Ratepayer Protection Act: Sometimes consumers, utilities really do cooperate

It’s rare for consumer groups and utilities to collaborate, but not impossible.  The Ratepayer Protection Act (SB 695) recently signed into law by the Governor is the result of lengthy and arduous negotiations between utilities and consumer groups, and provides huge benefits for California residential ratepayers.  The Ratepayer Protection Act limits baseline rate increases for residential ratepayers of PG&E, Southern California Edison, and SDG&E, expands consumer protections, and strengthens industry regulation.  It is also proof that compromise between parties with seemingly disparate interests is possible.

In the aftermath of the deregulation disaster of 2001—when Enron ran off with billions and ratepayers got stiffed with the bills—a special session of the legislature passed AB 1X, a law that instituted a rate freeze on baseline electricity usage to keep bills affordable for low energy users.  By 2008, years of allocating rate increases exclusively to higher, above-baseline energy use resulted in price differentials that were enormous.  For instance, all PG&E customers paid about 10¢ per kilowatt hour for their baseline allowance, but by the time they consumed over 300% of the baseline allowance, for example, by running air conditioners during a hot month, they paid 43¢ per kilowatt hour.     

With pressure increasing to grant these customers some relief, it was clear that developing a plan to partially lift the freeze would provide greater long term rate and consumer protection than if we had waited for the legislature to panic as a result of another crisis – one whose storm clouds were already gathering on the horizon.

The Ratepayer Protection Act limits baseline rate increases to no more than the Consumer Price Index plus 1%, with an additional cap providing further protection.  More importantly, the baseline rate is capped at 90% of the system average rate, guaranteeing that residential customers will benefit from the same type of discounted rates enjoyed by large industrial customers.  Increases to baseline rates for low–income customers who receive CARE discounted rates are linked to increases in CalWorks low-income family assistance grants.  The goal with this provision is to limit rate increases for low–income residents to increases in their major source of income.

The Ratepayer Protection Act also expands vital consumer protections.  A fair sharing among all ratepayers for funding of low–income CARE discounts is now written into law, protecting consumers from the repeated attempts of utilities to dump CARE costs from large industrial users onto small residential customers.  Low–income customers with high energy usage will receive assistance in reducing their bills by targeting energy efficiency measures to multi–family apartments and non profit affordable housing providers.   

Consumer protections from controversial Time Of Use (TOU) rates—higher rates for peak afternoon hours and very hot summer days—include no implementation until 2014 at the earliest, and a requirement that each customer receive a full year of billing education and another year of bill protection in case the new rates produce higher bills.  

Medical baseline customers and those participating in Third Party Notification will  be exempt from the new TOU rates, but may sign up voluntarily.  Most importantly, TOU rates cannot be forced on customers.  Instead of mandatory TOU rates, utilities will be permitted to implement a default program where, although everyone is automatically signed up, all residential customers are free to opt out with no penalty or fee.

The energy industry did not walk away from the negotiations empty-handed.

Direct access, the ability of large customers to bypass utility companies and buy their electricity directly from other retail providers, had been frozen by AB1X over industry objections.  The Ratepayer Protection Act permits a phased–in reopening of direct access under strictly limited circumstances and with stronger regulatory oversight.   All retail providers of electricity will be required to meet state–mandated targets for renewable energy and greenhouse gas reductions.  In addition, industrial direct access customers are required to share in the costs of new generation.  Most importantly, there is a prohibition against shifting direct access costs from the industrial customers to residential customers.

The Ratepayer Protection Act represents a net gain for consumers.  Two years of advocacy by the Division of Ratepayer Advocates, Utility Consumer Action Network, and The Utility Reform Network, with utility companies, the California Public Utilities Commission, representatives of other retail providers, and wholesale energy generators has yielded a bill that not only expands consumer protection, but sets the stage for future collaborations that protect consumers as well.  

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