PG&E Presentation to KCBOS 100302 final

The Unintended Consequences of the State’s Mishandling of Utility

Regulation: PG&E Residential Electric Tiered Rates, Prop 16 and

A Proposal for ConsiderationPart I

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Presented byMichael Turnipseed

Kern County Taxpayers Association March 2, 2010

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PG&E Residential Electric Tiered Rates

PG&E annually seeks approval from the CPUC to collect the cost of generating, transmitting, and distributing power to its residential customers.

The average unit “charge” rate for electricity is known as the Revenue Requirement Rate.

PG&E’s tiered rates are far from being average!

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Sacramento Municipal Utility District’s (SMUD) average residential cost to generate, transmit, & distribute electricity is $0.169/kWh for 2010.

Los Angeles Dept. of Water & Power’s (LADWP) average residential cost to generate, transmit, & distribute electricity is $0.165/kWh for 2010.

PG&E’s average residential cost to generate, transmit, & distribute electricity is $0.187/kWh for 2010.

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SMUD’s 2010 top tier residential electric rate: $0.179 / kWh

LADWP’s 2010 top tier residential electric rate: $0.176 / kWh

PG&E’s 2010 top tier residential electric rate: $0.498 / kWh 2/26/2010 filing to CPUC proposes lowering to

$0.414 and raise Tier 3 to make up shortfall for reducing Tier 4 & 5 rates!

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PG&E Residential Electric Tiered Rates In 2010 PG&E is seeking approval from the CPUC to

collect $4.7 billion through its 5-tier residential rate structure, an increase of $313 million. Tier 5 Rate = $0.498 / kWh.

PG&E portrays the average rate increase as 5.7% (factoring in Tiers 1 thru 5 kWh volume sales) when in reality it is closer to 9% ( factoring out Tiers 1 and 2 volumes as these rates are still effectively frozen). 25% of PG&E’s electric sales will bear nearly 100% of this

increase! 75% of PG&E’s electric sales will be minimally impacted!

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75% of kWh sold at these rates

25% of kWh sold loaded with 100% of cost increases

75% of kWh sold at these rates

25% of kWh sold loaded with 100% of cost increases

* Rate Filing Submitted to CPUC 2/26/2010

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52% = the % of revenue collectedfrom Tiers 3 – 5 for kWh sales

25% = the % of revenues required from Tier 3 – 5 residential ratepayersto recover costs of kWh sales

Revenue Requirement Revenue Collected

March 1, 2010 Rates

52% = the % of revenue collectedfrom Tiers 3 – 5 for kWh sales

25% = the % of revenues required from Tier 3 – 5 residential ratepayersto recover costs of kWh sales

Revenue Requirement Revenue Collected

June 1, 2010 Proposed Rates

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Tier 3 and above ratepayers controlling their electric costs by conserving power usage will drive up electricity rates.

Why?

Fewer units sold into total costs results in a higher unit cost.

Tiers 3 through 5 are targeted for majority of cost increases due to legislative and regulatory design.


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AB1890 (froze rates) and AB1X (created 5-tiers) resulted in PG&E setting and the CPUC approving a tiered rate structure that does not reflect PG&E’s actual costs of generating, transmitting, and distributing energy to residential users.

PG&E’s Tier 3-5 rates have led to a substantial reduction of Central Valley and warm region ratepayer wealth stemming from paying electric bills unrepresentative of PG&E’s underlying cost to serve its ratepayers.

PG&E’s rate and baseline structures need drastic restructuring!


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AB1X advantages cooler climate areas’ residents by loading cost increases into Tiers 3 through 5, which are more common usage ranges in hot and warmer regions where electric usage is higher due to A/C cooling.

WHEN IT’S 105⁰ OUTSIDE AND 90⁰ INSIDE IT’S HARD NOT TO USE AIR CONDITIONING, REGARDLESS OF THE SIZE OF A HOUSE OR TIME OF DAY!

PG&E’S RATE STRUCTURE IS PRODUCING CONSERVATION THROUGH DEPRIVATION OF HOME ENJOYMENT.


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Per PG&E, since 2001, with Tier 1 and 2 rates frozen, 100% of ALL cost increases including higher commodity costs, increased costs of infrastructure investment ( $2.2 billion in Smart Meters), general inflation, and all losses incurred on Tier 1 and 2 and CARE sales have been passed on to Tiers 3 through 5 usage sales, which account for less than 25% of total residential sales! 48% of PG&E’s residential electric customers, who purchase about

75% of PG&E’s electricity, have incurred virtually no rate increase since 2001.

52% of PG&E’s customers, who purchase less than 25% of PG&E’s electricity, have borne all cost increases and have been charged for all losses on Tiers 1 and 2 and CARE sales!


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Estimates Based on 2009 Revenue Requirement Filing

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% Revenue % kWhRate Class 1996 2001 2010 Collection Usage

T 1 & 2 $3 Bil $2.2 Bil $2.2 Bil 48% 75%T 3 - 5 - $1.2 Bil $2.4 Bil 52% 25%

Total $3 Bil $3.4 Bil $4.6 Bil

% Revenue % kWh

Rate Class 1996* 2001** 2010 Collection UsageT 1 & 2 $0.122 $0.122 $0.122 65% 75%T 3 - 5 - $0.204 $0.381 204% 25%

Rev Rqmt $0.110 $0.148 $0.187

* AB1890 froze Tier 1 & 2 rates

Revenue Collection

Average Rate - $/kWh

** AB1X created 5 Tier structure and required all future revenue increases be collected from Tiers 3-5

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PG&E’s Tier 3 - 5 electric rates are causing enormous sums of money to be taken out of Kern County and other Central Valley towns to pay for losses PG&E is incurring on 75% of its electric sales.

What enables PG&E to sell 75% of its residential electricity at a 35% loss and still remain profitable?


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This chart reflects the dramatic cost disparity between PG&E’s 2010 summer charges when compared to Sacramento Municipal Utility District’s (SMUD) and Los Angeles Department of Water and Power’s (LADWP).

A Sacramento resident using 2500 kWh of electricity this coming summer will be charged approximately $394. That is $438 lower than PG&E’s charge!

While the two regions’ climate characteristics are nearly the same, why should a Bakersfield resident be paying $438 more for the same amount of power?

PG&E’s average cost of providing residential service (revenue requirement rate) is within a penny of SMUD’s!


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A PG&E customer pays almost the same as a SMUD or LADWP customer up through a usage level of 1000 kWh a month.

Above 1164 kWh of usage, the level where Tier 4 pricing kicks in reflecting reliance upon A/C for summer cooling, the cost to a PG&E customer starts to dramatically increase from a SMUD or LADWP customer.

ANY MONTHLY USAGE APPROACHING 2500 KWH AND THE PG&E CUSTOMER CAN EXPECT TO PAY TWICE THAT OF A SMUD OR LADWP CUSTOMER!


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Bakersfield customers and other Central Valley arid and hot region residential customers that use A/C to cool their homes in the summer are making up the loss on 75% of PG&E’s sales through a baseline use structure with a top tier rate of $0.498($0.474?)/kWh.

PG&E’s Tier 3 thru 5 rates are negatively impacting Central Valley residents’ monthly finances.

There is no “average” electric use or temperature in PG&E’s huge service territory.

While Pismo enjoys 70⁰ temperatures Bakersfield swelters under 105⁰ heat – both regions are served by PG&E.


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Cases in contrast – July 2009 Electric Bill

A San Francisco customer using 400 kilowatt hours of electricity in July 2009 can expect to pay $48 amounting to a 35% loss against PG&E’s cost of $72, Average rate paid - $0.115 % of Total Usage covered by Baseline – 100%

While a Bakersfield customer using 4000 kilowatt hours of electricity can expect to pay $1,448 amounting to a 100% gain against PG&E’s cost of $723. Average rate paid - $0.354 % of Total Usage covered by Baseline – 19%

PG&E’s 2009 revenue requirement rate (cost of generation, transmission, & distribution of electricity) was $0.177 per kWh.

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Central Valley residents are being deprived of the full enjoyment and use of their homes out of fear of high cost electric bills for cooling in summer months.

The same can’t be said about residents living in LA, Sacramento, San Francisco, or cooler regions of the state.

Market values of Central Valley homes will be negatively impacted by high utility bills due to the total monthly cost of home ownership i.e., mortgage payment, utilities, insurance, and property taxes.

Home mortgage lenders will loan less leading to lower market values and lower assessed values. Ultimately, property tax revenues will be reduced in the Central Valley.


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Home Market & Property Tax Value ImpactFrom High Utility Rates

PG&E Central Valley Customer Annual Utility Bill $8,900

PG&E Central Valley Customer @ SMUD Rates $4,900

Central Valley "Above Market" PG&E Rate Cost $4,000

Market Ask Price: Bakersfield Home $550,000

Debt Equivalent of "Above Market" PG&E Rates ($95,000)

Market Bid Price: Bakersfield Home $455,000

Property Tax @ Market Bid Price $5,460

Property Tax @ Market Ask Price ($6,600)

Property Tax Effect on "Above-Market" PG&E Rates ($1,140)

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Surprisingly, the fix is simple – reset rates so that the highest tier rate is no higher than 120% of the average cost of residential service!

PG&E’s FY2010 Tier 5 rate of $0.498 per kWh is 166% higher than the PG&E’s revenue requirement rate of $0.187 per kWh. Setting a cap at 120% would lower PG&E’s Tier 5 rate to

$0.224 per kWh and create a fairer overall rate structure.

PG&E’s rates need to be simplified back to a two-tiered structure.

PG&E’s baseline usage allowances need to be eliminated.


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If a tiered rate structure is priced to promote conservation, all customers regardless of where they live should share equally in that responsibility and effort.

Residential electric usage should be charged at 100% of PG&E’s cost to generate, transmit and distribute electricity i.e., the revenue requirement rate.

Discounted rates for income considerations should be handled through the CARE program and not through baseline allowances or tiered rates.


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KERNTAX’s PROPOSAL

With all this said, KERNTAX respectfully requests that your Board put the following referendum on the June ballot to protect the rights of Kern County electric ratepayers that have no option but to purchase their electricity from the State/CPUC/PG&E monopoly:

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KERNTAX’s PROPOSALWe the voters of Kern County do hereby authorize the Kern

County Board of Supervisors to take the following actions for the economic benefit of the County:

Review all current Franchise Agreements with utility companies. Encourage local municipalities to do the same.

Determine the electric load and needs of Kern County residents.

Review, study and analyze the operating practices and pricing models of Los Angeles Water and Power, Pacific Gas and Electric Company, Sacramento Municipal Utility District, Southern California Edison Company, and San Diego Gas and Electric Company.

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KERNTAX’s PROPOSAL Take all necessary actions to insure Kern County residents have

fair and equitable electricity rates, including, but not limited to: Negotiating with current providers or other electric

generating companies to insure Kern County residents have access to fair and equitable electric rates. The top tier rate should not exceed the required revenue rate/cost of power by more than 20 percent.

Seeking state legislation requiring fair and equitable electric rates statewide, much like a postage stamp rate.

Filing legal action on behalf of Kern County electric ratepayers seeking fair and equitable electric rates.

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KERNTAX’s PROPOSALAnd finally, if all else fails, study the practicality and

feasibility of establishing a county or even Central Valley-wide municipal utility district and if needed, establish a Municipal Utilities District to serve ratepayers in a fair, equitable manner. Municipalities, with their own franchise agreements, can opt out and keep their existing franchises.

The Kern County Taxpayers Association respectfully requests that your Board adopt this referendum by March 12, placing it on this June's ballot.

Documents

PG&E Presentation to KCBOS 100302 final