California Public Utilities Commission Adopts Framework for Assessing Utility Service Affordability (R.18-07-006)

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By Madison Orcutt

At its meeting on July 16, 2020, the California Public Utilities Commission (CPUC) unanimously voted to adopt a decision (D.20-07-032) adopting metrics and methodology for assessing the relative affordability of utility service—specifically, electricity, natural gas, water, and communications services to residential customers [Agenda Item 44]. The CPUC first opened this proceeding by initiating an Order Instituting Rulemaking in July 2018. [24:1 CRLR 138–40; 24:2 CRLR 190–191; 25:1 CRLR 222–223; 25:2 CRLR 167] Moving forward, the CPUC will use these metrics in rate-setting proceedings and publish an annual report on the affordability of utility services in California.

The legislature charges the CPUC with making energy, water, and communications services affordable under various sections of the Public Utilities Code. At the July 16, 2020, meeting, Commissioner Rechtschaffen noted that in the past, the CPUC “tend[ed] to view these services individually, one application at a time, one industry at a time.” He went on to explain that in developing this affordability framework, the CPUC sought to understand the affordability of all essential utility services rather than viewing individual bills in isolation.

Throughout this proceeding, consumer advocacy groups and utility companies questioned the CPUC’s ability to adequately assess affordability. [25:1 CRLR 222–223] The decision ultimately adopted by the Commission defines affordability as, “the degree to which a representative household is able to pay for an essential utility service, given its socioeconomic status.”

The Commission adopted three metrics to aid it in understanding how Californians are faring when it comes to paying for essential utilities: the socioeconomic vulnerability index (SEVI), the affordability ratio (AR), and hours at minimum wage (HM). The first metric, SEVI, uses publicly available data from the California Office of Environmental Health Hazard Assessment to measure the socioeconomic vulnerability of a given census tract. The SEVI metric describes the relative socioeconomic characteristics of communities. This metric allows for a deeper understanding of how the same rate impact may affect one community’s ability to pay more than others. The second metric, AR, seeks to quantify the percentage of a household’s income that is required to pay for an essential utility after removing housing costs from income. In essence, the AR metric analyzes the ratio of essential utility service charges to disposable household income. The third metric, HM, is the result of dividing the essential service charge for any given utility service by the minimum wage in that area. In this way, HM demonstrates how other variables, like minimum wage rates, impact the affordability of utility bills.

The decision referenced certain issues that the CPUC will continue to refine in the second phase of this proceeding; the decision also noted that the CPUC expects to issue an amended scoping memo to further outline these issues and to extend this proceeding’s statutory deadline pursuant to section 1701.5 of the Public Utilities Code. The CPUC’s plans during this second phase include (1) developing tools for calculating these metrics, (2) refining the methodologies for calculating these metrics, and (3) making these metrics publicly available and accessible.

The decision concludes with an order directing Pacific Gas and Electric Company, Southern California Edison Company, and San Diego Gas and Electric Company to each submit quarterly rate and bill tracker tool information to the Commission’s Energy Division, and work with CPUC staff during a second phase of the proceeding with respect to using the rate and bill tracker tool for evaluating affordability metrics’ inputs and other ongoing support of the Commission’s work. The order became effective on July 16, 2020.

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