BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
MARTHA M. ESCUTIA, CHAIRWOMAN
SB 441 - Soto Hearing Date: April 19, 2005
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As Amended: April 11, 2005 FISCAL B
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DESCRIPTION
Existing law:
1. Requires the California Public Utilities Commission
(CPUC) to set the rates (tariffs) charged to customers of
investor-owned utilities (IOUs).
2. Requires the CPUC to conduct pilot studies of real-time
metering, which authorize the CPUC to adopt real-time
pricing tariffs.
3. Requires certain customers using distributed energy
resources to participate in a real-time metering and
pricing program, when available, in which rates for any
energy purchased from the IOU reflect the actual cost to
purchase the energy at the time it is consumed by the
customer.
This bill , with respect to existing "small" electric customers
(i.e., residential or small commercial customers with average
monthly consumption under 1000 kilowatt-hours, in pre-2005
buildings) who are not already subject to existing real-time
metering programs:
1. Prohibits the CPUC from requiring the installation of
"advanced metering infrastructure" (AMI), unless it finds
all of the following:
a. AMI will result in average electric rates for
residential and small commercial customer classes that
are lower than they otherwise would have been over the
following five years absent AMI.
b. AMI will result in more cost-effective peak
load reduction than cheaper alternatives, such as air
conditioner cycling programs and appliance efficiency
standards.
c. AMI-related communications technology is the
most cost-effective alternative in comparison with
other technologies.
d. Universal deployment in an entire utility
service territory is more cost-effective than partial
deployment in selected climate zones.
2. Authorizes the CPUC to include AMI costs in rates only
if the costs are offset by equal or great cost reductions
resulting from AMI use.
3. Prohibits placing a customer a default
time-differentiated (i.e. real-time or time-of-use) rate
without the customer's consent.
BACKGROUND
The value and price of electricity varies by time of day and
season. Consumption of electricity is much lower at 4:00 a.m.
than it is at 4:00 p.m. and so is the price. Traditional
mechanical meters record the total amount of electricity
consumed between readings, but do not record actual consumption
patterns (temporal data). Time-of-use or real-time meters
measure energy as it is being used, providing an exact reading
of how much energy was used at any given time.
Time-differentiated pricing refers to a system in which
customers pay their utility's actual cost of purchasing
electricity at the time it is consumed. To accomplish this,
customers must have real-time meters and the utility must have
communications equipment to read the meters and tariffs to bill
its customers at real-time rates. Collectively, this
constitutes "AMI."
Time-differentiated pricing contrasts with the current rate
system used by most residential customers, in which electricity
consumption is recorded on a gross monthly basis and customers
are billed at rates which reflect the system average cost of
electricity, regardless of whether the individual customer
consumed it during periods of high or low demand.
Time-differentiated pricing may also differ from time-of-use
(TOU) rates, currently used by commercial, industrial and
agricultural customers, as well as a small number of residential
customers. TOU rates establish two or three different prices
for different times of the day, and different rates for
different seasons, but do not reflect actual, day-to-day
variations in demand and price, which can be significant.
Time-differentiated pricing exposes customers to market price
signals and gives them reason to respond to those signals, e.g.
by using less electricity at times of peak demand, and more at
times of low demand. The absence of price-responsive demand
associated with fixed retail rates has been cited as a
contributor to spiking wholesale prices. Time-differentiated
pricing supporters believe it will result in reduced demand
during peak periods and empower customers to collectively
mitigate supplier market power by curtailing use when wholesale
prices spike. Actual customer response to time-differentiated
pricing has not been widely tested. Implementation of
time-differentiated pricing for customers of the IOUs would
require installation of AMI at significant cost to ratepayers.
According to The Utility Reform Network (TURN), sponsor of this
bill:
The CPUC is currently considering authorizing or requiring
IOUs to install AMI for their customers, including all
existing residential and small commercial customers,
regardless of their size or location. The IOUs have
requested to spend $120 million in 2005 for AMI. The
entire statewide cost of AMI installation is estimated at
several billion dollars. The CPUC has not conducted any
evidentiary hearings to determine whether universal
deployment of AMI for small customers will be
cost-effective for ratepayers. The claimed benefits of AMI
include operational benefits, such as outage detection and
reduced meter reading costs, as well as reduced costs of
generation due to shifting of peak load. The claimed
operational benefits alone have not been sufficient to
justify the costs of AMI, and may be achievable through
cheaper technologies. Further, residential peak load
reductions may be achievable more cost-effectively and
reliably through direct load control programs, appliance
efficiency standards and conservation measures. The CPUC
has not examined these questions in an evidentiary hearing.
COMMENTS
1. Boil it down. Existing law requires all utility charges
to be just and reasonable. This bill goes to considerable
length to say essentially "AMI charges must be proven just
and reasonable." It articulates a just and reasonable
standard for AMI charges according to the following
guidelines:
AMI will reduce rate over a five-year period.
AMI is more cost-effective than alternatives.
AMI communications technology is the most
cost-effective among alternatives.
Universal AMI deployment is more cost-effective than
partial deployment.
AMI expenses are offset by AMI savings.
Apart from these guidelines, the bill also requires a
customer's consent before a customer can be placed on
time-differentiated rate schedule.
This bill is drafted to respond to the specific
circumstances presented by a current CPUC proceeding. It's
not clear whether the specifics and undefined jargon in
this bill will remain relevant as circumstances change. In
short, the bill seems a bit over-engineered. The author
and committee may wish to consider simply defining AMI,
requiring the CPUC to find that AMI will save each customer
class more money than it will cost and requiring customer
consent prior to approving recovery of AMI costs.
1. Distinction for small customers unsupported.
Particularly if the recommendation above is adopted, it
doesn't make much sense to draw a distinction between small
and large customers. AMI costs will be more economical for
larger customers, as the AMI costs are relatively small in
proportion to electricity costs. But that just means it
will be easier for the CPUC to justify the expense based on
a simple "saves more than it costs" standard. If the bill
is to require the CPUC to find that AMI will save each
customer class more money than it will cost the class, the
author and the committee may wish to consider expanding its
application beyond small customers.
The distinction between new and old buildings make more
sense, as new buildings will need new meters anyway and the
installation cost will be lower than retrofitting meters at
existing buildings. If the new vs. old building provision
is retained, the author and the committee may wish to
consider changing the cutoff from 2005 to 2006, when the
bill would go into effect should it be enacted this year.
POSITIONS
Sponsor:
The Utility Reform Network
Support:
Coalition of California Utility Employees
Oppose:
California Manufacturers & Technology Association
Pacific Gas and Electric Company
Sempra Energy
Lawrence Lingbloom
SB 441 Analysis
Hearing Date: April 19, 2005