azusa

City of Sonoma

City of Thousand Oaks

The Utility Reform Network

OPPOSITION: (Verified 9/13/17)

None received

ARGUMENTS IN SUPPORT: According to the author, “SB 711 corrects the wild fluctuations in energy bills experienced this year by many utility customers and requires that IOUs provide information to help customers understand what their next bill might be so that they can act in time to reduce it.”

ASSEMBLY FLOOR: 79-0, 9/13/17

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

Prepared by:

9/14/17 10:06:22

**** END ****

SENATE THIRD READING

STR Bill Id:SB 711

Author:(Hill)

As Amended Ver:September 5, 2017

Majority vote

SENATE VOTE: 37-0

SUMMARY: This bill requires the California Public Utilities Commission (CPUC) to make efforts to minimize bill volatility for residential gas and electric customers, including modifying the length of baseline seasons or defining additional baseline seasons.

Additionally, this bill requires the CPUC to direct gas and electric corporations that employ every other month meter reading for customers without smart meters, to include in its tariffs, the methodology employed to estimate bills for those months the meter is not read.

This bill also has double-jointing language to address chaptering issues associated with AB 1292 (Patterson) of the current legislative session.

FISCAL EFFECT: According to the Assembly Appropriations Committee, increased CPUC costs of approximately $150,000 to undertake tasks related to recalculating baseline allocations (CPUC Utilities Reimbursement Account).

COMMENTS:

What is baseline? – A "baseline" of electricity use is a basic amount of power – in kilowatt hours (kWhs) or therms – that meets a significant amount of the "reasonable" energy needs of the average residential ratepayer. The 1976 Warren-Miller Lifeline Act established the baseline statute in response to the energy price spikes of the late 70s. The baseline statute is meant to provide an energy allowance for basic energy needs at a lower rate and sets baseline amounts between 50-70% of average household consumption.

The baseline quantity must be priced lower on a per kWh or therm basis than other energy during the month. Baselines are usually adjusted every three years during a utility's general rate case (GRC). Baselines vary by utility, climates, geography and seasons throughout the state.

Purpose – According to the author, this past winter a jump in utility bills for many PG&E customers prompted complaints to the utility and the CPUC as well as calls for help to consumer-watch news programs. The author's office also received calls and decided to take a closer look at the problem, releasing two reports. The first highlighted how the method used to calculate the level of customer Tier 1 rates meant that the average gas customer would have roughly 90% of their bill in lower, Tier 1 rates during the mild months of November and March but less than 60% in Tier 1 during the coldest months of December and January, leading to unnecessary bill spikes in those coldest months. The second report found that customers who did not have Smart Meters, whose meters are read only every other month, saw significant bill fluctuations caused entirely by the methodology used to estimate bills in the months when the meter was not read.

This bill is intended to protect against bill fluctuations in both cases.

Customer Bill Volatility – This bill directs the CPUC to "make efforts to minimize bill volatility for residential customers." The CPUC does have different tools that are regularly offered to customers to achieve this goal but these generally rely on customer action. They include demand response (for electric customers) and bill alert programs. Residential customers currently have the option to manage their monthly bills using a bill stabilization program to levelize their monthly utility payments using the previous 12 months average bill cost. The CPUC can require the investor owned utilities (IOUs) to adjust baseline amounts to provide customers with higher use and a lower rate in the first tier of a bill based on volumetric pricing. However, this would not change the revenues to the utility. Consequently, any expansion of the tier 1 allowance will increase prices for higher tiered use.

Smart Meters & Opt-Out – Although smart meters have been installed throughout the territories of the four largest IOUs, a small percentage of customers chose to opt-out of the installation of smart meters. This opt-out requires the IOUs to manually read those meters for billing purposes. To reduce meter reading costs, the CPUC directed the utilities to manually read the meters of smart meter opt-out (SMOO) customers every other month and estimate usage in the intervening months for billing purposes. The IOUs argued that the bill estimates would result in grumpy customers. The CPUC's SMOO decision requiring bi-monthly bill estimates for customers who voluntarily choose to opt-out of smart meter use acknowledged that the practice could result in some customer dissatisfaction but chose to proceed to reduce the costs of manual meter reads.

Analysis Prepared by: Kellie Smith / U. & E. / (916) 319-2083 FN: 0001940

Date of Hearing: July 19, 2017

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

SBPCA Bill Id:SB 711

Author:(Hill) – As Amended Ver:July 10, 2017

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

SUMMARY:

This bill requires the California Public Utilities Commission (PUC) to make efforts to minimize bill volatility for residential gas and electric customers, including modifying the length of baseline seasons or defining additional baseline seasons.

Additionally, this bill requires the PUC to direct gas and electric corporations, that employ every other month meter reading, to include in its tariffs, the methodology employed to estimate bills for those months the meter is not read.

FISCAL EFFECT:

Increased PUC costs of approximately $150,000 to undertake tasks related to recalculating baseline allocations (PUC Utilities Reimbursement Account).

COMMENTS:

1. Purpose. According to the author, this past winter a jump in utility bills for many PG&E customers prompted complaints to the utility and the PUC as well as calls for help to consumer-watch news programs. The author’s office also received calls and decided to take a closer look at the problem, releasing two reports. The first highlighted how the method used to calculate the level of customer Tier 1 rates meant that the average gas customer would have roughly 90% of their bill in lower, Tier 1 rates during the mild months of November and March but less than 60% in Tier 1 during the coldest months of December and January, leading to unnecessary bill spikes in those coldest months. The second report found that customers who did not have Smart Meters, whose meters are read only every other month, saw significant bill fluctuations caused entirely by the methodology used to estimate bills in the months when the meter was not read.

This bill is intended to protect against bill fluctuations in both cases.

1. Bill Volatility. This bill directs the PUC to “make efforts to minimize bill volatility for residential customers.” The PUC does have different tools that are regularly offered to customers to achieve this goal but these generally rely on customer action. They include demand response (for electric customers) and bill alert programs.
   
   Residential customers currently have the option to manage their monthly bills using a bill stabilization program to levelize their monthly utility payments using the previous 12 months average bill cost. The PUC can require the investor owned utilities (IOUs) to adjust baseline amounts to provide customers with higher use and a lower rate in the first tier of a bill based on volumetric pricing. However, this would not change the revenues to the utility. Consequently, any expansion of the tier 1 allowance will increase prices for higher tiered use.
   
2. Smart Meters & Opt-Out. Although smart meters have been installed throughout the territories of the four largest IOUs, a small percentage of customers chose to opt-out of the installation of smart meters. This opt-out requires the IOUs to manually read those meters for billing purposes. To reduce meter reading costs, the PUC directed the utilities to manually read the meters of smart meter opt-out (SMOO) customers every other month and estimate usage in the intervening months for billing purposes. The IOUs argued that the bill estimates would result in grumpy customers. The PUC’s SMOO decision requiring bi-monthly bill estimates for customers who voluntarily choose to opt-out of smart meter use acknowledged that the practice could result in some customer dissatisfaction but chose to proceed to reduce the costs of manual meter reads.
   
   

Analysis Prepared by: Jennifer Galehouse / APPR. / (916) 319-2081

Date of Hearing: July 5, 2017

ASSEMBLY COMMITTEE ON UTILITIES AND ENERGY

Chris Holden, Chair

SBPCA Bill Id:SB 711

Author:(Hill) – As Amended Ver:June 12, 2017

SENATE VOTE: 37-0

SUBJECT: Electrical corporations and gas corporations: rates and charges

SUMMARY: Permits the California Public Utilities Commission (CPUC) to address the volatility of residential bills for electric and gas service in ratesetting proceedings. Specifically, this bill:

1. Permits the CPUC to revise baseline quantities during a rate case or other ratesetting proceeding.
2. Requires the CPUC to make efforts to minimize bill volatility for the residential customers of electrical and gas corporations (investor-owned utilities or IOUs) including residential customers that rely solely on electricity for their energy needs.

1. Permits the CPUC to modify the length of the baseline seasons or create additional baseline seasons to address bill volatility of residential customers during a rate case or other ratesetting proceeding of an IOU.
   
2. Requires the CPUC to ensure that energy bills based on electric or gas usage estimates are based on comparable historical usage or other data adjusted for the comparable time of the year. Permits the CPUC to approve usage estimation methodologies and mechanisms to correct inaccurate energy usage estimates, by advice letter filings.
   

EXISTING LAW:

1. All charges demanded or received by IOUs, for any product or commodity furnished or to be furnished or any service rendered, or to be rendered, shall be just and reasonable. (Public Utilities Code §451)
   
2. Requires the CPUC to ensure that rates are sufficient to enable IOUs to recover a just and reasonable amount of revenue from residential customers as a class, while observing the principle that electricity and gas services are necessities, for which a low affordable rate is desirable and while observing the principle that conservation is desirable in order to maintain an affordable bill. (Public Utilities Code §739)
   
3. Requires the CPUC to designate a baseline quantity of gas and electricity which is necessary to supply a significant portion of the reasonable energy needs of the average residential customer. (Public Utilities Code §739)
   
4. Requires IOUs, when bill estimates are used in lieu of meter readings, to so indicate on billings, and to promptly correct inaccuracies. (Public Utilities Code §770 [d])

FISCAL EFFECT: As a result of the June 12^th amendments, the Senate fiscal analysis is no longer relevant. The fiscal impact of this bill will be analyzed by the Assembly Appropriations Committee.

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.

What is baseline? – A "baseline" of electricity use is a basic amount of power – in kWhs or therms – that meets a significant amount of the "reasonable" energy needs of the average residential ratepayer. The 1976 Warren-Miller Lifeline Act established the baseline statute in response to the energy price spikes of the late 70s. The baseline statute is meant to provide an energy allowance for basic energy needs at a lower rate and sets baseline amounts between 50-70% of average household consumption.

The baseline quantity must be priced lower on a per kWh or therm basis than other energy during the month. Baselines are usually adjusted every three years during a utility's general rate case (GRC). Baselines vary by utility, climates, geography and seasons throughout the state.

PG&E Winter Gas Bills – In late January and early February there were media reports of PG&E customers experiencing unusually high energy bills over the winter which was alarming to many. Customer contacts to the CPUC’s Consumer Affairs Bureau (CAB) regarding PG&E increased by 27% for the period January 1^st to March 31^st and in April they reported the following at a CPUC meeting:

• 372 high bill complaints were forwarded to PG&E’s escalated complaint group for investigation, to contact the consumer and provide information and a response to CAB;
• Of the forwarded complaints 126 were closed by CAB and consumers alerted via closing letter (246 complaints are in process);
• In 8.7% (11) of these cases, review of billing and usage found irregularities that were corrected resulting in approximately $2,500 in refunds; and
• Consumers also complained about high rates, as opposed to high bills.

The CPUC reports that a typical residential PG&E natural gas bill is comprised of three components:

1. Procurement Costs (cost of natural gas purchased by PG&E for customers): 31% of costs;
2. Transportation Costs: 62% of costs; and
3. Public Purpose Surcharge: 7% of costs.

Reports from the CPUC and PG&E both confirm an increase in gas rates in 2016 and 2017. It appears however that PG&E customers did not feel the full impact of those increases until the winter months when most residential customers use the most gas for the year for winter heating. PG&E acknowledged that there was an increase in what many residential customers experienced for their winter bills and specifically noted:

…regulatory [CPUC] decisions on requests for increased spending for safety and reliability programs on both the gas and electric sides – enhancing safety of gas transmission system with automatic valves and inspection technologies, expanding electric reliability systems to reduce response and restoration times, and supporting public purpose programs such as CARE. Rates were increased most significantly last August but with relatively mild weather, customers didn’t experience any significant changes in their bills…[A] variety of factors can contribute to higher bills. The rain that we have experienced in our service territory is the first meaningful rain in a number of years. Cold and wet weather generally drives people inside and while the national weather service may report the average temperature increase is small over last year or month, it does not account for things like several days in a row of rain and colder temperatures. Damp weather also feels colder even if the temperatures haven’t changed much…

COMMENTS:

1. Author’s Statement. According to the author, this past winter a jump in utility bills for many PG&E customers prompted complaints to the utility and the CPUC as well as calls for help to consumer-watch news programs. The author’s office also received calls and decided to take a closer look at the problem, releasing two reports. The first highlighted how the method used to calculate the level of customer Tier 1 rates meant that the average gas customer would have roughly 90 percent of their bill in lower, Tier 1 rates during the mild months of November and March but less than 60 percent in Tier 1 during the coldest months of December and January, leading to unnecessary bill spikes in those coldest months. The second report found that customers who did not have Smart Meters, whose meters are read only every other month, saw significant bill fluctuations caused entirely by the methodology used to estimate bills in the months when the meter was not read. SB 711 places commonsense protections against bill fluctuations in both cases.
   
2. Bill Volatility. This bill directs the CPUC to “make efforts to minimize bill volatility for residential customers.” The CPUC does have different tools that are regularly offered to customers to achieve this goal but these generally rely on customer action. They include demand response (for electric customers) and bill alert programs.
   
   Residential IOU customers currently have the option to manage their monthly bills using a bill stabilization program to levelize their monthly utility payments using the previous 12 months average bill cost. A customer’s gas bill in Sacramento could easily go from $20 in July to $200 in December, or more. This program would level those payments across the year. Customers can also choose to receive bill alerts at self-selected monthly bill-cost levels so that they are made aware of excessive use/charges and avoid surprises when the bill comes.
   
   Most significantly, the CPUC can require the IOUs to adjust baseline amounts to provide customers with higher use and a lower rate in the first tier of a bill based on volumetric pricing. However, this would not change the revenues to the utility. Consequently, any expansion of the tier 1 allowance will increase prices for higher tiered use.
   
3. Smart Meters & Opt-Out. Although smart meters have been installed throughout the territories of the four largest IOUs, a small percentage of customers chose to opt-out of the installation of smart meters. This opt-out requires the IOUs to manually read those meters for billing purposes. To reduce meter reading costs the CPUC directed the utilities to manually read the meters of smart meter opt-out (SMOO) customers every other month and estimate usage in the intervening months for billing purposes. The IOUs argued that the bill estimates would result in grumpy customers. The CPUC’s SMOO decision requiring bi-monthly bill estimates for customers who voluntarily choose to opt-out of smart meter use acknowledged that the practice could result in some customer dissatisfaction but chose to proceed to reduce the costs of manual meter reads.
   
   The author of this bill was made aware this winter that some customers with estimated bills had charges far beyond that which a historical usage estimate could have produced. To address these erroneous bills, the author proposes that the CPUC be required to ensure that usage estimates are based on historical usage or other data adjusted for the time of year and permits the CPUC to adjust estimate methodologies through the filing of advice letters by the IOUs.
   
   Current electric rules and policies of the utilities clearly require estimated bills to be based on the customer’s historical usage data. This is a long-established practice. Prior to Smart Meters bill estimates were often used when a meter-reader could not access a meter due to locked gates, dogs, etc. and based on these same estimation rules. The customers at issue voluntarily agreed to bi-monthly bill estimates as part of the SMOO program. It is unfortunate that some customers were caught off guard by the estimation but the utility does do a manual meter read the following month and “true-up” the billing.
   
   It is not clear that an overhaul of long-standing billing estimation policies is warranted at this time. The committee may wish to consider striking the requirement that the CPUC revisit bill estimation methodologies based on the experience of a few customers in this voluntary program and instead require IOU bill estimation policies to be practicable, simple, transparent, and cost effective to the customer and be published in IOU rules.
   
4. Related Legislation.

AB 1291 (Patterson) Modifies the baseline quantity by shortening the summer season for baseline to June 1 and September 30. Status: Two-year bill.

AB 1292 (Patterson) Requires the CPUC to exclude residential customers that meet all or a portion of their demand for electricity using distributed generation resources from the calculation of “baseline quantity” when computing the average residential consumption of electricity for the purpose of rate proceedings. Status: Senate Appropriations Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

The Utility Reform Network

City of Sonoma

Opposition

None on file.

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

Date of Hearing: June 21, 2017

ASSEMBLY COMMITTEE ON UTILITIES AND ENERGY

Chris Holden, Chair

SBPCA Bill Id:SB 711

Author:(Hill) – As Amended Ver:June 12, 2017

SENATE VOTE: 37-0

SUBJECT: Electrical corporations and gas corporations: rates and charges

SUMMARY: Permits the California Public Utilities Commission (CPUC) to address the volatility of residential bills for electric and gas service in ratesetting proceedings. Specifically, this bill:

1. Permits the CPUC to revise baseline quantities during a rate case or other ratesetting proceeding.
2. Requires the CPUC to make efforts to minimize bill volatility for the residential customers of electrical and gas corporations (investor-owned utilities or IOUs) including residential customers that rely solely on electricity for their energy needs.

1. Permits the CPUC to modify the length of the baseline seasons or create additional baseline seasons to address bill volatility of residential customers during a rate case or other ratesetting proceeding of an IOU.
   
2. Requires the CPUC to ensure that energy bills based on electric or gas usage estimates are based on comparable historical usage or other data adjusted for the comparable time of the year. Permits the CPUC to approve usage estimation methodologies and mechanisms to correct inaccurate energy usage estimates, by advice letter filings.
   

EXISTING LAW:

1. All charges demanded or received by IOUs, for any product or commodity furnished or to be furnished or any service rendered or to be rendered, shall be just and reasonable. (Public Utilities Code §451)
   
2. Requires the CPUC to ensure that rates are sufficient to enable IOUs to recover a just and reasonable amount of revenue from residential customers as a class, while observing the principle that electricity and gas services are necessities, for which a low affordable rate is desirable and while observing the principle that conservation is desirable in order to maintain an affordable bill. (Public Utilities Code §739)
   
3. Requires the CPUC to designate a baseline quantity of gas and electricity which is necessary to supply a significant portion of the reasonable energy needs of the average residential customer. (Public Utilities Code §739)
   
4. Requires IOUs, when bill estimates are used in lieu of meter readings, to so indicate on billings, and to promptly correct inaccuracies. (Public Utilities Code §770 [d])

FISCAL EFFECT: As a result of the June 12^th amendments, the Senate fiscal analysis is no longer relevant. The fiscal impact of this bill will be analyzed by the Assembly Appropriations Committee.

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.

What is baseline? A "baseline" of electricity use is a basic amount of power – in kWhs or therms – that meets a significant amount of the "reasonable" energy needs of the average residential ratepayer. The 1976 Warren-Miller Lifeline Act established the baseline statute in response to the energy price spikes of the late 70s. The baseline statute is meant to provide an energy allowance for basic energy needs at a lower rate and sets baseline amounts between 50-70% of average household consumption.

The baseline quantity must be priced lower on a per kWh or therm basis than other energy during the month. Baselines are usually adjusted every three years during a utility's GRC. Baselines vary by utility, climates, geography and seasons throughout the state.

PG&E Winter Gas Bills. In late January and early February there were media reports of PG&E customers experiencing unusually high energy bills over the winter which was alarming to many. Customer contacts to the CPUC’s Consumer Affairs Bureau (CAB) regarding PG&E increased by 27% for the period January 1^st to March 31^st and in April they reported the following at a CPUC meeting:

• 372 high bill complaints were forwarded to PG&E’s escalated complaint group for investigation, to contact the consumer and provide information and a response to CAB;
• Of the forwarded complaints 126 were closed by CAB and consumers alerted via closing letter (246 complaints are in process);
• In 8.7% (11) of these cases, review of billing and usage found irregularities that were corrected resulting in approximately $2,500 in refunds; and
• Consumers also complained about high rates, as opposed to high bills.

The CPUC reports that a typical residential PG&E natural gas bill is comprised of three components:

1. Procurement Costs (cost of natural gas purchased by PG&E for customers): 31% of costs;
2. Transportation Costs: 62% of costs; and
3. Public Purpose Surcharge: 7% of costs.

Reports from the CPUC and PG&E both confirm an increase in gas rates in 2016 and 2017. It appears however that PG&E customers did not feel the full impact of those increases until the winter months when most residential customers use the most gas for the year for winter heating. PG&E acknowledged that there was an increase in what many residential customers experienced for their winter bills and specifically noted:

…regulatory [CPUC] decisions on requests for increased spending for safety and reliability programs on both the gas and electric sides – enhancing safety of gas transmission system with automatic valves and inspection technologies, expanding electric reliability systems to reduce response and restoration times, and supporting public purpose programs such as CARE. Rates were increased most significantly last August but with relatively mild weather, customers didn’t experience any significant changes in their bills…[A] variety of factors can contribute to higher bills. The rain that we have experienced in our service territory is the first meaningful rain in a number of years. Cold and wet weather generally drives people inside and while the national weather service may report the average temperature increase is small over last year or month, it does not account for things like several days in a row of rain and colder temperatures. Damp weather also feels colder even if the temperatures haven’t changed much…

COMMENTS:

1. Author’s Statement. According to the author, this past winter a jump in utility bills for many PG&E customers prompted complaints to the utility and the CPUC as well as calls for help to consumer-watch news programs. The author’s office also received calls and decided to take a closer look at the problem, releasing two reports. The first highlighted how the method used to calculate the level of customer Tier 1 rates meant that the average gas customer would have roughly 90% of their bill in lower, Tier 1 rates during the mild months of November and March but less than 60% in Tier 1 during the coldest months of December and January, leading to unnecessary bill spikes in those coldest months. The second report found that customers who did not have Smart Meters, whose meters are read only every other month, saw significant bill fluctuations caused entirely by the methodology used to estimate bills in the months when the meter was not read. SB 711 places commonsense protections against bill fluctuations in both cases.
   
2. Bill Volatility. This bill directs the CPUC to “make efforts to minimize bill volatility for residential customers.” The CPUC does have different tools that are regularly offered to customers to achieve this goal but these generally rely on customer action. They include demand response (for electric customers) and bill alert programs.
   
   Residential IOU customers currently have the option to manage their monthly bills using a bill stabilization program to levelize their monthly utility payments using the previous 12 months average bill cost. A customer’s gas bill in Sacramento could easily go from $20 in July to $200 in December, or more. This program would level those payments across the year. Customers can also choose to receive bill alerts at self-selected monthly bill-cost levels so that they are made aware of excessive use/charges and avoid surprises when the bill comes.
   
   Most significantly, the CPUC can require the IOUs to adjust baseline amounts to provide customers with higher use and a lower rate in the first tier of a bill based on volumetric pricing. However, this would not change the revenues to the utility. Consequently, any expansion of the tier 1 allowance will increase prices for higher tiered use.
   
3. Smart Meters & Opt-Out. Although smart meters have been installed throughout the territories of the four largest IOUs, a small percentage of customers chose to opt-out of the installation of smart meters. This opt-out requires the IOUs to manually read those meters for billing purposes. To reduce meter reading costs the CPUC directed the utilities to manually read the meters of smart meter opt-out (SMOO) customers every other month and estimate usage in the intervening months for billing purposes. The IOUs argued that the bill estimates would result in grumpy customers. The CPUC’s SMOO decision requiring bi-monthly bill estimates for customers who voluntarily choose to opt-out of smart meter use acknowledged that the practice could result in some customer dissatisfaction but chose to proceed to reduce the costs of manual meter reads.
   
   The author of this bill was made aware this winter that some customers with estimated bills had charges far beyond that which a historical usage estimate could have produced. To address these erroneous bills, the author proposes that the CPUC be required to ensure that usage estimates are based on historical usage or other data adjusted for the time of year and permits the CPUC to adjust estimate methodologies through the filing of advice letters by the IOUs.
   
   Current electric rules and policies of the utilities clearly require estimated bills to be based on the customer’s historical usage data. This is a long-established practice. Prior to Smart Meters bill estimates were often used when a meter-reader could not access a meter due to locked gates, dogs, etc. and based on these same estimation rules. The customers at issue voluntarily agreed to bi-monthly bill estimates as part of the SMOO program. It is unfortunate that some customers were caught off guard by the estimation but the utility does do a manual meter read the following month and “true-up” the billing.
   
   It is not clear that an overhaul of long-standing billing estimation policies is warranted at this time. The committee may wish to consider striking the requirement that the CPUC revisit bill estimation methodologies based on the experience of a few customers in this voluntary program.
   
4. Related Legislation.

AB 1291 (Patterson) Modifies the baseline quantity by shortening the summer season for baseline to June 1 and September 30. Status: Two-year bill.

AB 1292 (Patterson) Requires the CPUC to exclude residential customers that meet all or a portion of their demand for electricity using distributed generation resources from the calculation of “baseline quantity” when computing the average residential consumption of electricity for the purpose of rate proceedings. Status: Senate Energy, Utilities and Communications Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

The Utility Reform Network

Opposition

None on file.

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

 THIRD READING  

Bill No: SB 711

Author:

:

Vote:

SENATE ENERGY, U. & C. COMMITTEE: 10-0, 4/24/17

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

NO VOTE RECORDED: Morrell

SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/15/17

AYES: Lara, Bates, Beall, Bradford, Hill, Nielsen, Wiener

SUBJECT:

SOURCE: Author

DIGEST:

This bill makes changes to electric and gas utility rates and bills, including: revising the definition of baseline quantity during the winter heating months, require the expected gas and electricity usage or bill for the coming month is included in the current bill, and authorize the California Public Utilities Commission (CPUC) to approve a utility’s energy usage estimation methodologies for customers who don’t have smart meters.

ANALYSIS:

Existing law:

1. Requires all charges demanded or received by any utility for any product or commodity furnished or to be furnished or any service rendered or to be rendered shall be just and reasonable. (Public Utilities Code §451)
2. Defines “baseline quantity” of electricity or gas for residential customers to be based on from 50 to 60 percent of average residential consumption of these commodities, except that for residential gas customers and for all-electric residential customers, the baseline quantity is established at from 60 to 70 percent of average residential consumption during the winter heating season. Requires the CPUC in establishing baseline quantities, to take into account climatic and seasonal variations in consumption and the availability of gas service. Authorizes the CPUC to review and revise baseline quantities as average consumption patterns change in order to maintain these ratios.
3. Requires the CPUC to designate a baseline quantity of gas and electricity which is necessary to supply a significant portion of the reasonable energy needs of the average residential customer. Requires the CPUC, in estimating baseline quantities, to take into account differentials in energy needs between customers whose residential energy needs are supplied by electricity alone or by both electricity and gas. Requires the CPUC to develop a separate baseline quantity for all-electric residential customers. Requires the CPUC to take into account differentials in energy use by climatic zone and season.
4. Requires the CPUC to require every electrical and gas corporation file a schedule of rates and charges providing baseline rates which must apply to the first or lowest block of an increasing block rate structure.
5. Requires each electrical corporation and each gas corporation to disclose on the billing statement of a residential customer all of the following:
   1. Cost per kilowatt-hour or gas therm per tier.
   2. Allocation of kilowatt-hour or gas therm per tier.
   3. Visual representation of usage and cost per tier.
   4. Usage comparison with prior periods.
   5. Itemized cost components in the bill to identify state and local taxes.
   6. Identification of delivery, generation, public purpose, and other charges.
   7. Contact information for the CPUC’s Consumer Affairs Branch.
6. Requires electrical and gas corporations to make available online to residential customers examples of how conservation measures can reduce energy use and cost.
7. Requires the CPUC to, as part of the general rate case (GRC) of an electrical corporation or gas corporation, assess opportunities to improve the quality of information contained in the utility’s periodic billings.
8. Authorizes the CPUC to modify, adjust, or add to the requirements of this subdivision as the individual circumstances of each electrical corporation or gas corporation merits. Requires the CPUC, as part of the electrical or gas utility’s GRC, to periodically assess opportunities to improve the quality of information contained in the utility’s periodic billings.
9. States that nothing contained in this section shall be construed to prohibit experimentation with alternative gas or electric rate schedules for the purpose of achieving energy conservation. (Public Utilities Code §739)
10. Requires the CPUC to establish rates using cost allocation principles that fairly and reasonably assign to different customer classes the costs of providing service to those customer classes, consistent with the policies of affordability and conservation. (Public Utilities Code §739.6)

This bill:

1. Revises the definition of “baseline quantity” for residential gas customers and for all-electric residential customers to require the baseline quantity is established at from 60 percent to 70 percent of average residential consumption during each month of the winter heating season, instead of averaged over the winter heating season.
2. Requires that the information disclosed in a customer’s utility bill include the expected electricity or gas usage or expected bill amount based upon expected energy usage, in the next billing period, based on historical energy usage data to the extent historical energy usage data is available.
3. Requires the CPUC, in approving rates and charges for an electrical corporation or gas corporation that are applicable to residential customers, if the rates and charges are regularly based upon estimated usage of electricity or gas, to ensure that energy usage estimates are based upon comparable historical usage or other data adjusted for the comparable time of year. Authorizes the CPUC to approve energy usage estimation methodologies and mechanisms to correct inaccurate energy usage estimates by advice letter filings or other processes determined to be appropriate by the CPUC.

Background

Northern California 2016-17 Winter Utility Bills. Earlier this year, there was a flurry of media stories about Northern California residents receiving unexpectedly higher energy utility bills from their investor-owned gas and electric utility, PG&E. According to the CPUC, the utility bill increases experienced by many ratepayers, as compared to the previous year’s bills, were largely attributable to several factors, including: colder weather conditions that resulted in an increased usage of utility service to heat the home this winter versus the previous winter, increases in wholesale gas prices, increases to the gas transmission and distribution costs to address safety-related requirements, and the implementation of changes to electric rates from AB 327 (Perea, Chapter 611, Statutes of 2013) which results in increases to rates to the lower and mid-range users. This bill attempts to alleviate and prevent future situations that result in unexpectedly high electric and gas utility bills by adjusting the baseline on a monthly basis in the winter heating season, requiring a forecast of energy usage for the upcoming billing period, and requiring the CPUC to approve of the energy usage estimation methodology utilized by an energy corporation for customers who are not metered remotely.

Utility Rates. Investor-owned electric and gas utilities are authorized to provide essential service as a monopoly in a given geographic area in order to limit the cost and challenges of duplicative infrastructure serving multiple utilities – such as, the costs of several transmission and distribution electric lines and gas distribution pipelines in the same area – and to ensure the essential service is provided to all. However, recognizing that the absence of competition can result in an unregulated monopoly abusing its market power and gouging customers, the CPUC is charged with regulating investor owned utilities to ensure the provision of safe, reliable utility service at just and reasonable rates.

The General Rate Case (GRC). The CPUC’s primary regulatory instrument for limiting the power of the monopoly is through the regulation of rates.

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 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. 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.

Baseline Quantity. Since the passage of the Miller-Warren Energy Lifeline Act in 1975, California has instituted residential electric and gas rates that are tiered, with the first tier intended to provide residential customers with necessary amounts of gas and electricity – the “lifeline quantity” – at a fair cost while also encouraging conservation of energy with higher rates for the higher usage tiers. Per the statute, the Lifeline quantities of electricity or gas would be allocated by the CPUC based on 50 to 60 percent of average residential consumption, with exceptions for residential gas customers and for all-electric residential customers which would be 60 to 70 percent of average residential consumption during the winter seasons. The statute requires the CPUC to take into account the climatic and seasonal variations in consumption of gas service. This allocation of gas and electric service is also known as the “baseline quantity” and varies by climate zone and season.

Tiered Rates. A tier rate structure is intended to protect low-income residents by allowing for affordable baseline of energy while sending a price signal to encourage conservation by setting rates at a higher price per kilowatt hour of usage above the Tier 1 rate. Under this design, Tier 1 rates for typical customers are established with a baseline based on the average residential electricity or gas used in a given climate zone, roughly 50 percent of use of the average customer in a given season. All-electric customers, who don’t have gas service, have a higher baseline for electricity service during the winter months. There are 16 climate zones in California which are based on areas with similar geographic and climatic characteristics. A customer subject to a Tier 1 rate could migrate to another tier, depending on their increased energy usage, which would result in higher rates for the volume of energy used in the new tier. The initial volume of use within the baseline limits in the first tier would be priced at the lower Tier 1 rate. However, any usage above that would be charged at the rate of the following Tier up to the volume of usage established for that Tier.

Gas Utilities. In addition to a GRC focused on gas distribution revenues and costs, gas utilities file a Gas Transmission and Storage Rate Case (GT&S) every four years with the CPUC, which reviews revenues collected for natural gas transmission and storage operations. Unlike its process for electric utilities, the CPUC does not set an annual authorized revenue requirement for natural gas utilities’ procurement costs – the costs of the actual gas commodity – but it does for the distribution, operation, transportation, etc. Instead, the gas commodity – or core gas – procurement costs are recovered in utility gas procurement rates which are adjusted monthly to reflect the most current prices of natural gas. This approach reflects the operations of the wholesale natural gas market which has been deregulated. Therefore, the procurement rates are changed routinely through utility advice letter filings with the CPUC since wholesale prices for natural gas fluctuate.

Monthly Winter Baseline Adjustments? This bill proposes to require the CPUC and utilities to adjust the baseline quantity of energy service on a monthly basis during the winter heating season, November to March. The author argues that such a change will reduce the likelihood of an unexpectedly high bill, as was experienced by many PG&E customers this past January and February. The author suggests that the adjustment of the baseline in the peak heating months (likely December and January) would help to balance the costs into the winter shoulder months (November and February) and ,therefore, help mitigate against an unexpected spike in any one utility bill. It seems plausible that changing the baseline each month could help reduce unexpectedly high utility bills. However, such a change cannot guarantee that unexpectedly high bills will be eliminated since there are many other factors that contribute to high bills – most significantly the volume of the usage of the service. Moreover, a monthly adjustment to the baseline could result in increased rates that could affect all customers in the Tier 1 rates, those with the lowest usage. Such an impact would be an unintended, but possible, consequence of the proposed change in the baseline.

Utilities Offer Voluntary Leveling Programs. Today, all four major investor-owned electric and gas utilities offer voluntary programs that allow customers to balance their bills during the year in order to manage their budgets.  However, this bill would require a similar, though more limited, approach and apply it to all customers, whether they want the change in their billing or not.  Additionally, efforts to balance utility bills across billing periods would conflict with efforts to send a price signal to support conservation, since a leveling of the bill across billing periods can result in less transparency for customers about the effect of their usage on their bill. Considering it is unclear how feasible, in cost and mechanics, a mandatory monthly adjustment to the baseline would be and the potential implications of such a change are currently unknown, it would be wise to authorize the CPUC to consider such a change, but not require the CPUC to make this change.  The Utility Reform Network (TURN) in their “support, if amended” position express general support for addressing unexpectedly high utility bills, but also raise concerns regarding mandating monthly baseline allowances for gas and all-electric customers, as this bill proposes. TURN argues that such an approach may not be the best solution to address bill volatility and could be expensive for the utilities, and therefore, additional costs on all ratepayers, to implement.

Utility Bill Information. It’s often alleged that residents spend little, to minimal, amount of time engaging with their utility bills. The increasing use of online bill payments may contribute to less attention to utility bills, as some customers automatically pay their utility bill without ever reviewing it. However, there are studies that suggest customers care a great deal about their utility bills, particularly those with more limited incomes or who are particularly concerned about conservation of resources. This bill appropriately proposes to require estimated forecasted energy usage, where historical data is available, to better help households predict the costs of their upcoming utility bill. Statute already mandates a number of items that must be included on the utility bill, and the proposed requirement in this bill should be included among the items, if it is feasible.

Opting Out of Smart Meters, but Not Metering. Among the flurry of concerns regarding the unexpectedly high winter heating bills this year, many customers who had opted out of smart meters, or did not yet have the smart meters to remotely meter their energy usage, learned that their utility bills are based on estimated usage from the previous metered month during the months when their meters aren’t read, possibly every other month. As an example, a customer who experienced high usage in February due to a colder than expected month had their meter read that month, was then billed for similarly high usage in March when their usage was estimated based on a cold February, even if March was milder and therefore, actual usage may have been lower. The author of this bill appropriately proposes to bring more transparency regarding the methodology a utility is using to make bill usage estimations by requiring the CPUC to review the utility’s methodology.

Related/Prior Legislation

AB 327 (Perea, Chapter 611, Statutes of 2013) restructured the rate design for residential electric customers.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local: Yes

According to the Senate Appropriations Committee:

• Approximately $141,000 (Public Utilities Reimbursement Account) for California Public Utilities Commission (CPUC) staff to implement the changes.
• According to the CPUC, SB 711 would result in an additional workload impact equal of, at least, one full-time Public Utilities Regulatory Analyst V to undertake the tasks related to recalculating the baseline allocation for both gas and electric portions of the bills for the four main utilities and assisting in the proceedings in which this change would occur.

SUPPORT: (Verified 5/16/17)

The Utility Reform Network

OPPOSITION: (Verified 5/16/17)

None received

ARGUMENTS IN SUPPORT: According to the author:

SB 711 corrects the wild fluctuations in energy bills experienced by many utility customers this year and requires that IOUs provide information to help customers understand what their next bill might be so that they can act in time to reduce it.

Prepared by:

5/17/17 16:51:38

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SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2017 - 2018 Regular Session

SB 711 (Hill) - Electrical corporations and gas corporations: rates and charges

This bill does not meet the criteria for referral to the Suspense File.

Bill Summary:

SB 711 makes changes to electric and gas utility bills in an effort to help customers better manage their bills and reduce the potential for unanticipated high utility bills, particularly in the winter months.

Fiscal Impact:

Approximately $141,000 (Public Utilities Reimbursement Account) for California Public Utilities Commission (CPUC) staff to implement the changes. (See staff comments)

ANALYSIS:

Baseline Quantity and Tiered Rates. Existing law requires the CPUC to designate a baseline quantity of gas and electricity which is necessary to supply a significant portion of the reasonable energy needs of the average residential customer. The “baseline” is defined as the quantity of electricity or gas for residential customers based on 50 to 60 percent of average residential consumption (or 60-70 percent for all-electric residential customers) during the winter heating season. In establishing baseline quantities, the CPUC must take into account climatic and seasonal variations.

Every electrical and gas corporation must file a schedule of rates and charges providing baseline rates which must apply to the first or lowest block of an increasing block rate structure. This rate structure intends to protect low-income residents by allowing for affordable baseline of energy (Tier 1) while sending a price signal to encourage conservation (higher costs per kilowatt hour used in tiers above Tier 1).

Electrical and gas corporations must also provide specified information on residential customers billing statement, and provide examples of how conservation measures can reduce energy use and costs. As part of the utilities general rate case (discussed below), the CPUC assesses opportunities to improve the quality of information contained in the utility’s periodic billings.

The General Rate Case (GRC). All utilities regulated by the CPUC are required to undergo a GRC whereby the utility requests funding for distribution, generation, and operation costs associated with their service. The GRCs are performed about every three years and are conducted over 18 months. They provide 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 amount collected from customers to cover reasonable costs and the opportunity to earn a reasonable profit). 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.

Northern California 2016-17 Winter Utility Bills. Earlier this year, many Pacific Gas and Electric customers received unexpectedly high energy bills. According to the CPUC, this was largely attributable to several factors, including: weather conditions that resulted in increased usage of heating compared to the previous winter, increases in wholesale gas prices, increases to the gas transmission and distribution costs to address safety-related requirements, and the implementation of changes to electric rates from AB 327 (Perea, Chapter 611, Statutes of 2013) which resulted in increases to rates to the lower and mid-range users.

Proposed Law:

This bill:

1. Revises the definition of “baseline quantity” for residential gas customers and for all-electric residential customers to require the baseline quantity is established at 60 percent to 70 percent of average residential consumption during each month of the winter heating season, instead of averaged over the winter heating season.
2. Requires that the information disclosed in a customer’s utility bill include the expected electricity or gas usage, or expected bill amount, based on the expected energy usage in the next billing period (using historical energy usage data to the extent it is available).
3. Requires the CPUC, in approving residential rates and charges for an electrical or gas corporation, if the rates and charges are regularly based upon estimated usage, to ensure that energy usage estimates are based upon comparable historical usage or other data adjusted for the comparable time of year. The CPUC may approve energy usage estimation methodologies and mechanisms to correct inaccurate energy usage estimates by advice letter filings or other processes determined to be appropriate by the CPUC.

Related Legislation:

AB 327 (Perea, Chapter 611, Statutes of 2013) restructured the rate design for residential electric customers.

Staff Comments:

Fiscal Impact. According to the CPUC, SB 711 would result in an additional workload impact equal of, at least, one full-time Public Utilities Regulatory Analyst (PURA) V to undertake the tasks related to recalculating the baseline allocation for both gas and electric portions of the bills for the four main utilities and assisting in the proceedings in which this change would occur.

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SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS

Senator Ben Hueso, Chair

2017 - 2018 Regular

Bill No: Hearing Date: 4/24/2017

SUBJECT:

DIGEST: This bill would make changes to electric and gas utility bills in an effort to help customers better manage their bills and reduce the potential for unanticipated high utility bills, particularly in the winter months.

ANALYSIS:

Existing law:

1. Requires all charges demanded or received by any utility for any product or commodity furnished or to be furnished or any service rendered or to be rendered shall be just and reasonable. (Public Utilities Code § 451)
2. Defines “baseline quantity” of electricity or gas for residential customers to be based on from 50 to 60 percent of average residential consumption of these commodities, except that for residential gas customers and for all-electric residential customers, the baseline quantity is established at from 60 to 70 percent of average residential consumption during the winter heating season. Requires the California Public Utilities Commission (CPUC), in establishing baseline quantities, to take into account climatic and seasonal variations in consumption and the availability of gas service. Authorizes the CPUC to review and revise baseline quantities as average consumption patterns change in order to maintain these ratios.
3. Requires the CPUC to designate a baseline quantity of gas and electricity which is necessary to supply a significant portion of the reasonable energy needs of the average residential customer. Requires the CPUC, in estimating baseline quantities, to take into account differentials in energy needs between customers whose residential energy needs are supplied by electricity alone or by both electricity and gas. Requires the CPUC to develop a separate baseline quantity for all-electric residential customers. Requires the CPUC to take into account differentials in energy use by climatic zone and season.
4. Requires the CPUC to require every electrical and gas corporation file a schedule of rates and charges providing baseline rates which must apply to the first or lowest block of an increasing block rate structure.
5. Requires each electrical corporation and each gas corporation to disclose on the billing statement of a residential customer all of the following:
   1. Cost per kilowatthour or gas therm per tier.
   2. Allocation of kilowatthour or gas therm per tier
   3. Visual representation of usage and cost per tier.
   4. Usage comparison with prior periods.
   5. Itemized cost components in the bill to identify state and local taxes.
   6. Identification of delivery, generation, public purpose, and other charges.
   7. Contact information for the CPUC’s Consumer Affairs Branch.
6. Requires electrical and gas corporations to make available online to residential customers examples of how conservation measures can reduce energy use and cost.
7. Requires the CPUC to, as part of the general rate case of an electrical corporation or gas corporation, assess opportunities to improve the quality of information contained in the utility’s periodic billings.
8. Authorizes the CPUC to modify, adjust, or add to the requirements of this subdivision as the individual circumstances of each electrical corporation or gas corporation merits. Requires the CPUC, as part of the electrical or gas utility’s general rate case, to periodically assess opportunities to improve the quality of information contained in the utility’s periodic billings.
9. States that nothing contained in this section shall be construed to prohibit experimentation with alternative gas or electric rate schedules for the purpose of achieving energy conservation.

(Public Utilities Code §739)

1. Requires the CPUC to establish rates using cost allocation principles that fairly and reasonably assign to different customer classes the costs of providing service to those customer classes, consistent with the policies of affordability and conservation. (Public Utilities Code §739.6)

This bill:

1. Revises the definition of “baseline quantity” for residential gas customers and for all-electric residential customers to require the baseline quantity is established at from 60 percent to 70 percent of average residential consumption during each month of the winter heating season, instead of averaged over the winter heating season.
2. Requires that the information disclosed in a customer’s utility bill include the expected electricity or gas usage or expected bill amount based upon expected energy usage, in the next billing period, based on historical energy usage data to the extent historical energy usage data is available.
3. Requires the CPUC, in approving rates and charges for an electrical corporation or gas corporation that are applicable to residential customers, if the rates and charges are regularly based upon estimate usage of electricity or gas, to ensure that energy usage estimates are based upon comparable historical usage or other data adjusted for the comparable time of year. Authorizes the CPUC to approve energy usage estimation methodologies and mechanisms to correct inaccurate energy usage estimates by advice letter filings or other processes determined to be appropriate by the CPUC.

Background

Northern California 2016-17 Winter Utility Bills. Earlier this year, there was a flurry of media stories about Northern California residents receiving unexpectedly higher energy utility bills from their investor-owned gas and electric utility, PG&E. According to the CPUC, this bill increases experienced by many ratepayers, as compared to the previous year’s bills, were largely attributable to a several factors, including: weather conditions that resulted in an increased usage of utility service to heat the home this winter versus the previous winter, increases in wholesale gas prices, increases to the gas transmission and distribution costs to address safety-related requirements, and the implementation of changes to electric rates from AB 327 (Perea, Chapter 611, Statutes of 2013) which results in increases to rates to the lower and mid-range users. This bill attempts to alleviate and prevent future situations that result in unexpectedly high electric and gas utility bills by adjusting the baseline on a monthly basis in the winter heating season, requiring a forecast of energy usage for the upcoming billing period, and requiring the CPUC to approve of the energy usage estimation methodology utilized by an energy corporation for customers who are not metered remotely.

Utility Rates. Investor-owned electric and gas utilities are authorized to provide essential service as a monopoly in a given geographic area in order to limit the cost and challenges of duplicative infrastructure serving multiple utilities – such as, the costs of several transmission and distribution electric lines and gas distribution pipelines in the same area – and to ensure the essential service is provided to all. However, since the absence of competition can result in an unregulated monopoly abusing its market power and gouging customers, the CPUC is charged with regulating investor owned utilities to ensure the provision of safe, reliable utility service at just and reasonable rates. The CPUC’s primary regulatory instrument for limiting the power of the monopoly is through the regulation of rates.

The 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 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. 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.

Baseline Quantity. Since the passage of the Miller-Warren Energy Lifeline Act in 1975, California has instituted residential electric and gas rates that are tiered to provide residential customers with necessary amounts of gas and electricity – the “lifeline quantity” – at a fair cost while also encouraging conservation of energy. Per the statute, the Lifeline quantities of electricity or gas would be allocated by the CPUC based on 50 to 60 percent of average residential consumption, with exceptions for residential gas customer and for all-electric residential customers which would be 60 to 70 percent of average residential consumption during the winter seasons. The statute requires the CPUC to take into account the climatic and seasonal variations in consumption of gas service. This allocation of gas and electric service is also known as the “baseline quantity” and varies by climate zone and season.

Tiered Rates. A tier rate structure is intended to protect low-income residents by allowing for affordable baseline of energy while sending a price signal to encourage conservation by setting rates at a higher price per kilowatt hour of usage above the Tier 1 rate. Under this design, Tier 1 rates for typical customers are established with a baseline based on the average residential electricity or gas used in a given climate zone, roughly 50 percent of use of the average customer in a given season. All-electric customers, who don’t have gas service, have a higher baseline for electricity service during the winter months. There are 16 climate zones in California which are based on areas with similar geographic and climatic characteristics. A customer subject to a Tier 1 rate could migrate to another tier, depending on their increased usage, which would result in higher rates for the volume of energy used in the new tier. The initial volume of use within the baseline limits in the first tier would be priced at the lower Tier 1 rate. However, any usage above that would be charged at the rate of the following Tier up to the volume of usage established for that Tier.

Gas Utilities. In addition to a GRC focused on gas distribution revenues and costs, gas utilities file a Gas Transmission and Storage Rate Case (GT&S) every four years with the CPUC, which reviews revenues collected for natural gas transmission and storage operations. Unlike its process for electric utilities, the CPUC does not set an annual authorized revenue requirement for natural gas utilities’ procurement costs – the costs of the actual gas commodity – but it does for the distribution, operation, transportation, etc. Instead, the gas commodity – or core gas – procurement costs are recovered in utility gas procurement rates which are adjusted monthly to reflect the most current prices of natural gas. This approach reflects the operations of the wholesale natural gas market which has been deregulated. Therefore, the procurement rates are changed routinely through utility advice letter filings with the CPUC since wholesale prices for natural gas fluctuate.

Monthly Winter Baseline Adjustments? This bill proposes to require the CPUC and utilities to adjust the baseline quantity of energy service on a monthly basis during the winter heating season, November to March. The author argues that such a change will reduce the likelihood of an unexpectedly high bill, as was experienced by many PG&E customers this past January and February. The author suggests that the adjustment of the baseline in the peak heating months (likely December and January) would help to balance the costs into the winter shoulder months (November and February) and ,therefore, help mitigate against an unexpected spike in any one utility bill. It seems plausible that changing the baseline each month could help reduce unexpectedly high utility bills. However, such a change can not guarantee that unexpectedly high bills will be eliminated since there are many other factors that contribute to high bills – most significantly the volume of the usage of the service. Moreover, a monthly adjustment to the baseline could result in increased rates that could affect customers in the Tier 1 rates, those with the lowest usage. Today, all four major investor-owned electric and gas utilities offer voluntary programs that allow customers to balance their bills during the year in order to manage their budgets. However, this bill would require a similar, though more limited, approach and apply it to all customers. Any efforts to balance utility bills across billing periods would conflict with efforts to send a price signal to support conservation. Considering it is unclear how feasible, in cost and mechanics, a monthly adjustment to the baseline would be and to fully understand the potential implications of such a change, it would be wise to authorize the CPUC to consider such a change, but not require the CPUC to make this change. Therefore, the author and committee may wish to amend this bill to not require, but authorize the CPUC to consider, a monthly adjustment to the baseline quantity during the winter heating months.

Utility Bill Information. It’s often alleged that residents spend little, to minimal, amount of time engaging with their utility bills. The increasing use of online bill payments may also contribute to less attention to utility bills, as customers may often automatically pay the bill without ever reviewing it. However, there are some studies that suggest customers care a great deal about their utility bills. This bill appropriately proposes to require estimated forecasted energy usage, where historical data is available, to better help households predict the costs of their next utility bill. Statute already mandates a number of items that must be included on the utility bill, and the proposed requirement in this bill should be included among the items, if it is feasible.

Opting Out of Smart Meters, Not Metering. Among the flurry of concerns regarding the unexpectedly high winter heating bills this year, customers who had opted out of smart meters or did not yet have the smart meters to remotely meter their energy usage, learned that their utility bills are based on estimated usage from the previous metered month during the months when their meters aren’t read, possibly every other month. This author of this bill appropriately proposes to bring more transparency regarding the methodology a utility is using to make those estimations.

Prior/Related Legislation

AB 327 (Perea, Chapter 611, Statutes of 2013) restructured the rate design for residential electric customers.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT:

None received

OPPOSITION:

None received

ARGUMENTS IN SUPPORT: According to the author:

SB 711 corrects the wild fluctuations in energy bills experienced by many utility customers this year and requires that IOUs provide information to help customers understand what their next bill might be so that they can act in time to reduce it.

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