BILL ANALYSIS 1 1 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE DEBRA BOWEN, CHAIRWOMAN SB 659 - Soto Hearing Date: April 22, 2003 S As Amended: April 21, 2003 FISCAL B 6 5 9 DESCRIPTION Existing law requires all investor-owned utility (IOU) residential electricity charges to be based on volume (i.e. no fixed charges) and prohibits IOUs from imposing any new fixed charges. These provisions sunset on December 31, 2003. This bill makes this provision permanent, but allows an exception for a reasonable minimum monthly bill. BACKGROUND AB 29X (Kehoe), Chapter 8, Statutes of 2001-02 First Extraordinary Session, added Public Utilities Code Section 739(c)(3) to prevent any new fixed electricity charges from being imposed on residential IOU customers. These provisions, which were binding on the California Public Utilities Commission (CPUC) "(a)t least until December 31, 2003," were approved by this committee on March 29, 2001. The primary purpose of AB 29X was to fund a variety of energy efficiency and conservation programs. The provision prohibiting any new fixed charges was intended to maintain customers' incentives to conserve by ensuring people with very modest consumption would pay for energy, transmission and distribution costs only according to the electricity they use, and not via any fixed charges. Prior to AB 29X's enactment, Southern California Edison proposed to establish a fixed customer charge of approximately $17, which some believe would shift some electricity charges from high-volume users to low-volume users. Absent this bill's enactment, the CPUC could permit new fixed charges beginning next year. According to the sponsor, this bill encourages rate-setting on a basis that's environmentally-sound and doesn't disadvantage low- and moderate-income consumers. COMMENTS 1.Do purely volumetric charges put utilities and customers at odds over conservation? Basing electricity charges purely on consumption gives customers an incentive to use less, but it may give IOUs an incentive to deliver more, since IOUs' revenues then depend on the amount of electricity they deliver. Thus, the IOUs' incentive to maximize revenues competes with their customers' incentives to cut costs. The effect on overall electricity use of the IOUs' incentive is mitigated by ratepayer-funded energy efficiency programs, but as long as IOUs are primarily responsible for managing these programs, they face conflicting incentives. Rewarding IOUs for delivering more electricity is counterproductive to the extent it perpetuates disincentives for improved energy efficiency and conservation. Depending on their design, fixed charges can neutralize the IOUs' incentive to deliver more electricity, but they can also disadvantage people who use very little electricity. 2.Minimum bill vs. fixed charge. As it was heard in this committee on April 8, this bill required all charges for residential electric customers to be volumetric, and not fixed. This applied to charges for the electric energy itself, but it also included the charges for delivering the energy (i.e., transmission and distribution). However, many transmission and distribution costs are fixed, and are not related to individual customer demand (i.e. the same pole, wire, and meter are required to deliver one kilowatt or 1000 kilowatts). As amended, this bill now permits a reasonable (as determined by the CPUC) minimum monthly bill . A minimum bill allows an IOU to recover basic costs of serving a low-volume customer, while preserving the policy that, once the minimum is reached, all charges must be based on consumption. In contrast, a fixed charge is a charge all customers would have to pay on top of all of their consumption-based charges. This bill still prohibits such fixed charges. POSITIONS Sponsor: The Utility Reform Network (TURN) Support: California Coalition of Utility Employees Oppose: Sempra Energy Southern California Edison Lawrence Lingbloom SB 659 Analysis Hearing Date: April 22, 2003