Affordability
Important Update: CPUC issues 2019 Annual Affordability Report on April 29, 2021 (CPUC Press Release)
Background
Water, energy, and telecommunications services should be affordable. On July 12, 2018, the California Public Utilities Commission (CPUC) issued an Order Instituting 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:
- Develop a framework and principles to identify and define affordability criteria for all utility services under CPUC jurisdiction; and
- 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:
- Identification and definition of affordability criteria for CPUC - jurisdictional utility services.
- Methods and processes for assessing affordability impacts across Commission proceedings and utility services.
- 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:
- Affordability issues related to customer classes other than residential customers.
- Evaluation of the effectiveness of existing affordability programs or creation of new customer programs to assess affordability.
- New approaches to disconnections and reconnections.
- Pacific Gas and Electric Company's Essential Use Study D.18-08-013 issued in PG&E's General Rate Case (GRC).
2019 Annual Affordability Report
D.20-07-032, issued in July of 2020, directed Commission staff to develop an Annual Affordability Report that would include an assessment of affordability of electricity, natural gas, water, and communications services using the most recent data available. The Commission issued the first of these annual reports on April 29, 2021, and it can be found at https://www.cpuc.ca.gov/2019-Annual-Affordability-Report/.
For all of the utility services evaluated, affordability outcomes among low-income households show a great deal of disparity: the majority of households are located in areas where utility costs make up a modest proportion of household budgets, but a substantial number of households are located in areas where utility costs comprise an alarmingly high percentage of low-income household budgets. This suggests that statewide efforts to address equity issues stemming from utility affordability should be geographically targeted.
Across all four services, low incomes are the primary driver of low affordability. Affordability tends to be the lowest in areas where income is low for both low- and median-income households, where even a small charge for essential service takes up a disproportionate amount of the household budget. In some cases, disproportionately high essential service charges also play a role. As with incomes, expensive utility service tends to be geographically distinct: areas with the highest essential service charges also tend to have low incomes, resulting in a double burden of expensive service and a low ability to pay for it.
The results can be viewed in interactive map format at https://www.cpuc.ca.gov/2019-Annual-Affordability-Report/.
Decision
In July 2020, the CPUC issued D.20-07-032 adopting metrics and methodologies for assessing the relative affordability of public utility service under the Commission’s jurisdiction. (CPUC Press Release)
The Decision defined affordability as the degree to which a representative household is able to pay for an essential utility service charge, given its socioeconomic status. A “representative household,” rather than households in general, recognizes that households will have a wide variety of experiences that cannot be perfectly captured by depicting a single household. “Essential utility service charge” refers to the costs borne by a representative household for the quantity of utility service required to enable a ratepayer’s health, safety, and full participation in society. “Socioeconomic status” refers to the social and economic standing of a given household.
The Decision also states that three independent, but related, metrics allow for the creation of a more complete picture of affordability than any one metric could provide on its own. The three metrics are: 1) the affordability ratio, 2) the hours at minimum wage, and 3) the socioeconomic vulnerability index
The Affordability Ratio (AR) metric quantifies the percentage of a representative household’s income that would be used to pay for an essential utility service, after non-discretionary expenses such as housing and other essential utility service charges are deducted from the household’s income. The higher an AR, the less affordable the utility service. The AR may be calculated for a single essential utility service, a combination of services, or all essential utility services combined. See how this metric plays out at a specific geography using our AR interactive map.
The Hours at Minimum Wage (HM) metric quantifies the hours of earned employment at the city minimum wage necessary for a household to pay for essential utility service charges. The minimum wage-based metric also implicitly considers the impact of essential utility service charges on lower-income customers regardless of the socioeconomic conditions of the community as a whole. See how this metric plays out at specific minimum wage jurisdictions using our HM interactive map.
The Socioeconomic Vulnerability Index (SEVI) metric represents the relative socioeconomic standing of census tracts, referred to as communities, in terms of poverty, unemployment, educational attainment, linguistic isolation, and percentage of income spent on housing. This metric therefore considers how a rate change may affect one community’s ability to pay more than another’s. See how this metric plays out at the census tract level using our SEVI interactive map.
Workshops & Proposals
Revised Staff Proposal (issued on January 27, 2020)
Workpapers
February 27, 2020 workshop recording (password: AR20webinar)
Webinar presentation
August 26, 2019 workshop recording
Staff Proposal
January 22, 2019 workshop recording
Panel Presentations
Other Related Links
Disconnections and Reconnections (R.18-07-005)
Low income rate assistance programs for Class A water utilities Rulemaking (R.17-06-024)
Investor-owned utilities' residential rate reform rulemaking (R.12-06-013)
PG&E Essential Use Study (D.18-08-013) Issued in PG&E's General Rate Case (GRC Phase II)
Please direct inquiries related to the Affordability Rulemaking (R.18-07-006) to Jefferson Hancock at JHO@cpuc.ca.gov.