Assembly Standing Committee on Utilities and Energy

Good afternoon. Good afternoon, and welcome to today's hearing of the Assembly Committee on Utilities and Energy. Before we move on to today's agenda, I have a few housekeeping announcements to review. First, I will maintain decorum throughout today's hearing, as is customary in order to hear as much from the public.

Within the limits of our time, we will not permit conduct that disrupts or otherwise impedes the orderly conduct of today's legislative proceedings. Any individual who is disruptive may be removed from the room. Today we have eight measures on the agenda. Please note that SB330 by Senator Padilla has been pulled from today's hearing.

As a reminder, testimony is limited to four minutes in support and four minutes in opposition. Each witness will be given two minutes to speak. As a reminder, primary witnesses in support must be those accompanying the author or who otherwise have registered a support position with the Committee.

And the primary witnesses in opposition must have their opposition registered with the Committee. All other support and opposition can be stated at the standing microphone at the appropriate time. And once again, as a reminder for MeToo testimony, please simply state your name, affiliation and position.

I do also want to take a moment to mention two bills that were originally set for today's hearing. SB 237 by Senator Grayson and SB 540 by Senator Becker. While those proposals are not on today's agenda, I. I want to be very clear about my commitment and the Assembly's commitment broadly to address these critical issues and challenges.

There is incredible urgency for us to act on the challenges presented in both of these measures. California needs to work with other states to address our affordability and reliability challenges, both in the electricity and petroleum sector. As I said, there's urgent. There's urgency for us to act this year.

There is also equal urgency to ensure that we get these policies right. The stakes are simply too high for us to either advance a solution that is inadequate or for us to fail to advance a solution whatsoever.

There is too much at stake for the reliability and affordability of California's energy system, and I also believe there's too much at stakeholders for our economy and the future of the state as a whole.

So I am confident that together we will find solutions to both of these policy issue areas and look forward to continuing to work with my colleagues in the Assembly, our partners in the State Senate and the Governor's office as well, to ensure that we land the many important climate and energy planes that we need to land before we break session on September 12th.

So with that, I think we are ready to begin. We do not have a quorum, so we're going to go ahead and get started as a Subcommitee. We also do not currently have any authors, so here I will be. Otherwise, we are ready to roll. All right, the.

The first item on today's agenda is Senator Becker's SB254, followed by Senator Cervantes, Senator Wiener, Senator Stern, Senator Padilla, and Senator Caballero. So please, staff Members of those Senators, have them come join us in room 437.

All right, we are going to go ahead and begin with file item number one. Welcome. Senator Becker, the floor is yours.

Which am I presenting first? 254.

Whatever you fancy.

Wow. Okay. Oh, how are you? I appreciate the flexibility here at the Assembly Energy.

Indeed.

Okay, well, thank you chair and Members. And first, also thank the staff. Probably work on this bill and especially the next bill that I will be presenting.

And I don't need to tell a lot of you this because I know you've been focused on this throughout this entire year. But you hear all the time, we hear all the time from our constituents and I hear all the time from my wife about rising energy bills.

Over the last 10 years, residential rates have gone up 82% for SDG and E customers, 90% for SoCal Edison customers, 110% for PG&E customers. Edison's and PG&E customers have seen an increase of 50% last three years alone.

Now, I will say, you know, that we've seen some good signs from this year of things starting to move in the right direction. But of course we're still hearing from our constituents about the increases in the previous years.

This bill is really the product of months of effort from my staff, the PT's team, the Affordability Working Group convened in the Senate.

And it's really, you know, we view this as our, the most ambitious attempt that we've had in a long time to really get at some of the roots of these rising rates and what can we do about them for the longer term? It's a very long bill.

Obviously there's some overlap with parts that your bill, Chair, and some pieces from some other Members of the Assembly. I know we're going to really have a chance, I think, to come together after the break to kind of talk through those. I'll just cover it at a very, very high level.

A couple pieces around really the short term impact around the climate dividend to devote 100% of the money to customer credit. We also allocate larger credits to low income care and fair customers. And that's part of the short term impact.

We also create something called the Power Fund, which is something we've talked about for a long time, which is how do we get some of the things that really contributed to rising rates like wildfire costs and even say the care and fair programs themselves out of rates and which are really a pretty regressive instrument when we put things into rates as, you know, and you know, get it more into the General Fund.

And so this Power Fund sets up this infrastructure so that when we do decide to allocate money, when we hopefully have money for that again and surplus again, that we can allocate that. And then there's pieces around a number of provisions around tether scrutiny on rate setting and utility profits, more transparency.

There's a piece here around having at least one spending plan that is below the rate of inflation which we think will help the PUC to keep rates low. Public justification every time there's a rate increase that are really important. There's a whole piece here around wildfire spending make sure we're getting bang for the buck.

And wildfire spending and part of that comes through was fairly negotiated last year but didn't make it over the finish line. So there's a large part of the bills on wildfire spending. And then two things that we help think will have a big impact.

I'm sure we'll hear about in a moment in the really in the medium term and longer term around securitization of requires to finance 15 billions of future spending via securitization. Again some overlap here with some work that you're doing.

And actually I like your approach about some of the things that you focus that, that, that on and then also around the public funding of infrastructure and the potential savings there. And again thank you for your leadership in that area as well. There's other parts here.

I'll just the last part that I'll talk about is really about the streamlining. So another issue I know that we share between the Senate Assembly is to do really significant streamlining. And so the question is really what is going to have an impact to actually get things moving quicker.

And so we have a number of pieces here related to that, that we think, we think can really help. But always open to more suggestions either from the Committee or from the continue to work with stakeholders what's actually going to get things to move more quickly with that.

Again look forward to continue to work with you chair and the Committee on figuring out which of these ideas to move forward and which vehicles and how do we really accomplish what we all want, which is to reduce bills for consumers. And I'm very grateful to have Matt Friedman from Turn Here with us today.

Thank you Senator and Mr. Friedman, before we move to your testimony, we're just going to pause for a moment to establish quorum.

[Roll Call]

All right. Great, we have a quorum. The floor is yours.

Thank you, Madam Chair, Members of the Committee, Matt Freedman here. On behalf of the Utility Reform Network, we're here in strong support of SB 254.

This bill contains a series of significant measures designed to reduce long term utility spending and ratepayer costs while also providing badly needed short term rate relief if expected. We think this bill would have a material impact on the affordability of electricity over the coming decades.

In particular, we support a number of the key provisions of this bill, including establishing a clean Energy Infrastructure Authority capable of financing and owning new grid infrastructure, including electric transmission. Public ownership of transmission using low cost public financing can reduce the long term cost passed on to ratepayers by more than 50% compared to private ownership.

Total ratepayer savings from public ownership of new competitively bid transmission projects could amount to $3 billion per year. To pursue this approach, the needs to empower an agency or an entity that can serve as the lead sponsor for publicly owned transmission.

There's no agency currently equipped to perform this role, but SB254 would establish an infrastructure authority capable of standing in this place. Second, the bill would require the major investor owned utilities to finance $15 billion in capital expenditures relating to wildfire mitigation and customer energization using Ratepayer backed securitized debt.

We believe that this could reduce cost to ratepayers by more than one third and it's appropriate in response to the massive increase in capital expenditures proposed by the three investor owned utilities that are proposing $90 billion in new capital expenditures through 2028.

The securitization in this bill would save ratepayers approximately $7.5 billion over the first decade with rate reductions averaging about $4 to $5 a month for residential customers. It's a mechanism that's been used previously for wildfire mitigation, wildfire liability and other purposes.

So the Legislature has an opportunity to use this to bend the curve of of future costs and substitute lower cost alternative financing. We also strongly support the establishment of a benchmark for utility spending increases tied to inflation. The primary driver of massive rate increases over the last five years is increased utility spending.

To get a handle on rates, spending must be subject to greater scrutiny by the Public Utilities Commission. And this bill tackles this problem in a thoughtful and balanced manner. Additionally improving the review of wildfire mitigation plans to prioritize cost effectiveness and timely risk reduction.

Creating the Power Fund mentioned by Senator Becker, administered by the California Energy Commission to channel external funding sources to cover costs that would otherwise be recovered in rates. Additionally requiring the PUC to provide detailed annual reporting on utility profits, rate based capital structure and rate of return.

And then finally allocating a larger share of the semiannual climate credit to low income customers and providing credits to all customers during the summer months when bills are typically the highest. We appreciate all the thoughtful measures here in this business bill. We urge an aye vote.

Thank you. All right, we'll go ahead and open it up for additional testimony in support. If you'd like to testify in support at SB 254, please approach the microphone.

Thank you. Michele Canales with Union of Concerned Scientists in support.

Good afternoon. Glen Garfunkel. I'm here on behalf of Climate Action California Climate Reality, Silicon Valley Chapter, Humboldt 350 and Sacramento 350. We strongly support this bill.

Good afternoon. Chair and Members Derek Dolfie on behalf of the California Municipal Utilities Association. We're supportive and looking for a few amendments and looking forward to working with the author on those. Thank you.

Thank you, Madam Chair. Members Jason Ikerd on behalf of the California Community Choice Association similarly looking forward to continuing to work with the Senator and yourself as we support this bill moving forward. Thank you.

Allison Hilliard with the Climate Center in support, like to register my our support. And apologize for not getting our letter submitted by the deadline. Thank you.

Thank you. Melissa Cortez on behalf of the California Wind Energy Association in support.

Victoria Rome with NRDC. Similarly we support the goals and want to continue discussions with the author and stakeholders. Thank you.

Melissa Romero, California Environmental Voters in support.

Thank you. Sam Uden with Net Zero California. Appreciate the Senator and the chair's leadership on these issues and register our support. Thanks.

Good afternoon. Kyra Ross on behalf of the City of Burbank in support.

Margie Lie on behalf of the Southern California Public Power Authority in a supportive amended position. Thank you.

Shane Levine on behalf of the Northern California Power Agency also in support of amended position. Thank you.

Good afternoon. Raquel Mason with the California Environmental Justice Alliance and the support if amended position. Thank you.

John White with the Clean Power Campaign. We support the bill.

All right. See no one else wishing to speak in support. I will move to opposition. Our lead witnesses can approach the dais. Thank you.

Thank you, Madam Chair. Members Kent Kauss on behalf of Southern California Gas Company and SDG and E. We remain opposed to SB254 and would note that the bill has not been amended since First Policy Committee. We remain committed to working with the author but would like to see some improvements to it.

Back in 2022, the Joint Legislative Audit Committee was approached with the idea of creating a study to look at cost drivers. That report was issued almost 24 months ago. Next month it'll be two years ago. Since that time the LAO has issued reports. Other agencies have issued reports.

The Governor issued an Executive order calling on the PUC to report on cost saving opportunities. They all carry this common theme that utility rates are driven largely by legal requirements, regulations and state and federal mandates.

In our belief, SB254 fails to address the underlying cost drivers of today's rates and provide direction on which mandatory activity should should be set aside. SB 254 is currently drafted, does not provide immediate relief that customers need and we continue to hold out hope that that will be considered this year. Specifically our concerns on the COLA limitations.

At a minimum, we'd suggest striking the provisions relative to gas corporations. The affordability discussion is on electricity. I think we should focus there.

Electricity services are fundamentally different than other goods and services as operate as utilities operate under an extensive web of state and federal laws and mandates beyond safety and reliability, forcing utilities to propose rates untethered from actual costs which undermine the wide variety of public policy programs including wildfire mitigation and clean energy goals.

And I would note also the PUC's existing process for reviewing increases. They do a just and reasonable standard. So there is a review already done. Second, SB 254 forces us to make a collective $15 billion of investment in infrastructure. Our allocation of that $15 billion would save customers in year one about 8 cents a month.

In year seven it balloons to about 12 cents a month. We think we need to do more here at the time. In the last month, Barclays, UBS, Wolf Research, Jefferies, Citigroup have all issued reports about this bill and about the state's Wildfire Fund and the condition of it. We think more discussion has to be done there.

Finally, on this Power Fund, we support the direction of that. We think money should be put into it and affordability should be a focus and we should take action now to reduce rates. With that we remain opposed to the bill.

Madam Chair Member Scott Wetch, on behalf of the California Coalition of Utility Employees and the State Association of Electrical Workers, we are opposed unless amended. We have been working positively with the author since the outset. We've given him some amendments. There's as Mr. Kauss pointed out, there hasn't been any substantive amendments since his first policy Committee.

There's a lot of things in this bill that just need to be tightened up and fixed. We think there's a pathway for many of them. But for instance, on the constrained GRC that's tied to inflation, you got to have it. So it's apples to apples. There are certain costs that should be exempted out of that particular process.

Things like costs that are outside the utilities control because they're affected by tariffs. 50% tariff on copper that was just adopted this week. Labor costs, other regulatory related costs. On the securitization, we think there should be a prioritization. We can't securitize everything.

Wildfire liability and making sure that victims of wildfires are paid should take a precedence over before other securitization is done. And finally there needs to be, in all due respect to turn. We have not seen an economic analysis that points to a seven and a half $1.0 billion savings done by any sort of independent sort of entity.

And now that we have a summer recess, we should be here. We all get things wrong. Turn supported AB 1890 and said it was going to save a whole bunch of money. And we ended up in an energy crisis. So we would like to see some independent analysis. But we look forward to working with the author.

Thank you. Moving to any additional testimony in opposition, please approach the microphone.

Madam Chair. Members Matt Broad here on behalf of the Utility Workers Union of America with an opposed unless amended position. We align our comments with the opposition. Thank you.

Madam Chair Oracio Gonzalez on behalf of California's Business Roundtable in opposition

Valerie Turella Pacific Gas and Electric Company Align our opposition comments with those of San Diego Gas and Electric.

Clifton Wilson on behalf of the Fresno County Board of Supervisors with the position of opposing less amended. Thank you.

Good afternoon. Chair Petrie Norris. Members John Kenrick on behalf of the California Chamber of Commerce opposition.

Madam Chair And Members Delaney Hunter on behalf of Pacificorp and our fellow small jurisdictional utilities Bear Valley and Liberty in opposition.

Good afternoon, Madam Chair. Members Brady Van Engelen here on behalf of Southern California Edison. Align my comments with those from my colleague from SDG. Thank you.

Good afternoon. Chair and Committee Members Molly Corcoran with Axiom Advisors on behalf of LS Power opposed unless amended. Look forward to working with the author Chair Committee. Thank you.

Lee Cameron with the Rural County Representatives of California. We have an opposed unless amended position. We have concerns related to the OPT in CEC AB205 certification program. Thank you.

Jordan Wells, on behalf of the California State Association of Counties, respectfully opposed unless amended. Thank you.

Good afternoon Chair Members. Matt Clavenstein, on behalf of the Center for Sustainable Energy. We have an opposed, less amended position with regards to one section of the bill. We appreciate that was called out in the analysis and look forward to continuing. Conversations with the Committee and the and the author. Thank you.

Chair Members of the Committee, Ryan Pessah with Western Wood Preservers Institute, Tree to Wood Council and North American Wood Pole Council, opposed.

All right. Bringing it back to the Committee for questions or comments. All right. Seen.

No, I'll make a quick Sorry I didn't hear most of the testimony but I, I did read, I did read. The bill and there is a whole. Lot in there and wow you one of the few but thank you and plenty of opposition. But I do know that this is.

Part of a bigger conversation so I will be supporting the bill today.

Thank you Assembly Members of Zbur.

First, I want to thank the author and commend him for his focus on affordability.

You know, whenever you put together a big bountiful bill, there's a lot of things in it and I think there's some good things in this and there's some also some things that I have been very concerned about and did not vote for when it was in our House and similar bills on our side concerned about some of the things in the bill that I think have potential to destabilize, stabilize the financial markets and could result in I think, increases in costs to rate peers and consumers.

I think you're going to have the votes to get this out today. But you know, I really do think that this is, you know, doing a bill like this we should be able to consider each of the pieces individually because they're all pretty significant. And because of that I'm going to to be laying off today. So.

All right. Seeing no other members wishing to ask a question or comment, I guess before I, you know, jump in with a little bit of my commentary. Would you like to respond to the concerns that have been raised by the opposition?

I appreciate first of all, I'll say I certainly appreciate folks including the IBEW who've come forward with with creative proposals and certainly list, you know, willing to listen and includes ius as well listening to any proposals that folks have because I think this is well, it's a by necessary a bit of a confrontational process.

You know, we all trying to get to the same end goal here of, of reducing bills. And so anyway I'll just say that up front. I think, you know, I won't go sort of necessarily point by point. I think we've shown and happy to discuss in more detail there are significant savings in this bill.

Now the question is what can you do in the short term versus what can you do in the medium and longer term? I do think the having one rate case, it just has to be one you can have multiple rate cases, but one rate case where inflation just sets a standard.

So people see, okay, what would that look like and I think will be helpful to the PUC going forward. I mean, some of the concerns raised on the specifically around permitting and streamlining, again, those are complex parts of the bill. Looking forward to engaging on those.

I mean, I think the point is that there's and again, I do see this as a package to me, at least personally with some of the 541, which I'll discuss and 540 how do we use our existing grid more effectively? How do we make sure we provide the right incentives and how do we deliver for customers?

So again, you're right. There is a lot and I am impressed if you did read for you reading the whole bill, Assemblymember Irwin there's a lot in here, but it really tackles that's I think, what it takes. We have to tackle the Wildfire cost, right? We have to make sure we're getting bang for the buck.

We have to tackle the rate case process. We have to speed up development, which I think is something we probably all we would certainly agree on. We have to that's one thing that adds significantly to cost, all of our delays in the process. So, you know, again, a lot in here.

No, there's a lot to land here in the next, you know, whatever, six weeks. But look forward to working with you.

Well, thank you for that. And you know, I too, want to start by thanking you for your focus on affordability. And the bottom line is that Californians expect us to take a very hard look at their bills and identify every opportunity, bring down costs in both the short and the long term.

And you know, I know that's the approach that we've been taking on the Assembly side. And I know under your leadership what the Senate has been doing as well. As you mentioned, there are, you know, places where there's similar proposals that have been advanced by the Assembly in some places, you know, sort of overlapping proposals.

So, you know, look forward to continuing conversation in order to harmonize those efforts. I know that we start from a shared goal of doing everything we can to deliver real results and real savings for California families who are struggling right now.

So thank you for your leadership and thank you for your partnership as we, along with opposition concerns, turn this into a package that is going to deliver real savings. With that, would you like to close?

Yeah. Well said. I'll just echo what you said. I look forward to working with you and the rest of the Committee and respectfully ask for an aye vote.

All right, thank you. All right, we do. We have a. We need a motion. Okay. Motion from Assemblymember Irwin. Second from Assemblymember Harabedian. The motion is do pass Natural Resources. Madam Secretary, please call the roll.

[Roll Call]

All right, 6-3. We'll put that bill on call and wait for absent members to add on. Next up is SB541. Senator Becker.

Well, thank you. Well, this bill might be newer to folks subject matter. I just want to really appreciate the Committee and the Committee staff for working with us.

When I say that we view this as a package, I. I do, because when I said on 254, on 540, which is a regional grid bill, which I know we're looking forward to working with you after the break.

When you think about it, one thing that's become really clear to me during this last few months is that we are only using small percent of our grid capacity on a regular basis. Right.

So we talk about affordability and affordability and say, okay, well, you always think of, you know, because you're a parent, you like, say you're a kid, you know, I want a new pair of shoes. Okay. Are we getting, you know, we getting the. The best wear out of the shoes you already have? Right. And.

And so it's really about 45 hours a year that the grid is under severe strain. About 45 hours a year. And the rest of the time we're using on average about 45% of the grid's capacity. And those are not, you know, those are public numbers.

I was at an event with the COPGE also talking about the exact same thing. And so the question really is, how do we go about addressing that?

And so the point of 540 with the regional grid, that I'm sure that we'll have the chance to talk about eventually is for those 45 hours a year we want to be able to trade.

We want to get geothermal from the south and wind and solar from the east and hydro from the north and equate that in a more seamless way. The other part is to reduce the peak called load flexibility. And that's not always.

Load flexibility is not always the most sexy topic in energy, but it's really that notion how do we bring down the peak, those 45 hours a year other than sending. We had those times a few years ago when we sent out a massive alert to everybody's cell phone, stop using energy. And it actually worked.

But obviously we can't do that too often. We don't want to rely on that. So this bill is really about that. Other part is how do we shave the peak and how do we get the information even necessary to do that.

So again I would say up front I'll be accepting the Committee's amendments, thank the staff and, and working with many stakeholders, many allies in many cases who just trying to understand how this is going to work. Again. We only started writing this bill this year, so it's been a bit of work in progress.

But I really appreciate everyone's work. So the first part of the bill is really a transparency measure to see how much progress we are making towards the goal that we have as a state. The CC's goals of 7 gigawatts 7,000 megawatts of load shifting by 2030.

And so it asks you to estimate how much potential each utility or CCA has for cost effective load shifting and how much of that they have captured so far in their near term plans. Again, the goal is not to, it's just to work with people to see what's being done effectively and how everyone can do it.

Help us understand best practice and help us identify barriers and get a better sense of, of how achievable the goal is. So I just want to emphasize this is really a transparency measure. This is not a procurement mandate. We've been talking to our friends at the POUs and the CCAs. This is not a procurement mandate.

There's nothing of that in any kind. It's not aimed at that. It's really a transparency measure.

The second part of the bill is focused on taking advantage of load flexibility at the distribution level to increase the amount of demand that can be met with our existing substations and other poles and wire infrastructure where it's cost effective to do so.

So so far load flexibility has been usually done at system wide at peak demand, right? Like we kind of go out to everybody and as an alternative to building more power plants for those hottest summer evenings. But very little has been done to reduce peak demand locally in places that have distribution grid constraints.

But that would be a way to avoid spending as much over the coming years to upgrade all that infrastructure to meet growing demand. Low flexibility can also open up headroom that will allow new housing, EV charging depots, other new customer load to be powered up sooner without overloading the distribution grid.

Because the thing is, we discussed yesterday my commitment. We have volumetric rates, so we're trying to get more load on the grid. That's going to bring down costs for everyone. But right now we don't really know where to bring, where's the best places to bring that new load online.

So the second part of the bill directs the CPU, CPUC to develop a strategy for capturing those cost savings via low flexibility where it's cost effective.

It has some requirements, for example for IOUS to provide more data to understand where the opportunities are and for I use to take existing load flexibility into account during their annual distribution planning process.

If we can deliver more electricity through the wires we already have by shifting demand away from those few peak hours a year, then we can support new loads, housing, data centers, whatever, faster, while also lowering rates.

With me, I have Ryan Leddick from principal with the Brattle Group who's led many studies looking at the economic benefits of this.

Thank you. Good afternoon. My name is Ryan Leddick. I'm a principal with the Brattle Group, an economic consulting firm. For the past 18 years, my research has focused on opportunities to improve the power system by incentivizing households and businesses to become more flexible consumers of electricity.

My research on load flexibility has been cited in federal and state regulatory decisions, published in peer reviewed academic journals and covered by the major national media outlets. A study that I led last year found that there is more than 7,000 megawatts of cost effective achievable load flexibility potential in California. That's roughly the capacity of three Diablo Canyons.

If developed, that capability could save California households more than half $1.0 billion per year. Participants in low flexibility programs would be compensated for the services that they're providing to the grid and non participants are. All Californians would benefit from a reduction in the overall cost of meeting the State's energy needs.

SB 541 is an important step forward in this regard. First, as Senator Becker noted, its data reporting requirements create greater transparency around the state's progress toward achieving its load flexibility potential. With that information, we'll have a better understanding of what's working, what isn't, and how to fix it it.

Second, the bill will address critical bottlenecks on the distribution grid. In the past, attempts to use load flexibility as a distribution system resource have had some limited success, but SB 541 is different relative to those past efforts. The bill requires that load flexibility opportunities be considered earlier and more comprehensively in distribution planning.

If successful, new customers would be connected to the grid both faster and at a lower cost. Thus, customers could be housing developments, EV charging Hubs, advanced manufacturing or data centers, for example.

So as we look forward, California households will continue to pair batteries with rooftop solar they'll purchase electric vehicles, efficient electric appliances, and gain better access to information about their energy use. Simply put, SB 541 will enhance the value of those technologies for the benefit of all Californians.

Thank you for your time and the opportunity to speak about the benefits of SB 541.

Thank you. Opening up to additional testimony and support.

Madam Chair Member Scott Wech on behalf of the California Coalition of Utility Employees and the State Association of Electrical Workers, Longtime critics and skeptics of some of the programs that have been attempted in the past want to thank your staff and the Senator, particularly for the amendments that are moved quite away.

There's still some work to be done, but we can support the bill today. So thank you.

Hello. Allison Hilliard with the Climate Center in support.

Glenn Garfunkel on behalf of Climate Action California Climate Reality Silicon Valley Humboldt350 Sacramento350 we support.

Good afternoon Chair Members, Molly Corcoran on behalf of Rewiring America in support thank you.

Victoria Rome with NRDC in support.

Kim Stone on behalf of the California Solar and Storage Association in enthusiastic support.

Juliet Lazard on behalf of Coalition for Community Solar Access in support.

Melissa Romero, California Environmental Voters in support.

Brandon Knapp representing NEXAMP in support, thank you.

Good afternoon. Tiffany Fan behalf of the California Efficiency and Demand Management Council or SAD Mac in support thank you.

Dan Cha on behalf of Ava Community Energy. We have a support if amended position. While we'd like to see a few more tweaks. Greatly appreciate our extensive discussions with the author to get to the build a place that it is now.

All right, moving to opposition testimony. Go ahead and approach the dais.

All right, thank you Madam Chair and Members. Jason Eichert on behalf of the California Community Choice Association and its 24 active members we have an opposing less amended position on the on the bill in print.

The analysis points out that dividing the goal for load shifting among individual LSEs implies a mandate is in conflict with the language in the Bill that states that it is not a procurement mandate. And we agree with that assessment.

And our primary concern is that essentially while our members are always ready to decarbonize and in fact it's fairly embedded within the DNA of the CCA movement and while some of our members, in fact, as noted in the analysis, have actually already made significant investments in load reduction and shifting, primarily the example and the analysis on page seven, the AgFit program, which is being operated by Valley Clean Energy just down the road from us today, the reality is that there can be some serious cost effectiveness issues with load shifting strategies.

And so we believe that any mandate in this regard would be incredibly premature, especially given that the CPUC and the CEC are already doing extensive work on that issue and we'll be continuing to analyze how those issues could be or how those strategies could be deployed.

And so all of that said, we very much appreciate that the staff's analysis raises these issues and was thoughtful about them. We really look forward to reviewing the amendments to the bill once those are in print and we hope that that resolves some of our concerns. Thank you.

Good afternoon Madam Chair, Members of the Committee, Valerie Cheryl of Lajos with Pacific Gas and Electric Company testifying with an opposing, less amended position.

I guess want to start off with just, you know, some commonalities and shared goals that we have with, with what the author is trying to do and a lot of the very in depth conversations that we've had, good ones with his staff, have focused on, you know, the complexity of the engineering involved, our shared goals and the desire to move something forward that is not too prescriptive but has some language that can drive a strategy forward at the Commission that achieves our goals cost effectively, feasibly.

So some of the specific things that I guess I'll give a few examples of that we are concerned about is some of the incentives for these resources. This seems like a semantic type of language, but leveraging the resources in our planning process and our very in depth process is different than incentivizing.

Also we appreciate the Committee's recognition that we take learnings from a past program with the awesome acronym of DDIF, the Distribution Investment Deferral Framework. So it's good that we're going to learn from that because that that wasn't super successful and we with the Commission at the state put that to the side.

So we're hopeful to see the amendments. And like I said, we hope that it complements a lot of the initiatives that PG&E and of course, the other utilities have in this space and just hope that we can get to a place that recognizes complexity of the policies here. Thank you very much.

Thank you. Moving to additional testimony in opposition. You can go ahead and approach the microphone.

Good afternoon, Chair and Members Derek Dolley on behalf of the California Municipal Utilities Association. We're opposed to the bill in print, but appreciate the amendments and look forward to reviewing them. Thank you.

Vincent Wiraatmadja with MCE, California's first CCA. Also respectfully opposed unless amended in line with Kelsey Say, looking forward to the new amendments. Thank you.

Good afternoon, Madam Chair. Members Brady Van England here on behalf of Southern California Edison, currently opposed unless amended to the bill in print. Look forward to seeing the text and the amendments and we'll follow up with that.

Margie Lee, on behalf of the Southern California Public Power Authority, opposed to bill in print. We look forward to reviewing the amendments. Hopefully we'll change our position. Thank you.

Shane Levine, Northern California Power Agency. Same position as our fellow SCAPA Members. So look forward to continuing the conversation. Thank you.

Anthony Tannehill, California Special Districts Association. Also opposed to the measure as in print. Also looking forward to seeing it as amended. Thank you.

Kiara Ross, on behalf of the City of Burbank, I feel like I should say echo opposed to the bill in print. Happy with the new amendments and we hope to remove our opposition with those. Thank you.

Thank you, Madam Chair. Members Joe Zanzi with San Diego Gas Electric Line. Our comments with a colleague from PG&E. Thank you.

Thank you. Before we open it up for questions and comments from Committee Members, let me just do a quick step through of some of the key provisions of the amendments. So the amendments do kind of three primary things. Number one, strike the language that divide the CEC load shift goal among retail suppliers.

Number two, incorporates cost effectiveness language into the assessment of load shifting programs being evaluated and enacted by the state. And number three, specifies the intent to apply lessons learned from past der efforts.

So I do think that perhaps we'll have a different conversation once you all are able to review the amendments in some detail and appreciate the author's engagement with our with our Committee staff as we advanced those questions or comments from Committee Members. Okay. Question from Assembly Member Irwin.

I just will make a quick comment because you said load shifting wasn't very. Sexy, but this is one of the topics that I have really been pushing. On over the last few years because I think it increases grid resiliency. It could potentially decrease costs and it doesn't require us to expand our grid as fast.

So if it's done the right way. I think this is great policy. I guess I didn't quite understand the First Amendment. We had a lot of the POUs coming to the office. What is your thought on their opposition? That they are doing a lot of this themselves already?

Well, I think. And thank you. We had your bill up in our Committee too, along these lines. So I appreciate your work in this. I think the questions are the granularity. So I think there was one suggestion that we just look overall by type, like how much are CCAs doing versus how much?

And that wouldn't get to where we need to be because it just, it wouldn't really tell us anything. So we are trying to kind of get that granular data. The just. You know, I did want to point out, and I know we can, we're. We're happy to keep these conversations with people that we regularly align on.

But it does say specifically in the bill that this section does not impose a binding obligation or otherwise mandate the procurement of load shifting technologies by retail suppliers.

The section is not intended to bridge or otherwise supplant the authority of the governing boards of community choice aggregators or local public unions to set rates, establish programs and create goals. So. So we're trying to be pretty clear on it.

Obviously maybe not clear enough still for folks, but I think that's something we can work on, I hope.

Thank you, Assembly Member Harabedian.

Thank you, Madam Chair. Thank you to the author for being here. I think it's a important bill, obviously. I think the intent and what you're trying to accomplish is extremely important. My only question is, and happy to support it today, how is this affecting behind the Meter Der incentivization? Obviously.

I just had a bill in front of your Committee that got out about virtual power plant aggregators and how we can do more with those. It's not clear to me whether that's just complimentary with this bill or whether it incorporates it. And some of the definitions aren't like retail supplier, I don't think would include a VPP aggregator.

Right. So how do you envision those two things working together behind the Meter Der and this Bill and trying to incentivize more reliance on dermatology?

Yeah, well, I don't see my witnesses any thoughts on that too, but very much aligned. And I was sorry I was running around when you presented your bill. I would have commented with the work that you're doing on virtual power plants. I think it's super important, Phil. It's very complimentary with this bill.

Virtual power plants are not retail suppliers. So again, I think those efforts are very complementary with our efforts here. Part of the impetus we thought about this is, you know, there's, I think, what it's like something like 7 gigawatts or something behind the meter now. Batteries that we're not calling into play.

We're not asking anything of them during these peak times. And I know that's partly what your bill gets at, and so I think it's very complimentary. Okay, thank you.

Assembly Member Davies.

Thank you. I appreciate the bill, and I'm going to be staying with opposition right now and look forward to seeing the amendments.

Okay, thank you. All right. See, no additional questions or comments. Senator, would you like to close?

Yeah, I appreciate the. The. Appreciate all the comments that were made and. And including the. The comments here made at the table. As I said, this. This is something we really just thought of this year. It's been a work in progress. I think it's come a long way and.

And thanks to your Committee and the IBEW others who. Who've been commenting and part of the process. We appreciate it and respectfully ask for an aye vote.

Thank you. All right, the motion is due passed amended to Appropriations. Madam Secretary, please call the roll.

[Roll Call]

9, 1. So that bill is on call and we'll leave it open for additional Members to add on. Thank you, Senator. Okay, so 123 we have five measures left on our agenda. Five Senate authors that need to come join us in room 437, please.

You have a full House of Utilities and Energy Committee Members awaiting your bill presentation.

It. Welcome. Oh, there we go. Welcome. Senator Stern, we are going to move to File item number 5, SB 453.

Right. Thank you, Madam Chair. I'll be brief. I just want to start out by accepting the Committee amendments. Appreciate your work on this. This Bill is part of a long standing effort. I've taken on micro grids, seen the power go out too many times in my backyard during crises, wind events. See people left, get left behind.

Not just who's in the middle of a fire zone, but it's who's on the periphery of that with no access to power and who need it most. We built a micro grids program in this state a few years back under legislation I passed and put some money aside for the most at risk communities.

And this Bill is really just about getting pre existing dollars that were ratepayer funded spent down and if those don't get spent down, sent back. So that's simply what the Bill does. I'm happy to answer your questions.

All right, you got a motion and a second. Do we have anyone, do we have a witness here in a primary witness in support?

We might not. I'm going lean, no notes. We're just going to go. We can, we can string.

We will go ahead and open it up for additional testimony and support. Me too. Testimony and support.

Tweener.

Tweener. Brandon Ebeck on behalf of PG&E. We issued a concern position just because of how it affect our ability to get the money out the door. We appreciate the work of the Committee and the author. I just have a question with our team to say if the 2027 timeline makes sense.

But we just didn't want to cut off anybody. We've already awarded funds to in flight. So appreciate the work. Thank you. Thank you.

Yep. Mckay Carney on behalf of Los Angeles County in support.

Christina Scringe for the Center for Biological Diversity in support.

Kobe Pizotti on behalf of the California Association of Recreation and Park Districts and the City of Thousand Oaks in support. Thank you.

Thank you. Okay. Moving to any testimony in opposition. If you would like to testify in opposition to SB 453? Seeing none. Bringing it back to the Committee. Questions or comments? Assembly Member Schultz.

Thank you. Madam Chair. Senator, great bill. Really common sense. And if you're looking for a co-author would be happy to jump on. You are.

Thank you, sir. You are officially at it. Thank you, sir.

Okay. See no additional questions or comments. Senator, would you like to close?

Appreciate it. Just want to keep the lights on here and got to get creative about doing so small is sometimes big. Respectfully ask your aye vote.

Okay, you've got a motion in a second. The motion is do pass as amended to Appropriations. Madam Secretary, please call the roll.

[Roll Call]

Thank you, Madam Chair.

All right, 12 0 that bill is out and we'll leave it open for absent members to add on. All right, moving to file item 2, SB 292 by Senator Cervantes. Welcome.

Thank you so much, Madam Chair. I know we all have juggling several committees, so I appreciate the flexibility here. I'm here to present SB 292 and I want to thank the committee staff for their work with my team on this bill.

Senators, I have worked on the amendments and so they're outlined on page seven of the analysis, which I am accepting. Just going right into it: although only about 1% of wildfires were ignited by power lines in California, half of the 10 most destructive wildfires can be traced back to energy systems.

Since then, power utilities began to develop and integrate new strategies for significantly reducing the risk of igniting wildfires by power equipment while avoiding possible wildfire liabilities. To bolster public safety and avoid significant wildfire losses, California's electric utilities have invested heavily in ignition mitigation.

In 2019, the three large investor-owned utilities reported approximately $4.7 billion in system hardening, vegetation management and equipment inspection. In addition, utilities have recently pursued PSPS when high fire weather is forecasted, preemptively de-energizing power lines to reduce the probability of them sparking and causing ignitions.

While PSPS addresses the immediate risk to power infrastructure, it raises concerns about the broader societal implications, particularly for vulnerable populations who heavily rely on the availability of electricity. I had a situation in my district in which we had a PSPS shut off for up to 10 days.

And so, this bill is in direct response to what we saw in the heart of my district, where many of those affected were seniors, residents of mobile home parks, individuals on fixed income, small businesses were also impacted.

Residents voice their concerns over the perceived lack of timely and accurate communication from Southern California Edison and ultimately response from local government. And unfortunately, this isn't the first time our region has experienced those stories. Southern California Edison initially referred residents to their website with the map of PSPS shut offs.

However, many residents noted that the map did not include all outages. Some residents have stated that Edison relied on out-of-date information on their grid, leading to employees being sent out to repair electrical equipment in wrong locations or residents receiving conflicting and incorrect automated notifications. During the PSPs, some cell towers lost electricity.

Residents without a landline were left without access to any communication, either by phone or Internet, making it impossible to contact emergency services in a timely.

During this event, residents experienced disruption of medical necessity equipment, subsequent hospitalization, lack of access to drinking water, and an inability to leave residents, their residents, those that have limited mobility. And that's what my team and I were responding to during that time.

In short, my district, like many others, have faced sustained PSPS events and they must be treated with the delicacy of an emergency response. This bill will be helpful not only to our local governments, nonprofit organizations, but our legislative body as we allocate funding for resilience.

Knowing which communities are hit the hardest most often should be backed by data. The demographics and socioeconomic data centrist tracks can help inform where to prioritize investments in local solutions that can help provide support not only in natural disasters but also during outages and crisis.

It is crucial that all utilities, whether they are investor owned, publicly owned, or part of an electric corporation cooperative, are mandated to provide transparent, comprehensive, and easily interpretable data. The data should be accessible at the granular level of census tracts.

This will help us to ensure that coastal, inland, urban, suburban, rural, and tribal areas will be taken into consideration as this would enhance reliability, empower all users, including local governments and community organizations, to respond more effectively during outages.

Today I have Bethany, a scientist and PSE Healthy Energy - at PSE Healthy Energy who focuses on resilience and energy equity, to testify and support.

Thank you. My name is Bethany Kwoka and I'm a scientist at PSE Healthy Energy, which is a nonprofit research Institute working at the intersection of energy and public health.

My research has involved working with both utility and state data to understand energy resilience needs across the state and includes developing the first comprehensive geospatial data set of PSPS events in California as part of a state funded project on resilience hubs. Two core observations I'd like to share from my work relevant to this bill.

The first being more accurate - more accurate outage and reliability data is critical for improving community resilience. This isn't surprising. It's why the CPUC has regularly updated the PSPS reporting requirements over time and is reviewing annual reliability reporting requirements for the IOUs. Of particular importance is geospatial information about outages and which types of customers are being impacted.

Reporting at census tract level makes it possible to assess economic and demographic conditions at a scale that is obscured within current reporting while still protecting customer privacy. For example, large reporting areas may hide that a rural community might be experiencing long outages because current reliability statistics are weighted towards a more densely populated urban area with fewer outages.

It's also consistent with other state developed demographic reporting such as CalEnviroScreen, SB 535 Disadvantaged Communities, and CARB's Climate Vulnerability Metric. The second observation is that lack of data from the non-investor-owned utilities creates gaps for both local and state planning.

California has more than 40 publicly owned utilities serving both urban and rural communities as well as almost 40% of California's disadvantaged census tracts.

Some of these utilities have millions of customers but are currently not required to report on outages or reliability, which can make it incredibly difficult for communities to invest in resilience building systems that protect their most vulnerable members. Ultimately, I found that current reporting requirements are not always granular enough.

A lack of data from non-IOUs obscures the full picture, and it should be eminently possible for at least the largest utilities to report census tract level outage and reliability data, and this reporting would improve resilience decision making at all levels.

Thank you. At this time, we'll open it up for additional support testimony. If you'd like to testify in support of SB 292, you can approach the microphone. Seeing none. Moving to opposition testimony. Is there a lead opposition witness? If so, come on up. Or if we just have me-too opposition, go ahead and approach the microphone at this time.

Thank you, Madam Chair and members. Joe Zanze with San Diego Gas Electric. We had opposed we have an opposed unless amended position on the bill in print. The analysis, the amendments, and the analysis look like they address some of our concerns.

We just want to see the language in print and then continue to work with the author to make sure that there aren't any duplicative reporting mandates that we're already doing but understand where the author's coming from and hope to continue working together. Thank you.

Thank you.

Brandon Ebeck from Pacific Gas Electric in alignment with San Diego. Thank you.

Thank you.

Lynn Trujillo with Southern California Edison in align with PG&E and San Diego. Thank you.

Thank you. Okay, bringing it back to committee members; questions, comments? Assemblymember Zbur.

First, I want to thank the author for really her focus, I think, on some of the challenges that your community has faced.

You know, I have some concerns about the bill mainly because I think some of these issues are really more appropriate for regulatory rulemaking and there's some open rate cases that I think are dealing with some of these things. And so, when I was listening to your, to your author, they're the kinds of your witness.

They're the kinds of things that are very, very technical and I think generally should be done at the regulatory level because they're scientific and you need to understand those kinds of things.

You know, that said, I'm going to support the bill today and encourage you to sort of think about what should actually be done at the regulatory level rather than putting things in the bill that are very specific and, you know, could have unintended consequences.

And so, hoping you'll continue to work with, you know, all of the stakeholders, frankly, and focus on the things that are ones that I think require scientific and regulatory determinations in terms of the, in terms of the impacts. So, with that I will support the bill today.

All right. Seeing no further questions or comments from committee members. Senator, would you like to close?

No. Thank you for the comments from our colleagues. Certainly, you know, happy to have continued conversation on that and those who are shared their concerns in the room today. That is what we do within every committee and as we move forward and thank you for the work as well with you, Madam Chair, and your willingness to help us get this through today, I respectfully asked for your aye vote.

Thank you, Senator. All right, the do we have a... all right, we need okay, we've got a motion and a second. The motion is do passed as amended to Appropriations. Madam Secretary, please call the roll.

[Roll Call].

Okay, 12-0; that bill is out. We'll leave it open for absent members to add on. Just a quick, I guess air traffic control update for committee members, file item number 4, SB 445 by Senator Wiener is first being heard in Local Gov so we need to wait for that measure to be presented in Local Government and it will then be presented here. And we are awaiting the arrival of Senator Padilla to present SB 473.

All right, we are back to our regularly scheduled programming. We're moving to File item number 8, SB 643. Welcome. Oh, hold on. We just. All right, come on up. Oh, all right. Subject, I guess. All right. I guess he got in just in time. So, subject to an agreement between the Senators, I guess we're moving in.

File order to file item six, SB 473. Yeah. All right.

Okay, let's do it.

Thank you very much, Madam Chair and Committee Members. Thanks for your indulgence. I'm pleased to present SB 473, a Bill focused on water rate affordability and conservation. Follow up to SB 1469 by Senator Bradford, which was passed by the Legislature.

Signed into law by the Governor in 2022, SB 473 is a common sense Bill that directly and meaningfully will impact water affordability for millions of Californians. Providing safe, clean drinking water to Californians is a complex task. Requires maintaining critical infrastructure, all of which requires stable funding for maintenance and improvements.

Decoupling, a rate setting mechanism used by energy and water utilities, maintains customer affordability by lowering the costs associated with infrastructure maintenance for those who use the least amount of water.

Decoupling is used when setting utility rates, all approved by the CPUC, to separate the amount of electricity, gas, or water customers use from the amount of revenue those utility companies collect. Plain and simple, it separates customer usage from a utility's revenue.

This removes the incentive to sell as much water as possible and instead allows the state and the utility to promote conservation and efficiency. Decoupled rate structures were initially introduced as a pilot program for water by the CPUC.

Data showed that during that pilot program utilities had implemented, decoupling averaged a 29% decrease in customer waters used from 2009 to 2021, while those that did not decouple experienced only a 24% decrease. Decrease the difference of about 11 billion gallons of water.

Despite the success of the pilot and the passage of SB 1469, which required the CPUC to review decoupling requests. The CPUC has denied all decoupling requests of regulated water companies, discouraging programs that help make water bills more affordable directly resulting in higher bills for customers, which motivated this bill.

SB 473 offers a permanent solution by ensuring that PUC permits water utilities to use decoupling. Utilities that implement decoupling can keep water rates lower than other rate mechanisms by creating tiers for water use that enable those that use less to pay less per unit and those that use more to pay more.

By creating tiered rate structures, water Utilities are able to shift more of their costs to higher use higher income households. In the years that the water utility collects more revenue than projected, the utility will issue a credit back to the consumer.

When compared to other rate making strategies, decoupling allows for lower water rates, lower use for lower use and medium use customers.

For example, in areas just in my district in Calipatria and nylon in the Imperial county where decoupling has now been denied by the CPUC, water rates for the bottom tiers of water users have gone up by as much as 116% while top tier water users are seeing bill reductions of up to 17.9%.

This is sending the exact opposite message that the state is trying to send on both affordability and on conservation.

With me today, I'm pleased to have Scott Wech with State Pipe Trades Council and Rami, forgive me if I mispronounce this right, Kahlon with the California Water Service, who also, as many of you may remember, played a prominent role at the CPUC himself.

All right, thank you, thank you, thank you Chair Pip Petri Norris and Members of the Committee. My name is Rami Kahlon. I currently serve as Director of Regulatory affairs for California Water Service. This is the largest water utility regulated by the California Public Utilities Commission.

Previously, I served as Director of the water division for 12 years from 2007 through 2019. At the outset, I'd like to thank Senator Padilla for his leadership on this critically important topic. The rationale for Senate Bill 473 boils down to really just two water conservation and water affordability. And with decoupling, water utilities can do both.

In 2005, the CPUC adopted its Water Action Plan, which sought to apply best practices from the energy utilities to the water utilities. Decoupling changed the water utility business model from selling water to conserving water. And it allowed for progressive water rate designs where you pay more for higher water use. The result?

Industry leading water conservation, affordable water bills for customers, and revenue stability for water utilities. You know, before decoupling was brought to the water industry, water conservation was considered bad for business, right? Why would a water utility want to sell less product? That's why the business model had to be changed.

And when the CPUC decided in 2020 to no longer follow its own Water Action Plan, the ensuing results were inevitable. And higher rates and higher bills for low user low income customers with rate benefits accruing to high water users and the conservation signal diminished. This was a predictable result.

As we just heard from Senator Padilla in his district, decoupling caps utility revenues and it's a two way mechanism that returns dollars to customers when revenues come in above projections and vice versa. Decoupling benefits customers and utilities equally and does not allow for excess earnings or profits. Utilities only receive revenues that the CPUC authorizes.

I respectfully request your aye vote on this important bill. Thank you.

Madam Chair and Member Scott Wetch on behalf of the California State Pipe Trades Council and the California Coalition of Utility Employees. By ensuring that water utilities do not over collect or under collect, SB 473 provides transparency and revenue stability vital to both utilities and ratepayers.

Under decoupling, the water utility presents a GRC to the Commission and the CPUC approves a revenue limit to cover costs. This allows water utilities to plan and schedule system improvements. It also allows them to do something very important to my Members is collectively bargain because they know what their revenue will be.

Under decoupling there's an annual true up this that trigger either a credit to ratepayers or a surcharge. Example calam in 2023 under collected by $21 million. The very next year in 2024 it over collected by 15.4 million. And there is no mechanism to really true that up. It is these wild swings that decoupling prevents.

All electric and gas rate designs use this method. And let me read the safeguards that are in the Bill in three different places on page three.

The Bill states an authorized decoupling mechanism shall be designed to ensure that the differences between actual and authorized water sales do not result in the over recovery or under recovery of the water corporation's authorized water sales revenue on on the very next page. Excuse me.

Section C. An authorized decoupling mechanism shall not enable the water corporation to earn a revenue windfall by encouraging higher sales.

And finally in a new subsection F for more belt and suspenders it says any change to a rate for water service or the implementation of a surcharge on water service in accordance with section 739.10 shall not result in revenues above those approved by the Commission.

Decoupling increases conservation as you heard by allowing aggressive usage charges or tiers that. Mr. Wetch, if you can. Yes. That mean that you use more, you pay more. Lastly, and just one final point, Madam Chair.

A recent decision by the PUC that was supported by the Public Advocates Office for Southern California Edison's gate gas utility operations on Catalina Island.

The CPUC held in their decision supported by the public advocate and it states quote it is reasonable to allow Southern California Edison to establish a revenue decoupling mechanism, remedy any under or over collections in order to ensure that Catalina Gas has sufficient income to meet its revenue requirements and operates safely and reliably. We'd urge you to vote.

Thank you. All right, let's go ahead and open it up for additional support testimony. If you'd like to testify in support, approach the microphone this time.

Thank you. Madam Chair. Members Kobe Pizotti on behalf of the City of Thousand Oaks and strong support. Thank you.

Good afternoon. Danny Merkley with the Gualco Group on behalf of San Jose Water Company in support.

Good afternoon. Chair Petrie Norris and Members John Kenrick on behalf of the California Chamber of Commerce in support.

Good afternoon. Anthony Butler Torres on behalf of the California Hispanic Chambers of Commerce in support. Thank you.

Good afternoon. Jennifer Capitolo on behalf of the California Water Association in support.

Good afternoon. Caitlin Johnson with Political Solutions on behalf of California American Water in support. Thank you.

Good afternoon. Linda Vo with the California Water Efficiency Partnership in support. Thank you.

Melissa Sparks Kranz with the League of California Cities in support.

Good afternoon. George Ashford on behalf of over 30 organizations sent on a letter submitted to this Committee, including labor, business, environmental, consumer advocates, local government advocates and advocates for the low income community in support of this bill to improve water affordability. Thank you.

Mckay Carney on behalf of Golden State Water in support.

Okay, bringing it. We're going to go to move on to opposition testimony. If you are here to testify in opposition. If our lead witnesses can go ahead and approach the dais.

Thank you, Madam Chair. My name is Annabel Hopkins and I am the Deputy Director of Government Affairs at the Public Advocate's Office. We are the independent consumer advocate at the CPUC. It is our statutory responsibility and honor to advocate on behalf of ratepayers in the State of California. We are here in respectful opposition to Senate Bill 473.

And first, just want to thank the author and his excellent staff for taking the time to meet with our office to hear our concerns. We have acted as a voice of ratepayers over these last many years with a specific focus on water rate making policy.

The focus of this bill is one that we have vocalized concerns about during these many years. The Water Revenue Adjustment Mechanism, also known as RAM. Under RAM, customers will not be limited to paying for the amount of water that they use.

Rather, they will pay for the amount of water that their water utility forecasts that they will use. So here's what that will look like because there's been a lot of information on this bill. A water utility, in its general rate case, will forecast how much water its customers will use and pay for in the future.

If a customer uses less than what was forecasted, the water utility will still get to collect the full amount that was forecasted. Here's what the data of implementing RAM has shown, and this is 10 years worth of well documented data that we have as a state.

First, there is no evidence to prove or even indicate that RAM helps with conservation or or provides any other benefit to water customers or the General public interest. Second, and these are documented facts I'm happy to provide, RAM increases rates and it increases water utility profits.

Over the course of 10 years, RAM, as implemented by half of the CPUC regulated water utilities, increased costs to ratepayers by approximately $1 billion. To be clear, based on data collected over the span of 10 years, this bill increases rates. Thank you for your time.

Thank you. Thank you, Madam Chair. My name is Richard Rauschmeier. I'm the Deputy Director of Water and Communications at the Public Advocate's Office at the California Public Utilities Commission. As Annabelle mentioned, these mechanisms were studied at the Commission over a period of 10 years from 2009 to 2019. Two mechanisms in particular were studied.

The full RAM, which is the subject of this bill, as well as a conservation RAM decoupling, also known as a Monterey style RAM or a cart mechanism. Over those 10 years of study, the Commission found repeatedly that there was no difference in conservation between the two.

But as Annabel mentioned, there was a significant difference in the cost to ratepayers with the full ram revenue decoupling costing ratepayers approximately $1.0 billion more. So having customers pay for water that they didn't actually use, it's not an effective way to incentivize water conservation and it undermines both customer affordability and utility accountability.

And as a result, The CPUC in 2019 ended full revenue decoupling and allowed all water utilities to transition to the other rate mechanism that's currently in place that has always been in place for the other half of the water utilities.

Since that, since then 2019, the CPUC has consist consistently, excuse me, consistently rejected requests from the large bar utilities to reinstate the full revenue decoupling mechanism, including four recent decisions in the past year.

SB 473 would overturn those commission decisions, ignore the results of 10 years of pilot study results, and would force the commission to reinstate full revenue decoupling. Ultimately, this bill is not in the best interest of ratepayers and based upon 10 years of study results would lead to much higher water utility bills in the State of California.

Thank you for your time and I'd be happy to answer any questions you may have.

Thank you. Moving to additional testimony in opposition. Go ahead and approach the microphone.

Good afternoon, Chair and members Lori Johnson, on behalf of the Monterey Peninsula Water Management district and its 92,000 ratepayers in strong opposition.

All right, let's bring it back to the committee. Questions, comments? Assemblymember Chen.

Thank you, Madam Chair.

I have some questions in response to the testimony from the opposition for Mr. Wech. What is the cost impact of the pilot and what is the financial impact when it comes to affordability when it comes to decoupling?

Certainly. So the the argument from the Public Advocates Office is is is a bit of a canard because if you look at the pilot program, it was a 10 year pilot program that was during California's greatest and most historic drought ever when water costs were at an all time high.

During many of those years, credits were given to ratepayers because there were over there were over collections and decoupling worked. If you look at it in the aggregate over that 10 years period of time. Yes, there was. The the true ups led to surcharges that were- were greater than what was originally charged to the customers.

If that pilot program had been 12 years the numbers would have been quite different because you look at the instances I explained with like Cal Am where they had significant over collections that would have been credited back to the author and then on the conservation issue or on the issue of that was raised by the first witness in opposition relative to the fact that a customer will be charged for what is forecasted, the alternative we have to understand is the alternative to decoupling is the utility having to charge a significant fixed charge to all customers.

Fixed costs average about 70% of the total cost of a water utility. 70%. If you don't have decoupling, what will happen is the utility in order to hedge against risk and the exposure of this volatility will adopt a very significant fixed charge that disproportionately hits low income low water users.

So by having decoupling that enables a more dynamic tiered structure that actually lowers rates for those folks at the lower end of the Ramin. Do you want to add anything to that?

No, I think you answered that very well. And I'll just say that on the forecast for water utility usage, that is a forecast that's adopted by the CPUC. That's not a, you know, utilities forecast, the Public Advocates forecast, but the forecast is adopted by the CPUC.

And I just also point out that in the bill I read the three sections that absolutely categorically established that there can be no over collections whatsoever. So if you have an issue, if they have an issue with what the revenue limit is set, that's to be determined through the general rate case and that's with the PUC.

The company gets what the PUC gives to them. And now this bill will ensure that there are no over collections which is not the case today. We just had a case where Callaham over collected by 21 almost $21 million and that should have been could have been returned to the ratepayers with this bill it will be.

Thank you Madam Chair. I appreciate the answers and I do appreciate Senator Padilla coming down to protect present this bill. I think it's a good bill and it helps afford officials at least for constituent in my district as well. So with that if it hasn't been moved, I'll be happy to move the bill.

Assemblymember Zbur.

I think my colleague asked some of the questions that I had. I think the other question I would actually ask is what this does in terms of conservation. If you could sort of address that.

Sure. So the way to the way to and by the way the data is clear. We've given this to your offices during that 10 year pilot program. When you look at the four regulated utilities that did not decouple and you look at the four that did the four that did had significantly higher conservation rates.

That's a matter of the record. So the way you affect conservation in water is through aggressive tiered rates. If you use more, you pay more. That's why for lower income, moderate income households who are more cost conscious, they don't wash three cars, they don't have a swimming pool, they don't have a lot of landscaping.

They see a benefit for folks like the Kim Kardashians who spend lavishly on their water and don't care, they pay the highest rate. The problem is if you don't have decoupling, the risk and the exposure of that volatility to the utility is so great that they have to hedge by, by putting a large fixed charge. Right.

Because they can't go out and do all the things they need to do and then find out that they under collected by $30 million. They'd be out of business fairly quickly so that they have to rely on a fixed charge.

If you have decoupling as your backstop because you know you're going to guaranteed get whatever the PUC said you could collect, then you can be aggressive in those tiers and that's what leads to conservation. Thank you.

Assemblymember Kalra.

Thank you Madam Chair. It's working with or without. Forgotten. Anyway, it's just a hot mic. Thank you. Thank you Madam Chair. A question of the public advocate because there seems, you know, there seems to be one thing.

I have just an opinion on a policy but on the facts I think that we just want to make clear on the facts.

So according to the data over the 10 year period where you had both the RAM and the cart, this is basically, the chart is basically trying to indicate that it was essentially similar in terms of consumption and the, the $1.0 billion.

So that that is just those extra surcharges that occurred from the RAM versus Cart over the 10 years. That, and that's the argument as to why I'm presuming the CPUC decided to move away from it because they didn't see consumption changes but they saw rate increases.

Correct.

So now it's been five years since then. What data, if any or, or can we extrapolate that? If these two methods were put in place, has anyone done that data to say hey, if these two systems were still in place over the last five years, this is what would have happened?

Because Mr. Wech is indicating the, the anomaly based upon drought conditions. What have you, is there any, has any data been done in terms of extrapolating the last five years as if those two systems still existed in those different large utilities. Yes, and I'll hear from either. But yeah, certainly Public Advocates first. And we can hear.

Thank you, assemblymember, that's a great question and I'll take the first stab at it first. You're right. As the chart that we've circulated shows, there was virtually no difference in the conservation levels between the full RAM and the cart, which was the softer approach to RAM, if you will. Additionally, upon completion of the 10 year.

Pilot program, the water utilities who were full RAM, their own consultants and data that was submitted to the CPUC admitted that the data supporting the argument that their efforts were supportive and helped with conservation were inconclusive. In other words, there was no way to prove definitively whether this would help or hurt with conservation.

And I just also want to add. That over the last several years water utilities have had multiple opportunities to apply for ramp. I just want to be clear, nothing in the law prohibits water utilities from applying for ram.

To date, no water utility has been successful in making the case that RAM would assist with conservation and funding revenues. And my colleague probably can speak a little bit more.

And before he does on that point, and the analysis is excellent and read it a couple of times, the it seems that there was an effort by the CPUC just to phase out RAM altogether. Not phase it out, just end it.

There was litigation and the courts indicated, well, the utilities have the right to prospectively, they have the right to come to the CPUC and make that case. And that's what you're referring to is those efforts to make the case, none of them have been approved by the CPUC.

Absolutely. And this Bill would overturn all of those cases, four of which were made in the last year alone.

Okay.

And more info and then we can go to the support. Can I borrow your microphone for a second? Oh yeah. Excuse me.

Yeah, respond to your question. Yeah, actually I'm going to agree with a couple of things that you heard that during the pilot study there were some years of drought and it's been explained that that somehow skewed the results and made things what they wouldn't otherwise be.

And I would just ask you that, wouldn't you want a conservation mechanism to work its best during a time of drought? That's when you really need it.

In terms of the other thing that I heard about the way you effectuate conservation with aggressive rate design, that is exactly the mechanism that the commission adopted in place of the full revenue decoupling.

The CART mechanism is specifically designed to compensate utilities specifically for the effects of aggressive rate design which you just heard, is the way to effectuate conservation. By contrast, the full revenue ram that the commission eliminated or transitioned away from is a very blunt instrument. It can't not discern weather economics conservation.

As a matter of fact, the minute when they implemented it in 2008, right around the Great Recession, we saw a lot of homes go into foreclosure. Those homes were not using water. This mechanism rewarded the utilities for the great conservation that was being done because it was unable to discern conservation from foreclosure weather economics.

And that is precisely why the CPUC, in multiple proceedings, studying the record, studying the history, studying the pilot project results, decided to go away from the full revenue ram decoupling towards the other conservation adjustment rate price decoupling mechanism and has done so in the last four proceedings that Annabelle mentioned.

Mr. Rich, thank you comment.

Thank you Chair, and if I'll have my counterpart here respond as well. First of all, the data is absolutely clear during the pilot project that the decoupled companies had a higher rate of conservation than the non and we provide that to everybody. It's documented, we've shared that.

Again this misnomer that there was a rate increase, the PUC approves the revenue limit for a water utility. It was a factor of an under collection and then a surcharge applied. In many of those years the opposite happened. There was a credit that was approved, but it wasn't a rate increase.

The rate increase was approved, the rate was approved by the commission. It was a matter of collection that's affected by several different factors. But as far as the difference between the two different rate designs, I'll let the former head of the division speak to that.

Yeah, thank you. And thank you assemblymembers. So you know it's difficult to answer your question because it's sort of a hypothetical. We don't have full decoupling for the last five years, so we don't have that. So we, we can't do that comparison.

But I can tell you during the last great drought when the first time in California history the governor said you need to save 25% of water, every one of our investor owned utilities under my direction at the CPUC hit their water use reductions and they were able to hit those water use reductions because they all had full decoupling.

You know what those charts won't show you that those MRAM companies, non full decoupling companies, when the Governor declares a drought and only the Governor can declare a drought and when it's over, they essentially have full decoupling through another mechanism that the CPUC allows.

And in terms of aggressive rate designs, the rate designs are never more aggressive than they are under full decoupling. What we have seen in these last five years is the rate designs getting less aggressive where low income, low user customers are having a higher service charge.

That's what you pay for before you use any water and higher volumetric charges. So yeah, I will disagree with my colleagues.

And to that point, during the drought, were there emergency measures that allowed the cart utilities to operate more as RAM?

Yes, and that continues that any utility with a CART mechanism at a period of drought or when there is real need for conservation, those mechanisms accommodate slightly different. There there are some subtle changes in terms of how they operate, in terms of the profit that the utility is allowed and the adjustment that needs to be made.

But you're correct that at times of.

Drought, so to this day, if there is a drought, they can actually operate in that same mechanism. They can operate similarly to a RAM during current drought conditions that they occur now.

Correct.

And then the last question I have, I don't always ask a lot of questions here, but this is actually I really am kind of debating in my mind exactly on this issue because it's a very important issue, senator, that you're bringing forward. But it's also a little complex to understand the manner in which it's analyzed on.

There's been suggestions by the the support witnesses that the rates are set by the CPUC. It what role, if any of the utilities play in that rate setting? In other words, how much do they rely on what the utilities are either asking for or information they're providing? Just kind of what, what is that relationship.

And this is my last question.

Sorry, Assembly Member, who would you like to respond to that question?

I was asking Public Advocate if--if there's a response back, I'm okay with that as well.

All right, let's hear first from the Public Advocate.

Thank you.

So in the case of the Class A water utilities, the large water utilities that we're speaking about now, there is a rate case plan. Every three years they come in, they file a general rate case, there is a robust evidentiary record, these issues are vetted within that, and there is a final decision. Occasionally there are settlements between the parties, but that is in general the rate-making process.

So just like with all the GRCs, the utility submits their proposed general rate case, then the--all the various state interveners--labor, the environmental community, consumers, Public Advocates--all then make file comment.

You go through a very lengthy process before an administrative law judge where a record is created and then ultimately it leads to a proposed decision by that administrative law judge that the full commission votes on.

Most recently, the very most recent decision is the aforementioned Santa Nella gas case where the settlement that was signed on by Public Advocate's Office, which had decoupling in it and praised decoupling, went through that process and then was finally adopted. So the utilities does not control what their revenue limited is.

In fact, oftentimes we go in, labor goes in and argues for a much more robust investment into capital investments on the opposite side of the utility, and you know, it gets haggled out. You know, that's how it works.

Thank you.

Thank you, Madam Chair. Let me just first echo what Assembly Member Kalra said by really giving kudos to the author for bringing this important discussion forward. This is extremely important. I think there are equities on both sides.

I think it's a good discussion to have and I do think that it is important to hear the excellent advocacy on both sides. So let me just say that--I wasn't planning to ask a question, but one thing that I thought was going to be addressed that wasn't dovetails on Mr. Wetch's last point, which is capital investments.

Anyone who served on local government who's been through a 218 water rate process, our, our water infrastructure is aging and has aged well past, you know, use life, and many of us as local government officials struggle with that, trying to get 218 water rate increases through that would allow us to upgrade our pipes and our sewers that are so badly needed to be upgraded.

And what I'm missing here is which of these mechanisms actually--sorry--actually incentivizes upgrades to capital, and which one doesn't? Because I was expecting both sides to actually get to this.

I think conservation--not to belabor the point--I think it's very secondary in this conversation. Conservation is happening for a number of reasons outside of water rates, okay? What is actually happening with these different rate structures that is actually allowing the infrastructure upgrades that we all need?

We just went through fires, we just went through a lot of soul searching about where we are within our water, our water systems, and how resilient we are. So I want to hear about that and how this is affective. Thanks.

So, Assembly Member, thank you. So on average, the fixed costs of a utility is between 50 and 80%. The industry average is about 70. That's the cost of water, their contracts, you know, and if they're doing treatment, their treatment, and then capital investment. If you have decoupling, you have a lower fixed charge.

If you don't have decoupling, you have to have a larger fixed charge. Who, who does that hurt? A larger fixed charge becomes a proportionately much larger piece of the lower income, lower water user, ratepayer, so they end up disproportionately bearing the cost of all that capital investment.

When you have decoupling and you have the utility having the assurances that they will meet their revenue mark so they can complete their capital improvements, then they can go in and implement a capital improvement infrastructure program that they can follow through, which is precisely why the Utility Workers and the Pipe Trades are so supportive of this bill.

I'll just quickly add that when the CPUC does rate-making, they determine a revenue requirement, and that revenue requirement is based on how many capital projects the CPUC believes are needed and necessary to keep your water system in good operation, operational condition.

Now, if we don't hit that revenue requirement, that means we have less money to complete those capital projects that the CPUC has deemed to be necessary. So what WRAM does--decoupling--is it allows us to realize that revenue requirement when sales fall short, and we can't collect more than that because if we did, we gave that back to the customers. The other decoupling mechanism, whatever you refer to it as, does not give that revenue assurance.

Through the chair, if we may respond?

Yes.

Thank you. First, I just want to emphasize that the Public Advocates Office advocates for affordable, safe, and reliable service, so of course, public infrastructure is top of mind for us as well. The question is, who pays for public infrastructure?

It's, it's the ratepayers, of course, and so I appreciate the question earlier about general rate case because that's where we closely litigate these line items item by item, and we are a party to that. The water utilities, environmental groups, labor groups, a number of stakeholders have a closely vested interest in seeing these conversations pan out, how we plan for the future, three years in advance, typically.

The challenge is striking a fine balance between ensuring we have sufficient funds for critical public infrastructure projects while also making sure we're not burdening ratepayers with monthly bills that they can't keep up with. And so I also just want to point out that in the last few instances where water utilities have come to the CPUC to ask for full WRAM, jobs have not been a part of that discussion.

And when we've looked at the ten-year pilot program that was done from 2008 to 2019 at the CPUC, we have no evidence--I'm happy to read if there is some that has not been submitted--but there's no evidence to our knowledge at the PUC that WRAM created more jobs.

And additionally, there's no evidence that a lack of WRAM has led to a loss of jobs, and that is just what the data at the PUC has shown and that's data submitted by the utilities themselves. And I don't know if my colleague would like to add anything to that.

The only thing I would add is I think everyone has heard a lot of speculation about what would happen, what could happen if WRAM isn't been--if WRAM isn't granted. I would just point out for the last 15 years, half of our largest water utilities in the state have operated very successfully without the full WRAM, and none of these issues that are assumed to befall us if WRAM is not reinstated have occurred for any of those four large water utilities.

On the jobs issue, Madam Chair, what the Public Advocate Office is referring to is there's no loss of internal jobs within the water utilities. The majority of capital outlay work is done in contracted out work, so obviously the PUC wouldn't track the number of jobs that my members lost because contracts were not procured for doing the maintenance and the upgrades to the system.

Thank you. All right. Assembly Member Patterson.

Great. Thank you. Question for the Public Advocates Office. Presumably, should this measure pass, the PUC, I assume, would still be interested and you, your office would still be interested in the reliability, the same goals, right?

So I guess I'm confused on when the rate setting moves forward, if those goals are still there, then you're still going to have the same--or the PUC will still have the same view of what's going on--hey, let's not do too much infrastructure right now or let's not overspend or, you know, whatever the costs are inefficient like they do now--I assume that would still be the case, right?

I will try to answer and I hope that I answer, but if I don't, please let me know. Absolutely, all of those are questions that our office as well as other ratepayer advocates in this space will continue to advocate for.

What we also--and I guess it hasn't been said explicitly thus far--is while water utilities currently have full authority to apply for WRAM, it is incumbent upon them to make the case for why it is best for ratepayers, and that question includes all of those things that you just included: is it safe?

Is it reliable? Is it affordable? It is incumbent upon the CPUC to look at the input from all stakeholders, not just us, not just the water utilities, all of the data that's been collected over these last many years to answer that question. What is the best path forward? And so what whether this bill is passed or not, we will continue to advocate for that.

Yeah, thank you. Question for Mr. Wetch. On the fixed charges, you say, you mentioned it's 50 to 80 is kind of the average on fixed costs, and this bill--at least from my reading of it and I think you mentioned this--prohibits--essentially if there's an overcollection, there's going to be a refund. Is that--

A credit back--

Or credit.

It's stated three times in three different places in the bill.

Yeah. So if customers are paying more than they should after--and how does that process work? How will that process work exactly?

This is similar to how it works in electrical and the gas side, and that is at the end of the year there's a true up, and if cost calculations were wrong, for instance, maybe there's an extremely wet year and so water's cheaper or whatever the reasons, various reasons are, then there's a credit at the end of the year that goes back.

And, you know, just last year, Cal Am Water--or yes--last year, Cal Am Water accredited back $15.4 million to their ratepayers, or I should say, didn't, overcollected by $15.4 million but because decoupling wasn't in place, did not credit it back, but under decoupling, if that had been in place, they would have credited it back.

Or at least according to this bill, which would prohibit--which would require that?

Yes.

Absolutely. Would you like to respond?

Yes, Member Patterson, if I could just for a second? You're absolutely correct that the bill as written prevents overcollection, undercollection of revenues. Revenues is one half of the picture. One million dollars in revenue is very different if you have a million dollars in cost versus one million dollars in revenue if you have a half a million. The PUC is established to prevent unreasonable monopoly profits. That is where the rubber meets the road.

And if you're looking at revenues only, exclusively as this bill does, you're missing the forest through the trees. It's profits, and this bill, and the full WRAM mechanism as it exists, fails to take that into account. It looks at some variable costs, but as we've heard, 60, 70% are fixed costs.

And when those fixed costs are considered, the full WRAM can allow a utility that's already exceeding its commission-authorized reasonable profit to further exceed its reasonable profit. This has been mischaracterized as somehow capping the profits of utility. Utility profits are not capped. They wouldn't be under an amendment to consider profits--the whole picture as opposed to just the revenues. So I'm glad you asked that. Thank you.

Yeah, because I have a question about that too.

The general rate case has to do with revenues. The issue of a rate of return is handled during the cost of capital proceeding, which is a different proceeding. This bill doesn't deal with the cost of capital proceeding. It's just dealing with the general rate case and the revenues approved pursuant to the GRC.

Okay. I don't live in one of the territories of one of these companies, but I was just going through my bills where we have some great utilities that serve our water needs, but the fixed costs are very, very high, and I was looking at one of the bills and out of the $62, nine dollars of it was for use, and I think, you know, I just see where that disincentivizes any conservation at all because if I water my lawn every day, the cost of water is actually quite cheap, and so I am interested.

And it's always--it's--I've always had an issue ever since I was on the City Council with some of the utilities because we're served by a lot of special districts that are all amazing, but we did always opine on the increases in those fixed charges because I felt like that is what impacted--that certainly impacts my behavior.

And I felt like it impacted also their decision-making and, and really what the fixed rates could cover, and it was always a--it was a big thing, but like I said, you know, 50 of--53 of the $62 on my bill is for fixed costs, and so I just think it created some pretty big disincentives.

And so that's why I'm kind of inclined to support this bill today. I mean, if there are other ways to--I like the--I understand sort of the discussion on the, on the profit and also the, the revenue and I think that that is an interesting and very important discussion to have. It's not good news when, you know, at least in the public, when they have one choice and the profits are really high. I mean, I understand that brings a lot of concerns with residents, and so that's always an interesting conversation and I think important one.

And for the purposes of this conversation, I think I'm leaning towards supporting this bill because, just, maybe it's just my experience and listening to the debate here, and I appreciate everybody's input on it, but I mean, my number one priority--and I'm sure yours as well though--is making sure people pay the lowest rate possible. So thank you.

And, um, thank you, Vice Chair Patterson. I do appreciate the member engagement, questions and debate. I'll, you know, say that I have found this to be a uniquely confounding--no, I know there's other folks looking to ask questions, and I will be calling you in a minute--I have found this to be a uniquely confounding topic because as I think Assembly Member Kalra said, we often have disputes about policy matters and subjective assessments.

This does feel to be a fundamental disagreement about the data and the facts, and that is why, while you persuaded me to support the bill today, I did put it before this committee without a recommendation, and I think that I would love, Senator, for you to help us understand.

You know, I think the fundamental premise of this bill says that the PUC has gotten this wrong for the last eight years, that they've consistently got it wrong, that the PAO has it wrong now. Can you just help us understand that and like, why was that, why do you believe that to be true?

Madam Chair, thank you for the question. What a fascinating debate to witness, in part, as the author of the bill. It sort of brought back some unpleasant memories from a prior life. I think the short answer is the balance of data. There does not seem to be a discussion about the construct or the mechanism.

There doesn't seem to be a misunderstanding about the intent of the mechanism, and bringing it back to the bill, both in terms of what the bill language prescribes and what it permits, with respect to the regulatory process, one that ironically--and it was sort of alluded to by Mr. Wetch earlier in reading from a settlement in the electricity realm, which is sort of an ironic inconsistency, but we'll leave that for another debate--there is in fact a balance of data that's been, I think, reasonably peer-reviewed and interpreted on the question of differential comparisons on whether in fact the application of this mechanism would in fact realize more or less incentive towards conservation or more or less more equitable distribution of incremental costs depending on what's driving those costs.

And I think the balance of the data here seems to suggest the latter. And at the worst-case scenario, due respect to the great work that the PAO does, their interpretation of the data set is focused on primarily the study. The pilot is the word I was looking for.

But to be honest, there's also information that's been provided to this committee and data that's in the record that seems to suggest that the basis and methodology for reaching those conclusions has not been forthcoming and you've also been provided with other secondary sets of data analysis that seem to contradict that.

And so I think as a matter of policy in considering legislative construct, the question isn't trying to pick winners and losers about whose data is best, but the preponderance of the data, does it seem to suggest here that the bill will permit the application of this rate-making mechanism that has a more or less likelihood of even having a chance to achieve some better amount of incentive towards conservation and some better or not impacts to costs? I think the balance of the data seems to suggest that it may well do that, and that's the reason for the bill.

Assembly Member Zbur.

So you're getting actually to sort of the question that I had and that was sort of understanding exactly what this bill does. When I read it, it says: 'upon application by a water corporation with more than 10,000 service connections, the commission shall consider and may authorize the implementation of a mechanism that separates the water corporation's revenues and the sale through the decoupling mechanism.' So this does not require that a decoupling mechanism be approved by the commission.

It basically requires that they consider an application and then they have to go through the typical process where they hear from all of the stakeholders and consider whether or not it meets the goals that they are charged to assure are met, and then of course this bill, I think, includes additional safeguards about the decoupling mechanism, one, that it be designed to ensure that their differences between actual and authorized water sales don't result in overrecovery or underrecovery, unauthorized decoupling mechanism shall not enable water corporations to earn a revenue windfall by encouraging high sales. I see some other language below it.

I assume that all of the issues related to equity and rate structure with respect to low-income communities and all of that is--and fair allocation of cost--would still be something that is, that happens before the PUC. Now am I reading that right or is that--I mean, this doesn't mean that a bad rate system that has decoupling would be approved by the commission because they still need to make all the findings they would need to make in the normal course. Is that right or am I missing something?

Madam Chair--and thank you for the question, Assembly Member--would agree. We're not seeking to re-rate the general rate case process here or the diff--or you know, deconstruct the elements of it. Those findings are still part of that process as you well know to your point, so I would agree.

But I would clarify that the section that you were referencing, that is existing law.

The part about the authorized decoupling?

Yeah.

The stuff on the bottom.

Yeah. 'The commission shall consider and may authorize a water corporation to establish program'--that is existing law, and so perhaps, I don't know if the PAO wants to comment on--the change that would be made here is 739.10.

Yeah, that's correct.

The vice chair is getting bored over here. Okay. 'The commission challenger that errors in estimates of demand, elasticity, or sales do not result in material overcollections or undercollections of electrical or water'--it adds 'or water' corporations to that.

So, but all those protections are there though. I mean this does not require the commission to approve--

Everything crazy.

Yeah. It doesn't require a rate mechanism with decoupling. They still have to go through the entire process. Is that, isn't that accurate?

They will still have to go through the standard process of rate case, but my understanding is that, yes, it will require them with a, with, you know, a usual lens, but they will, they are right now able to reject an application that proposes decoupling. That discretion will be removed by this measure.

Madam Chair, if I might--and Assembly Member, to your point, I mean I think the chair just articulated it--it's not prescriptive of an outcome. It ironically is availing this particular application to be applied in the water circumstance. It's already being used in other utility scopes. So it's--and that, the word that was articulated by the chair is the key word that you focused on.

Assembly Member Papan.

I've got--I need a little bit of illumination on the tiers as it relates in decoupling because you talked about aggressive tiers, and then I want to ask about the fixed rate with usage, because as I recall, if you're a big user, you can tier the usage. Granted, it may not get you the dollars you're looking for, but you can tier the usage with big users being charged more because they have more burden on the system, but I didn't understand how the decoupling worked and in the tiers part of it.

And you mentioned--okay--and you mentioned something about aggressive tiering to make sure that you're extra infrastructure is covered or picked up or is more equitable by the larger users. So walk me through that, if you would.

Okay, so rate design is a very difficult thing to do.

I want you to speak into the mic just a little louder.

Rate design is a very difficult thing to do, even for the, the CPUC.

And it's all reviewed. I'll stipulate that the CPUC is going to be a backstop here and they're going to review it in their rate case. I got that, and discretion is removed. Okay.

So the way we used to do rate-making in the old days, and as Assemblyman Patterson mentioned, they had a service charge and you have one tier, so you pay a service charge every month, a readiness to serve charge, and one tier for water. That service charge is just, you know, a fixed amount, you know, $50.

Then you pay say three or for dollars per service tier. Now when you introduce additional tiers--two, three, or even four tiers--that creates a lot of revenue uncertainty because we don't know as a water utility how much water precisely will be sold at each tier.

For example, if you have a big beautiful lawn and your spouse says, I didn't like our water bill last time, and you take out that lawn, all of a sudden your water usage will fall. So the projection we have at the higher tier doesn't materialize for that for us.

And if you multiply that over, you know, 500,000 customers, that adds up to be a lot. So that revenue instability that is caused by having tiered rates, decoupling allows you to address that because if your revenues don't materialize for all those capital projects you are planning, then you can go back after the end of the year and true that up.

And so without decoupling, what's happened right now at the CPUC in the most recent general rate cases that they've authorized, basically the service charges have been going up and the tiers are, their prices are going up as well with more dollars allocated to the lower tiers, which is not good for an elderly couple.

You mean more fixed dollars?

More. The rates are going up at the lower tiers because that reduces revenue instability. So without decoupling, that's what's going to happen and it's happening today.

Yes, but how do you deal with big water users if you're decoupling?

So the best way to get conservation--and I've said this all my career--is just to raise the price. So if you have a large water user, everybody eventually will be price-sensitive. So what we have seen industry-wide is higher rates result in greater conservation.

However, it's very difficult to predict how much water will be sold at those rates. We also have seen that when you raise the rates a lot, folks will take out their lawns, they'll stop washing their cars, they'll do other things, so they don't pay those higher rates.

Say but what does that do for purposes of infrastructure jobs that you needed to do and...because you got to do your true up.

That's right. Without decoupling, so those revenues that should have materialized at those higher tiers, they don't materialize. So that means the utility takes in less dollars and you go to your next general rate case three years later and you say, you know what, that didn't work for us, didn't materialize, we didn't have as much money to do our projects, we need to change the tiers. So it creates a lag in the process, if you will.

Did you want to answer?

I will agree that the rate-setting process is a complicated process and it's quite involved and it's done within an evidentiary record. We have not seen the results that have been indicated, at least not during the ten-year pilot study.

So if you don't collect enough, then you gotta go collect some more on the next go round? Fair to say?

That's right, or we don't do some projects we had planned. Yes.

Or you don't do the project you plan.

Sometimes.

Thank you, Madam Chair. All right, I have a couple, I have a couple of questions. So first, how is this different, if at all, how is this proposed decoupling mechanism different, if at all, from the way in which our electric utilities operate currently? Is this the same, Is this proposal before us the same or they're material differences?

Yes. It would replicate identically what's happening in energy rates for water. Yes.

Okay.

And I will just add it is challenging to compare the two just because of the history of energy decoupling. I think the analysis does a really great job of outlining the history of the Sam of the ERAM.

1982, the CPUC implemented, I believe it's 1982 implemented decoupling in energy rates in response to the historical context of where we were with rates and affordability at the time. Obviously, a lot has changed since 1982, the way that we structure our energy rates, our water rates, and the challenges have changed with them.

And so we didn't at the time, to my knowledge, study decoupling in energy rates the way before implementing it. I should say the way that we have studied decoupling in water rates. 10 years worth of data is a lot of data to operate, especially given that we can compare and contrast to prior to and after.

I hope that helps.

Okay, and then let me ask a question. Someone asked a question about profits and how profits will or will not change under this proposal. So today, if I go in to make my rate case and I say my forecast is $100, but I only actually end up collecting $90, then I get $90, I don't get $100. Right.

So under this mechanism, if I go in and I say my forecast is $100, I then I'm authorized to sort of set all of my rates and my collection schedule. So I'm definitely going to get $100. What if I only spend $90? Where does that $10 go?

Shareholders?

Yeah, we. The rate making. That's a great question, but it's unfortunately a bit too simple. Simple.

I'm trying to do simple math. Yes. You guys, you guys can't agree on the complicated math. So I'm trying to break the simple math down a little bit for you.

Rate making is done over period. We have a test year and two attrition years. What we do, what the CPU does, CPUC does, is set our test year rates and our next two years rates. However, we don't get those next two year rates if we don't invest as much money as they've given us.

In infrastructure, let's go back to profit. This is really easy. The CPUC sets revenue requirement. We recover all our costs and we earn a rate of return. That's the profit on our invested capital. If we make all our investments, we'll get that return.

If we do not run our business well, if we exceed the expenses authorized and do not receive recovery, we won't make any profit and my management team will be out of a job. That's just how it works. So profit can be measured by how you perform as a utility. Right.

That's performance of the business, performance of the managers, and that's where profit comes from. That profit that we, that rate of return that we get goes to do our debt service. We borrow a lot of money to do infrastructure improvement. It goes to pay dividends to our shareholders who also provide us capital for infrastructure.

My company, the second largest IOU in California, we do about 400400 to 500 million in capital investments every year. And we have to do that because our infrastructure is old and aging.

Right, but that's, I mean, everything you said is what happens today. So, and, and, and does this not change that calculation?