BILL ANALYSIS
SB 441
Page 1
Date of Hearing: June 20, 2005
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Lloyd E. Levine, Chair
SB 441 (Soto) - As Amended: May 26, 2005
SENATE VOTE : 23-12
SUBJECT : Electricity: rates: advanced metering infrastructure.
SUMMARY : Prohibits the California Public Utilities Commission
(PUC) from requiring the installation of advanced metering
infrastructure (AMI) unless it is deemed feasible.
Specifically, this bill :
1)Makes findings that the PUC is currently considering AMI, has
expended a specified sum, and has not conducted hearings to
determine the cost-effectiveness for customers.
2)Prohibits the PUC from requiring the installation of AMI on
any building constructed prior to January 1, 2006, and
occupied by a customer with annual average usage of less than
1,000 kilowatt hours (kWh) per month (most residential and
small commercial) unless it first finds that the installation
of the AMI will save each customer class more than it will
cost.
3)Prohibits an electrical corporation from placing a
time-differentiated rate schedule or other rate schedule on
any customer with annual average usage of less than 1,000 kWh
per month using AMI without the customer's consent.
EXISTING LAW requires the PUC to conduct a pilot study that
evaluates the net benefits of providing real-time meters and
usage information to residential and small commercial customers
to determine the degree of customer responsiveness to price
changes. In addition, current law requires electrical
corporations to file tariffs that provide for optional off-peak
demand service, including availability of time-differentiating
meters, to agricultural producers.
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, the purpose of this bill is
to protect ratepayers by ensuring that if the PUC adopts
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time-differentiated electricity rates for residential or small
commercial customers, it only applies those rates on a voluntary
basis, and provides evidence that net-metering is cost
effective.
1) What is AMI : AMI is the infrastructure that allows utilities
to measure customer usage on a real-time basis and to read
customers' meters remotely. Current residential and small
commercial customers use meters that only measure the gross
amount of electricity used and does not measure usage based on
time of day, which makes it difficult to implement different
pricing strategies intended to reduce peak demand. AMI includes
real-time meters and the utility's communications equipment that
remotely reads the meters to bill customers based on their time
of use.
The installation of AMI is intended to assist the utilities with
reducing peak demand by permitting them to charge a different
retail price to reflect the utility's actual wholesale cost of
electricity. According to the PUC, most large commercial and
industrial investor-owned utility (IOU) customers with a peak
demand exceeding 200 kW currently have real-time meters and are
placed on time-of-use rates. In addition, AMI can reduce
administrative costs through increased automation by linking the
meter-reading and billing procedures.
2) Demand-reduction pricing methods : Some of the most popular
pricing designs intended to reduce demand during peak periods
include time-of-use, critical-peak pricing, interruptible rates,
and real-time pricing:
Time-of-use : Time-of-use rates are based on three time
blocks during the day: super-peak (weekdays 3:00 p.m. to
6:00 p.m.), peak (weekdays 12:00 p.m. to 3:00 p.m.), and
off-peak (all other hours). By charging more during peak
and even more during super-peak times when incremental
costs of procuring energy are highest, time-of-use rates
are intended to discourage energy usage during the
higher-priced time blocks.
Critical-peak pricing : Permits the utilities to "call"
about 15 days per year when higher prices will be in
effect. The day prior to an anticipated emergency or
critical period, the utility notifies its customers, either
via telephone or the Internet, of critical-peak prices the
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following day during certain hours. This can be combined
with either time-of-use prices or "smart thermostats" that
permit the utilities to remotely change the settings.
Interruptible rates : Apply extremely high rates during
declared emergencies, and provide a price break the
remaining time. Interruptible programs are not always
reliable and are notoriously very costly for all ratepayers
to fund the price break.
Real-time pricing : Applies time-varying retail prices
by the hour. Most economists claim that real-time pricing
most efficiently allocates scarce energy resources.
3) This train has left the station : This bill would require
the PUC to first find that the installation of AMI will save
each customer class more than it will cost. Over the past two
years, the California Energy Commission (CEC), the PUC, and the
utilities conducted a pilot project that tested different types
of pricing programs to identify the most effective program at
reducing demand during peak periods. Only residential and small
commercial customers participated in the pilot project, which
included a total of 2,491 customers. The project's pricing
mechanisms included time-of-use rates and two types of
critical-peak pricing methods.
The pilot project revealed that critical-peak pricing, along
with day-ahead notification and smart thermostats, decreased
residential customers' peak demand by an average of 34.5
percent, and 47.4 percent on the hottest day. Small commercial
customers who participated in the critical-peak pricing program
decreased peak energy usage by an average of 19.9 percent over
all critical-peak days, and up to 33.1 percent on the hottest
day. No data were provided for the time-of-use sample.
The PUC has issued directives to all IOUs to establish
comprehensive time-of-use tariffs and metering programs in order
to reduce peak load energy demand. The PUC is currently
reviewing the merits of each IOU's metering proposal and
evaluating the effectiveness of each option in an ongoing
proceeding (R.02-06-001). The process includes public
evidentiary hearings and the conclusions drawn will be based on
evidence submitted by the utilities and other stakeholders. As
such, the SB 441 provision that requires the PUC to first find
that AMI would save customers more than it will cost, is already
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underway. However, there is concern that the PUC is not
strictly evaluating the true costs and benefits of deploying AMI
and dynamic pricing methods. In addition, the PUC may not be
taking into account the $35 million appropriation from ABX1 29
(Kehoe), Chapter 8, Statutes of 2001, that funded advanced
meters to 22,000 large commercial and industrial customers. As
such, the committee may wish to amend this provision to require
the PUC to specifically evaluate the costs of deploying the AMI
with the potential benefits derived by all customer classes.
4) Restrictive parameters : This bill would prohibit the PUC
from requiring the installation of AMI needed to institute the
most effective pricing models revealed by the pilot project, on
almost all residential and small commercial buildings
constructed after January 1, 2006. The State pilot project
concluded that residential and small-to-medium commercial and
industrial customers prefer real-time rates to the existing
relatively flat rates. The pilot project revealed that for
residential customers, 80 percent preferred critical-peak and
time-of-use rates over the conventional rates. This shows that
most customers would curtail consumption during peak demand
periods, which may reduce the need for costly generation,
transmission, and distribution infrastructure. Based on the
pilot-project findings, by precluding all existing residential
and small commercial customers from participating in alternative
pricing methods, this bill would restrict the potential benefits
that could be derived by implementing pricing mechanisms that
would reduce peak demand. The committee may wish to eliminate
the provision that would preclude the PUC from requiring IOUs
from installing AMI on specific buildings.
5) Will AMI save ratepayers money : The pilot project showed
that 71.1 percent of residential customers experienced cost
savings under the critical-peak pricing with the day-ahead
notification, while 28.9 percent incurred cost increases. For
small-to-medium commercial customers, 80.3 percent incurred
savings, while 19.7 percent incurred increases. The Utility
Reform Network funded a study that estimated that 60 percent of
residential customers would end up paying more for electricity
because the small customers could not recover the cost of meters
by changing their usage patterns. The methodology assumed
energy consumption using secondary data such as household size
and annual income. The PUC and CEC pilot project used primary
data that was derived specifically to address the issue of
alternative pricing mechanisms. As such, the State's
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conclusions may reflect greater accuracy.
6) If it's discretionary, it won't work : Some ratepayer
advocates are concerned that costs may exceed the benefits with
regard to residential customers. There is concern that costs to
impose the new meters on residential customers may exceed the
amount of savings derived by decreased consumption. Because
residential usage is so small, savings would be nominal in
contrast with the large users.
According to the University of California Energy Institute,
real-time rates would result in over $100 million per year of
surplus gain if it were implemented on only the large commercial
and industrial customers. Gains would be achieved by
implementing real-time prices on all classes, however, the large
customers would have the greatest impact on decreasing peak
demand. In addition, any type of demand-reduction program
cannot be voluntary and must be imposed on all users to render
benefits. A voluntary program would not render reductions in
peak demand, because those with "peakiest" demands are unlikely
to join. The committee may wish to eliminate the provision that
require a customer's consent prior to placing a
time-differentiated rate schedule using AMI.
OTHER LEGISLATION :
AB 1009 (Richman) would have required the PUC to develop
time-of-use pricing tariffs and require real-time meters for
customers of IOUs. The bill failed passage in this committee.
The committee members voiced concern because it directed the PUC
to impose a pre-determined pricing mechanism, instead of
permitting the PUC to complete a public proceeding to derive its
findings. This bill, SB 441 (Soto), would also pre-determine a
pricing mechanism by directing the PUC to impose specific
restrictions prior to the completion of an adequate review
process.
REGISTERED SUPPORT / OPPOSITION :
Support
The Utility Reform Network (Sponsor)
Coalition of California Utility Employees (CUE)
Office of Ratepayer Advocates (ORA)
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Opposition
California Manufacturers and Technology Association
California Public Utilities Commission
Pacific Gas and Electric Company (Oppose unless Amended)
Sempra Energy
Silicon Valley Leadership Group (formerly SVMG) (Oppose)
USCL Corporation (USCL) (Oppose)
Analysis Prepared by : Gina Mandy / U. & C. / (916) 319-2083