CITY COUNCIL AGENDA REPORT
City of Anaheim
PUBLIC UTILITIES DEPARTMENT
DATE: MARCH 26, 2024
FROM: PUBLIC UTILITIES DEPARTMENT
SUBJECT: PROPOSED MODIFICATIONS TO THE ELECTRIC AND WATER
RATES, RULES AND REGULATIONS
ATTACHMENT (Y/N): YES ITEM # 13
GOVERNMENT CODE § 84308 APPLIES: NO
RECOMMENDATION:
That the City Council, by Resolutions:
1) Determine that the modifications to the Electric and Water Rates, Rules and Regulations are exempt under the California Environmental Quality Act pursuant to Public Resources Code section 21080(b)(8) and sections 15061(b)(3) and 15273(a) of Title 14 of the California Code of Regulations;
2) Adopt the modified Electric Rates, Rules and Regulations as reflected in the proposed Rate Schedules D, GS-1, GS-2, TOU, TES, PA, LS, MS, TOU-2, Developmental D-TOU-L, Developmental D-EV, and Developmental D-EV-2, which do not materially increase rate-related revenues, and Rule Nos. 26 and 29, which provide increased assistance to income-qualified residential customers, effective May 1, 2024, and April 3, 2024, respectively; and 3) Adopt the modified Water Rates, Rules and Regulations as reflected in the proposed Rate Schedules W-CA, W-SRA, W-G, and W-PFL, which do not materially increase rate-related revenues, and Rule No. 26, which provides increased assistance to income-qualified residential customers, effective April 3, 2024.
DISCUSSION:
At its meeting on February 28, 2024, the Public Utilities Board (Board) conducted public hearings and recommended that the City Council approve these actions.
Anaheim Public Utilities’ (APU) primary objectives include providing safe, reliable, high- quality electric and water service to customers while maintaining affordable rates. Article 12 of the Anaheim City Charter limits rates to the recovery of costs to serve customers.
Through the following actions, APU proposes to make modest adjustments to its electric and water rates to better align with current costs, and to enhance income-qualified customer program offerings:201 S. Anaheim Blvd.
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Proposed Modifications to the Electric and Water Rates, Rules and Regulations March 26, 2024
1) Revenue-Neutral Electric Rate Alignment: Decrease both the Power Cost Adjustment (PCA) and the Environmental Mitigation Adjustment (EMA) components of electric rates with corresponding increases to electric base rates; 2) Revenue-Neutral Water Rate Alignment: Decrease the Commodity Charge and increase the Customer Charge component of water rates, and modify text and formulas contained in water rate schedules; and
3) Increase Income-Qualified Discounts: Amend Electric and Water Rules No. 26, increasing the energy and water discount for income-qualified senior, long-term disabled, and military veteran customers; and amend Electric Rule No. 29, allowing adjustments to increase the income-qualified discount for eligible residential electric customers without solar panels.
These modifications are discussed in further detail below. 1) Revenue-Neutral Electric Rate Alignment
APU proposes to make modest adjustments to its electric utility rates, by lowering certain variable rate components with corresponding increases to base rates to better align with current costs. The alignment still encourages conservation as over 90% of typical household bills will be based on usage.
The City Council authorized the Rate Stabilization Adjustment, which includes the PCA and EMA components, primarily to keep customers’ electricity bills relatively stable despite historic and recurring volatility within the electricity industry stemming from the wholesale energy market, electric operations risks, and an evolving regulatory and legislative environment. These rate adjustments allow for costs, thought to be temporary in nature, such as a spike in fuel prices or the cost of securing additional resources during high demand summer months, to be recovered modestly over a finite duration of time.
Without such a rate stabilization mechanism, addressing such challenges may result in customer bills spiking; as an example, while many customers experienced high natural gas prices in 2023, APU was able to continue serving customers without significant bill impacts. APU has utilized this rate recovery mechanism to prevent such occurrences, resulting in residential electric rates that have increased, on average, by only 1.5% annually over the last decade and that are approximately 40% lower than other electric utilities serving Orange County.
Over time, costs that the PCA and EMA recover stabilize and represent ongoing obligations to meet operational, strategic, and risk management needs. For example, APU entered into medium and long-term fuel contracts to mitigate exposure to volatile gas prices, secured additional power purchase agreements to meet grid reserve requirements, and entered into long-term agreements to meet State regulatory requirements. Base rates, comprised of customer, energy, and demand charges, are more appropriate to recover such ongoing costs rather than the PCA and EMA. Accordingly, the proposed restructuring aligns base rates with ongoing costs needed to serve customers, while the PCA and EMA more accurately reflect limited duration costs that may adjust upward or downward when needed.
Proposed Modifications to the Electric and Water Rates, Rules and Regulations March 26, 2024
2) Revenue-Neutral Water Rate Alignment
APU proposes modest modifications to its water rate structure to better align the fixed water rate component with fixed costs, while minimizing customer bill impacts. The Customer Charge is a fixed rate component that recovers costs incurred regardless of customer usage; however, even with the proposed adjustments, rates will still encourage conservation as nearly 80% of a typical household bill will be based on usage. Resulting bill impacts may vary slightly based on a customer’s meter size and amount of water consumed, but an average residential customer using 16 hundred cubic feet (HCF) or nearly 12,000 gallons of water per month would see a modest bill reduction of less than 1% or a bill of $72.82.
Because APU’s fixed costs related to serving water customers have risen in proportion to total water utility costs over time, APU proposes to increase the Customer Charge, a flat monthly charge, and decrease the Commodity Charge, a variable charge based on the amount of water consumed. APU’s current Customer Charge has not changed since 2016, but numerous ongoing costs have increased during this time, including costs to provide expanded customer service options, costs to maintain reliable and secure customer information systems, and costs to operate and maintain water technology systems. The proposed changes result in a Customer Charge for average residential customers that is approximately 29% below the average flat monthly charge of all water agencies in Orange County.
Two additional proposals affect the WCA and WSRA rate schedules but will not impact water rates at this time. With state mandates aimed at restricting irrigation of non-functional turf and curbing water use by 15% by 2035, APU proposes to prepare for such mandates by updating the WCA formula to incorporate costs related to complying with regulatory and/or legislative mandates on water use efficiency, drought resilience, and other related measures.
To address significant escalation in material and construction bids, APU also proposes to change the maximum allowable increase to the WSRA during a 12-month period from 7.5¢ to 10¢ per HCF. While there are no customer bill impacts at this time resulting from these formulaic and other changes, they are necessary to keep up with challenges facing the water industry related to future droughts, environmental regulations, and infrastructure needs. 3) Increase Income-Qualified Discounts
APU recognizes that its proposed rates may impact customers differently, particularly customers whose flat monthly charge may represent a higher percentage of their total bill.
Income-qualified customers who are seniors, long-term disabled, or military veterans are currently eligible to receive a discount on their residential electrical charges as reflected in Electric Rule No. 26 and/or on their residential water charges as reflected in Water Rule No. 26. APU proposes to increase these energy and water discounts from 10% to 12% for individually metered customers, while also increasing the flat discount for eligible master- metered electric customers from $10 to $15 per month and for eligible master-metered water customers from $5 to $10 per month.
Another program that helps income-qualified customers is the Community Solar Discount Program covered in Electric Rule No. 29. This program provides income-qualified residential customers with access to solar energy from an APU-owned solar facility and a monthly energy discount. Language in the rule currently limits APU’s ability to increase Proposed Modifications to the Electric and Water Rates, Rules and Regulations March 26, 2024
the monthly energy discount in a timely manner when sufficient funding is available. APU proposes modifications to adjust the program discount based on customer participation levels in order to increase the amount of bill assistance for electric customers. Current participation levels allow for increasing the monthly discount from $10 to $20.
Public Hearings
On February 28, 2024, the Board conducted public hearings, in accordance with Section 909 of the City Charter, regarding the proposed modifications to the Electric and Water Rates, Rules and Regulations. Notices of the public hearings including the electric and water rate proposals were published on four occasions between February 8, 2024, and February 19, 2024, in the Anaheim Bulletin and Orange County Register. The public hearing notices included the hearing time, date, and location. All public hearing documentation was made available for public review at all city libraries open for in-person service, the City Clerk’s Office, and on the city’s website on or about February 16, 2024.
At each of the two public hearings, no members of the community spoke in opposition to these proposed modifications, with one resident at the water rate hearing commenting about a water notice he kept from the 1960s. At the conclusion of each of the two public hearings, the Board recommended that the City Council, by Resolutions, approve the proposed modifications to the Electric Rates, Rules and Regulations and Water Rates, Rules and Regulations.
IMPACT ON BUDGET:
The proposed rate schedule modifications are revenue-neutral. The proposed rule modifications to discount programs are expected to result in approximately $200,000 in additional bill assistance to income-qualified residential customers.
Respectfully submitted,
Dukku Lee
Public Utilities General Manager
Attachments:
1. Resolution which includes:
Attachment A - Proposed Electric Rates, Rules and Regulations Rate Schedules Effective May 1, 2024
Attachment B - Proposed Electric Rates, Rules and Regulations Rule Nos. 26 and 29 Effective April 3, 2024
2. Current Electric Rates, Rules and Regulations Rate Schedules and Rule Nos. 26 and 29
3. Resolution which includes:
Attachment A - Proposed Water Rates, Rules and Regulations Rate Schedules Effective April 3, 2024
Attachment B - Proposed Water Rates, Rules and Regulations Rule No. 26 Effective April 3, 2024
4. Current Water Rates, Rules and Regulations Rate Schedules and Rule No. 26