Residential Rate Reform / R.12-06-013

Introduction/Background

In 2001, manipulation of energy markets led to a shortage in energy supply and resulted in rolling blackouts across California. Since wholesale electricity prices rose in response to a reduced energy supply, California lifted the existing cap on retail rates. As a result, customers experienced significant electric bill impacts. To minimize these impacts, California passed legislation that froze residential electric rates at low (Tier 1) and mid-range (Tier 2) levels of consumption. Consequently, customers that consumed energy at higher levels (Tiers 3 and 4) were burdened with paying for electricity at prices that were above cost of service.

In 2013, Assembly Bill 327 (AB 327) was enacted into law to reform residential rates (among other things). The CPUC implemented this law through rulemaking, R.12-06-013, the Residential Rate Reform Order Instituting Rulemaking, which established a regulatory pathway for realigning rates to reflect a number of guiding principles.  These principles were outlined in the Assigned Commissioner’s Ruling [hyperlink] on Residential Rate Reform: 

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

In July 2015,  Decision D.15.07-001 provided direction to the IOUs regarding specific steps that must be taken to reform the residential rate design structure resulting in an envisioned end-state of default time of use (TOU) rates and an optional two-tier rate.  In effect, this meant converging (or consolidating) the utilities' multi-tiered rate structure down to just two tiers, gradually over time. These steps and milestones are outlined below:   

  1. Continue the tier consolidation process (as described by this decision), including adjusting California Alternate Rates for Energy (CARE) and Family Electric Rate Assistance (FERA) discounts to reflect tier convergence.
  2. Implement a minimum bill.
  3. Institute a special outreach program to educate lower tier customers on no-cost and low-cost conservation measures.
  4. Promptly begin the process of improving rate comparison tools and educational materials so that customers can more readily understand their energy bills.
  5. Promptly begin the process of designing TOU pilots (both opt-in and default), as well as study design for TOU opt-in rates.

In addition to the steps above which began in 2015, D.15-07-001 set a course for residential rate reform over the next few years, including the following requirements:

  1. The IOUs must evaluate opt-in and pilot TOU rates in preparation for widespread enrollment in TOU.
  2. The IOUs must file a residential rate design window (Residential RDW) application no later than January 1, 2018 that proposes default TOU rate structure to begin in 2019, assuming that the statutory conditions have been met.
  3. The IOUs must provide regular updates on progress toward rate reform and the Residential RDW application, including presenting an annual update, regular workshops, and quarterly reporting.
  4. Permits the IOUs to make a new request for a fixed monthly charge, but only after certain conditions have been met.

Decisions and Documents

Research and Pilots

In order to better understand how to implement time-of-use rates and other aspects of rate reform, the CPUC, the IOUs and other stakeholders have engaged in research on customer attitudes about rates, and how customers respond to various pilot time-of-use rates.

Rate Design Qualitative Research

On direction from the CPUC, the three IOUs conducted ‘design thinking’ research with customers to better understand their general concerns about rates and how they would design rates and adapt to time-of-use rates.

Statewide Opt-in Time-of Use Pricing Pilot 

On direction from the CPUC, the three IOUs conducted opt-in time-of-use pilots to inform the eventual default of residential customers onto time-of-use rates.

CARE Restructuring Research

On direction from the CPUC, the three IOUs provided datasets on CARE to better understand the needs of those on CARE and to facilitate discussion on how the structure of the program might be modified

Progress on Residential Rate Reform (PRRR)

Pursuant to the D.15-07-001, the IOUs must submit to the Commission and parties periodic updates on the progress of their efforts to assist customers with residential rate design changes related to rate reform, including tier collapse and transition to a default time of use rate. All Quarterly Reports can be found on the Docket Card for R.12-06-013.

Meetings and Associated Documents

The CPUC is in the process of holding Rate Design Forums to discuss and answer questions about customer rate and bill impacts associated with residential rate reform, including transition from four to two rate tiers and to default time of use rates in 2019. In addition, the economic and environmental benefits of these new rates, and the CPUC’s plans to work closely with utilities and communities to ensure that consumers are ready for these changes will also be discussed. Following this short presentation, members of the public can make comment and ask questions.

  • Dec. 4, 2017: Residential Electric Rate Summit
  • CPUC Rate Design Forums

Contacts

Please contact Paul Phillips at paul.phillips@cpuc.ca.gov regarding the status of the Residential Rate Reform proceeding.