Electricity pricing policies for California

There appear to be substantial opportunities for improving the pricing of electricity. The ERCDC staff's analysis indicates that the traditional rate forms are not adequate in the present context. Rapidly rising costs and increasing demand have produced the problems of seemingly constant rate increases for consumers and earnings instability for utilities. Present rate forms are not designed to contend with the new set of circumstances. Many states have re-examined electricity rates and in California, the legislature has passed lifeline legislation and instructed both the Public Utilities Commission and the ERCDC to examine alternatives to existing rate forms. This report represents the ERCDC staff response to the legislative mandate to undertake such an analysis. Following a brief introductory chapter, Chapter II defines the three primary functions (maintenance of the financial health of the utility, efficient resource allocation, and fair distribution of electricity costs) of electricity rates and discusses the need to balance the three functions in order to develop optimal pricing policies. Chapter III presents an overview of traditional pricing and discusses deficiencies of these practices. Chapter IV examines and evaluates alternatives to traditional practices (time-of-use pricing and marginal-cost pricing). Chapter V presents the report's findings and conclusions.