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Affordability

Water, energy, and telecommunications services should be affordable. On July 12, 2018, the CPUC instituted a Rulemaking (R.18-07-006) to assess the impacts on affordability of individual CPUC proceedings and utility rate requests.

Specifically, the goals of this proceeding are to:

  1. Develop a framework and principles to identify and define affordability criteria for all utility services under CPUC jurisdiction; and
  2. Develop the methodologies, data sources, and processes necessary to comprehensively assess the impacts on affordability of individual CPUC proceedings and utility rate requests.

Within the scope: Issues determined to be within the scope of the proceeding include:

  1. Identification and definition of affordability criteria for CPUC - jurisdictional utility services.
  2. Methods and processes for assessing affordability impacts across Commission proceedings and utility services.
  3. Other issues relating to the CPUC's consideration of the affordability of utility services.

Outside of the scope: Issues determined to be outside the scope include:

  1. Affordability issues related to customer classes other than residential customers.
  2. Evaluation of the effectiveness of existing affordability programs or creation of new customer programs to assess affordability.
  3. New approaches to disconnections and reconnections.
  4. Pacific Gas and Electric Company's Essential Use Study D.18-08-013 issued in PG&E's General Rate Case (GRC) Phase.

Background

Californians rely on utility services, including electricity, gas, water, and telecommunications, to live, and work. The CPUC's commitment to ensuring these services remain affordable and accessible to Californians is articulated in Strategic Directive (SD) 04 on Rates and Affordability and SD 05 regarding Universal Access.

Although the CPUC has regularly considered issues of affordability in a variety of forums, it currently lacks a working definition of what is meant by "affordable," as well as a framework to consistently and comprehensively analyze affordability issues across individual proceedings and utility services.

Part of the challenge in defining and measuring "affordability" is determining the appropriate scale and targeted threshold. For example, energy burden, or the ratio of the median cost of a service to the median income, is one of the simplest metrics used to evaluate affordability today; however, an evaluation of energy burden will have very different results if conducted on a statewide vs. local regional level, while the results may have different meanings to different people.  A second challenge in defining affordability is that the term is relative to factors that often evolved over time, some of which are under the purview of the CPUC, many of which are not. For utility service, more fundamental factors include utility service rates, customer demand for services, and customer income and other expenses. Each of these factors is in turn impacted by other external factors that are continually in flux; utility rates are affected by utility infrastructure procurements, commodity costs, reliability and safety requirements, and other utility operating costs. Demand for services is affected by things like climate, weather, building technology, income and social status, family size and age, and conservation practices. Incomes are derivative of a number of complex socio-economic factors, which can change in response to market fluctuations or as individual circumstances change (e.g., loss of a job, or medical disability).

Despite these challenges, the CPUC has developed a number of affordability metrics that are used to support the decision-making process of many proceedings. Unfortunately, there is no readily available list of these metrics, the methods used in their development, the data that was used in making them, or the proceedings in which they were developed. In general, however, these metrics can be categorized into three classes:

  • Rate impact metrics: These are the most common metrics used by the CPUC to assess affordability of services, and are generally used as part of the general rate case (GRC) process. System Average Rates (SAR) serve as a high-level example of a rate impact metric, but GRCs typically go into more detail to estimate the rate impact for various customer segments.
  • Household-level metrics: These metrics assess the financial impact of utility service on an individual household. Perhaps the most common of these household metrics is the energy burden - the ratio of the cost of the service to the household income. Another household metric that is increasingly discussed is a residual income metric, which is a measure of the income that is left over after paying utility bills.
  • Market-level metrics: Market-level metrics assess the affordability impact to a particular population. The affordability impact of programmatic and tariff design changes fall into this category (see for example the Residential Rate Reform Rulemaking (R.12-06-013)).

Each of these affordability categories addresses some specific issue of decision-making – e.g., setting rates for customer classes, determining strategies to mitigate cost for low income communities, or evaluating the effectiveness and reach of programs. These categories, however, address just three types of the affordability issues that the CPUC faces. Additional categories of affordability metrics, such as affordability for populations at risk, and service accessibility, might focus on other issues. The goal of this Rulemaking is to develop a sufficient range of metrics to be able to guide decision-makers in assessing affordability issues, including the many potential factors that impact affordability.

Workshops

January 22, 2018 Workshop

9 a.m. - 4:40 p.m.

505 Van Ness Ave., San Francisco, CA 95814

Agenda

Panel Presentations

Webcast Recording

Timeline

Event Date
  OIR Issued   July 12, 2018
  Scoping Ruling   November 19, 2018
  Workshop   January 22, 2019
  Additional Workshops (as necessary)     TBD
  Staff Proposal   TBD
  Comments on Staff Proposal   TBD
  Reply Comments on Staff Proposal   TBD
  Proposed Decision   No later than 90 days after submission.
  CPUC decision   No sooner than 30 days after the proposed decision

Affordability Related Links

Please direct inquiries on all aspects of the Affordability Proceeding to: RRD@cpuc.ca.gov


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