Long-Awaited California Residential Rate Design Reform Proposed at California Public Utilities Commission

On April 21, two Administrative Law Judges at the California Public Utilities Commission issued a long-anticipated proposed decision on residential rate design reform for the 3 large investor-owned utilities (IOUs) in California.  The long-term vision of the Proposed Decision is to prepare for widespread enrollment of residential customers in time-of-use (“TOU”) rate schedules with a default TOU rate structure beginning in 2019.

The 305-page Proposed Decision (not including exhibits) is the culmination of a contentious 3-year long effort to evaluate various proposed rate reforms aimed at taking advantage of the installation of advanced metering infrastructure (AMI), the increased prevalence of distributed generation, and a desire to encourage residential customers to conserve during peak use periods.

The 3 large IOUs currently have 5 tiers of rates (with a differential between the top and bottom tiers of upwards of 90%) – the proposed decision narrows the number of usage tiers to 2 (with only a 20% differential between the top and bottom tiers) and does not impose any fixed charges or default TOU rates until after the tiers have been consolidated and narrowed.    The idea for 2 tiers is to ensure “that low-usage customers should continue to pay a lower rate than high-usage customers.”  However, having only 2 flatter tiers may reduce some of the incentive for implementing distributed generation (i.e., limits a customer’s incentive to invest in distributed generation as a means to reduce their overall usage from the higher, more expensive tiers).

The proposed decision outlines some immediate steps to be taken by the IOUs:  1) consolidate the existing tiers and adjust low-income programs to reflect the consolidation; 2) implement a minimum bill for summer 2015; 3) institute a special outreach program to educate low-tier customers on no-cost and low-cost conservation measures; 4) promptly begin the process of improving rate comparison tools and education materials so that customers can more readily understand their energy bills; and 5) promptly begin designing TOU pilots.

The Proposed Decision did not take off the table the contentious issue of fixed charges, but delayed any implementation of a fixed charge until 2019 at the earliest.

We expect to see a great deal of lobbying for revisions to the Proposed Decision, and would not be surprised to see an Alternate Decision come out of one of the Commissioner’s offices.   The Proposed Decision is very unlikely to be the end of this story.  Stay tuned.