Microsoft Word - R2207005 Joint Large IOU Testimony (4.7.23).docx

Proceedin

.: R.22-07-005

Exhibit No.: Joint IOUs-01

Witnesses: See Table of Contents

Joint Testimony of Southern California Edison

Company, Pacific Gas and Electric Company, and

San Diego Gas & Electric Company (the Joint IOUs)

Describing Income-Graduated Fixed Charge

Proposals

Joint IOUs’ Exhibit 1, addressing:

- Policy

- Rate Design

- Income Verification

- Implementation

- Marketing

- Cost Recovery

Before the

Public Utilities Commission of the State of California

April 7, 2023

Testimony Describing Joint IOUs’ Income-Graduated

Fixed Charge Proposals

Table Of Contents

Section Page Witness

-i-

I. POLICY .......................................................................................................1 M. Backstrom

A. Introduction ......................................................................................1

B. The Joint IOUs’ Residential Rate Proposals Comply with

Assembly Bill 205............................................................................2

1. Benefits of the Joint IOUs’ Proposals Compared

to Current Residential Rates ................................................6

a) Improving Equity by Bringing Rates Closer to

Cost of Service. ............................................................... 6

b) Addressing Affordability and Protecting Low-

Income Customers. ......................................................... 8

c) Encouraging Beneficial Electrification. ........................ 10

d) Promoting Bill Stability and Maintaining

Strong TOU Price Signals. ............................................ 14

2. The Joint IOUs’ Proposals Will Apply to All

Residential Rate Schedules ................................................15

3. The Joint IOUs’ Proposals Are Consistent with

Rate Design Principles. ......................................................16

C. The Joint IOUs’ Proposals Should be Adopted as Soon as

Possible. .........................................................................................18

D. Income Verification Should Be Performed By State

Agencies and Not The IOUs ..........................................................18

E. Robust Marketing, Education, and Outreach Will be

Required .........................................................................................20

F. Conclusion .....................................................................................21

II. RATE DESIGN .........................................................................................22 G. Morien

R. Thomas

C. Kerrigan

A. Introduction ....................................................................................22 

1. Summary of Proposals .......................................................22 

B. Background ....................................................................................24

1. Recent Rate Design Policy Issues ......................................24

2. Next 10 Research on Potential Fixed Charges ...................28

3. The Joint IOUs’ Proposals Align with

Modernized Rate Design Principles ...................................32

Testimony Describing Joint IOUs’ Income-Graduated

Fixed Charge Proposals

Table Of Contents

Section Page Witness

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C. Basis for the Average IGFC Level .................................................34

1. Methodology for Determining Average Fixed

Charge Level ......................................................................34

D. Income Graduated Fixed Charge Discount Levels ........................42

1. Summary ............................................................................42

a) Lower Average Monthly Bills for Low-

Income Customers ........................................................ 43

E. Impact of the IGFC on Rates and Other Rate Design

Issues ..............................................................................................44

1. Impact of the IGFC on Volumetric Rates ..........................44

2. Adjusting the IGFC Over Time for Revenue

Requirement Changes ........................................................45

3. IGFC Review and Assessment Over Time ........................46

4. CARE Discount Structure Changes ...................................47

5. FERA Interaction with IGFC .............................................49

6. Implementation of the IGFC on Non-Default

Residential Rates ................................................................50

7. Size Differentiation ............................................................51

8. Elimination of Minimum Bills ...........................................53

B. Calibration Mechanism for Structure Revisit ................................53

C. Public Tool Results ........................................................................54

III. INCOME VERIFICATION .......................................................................55 R. Alvarez

C. Coughlan

M.Fischlein

A. Introduction ....................................................................................55

1. Income Assignment and Verification - Objectives

and Evaluation Criteria ......................................................55

D. Stakeholder Input ...........................................................................58

1. Key Stakeholder Input .......................................................58

E. Income Definition ..........................................................................58

F. Household Income Brackets ..........................................................59

G. Income Verification Options Evaluated by the Joint IOUs ...........60

1. Introduction ........................................................................60

2. Using Current Program Information ..................................61

3. Using Available State Processes ........................................62

Testimony Describing Joint IOUs’ Income-Graduated

Fixed Charge Proposals

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a) DSS’s “CalFresh Confirm” Data .................................. 62

b) CPUC/ Third Party LifeLine Low Income

Program for Telecom Utilities ...................................... 64

4. Using Credit Agency Data .................................................65

5. Using Customer Stated or Verified Income Data ..............68

6. IOU Developed Data Model ..............................................73

7. Key Findings on Evaluated Options ..................................74

8. Recommendation ...............................................................76

H. Income Verification and Appeals Process .....................................78

1. Income Verification Ownership and

Implementation ..................................................................78

2. High Level Utility Process Overview ................................82

a) Initial Income Bracket Assignment .............................. 82

b) Appeals Process and Customer-Initiated

Income Updates ............................................................ 85

c) Periodic Refresh ............................................................ 89

I. Currently Projected Costs of Joint IOUs’ Proposal .......................89

J. Anticipated Costs for CPUC-Supervised Third Party

Income Verification .......................................................................90

1. High-Level Cost Estimates for the Other Major

Scenarios Evaluated but not Recommended – In-

House IOU Income Verification ........................................93

K. Timeline for Implementation of Third-Party Income

Verification ....................................................................................94

IV. IMPLEMENTATION ................................................................................96 N. Kane

M.McCutchan

E.Molnar

A. Introduction ....................................................................................96

B. Implementation Objectives and Plan Overview ............................97

C. Billing Information Technology System Changes .........................98

1. Implementation Timing ...................................................100

2. Approach to Transitioning Customers .............................102

3. Updates to Current Customer-Facing Tools ....................103

4. New Tools ........................................................................103

D. Coordination with Community Choice Aggregators ...................104

Testimony Describing Joint IOUs’ Income-Graduated

Fixed Charge Proposals

Table Of Contents

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E. Customer Support Resources - Contact Centers ..........................104

F. Costs .............................................................................................105

1. Implementation Costs ......................................................105

2. Measurement and Evaluation ...........................................107

G. High-Level Estimates of Timing and Cost for Other

Anticipated Proposals ..................................................................107

V. MARKETING EDUCATION & OUTREACH ......................................109 A. Bernhardt

B. Kopec

E. Wasmund

A. Introduction ..................................................................................109

B. Research Insights .........................................................................109

1. PG&E ...............................................................................109

a) Stimuli ..............................................................................110

b) Key Findings ....................................................................111

2. SDG&E ............................................................................113

3. SCE ..................................................................................113

C. Joint IOU ME&O Proposal’s Objectives .....................................114

D. Lessons Learned from Residential Time-of-Use

Transition Inform IGFC Outreach Strategies ..............................115

E. Plans to Refine Outreach Plans Based on Findings from

Additional Research .....................................................................117

F. Target Audiences .........................................................................117

G. Rollout and Implementation ........................................................118

H. Messaging Phases and Customer Journey ...................................120

I. Integrated Campaign Tactics .......................................................122

J. Community Outreach Tactics ......................................................125

1. Community Based Outreach (CBO) ................................125

2. Joint IOU Employee Outreach .........................................126

3. External Stakeholders: .....................................................126

K. Metrics and Tracking ...................................................................126

L. Budget ..........................................................................................126

Testimony Describing Joint IOUs’ Income-Graduated

Fixed Charge Proposals

Table Of Contents

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VI. COST RECOVERY .................................................................................128 R. Madsen

G. Morien

E. Pulgar

A. Introduction ..................................................................................128

B. Cost Recovery and Rate Making Proposal ..................................130

1. Cost Recovery Advice Letters Filings .............................130

2. Income Graduated Fixed Charge Balancing

Account (IGFCBA) ..........................................................131

1. Recovery of the IGFCBA Via the PPP Rate

Component .......................................................................134

2. Recovery of Income Verification Costs through

State Funding ...................................................................134

C. Recovery of Authorized Costs via the IGFC ...............................135

D. IGFC Calibration Mechanism ......................................................136

Testimony Describing Joint IOUs’ Respective Income-Graduated

Fixed Charge Proposals

List Of Tables

Table Page

-vi-

Table I-1 Illustrative Proposed IGFCs ..............................................................................................5

Table II-2 Illustrative Proposed IGFCs ............................................................................................24

Table II-3 Illustrative Summary of Impacts to Default Rates ..........................................................24

Table II-4 PG&E Default Rates Compared to Marginal Cost Metrics ............................................35

Table II-5 Illustrative Fixed Cost Revenue Requirement Categories in the

Public Tool ($/month charge) – Residential Non-CARE Customers ............................37

Table II-6 Revenue Requirement Categories Underlying the Joint IOUs’

Proposed Fixed Charges and Resulting Reductions in the Volumetric Rate Component

........................................................................................................................................38

Table II-7 IOUs’ Volumetric Rate Adjustment Methodology by Rate Schedule ............................44

Table II-8 SDG&E Illustrative CARE Bill Comparison .................................................................48

Table II-9 SCE Illustrative CARE Bill Comparison ........................................................................48

Table II-10 PG&E Illustrative CARE Bill Comparison ..................................................................48

Table III-11 Joint IOUs Percentage of Residential Customers by Income Brackets .......................60

Table III-12 Summary of Each Joint IOU’s Internal Costs to Support our

Recommended CPUC-Supervised Third-Party Approach to IGFC Income Verification

........................................................................................................................................90

Table III-13 Comparison of Third Party Income Verification Implementation Costs ....................92

Table IV-14 Joint IOU Residential Rates Impacted by IGFCs ........................................................99

Table IV-15 Implementation Milestones ........................................................................................102

Table IV-16 Estimated Implementation Costs by IOU ...................................................................106

Table V-17 Useful Lessons from Residential Default TOU Transition to Inform IGFC ...............116

Table V-18 Joint IOUs’ Proposed Phased IGFC Communication Sample ....................................120

Table V-19 Initial Estimates of ME&O Costs, by IOU ..................................................................127

Testimony Describing Joint IOUs’ Respective Income-Graduated

Fixed Charge Proposals

List Of Figures

Table Page

-vii-

Figure I-1 Residential Rate Design Across the U.S. .........................................................................8

Figure I-2 Average Annual Percent Difference by Income Bracket ................................................10

Figure I-3 California’s Decarbonization Accomplishments and Future Goals ...............................11

Figure I-4 Current California GHG Emissions Inventory Data .......................................................12

Figure I-5 SCE Example: Non-CARE Inland Income Bracket 3 Customer Energy

Burden Comparison .......................................................................................................14

Figure II-6 2021 Next 10 Report Theoretical Fixed Charges - PG&E ............................................30

Figure III-7 Proposed High Level Chart of Entities Involved In Administration

and Implementation of Income Bracket Assignment and Appeal Process ...................81

I. 1

POLICY 2

A. Introduction 3

Current residential rate structures based primarily on volumetric rates do not reflect cost 4

of service, are not equitable, and do not send appropriate price signals to encourage broader 5

adoption of greenhouse gas (GHG) reducing technologies. The artificially high volumetric rates 6

in existing residential rate structures pose affordability challenges for many lower- and 7

moderate-income customers, very high bills for larger users, and monthly bill volatility. 8

In contrast, the Joint IOUs’ proposals to combine an Income Graduated Fixed Charge 9

(IGFC) with lower volumetric rates on all residential rate schedules will improve equity. Our 10

proposals will bring customers’ rates closer to the cost to serve them, result in greater month-to-11

month bill stability, and provide low-income customers with bill reductions, on average, relative 12

to the current rate structure. The lower volumetric rates will also encourage decarbonization by 13

making transportation and building electrification more affordable. More cost-based electricity 14

prices will compare more favorably to prices of gasoline and natural gas. As detailed in the 15

remainder of this chapter, these reformed residential rate structures are urgently needed to 16

support achievement of the state’s decarbonization goals. 17

The Joint IOUs’ proposals are designed to support the policy goals discussed, and since 18

customer acceptance of rate reform is key, continued customer research and marketing, 19

education, and outreach (ME&O) is needed to ensure customers have a positive experience. The 20

Joint IOUs’ proposed outreach and communication will make the reformed rate structures 21

transparent and understandable to customers and explain the expected overall benefits. 22

An important part of the Joint IOUs’ proposal is the recommendation that income 23

verification for purposes of assigning customer households to the appropriate IGFC level be 24

administered by a Third Party contractor supervised by the California Public Utilities 25

Commission (CPUC or Commission), as is done for the LifeLine program for 1

telecommunication companies.

The Joint IOUs today perform a limited form of income 2

verification in the narrow context of opt-in discount programs such as the California Alternate 3

Rates for Energy (CARE) program (where customers agree in their application to provide 4

requested income information, in order to qualify). However, the process of assigning all of 5

California’s residential electric customers to income categories is unprecedented, and requires 6

capabilities and processes that are best administered by a state agency – and are far beyond prior 7

utility experience and capabilities. Adding the resources and systems necessary for the energy 8

utilities to perform such income validation would not be cost effective. Doing so also raises 9

sensitive issues of consumer privacy, cybersecurity, and utility-customer relations. For these 10

reasons, as described in Chapter 3 of this Exhibit, income verification should be overseen by a 11

state agency, such as the CPUC, and likely conducted by a qualified third party that would apply 12

the necessary protocols to ensure a fair and positive customer experience. 13

B. The Joint IOUs’ Residential Rate Proposals Comply with Assembly Bill 205 14

In mid-2022, the California legislature, through Assembly Bill (AB) 205, removed the 15

statutory language requiring default residential rates to be almost exclusively charged on a 16

volumetric basis and provided a framework to make the residential electricity rate structure more 17

equitable. That bill’s amendments to Public Utilities Code § 739.9 now allow the CPUC to take 18

the next step in needed residential electric rate reforms, by collecting through a set IGFC costs 19

that do not vary volumetrically or are more equitability collected in a fixed charge. A fixed 20

charge alone results in volumetric rates more in line with cost of service, which help to control 21

high bills and bill volatility associated with event-driven higher usage, and greatly enhance the 22

widespread electrification efforts needed to achieve our state’s GHG reduction goals. AB 205 23

aims to offer all customers better price signals while also providing additional affordability 24

See R.22-07-005, Phase 1 Track A: Income-Graduated Fixed Charge Guidance Memo at p. 9.

protections for low-income customers through the IGFC. The Joint IOUs and other parties have 1

already briefed the CPUC on statutory interpretation issues relating to AB 205. Because the 2

CPUC has not yet ruled on those AB 205 legal issues, each party was directed to assume that its 3

own brief’s recommended interpretation of the statute is adopted. That directive was followed 4

herein as well as in each of the Joint IOUs’ individual rate calculations. 5

The Joint IOUs have developed a common, modernized rate design structure that 6

balances several key objectives, including supporting increased affordability for lower- and 7

moderate-income customers while also helping the state achieve its decarbonization goals in a 8

more equitable and affordable manner relative to the status quo. 9

The Joint IOUs have worked together, in collaborative discussion with a wide range of 10

other parties (including through Energy Division workshops) to carefully consider a range of 11

potential IGFC approaches. While each IOU is separately providing individual Rate Design 12

Exhibits based on its unique revenue requirements, customer distributions, and service options, 13

all proposals are guided by the following key principles: 14

 Provide a better aligned cost-based residential rate structure that collects costs in a 15

more equitable manner from all customers through an IGFC; 16

 Support a more progressive residential rate structure for customers that matches 17

income ranges with the level of monthly fixed charge each customer pays, providing 18

affordability and bill relief for vulnerable lower income customers through lower 19

volumetric rates and the IGFC; 20

 Encourage electrification by reducing volumetric rates for all customers, providing a 21

stronger economic basis in electric rates for customers to adopt cleaner electrification 22

technologies; 23

 Provide increased bill stability for customers because a portion of a customer’s bill 24

will remain flat and predictable from month to month; and 25

 Maintain strong price signals during critical energy and grid hours through time-of-1

use (TOU) rate differentials that encourage customers to save by shifting use out of 2

these high-cost hours. 3

Today, lower- and moderate-income customers, on average, pay a greater percentage of 4

their income towards their electricity bill relative to higher income customers.

The Joint IOUs’ 5

proposals result in meaningful bill savings for these customers, with no change in usage. (See 6

Figure I-2 below.) As customers adopt environmentally-beneficial electrification technologies in 7

accordance with state policy, the Joint IOUs’ proposals significantly reduce volumetric rates and 8

make these new technologies more financially attractive.

Importantly, these rates would be 9

technology-agnostic, making them more flexible and available for all customers. The Joint 10

IOUs’ proposals also consider how best to balance competing considerations to make income 11

verification as accurate as possible, while also aiming for a cost-effective implementation of a 12

major structural change for all residential customers. 13

As described in the previously submitted briefs, the Joint IOUs interpret AB 205’s “no 14

fewer than three income thresholds” language to mean there must be at least three Income 15

Brackets. The Joint IOUs are proposing four household Income Brackets to achieve greater 16

progressivity by offering further relief to the most economically vulnerable households with the 17

highest energy burdens – those with incomes less than or equal to 100% of the Federal Poverty 18

Level (FPL). This strikes an appropriate balance, implementing a progressive IGFC structure 19

while minimizing the operational challenges inherent in having too many income brackets. 20

Specifically, the Joint IOUs propose the following four household Income Brackets: 21

 Bracket 1 – CARE customers with incomes less than 100% of FPL; 22

Next 10 and Energy Institute at Haas, University of California, Paying for Electricity in California:

How Residential Rate Design Impacts Equity and Electrification (hereinafter Next 10, Paying for

Electricity in California) (Sept. 2022), available at https://www.next10.org/sites/default/files/2022-

09/Next10-paying-for-electricity-final-comp.pdf.

See Chapter 2 (Rate Design) for impact to volumetric rates.

 Bracket 2 – Remaining CARE and Family Electric Rate Assistance (FERA) enrolled 1

customers; 2

 Bracket 3 – Non-CARE or FERA customers with incomes up to or equivalent to 3

650% of FPL; and 4

 Bracket 4 – Non-CARE customers with incomes above 650% of FPL. 5

While it is important to maintain affordability for the most vulnerable low-income 6

customers, it is also imperative that the overall average fixed charge across all four income 7

categories be sufficient to enable meaningful reductions in volumetric rates that incentivize 8

customer electrification efforts. Because each of the Joint IOUs has its own, CPUC-adopted, 9

marginal costs of service, the application of the proposed basic rate design structure described 10

here results in differing calculations of each Joint IOU’s specific fixed charges by household 11

Income Bracket. The illustrative proposed IGFCs for each of the Joint IOUs are shown in Table 12

I-1 below and the appendices to this Joint Testimony present the individual rate designs for each 13

IOU’s residential rate schedules. 14

Table I-1

Illustrative Proposed IGFCs

Income

Bracket

Criteria PG&E

IGFC

($/month)

SDG&E

IGFC

($/month)

SCE

IGFC

($/month)

Average Fixed Charge $53 $74 $49

1 CARE (<= 100% FPL) $15 $24 $15

2 All Other CARE/FERA $30 $34 $20

3 Non-CARE/FERA <= 650%

FPL

$51 $73 $51

4 Non-CARE/FERA >650% FPL $92 $128 $85

1. Benefits of the Joint IOUs’ Proposals Compared to Current Residential 1

Rates 2

The Joint IOUs’ proposals provide several benefits compared to the current, primarily 3

volumetric, rate structures for the IOUs’ residential electric customers. These are described in 4

the sections below. 5

a) Improving Equity by Bringing Rates Closer to Cost of Service. 6

While the energy environment in California continues to evolve rapidly, the residential 7

rate structure for investor-owned, regulated utilities has become outdated and misaligned with 8

the new energy landscape. Unlike many utilities nationwide, and publicly-owned utilities within 9

California,

nearly all of the Joint IOUs’ costs to serve their residential customers are collected 10

through cent-per-kilowatt hour (kWh) volumetric rates, even though approximately two-thirds of 11

these residential costs are either fixed or do not fluctuate as customer usage increases or 12

decreases.

CPUC-approved residential rates also differ markedly from the rate schedules that 13

the Commission has approved for the Joint IOUs’ non-residential customers, which almost 14

universally include a separate fixed charge component to recover fixed costs on a non-volumetric 15

basis. 16

Existing residential rate design policies are under review in this proceeding, as they were 17

based on priorities that do not sufficiently align with a focus on improving the affordability of 18

electric service and more equitably recovering fixed costs, as the state seeks to expand beneficial 19

electrification. Whereas in the past, state law encouraged the CPUC to land on the side of rate 20

design resulting in higher volumetric rates, now the CPUC is required to balance, providing 21

appropriate price signals, both energy use reduction and energy use increases where such 22

For example, the Sacramento Municipal Utility District (SMUD) charges a $23.50 monthly fixed

charge on both Rate Schedule R (Fixed Rate) and Rate Schedule R-TOD (Residential Time-of-Day

Service). See https://www.smud.org/en/Rate-Information/Residential-rates.

Fixed revenue requirements as a portion of total residential revenue requirement, averaged across

IOUs.

increases would support GHG emissions reductions. This statutory change endorses the end of 1

the longstanding presumption that costs should be predominantly recovered through volumetric 2

rates for most residential customers. Instead, the priority is that volumetric price signals should 3

enable customers to make decisions that are better aligned with the State’s climate goals. 4

As the Joint IOUs continue to build and maintain necessary critical infrastructure to help 5

enable California’s energy transition, collecting residential customers’ fixed costs through 6

volumetric rates unfairly shifts fixed costs from lower to higher-use customers and 7

disincentivizes beneficial uses of electricity. Because nearly all the Joint IOUs’ fixed costs are 8

recovered through such volumetric prices, the price customers pay when they turn on their lights 9

is substantially higher than the marginal cost of providing that electricity. A recent paper from 10

the Energy Institute at Haas, UC Berkeley and Next 10 highlights that volumetric electricity rates 11

in California are two to three times the marginal cost of providing electricity.

Indeed, this 12

heavily volumetric residential rate design is a significant outlier when looking at residential rate 13

design across the U.S. as shown in Figure I-1 below. 14

Next 10 and Energy Institute at Haas, Designing Electricity Rates for an Equitable Energy Transition

(Feb. 2021), available at https://haas.berkeley.edu/wp-content/uploads/WP314.pdf.

Figure I-1

Residential Rate Design Across the U.S.

Fixed and mandated public policy costs should be collected in fixed charges. The Joint 1

IOUs’ proposals address the inequity currently embedded in a primarily volumetric residential 2

rate structure, through the introduction of the IGFC. The proposed fixed charge levels in each 3

household Income Bracket have been set to yield an overall average fixed charge across all 4

household income levels that provides meaningful volumetric rate reductions while including an 5

appropriate portion of fixed system costs in the charge. The resulting IGFC revenues bring 6

volumetric rates closer to the actual cost of providing service to customers

– and provide relief 7

from high summer bills for high-usage households living in hotter climates. As described below, 8

lower volumetric rates also will be vital to enabling electric appliances/equipment/vehicles to 9

better support the transition to a decarbonized economy. 10

b) Addressing Affordability and Protecting Low-Income Customers. 11

Introducing even a traditional non-income-graduated fixed charge coupled with lower 12

volumetric rates would support California’s GHG policy goals and recover costs more equitably 13

Borenstein and Bushnell, National Bureau of Economic Research, Do Two Electricity Pricing

Wrongs Make a Right? Cost Recovery, Externalities, and Efficiency (Rev. Sept. 2018), available at

https://www.nber.org/papers/w24756.

See Chapter 2 Joint Rate Design Chapter.

than today’s rate structure, including producing lower bills for high users and higher bills for low 1

users, independent of their household income levels. However, the progressive nature of the 2

IGFC, mandated by AB 205 – with higher-income customers paying higher monthly fixed 3

charges than lower-income customers – also mitigates the adverse bill impacts that a traditional 4

fixed charge might have on lower-usage low-income customers. In particular, creating four 5

household Income Brackets, as opposed to three, allows the Joint IOUs to create an Income 6

Bracket available to our most economically vulnerable customers (those who fall under 100% of 7

the FPL), who will pay very modest monthly fixed charges while further benefitting from 8

significantly lower volumetric charges. 9

While the Joint IOUs have proposed to substantially reduce volumetric electricity rates 10

for all residential customers, the proposals also recognize many customers may not be able to 11

electrify in the near term. A key priority of the Joint IOUs’ proposals is to provide bill savings 12

for customers in Income Brackets 1-3 today. The IGFC proposals provide annual bill savings for 13

these customers, on average, without changing their energy consumption. 14

As shown in Figure I-2, on average, the Joint IOUs’ customers in Income Brackets 1-3 15

(lowest to moderate household income) are estimated to save between 4% to 21% per year, or 16

$89-$300 respectively, based the results of the E3 Public Tool (Public Tool) provided by the 17

Energy Division as part of this proceeding. 18

Figure I-2

Average Annual Percent Difference by Income Bracket

The Joint IOU proposals can achieve these savings for customers in Income Brackets 1-3 1

through the difference in the IGFC paid by Income Bracket 4 customers relative to Income 2

Bracket 1-3 customers. All customers can benefit from the lower volumetric rates but Bracket 1-3

3 customers pay a lower IGFC, allowing them to see immediate savings, on average, versus the 4

current status quo. In Income Bracket 4, customers with higher usage, such as that resulting 5

from electrification adoption, will also have lower bills than they would under today’s rate 6

structure, on average. 7

c) Encouraging Beneficial Electrification. 8

While California has made great strides in reducing GHG emissions in recent years, the 9

state must decarbonize twice as fast over the next two decades to meet its 2045 goals, as shown 10

in Figure I-3. 11

Figure I-3

California’s Decarbonization Accomplishments and Future Goals

Widespread electrification of customer homes and vehicles will be critical in accelerating 1

the pace of decarbonization. As shown in Figure I-4 below, based on 2020 emissions data, these 2

two sectors –-- transportation and buildings (residential and commercial) – represent nearly 50% 3

of California’s GHG inventory as reported. Customer adoption of beneficial electrification 4

technologies is essential to effectively reduce the greenhouse gas emissions currently associated 5

with these two sectors. 6

See California Air Resources Board (CARB) 2000 – 2020 GHG Inventory (2022 edition, by

economic sector), MMTCO

e = Million metric tons of carbon dioxide equivalent.

Historical rate of reduction calculated from 2010 – 2020.

Figure I-4

Current California GHG Emissions Inventory Data

fossil fuel technologies and their emissions with more climate-friendly, decarbonized 3

alternatives. Electric technologies produce fewer emissions than alternatives powered by fossil-4

fuels such as petroleum and natural gas; this environmental advantage of electricity will continue 5

to grow as greater amounts of carbon-neutral electric generation resources are added to the grid, 6

in compliance with state law. 7

As California looks to encourage customers to efficiently use more electricity, volumetric 8

rates that are significantly higher than the actual cost of providing that electricity create an 9

economic disincentive for the adoption of electrification technologies.

A fully electrified 10

See CARB, Greenhouse Gas Emission Inventory - 2022 Edition. Building represents both

Commercial and Residential sectors. Other includes High Global Warming Potential Gases and

Recycling & Waste, available at https://ww2.arb.ca.gov/ghg-inventory-data.

Inclining-block tiered rates are especially problematic in this regard, charging artificially inflated

rates for usage in the upper tiers – precisely the tiers that customers who substitute electric appliances

for those powered by fossil fuels are likely to end up in.

home

is estimated to increase a customer’s electricity usage by at least 70% per month relative 1

to their prior usage.

While such increased usage reduces net greenhouse gas emissions, when 2

coupled with some of the highest volumetric rates in the U.S., a customer’s monthly electric bill 3

under current default residential rate designs would dramatically increase. Without reform, the 4

current volumetric rate design will jeopardize the state’s ability to decarbonize rapidly and could 5

put the achievement of our GHG reduction goals at risk. 6

In contrast, by significantly reducing volumetric electric rates – and thus the incremental 7

electric costs to customers due to installing clean electric appliances – the Joint IOUs’ proposals 8

will spur electrification adoption by making such appliances and electric vehicles (EVs) more 9

affordable versus the status quo rate structure. For example, when purchasing an EV, a critical 10

consideration is the electric rate the consumer would pay to charge it. Lower per-kWh rates have 11

been found to increase electric vehicle adoption.

Specifically, a 1 cent per kilowatt-hour 12

decrease in electric rates has been found to lead to about a 2 percent increase in electric vehicles 13

sales.

Similarly, lower electric rates have been correlated with higher electric heating adoption. 14

In fact, by lowering the volumetric rate to the marginal cost of energy, home heating 15

electrification was predicted to increase by one-third in California.

The Joint IOUs’ proposals make electrification more attractive than the status quo by 17

helping incentivize adoption through lower volumetric rates, while also avoiding cross subsidies 18

for those unable to adopt new technologies. As illustrated in Figure I-5, a Bracket 3 customer 19

A fully electrified home is assumed to have heat pump water heater, heat pump for space heating and

cooling, fully electrified appliances, and one EV.

The increase in electricity usage for a fully electrified home is calculated from the Public Tool

comparing a fully electrified home with one EV to a mixed-used fuel home with one gasoline

powered vehicle for a SCE Inland customer.

A. Soltani-Sobh, K. Heaslip, A. Stevanovic, R. Boswarth , D. Radivojevic, Analysis of the Electric

Vehicles Adoption over the United States, (2017), available at

https://www.sciencedirect.com/science/article/pii/S235214651730162X.

J. Bushnell, E. Muehlegger, D. Rapson, Do Electricity Prices Affect Electric Vehicle Adoption?,

(May 2021), available at https://escholarship.org/uc/item/5f80503b.

Next 10 Paying for Electricity in California, at p. 21.

can expect to have a $1,614 annual savings relative to adoption of the same electrification 1

technologies under the current rate structure. For PG&E and SDG&E these savings would be 2

$1,771 and $1,929, respectively. 3

Figure I-5

SCE Example: Non-CARE Inland Income Bracket 3 Customer Energy Burden

Comparison

d) Promoting Bill Stability and Maintaining Strong TOU Price Signals. 6

With their reliance almost entirely on volumetric rates for recovering the costs of 7

providing service to residential customers, the Joint IOUs’ current residential rate structures have 8

an inherent challenge of causing month-to-month bill volatility.

But the Joint IOUs’ proposal, 9

This is particularly true if those rate schedules include tiered rates. With an inclining-block tiered rate

structure, an increase in a customer’s summer usage from June to July due to hotter July temperatures

by collecting a significant portion of residential revenue in fixed charges that do not vary by 1

month, will reduce this volatility. With lower volumetric rates, a customer’s bill increases from 2

one month to another due to a significant increase in usage (e.g., home cooling due to an extreme 3

weather event) will be much smaller. Similarly, the customer’s bill decreases from one month to 4

another due to a decrease in usage will be smaller as well. Thus, the Joint IOUs’ proposals will 5

lead to more stable bills as a result of collecting a greater portion of fixed costs in fixed charges 6

unaffected by usage swings. 7

The Joint IOUs’ proposals are designed to implement IGFCs in some way on all of their 8

residential rate schedules, including their TOU rates. While under the Joint IOU proposals, as 9

detailed in each IOU’s individual Rate Design Exhibits, average volumetric rates are 10

dramatically reduced over their current levels, robust differentials will remain between TOU 11

periods. This will continue to incentivize customers to shift load out of critical, higher-price 12

hours of the day through demand response, technology adoption such as battery storage, or other 13

energy efficiency efforts. 14

2. The Joint IOUs’ Proposals Will Apply to All Residential Rate Schedules 15

If the IGFC is applied unevenly, where default rate schedules have an IGFC while 16

existing electrification rates do not, it would likely lead to rate self-selection that would 17

compromise the benefits achieved by the IGFC. Specifically, it would set up an arbitrage 18

opportunity through which customers who would be adversely impacted on schedules with 19

IGFCs could, instead, switch to one of the optional rates without an IGFC to avoid paying their 20

share of fixed costs. This would undercut the IGFC’s goals of equity and rate affordability, 21

especially for the most economically disadvantaged customers. 22

It is still permissible under AB 205 for the Commission to adopt different sets of income-23

graduated fixed charges for different residential rates. For example, the Commission might 24

can easily lead to disproportionately larger increases in the customer’s bill due to usage moving from

a lower-price tier to a higher-priced one.

approve somewhat higher IGFCs for the current electrification rates that already have some level 1

of fixed charge, than it adopts for other more standard rates because doing so would better 2

support the state’s decarbonization efforts. Therefore, the Joint IOUs’ proposals recommend that 3

all of their residential rates, including TOU rates, must have at least the same IGFC as the default 4

rates. The IGFCs will not adversely affect the price signals customers see, to inform them of the 5

varying costs during different periods of the day – they merely reduce the total revenue collected 6

from volumetric charges but can still be designed to maintain cent per kWh price differentials 7

between peak and off-peak periods that appropriately reflect underlying marginal costs and 8

continue to incentivize load shifting. 9

3. The Joint IOUs’ Proposals Are Consistent with Rate Design Principles. 10

While the revisions to the CPUC’s rate design principles (RDPs) had not been finalized at 11

the time this testimony was written,

the draft of such revisions (with which the Joint IOUs 12

largely agree) affirm that significant changes in residential rate design are necessary, including to 13

reflect the addition of decarbonization through electrification as a major state policy goal for 14

achieving GHG reductions. The Joint IOUs intend to provide a full assessment of all proposals, 15

according to the final rate design principles, in Reply Testimony, but some changes to the RDPs 16

appear to already be certain enough to warrant comment now. 17

In particular, the change in RDP 4 to “Rates should encourage economically efficient (i) 18

use of energy, (ii) reduction of GHG emissions, and (iii) electrification”

reflects a major shift in 19

rate design priorities. In prior rate designs, the reduction of electricity use through conservation 20

and energy efficiency was prioritized regardless of whether that was environmentally 21

responsible. The percentage of non-GHG emitting resources in the current statewide generation 22

18 On March 17, 2023, the assigned ALJ issued the Proposed Decision Adopting Electric Rate Design

Principles and Demand Flexibility Design Principles (RDP Proposed Decision). The Proposed

Decision included Attachment A, the Electric Rate Design Principles, Demand Flexibility Design

Principles, and explanations for each.

RDP Proposed Decision, Attachment A, p. 2.Q

mix is much higher now, over 52%

non-GHG emitting (i.e., carbon free) resources, compared 1

to 2011 when the current rate design principles were adopted. The state’s renewables policies 2

ensure that this trend will only continue. The driving force of state policy now points to 3

increased electric use through beneficial electric technologies (like EVs, heat pump space 4

cooling and heating, heat pump water heaters, induction ranges, and battery storage). This shift 5

has major ramifications for rate design by shifting its emphasis from the efficient use and 6

conservation of electricity to the efficient increased use of electricity in order to facilitate the 7

energy transition, while improving affordability of household energy consumption. The 8

proposed revision to the language in RDP 2, (“Rates should be based on marginal cost”)

) and 9

RDP 8 (“Rates should be technology-neutral and avoid cross-subsidies, unless the cross-10

subsidies appropriately support explicit state policy goals”)

indicate that rates should provide 11

volumetric price signals as close to marginal costs as possible, while balancing other rate design 12

principles. Today’s rates feature volumetric price signals that are significantly higher than the 13

marginal costs in low-cost hours, as shown in the Rate Design chapter (Table II-4), which can 14

discourage the voluntary adoption of electrification technologies. The shift towards more fixed 15

cost recovery through fixed charges can bring residential rates to a point where technology-16

neutral rates that avoid or minimize cross-subsidization are achievable. 17

Additionally, just as advancements in technology and policy have led the reformed rate 18

design principles expected in this proceeding, updated principles should include the ability to 19

adapt to continuous changes as California’s landscape evolves. 20

California Energy Commission, Annual Power Content labels for 2021 available at

https://www.energy.ca.gov/programs-and-topics/programs/power-source-disclosure/power-

content-label/annual-power-content-2.

RDP Proposed Decision, Attachment A, p. 1.Q

RDP Proposed Decision, pp. 2-3.Q

C. The Joint IOUs’ Proposals Should be Adopted as Soon as Possible. 1

California’s current residential rate design must be updated as soon as possible. This is 2

because the Joint IOUs’ lowest income customers are experiencing affordability challenges 3

today through volumetric electricity rates. Approximately two-thirds of costs serving residential 4

customers that are collected in volumetric rates today do not fluctuate as customer usage 5

increases or decreases, resulting in volumetric rates that are significantly higher than the 6

marginal cost to serve customers. The result is a regressive structure where lower-income 7

households contribute a much larger share of their income than higher income customers. As the 8

Joint IOUs continue to build and maintain the necessary infrastructure to green the grid, 9

collecting these fixed costs through volumetric rates will further exacerbate these affordability 10

and equity issues. 11

Further, high volumetric rates increase the cost of electrifying customer homes and 12

vehicles, a critical change that must occur for the state to meet its aggressive, but necessary, 13

climate mandates. As stated above, the State must decarbonize faster than it has over the past 14

decade, but the current outdated default rate structure is an impediment to achieving these goals. 15

Due to these reasons, the Joint IOU proposals should be implemented as soon as practicable 16

through the Joint IOUs’ implementation plan described in Chapter 4. 17

D. Income Verification Should Be Performed By State Agencies and Not The IOUs 18

The Joint IOUs have long administered programs like CARE and FERA, which provide 19

discounts to low-income customers. However, these are opt-in programs where eligible 20

customers voluntarily give the IOUs information regarding income. This income is not verified 21

but is subject to a potential audit. 22

The IGFC will be fundamentally different. The Joint IOUs are not aware of any other 23

fixed charge that is income differentiated based on all levels of household income and that is 24

mandatory for all. Consequently, millions of households will need to be categorized into fixed 25

charge income brackets based on household income and verified to ensure accuracy and billing 26

integrity. Successful implementation will require customer trust and assurance of confidentiality 1

in the process. 2

As discussed more fully in Chapter 3 (Income Verification), a state agency, potentially 3

with the assistance of a Third-Party administrator, would be best situated to take on the complex 4

income verification and bracket assignment work that will be necessary to implement the IGFC. 5

The Joint IOUs believe the Commission is the state agency likely in the best position to take on 6

this role, overseeing a Third Party. The Commission has experience in a somewhat similar role 7

in relation to the California LifeLine program, for which a “TPA” (Third-Party administrator) 8

has performed income verification/eligibility certification under the Commission’s supervision.

A state agency like the Commission is in a much better position to access the financial data 10

necessary for Income Bracket placement, as well as to manage ongoing updates, customer 11

appeals, and other implementation issues. The Commission is also well-placed to perform this 12

role because it is giving the Joint IOUs direction in this proceeding and AB 205 specifically tasks 13

the Commission with authorizing the residential income-graduated fixed charge. 14

In contrast, the Joint IOUs are not well-situated to perform income verification. 15

Verifying the state’s ~12 million electricity customers served by the Joint IOUs would require a 16

significant and costly business expansion for each IOU to separately build out new capabilities. 17

Building processes and adding resources to perform a wholly new set of functions as well 18

handling any customer appeals relating to income level placement, would impose substantial 19

administrative burden and cost on the Joint IOUs, ultimately paid by our customers. 20

Moreover, income verification also implicates cybersecurity, customer privacy and 21

consumer protection issues. California law includes significant privacy protections,

including 22

See D.05-04-026, p. 26 (concluding that income certification/verification for Lifeline Program should

be performed by a TPA “under the direction of a state agency, namely the Commission”).

See, e.g., Civ. Code 1798.1 (“the right to privacy is a personal and fundamental right protected by

Section 1 of Article I of the Constitution of California and by the United States Constitution and [] all

individuals have a right of privacy in information pertaining to them).”

through the California Consumer Privacy Act of 2018 (CCPA).

The Commission also has 1

endorsed privacy protections in its decisions.

Privacy and data protection concerns have 2

increased among the public at large given large data breaches in recent years, among other 3

events. Additionally, processes will need to be established to access various sources of income 4

data among state agencies, to maximize reliable household income data for these purposes. 5

In light of these complexities and challenges for income verification, a state agency 6

(potentially with Third Party support) leveraging and building upon existing capabilities and 7

experience will be best positioned to effectively manage needed income verification for the 8

IGFC. The Joint IOUs thus propose a framework modeled on the structure of the 9

telecommunications LifeLine program’s Third Party administration with CPUC supervision, so 10

that income verification is performed through a state agency, without undermining rate 11

affordability. Additionally, if authorized by legislation, it would be most appropriate for income 12

verification activities to be funded by the state rather than electricity customers, consistent with 13

funding provided for other societally beneficial activities administered by state agencies. 14

E. Robust Marketing, Education, and Outreach Will be Required 15

The IGFC rate structure will substantially shift how residential customers pay for 16

electricity service in the future. A robust ME&O plan will be required to provide customers with 17

early awareness of the change, help customers understand bill impacts, and highlight why reform 18

is needed. The Joint IOUs will use various customer communication channels to form a holistic, 19

integrated education and outreach campaign to support IGFC implementation. Channels 20

envisioned include direct-to-customer messaging, broad customer outreach, IOU-owned and paid 21

The CCPA (Civ. Code §§ 1798.100–1798.199.100) provides for various rights, including the rights

to: know about personally identifiable information (PII) a business collects and how it is used and

shared; delete personal information (with some exceptions); opt-out of the sale or sharing of personal

information; correct inaccurate personal information; and limit the use and disclosure of sensitive

personal information.

See, e.g., D.11-07-056, at p. 130, Finding of Fact 1 (FOF) (endorsing Fair Information Practices

(FIPs) including “data minimization” principle).

channels, and community outreach. The Joint IOUs’ education materials will be informed by 1

customer research. We expect it will focus on how the IGFC will make rates more equitable 2

overall while supporting the State’s goal of making beneficial electrification technologies more 3

affordable, by lowering volumetric rates. The Joint IOUs recognize additional customer input 4

will be needed to properly meet customer education needs. The Joint IOUs plan to conduct 5

additional research in 2023 to continue to learn from customers the preferred and most effective 6

messaging and approach to IGFC education. The Joint IOUs’ detailed ME&O plan is discussed 7

in more detail in Chapter 5 included in this testimony. 8

F. Conclusion 9

While California’s energy environment has changed rapidly in recent decades, its 10

residential rate design continues to collect the majority of fixed and variable utility costs through 11

volumetric rates. As a result, electricity rates are substantially higher than the marginal cost of 12

providing that electricity. The Joint IOUs’ proposals modernize California’s residential rate 13

structure by providing a more affordable and equitable path forward. The chapters that follow 14

explain how the Joint IOUs’ proposals accomplish these goals and we respectfully encourage the 15

Commission to accept these proposals to ensure the transition to income-graduated residential 16

fixed charges is as smooth and successful as possible.17

II. 1

RATE DESIGN 2

A. Introduction 3

1. Summary of Proposals 4

The Joint IOUs propose to add Income Graduated Fixed Charges (IGFCs) to all of their 5

residential rate schedules, with limited exceptions.

Most of the Joint IOUs’ residential 6

schedules will receive the same, four-bracket fixed charges, with the low-income fixed charges 7

set at the household Income Brackets shown in Table I-2. For policy reasons, the IOUs’ 8

proposed fixed charge Income Brackets do not encompass all of each utility’s respective fixed 9

costs. By carving out an amount of the total fixed costs from the current artificially high 10

volumetric rates, the California Public Utilities Commission (Commission or CPUC) will make 11

significant progress to support affordability and increased bill stability. It also supports 12

decarbonization by removing the disincentive for residential customers to add beneficial electric 13

end-uses needed to meet the state’s greenhouse gas (GHG) reduction goals. 14

The Joint IOUs’ IGFC proposals are intended to maintain customer choice and improve 15

equity, while providing greater bill stability and promoting beneficial electrification. The Joint 16

IOUs’ Illustrative IGFC proposed fixed charges and rates are shown below on Tables I-2 and I-3. 17

In this proposal, the Joint IOUs are seeking approval of: 18

 Fixed cost categories, which result in class average monthly

fixed charges of: 19

o PG&E: $53/month 20

All residential whole-home rate schedules should have at least the same level of IGFC in order to

avoid customer rate switching and IGFC avoidance through rate arbitrage. However, non-IGFC fixed

charges for separately metered EV rates may be appropriate and are addressed in IOU specific Rate

Design testimony exhibits.

Operationally, these fixed charges would be charged to customers on a dollar-per-day basis.

However, the IOUs are presenting these fixed charges on a per-month basis for reference.

o SDG&E: $74/month, including approval of its new proposed rate component, the 1

Electrification Incentive Adjustment (EIA) 2

o SCE: $49/month; 3

 IGFCs on the following residential rate schedules: 4

o PG&E rate schedules: E-1, E-TOU-C, E-TOU-D, EV2-A, E-ELEC 5

o SDG&E rate schedules: DR, TOU-DR1, TOU-DR2, EV-TOU-2, DR-SES, EV-6

TOU-5, TOU-DR, and TOU-ELEC 7

o SCE rate schedules: TOU-D 4-9, TOU-D 5-8, Schedule D 8

 Considerations for including higher IGFCs for certain residential rate schedules that 9

currently have fixed charges: 10

o PG&E’s Schedule E-ELEC 11

o SDG&E’s Schedules EV-TOU-5 and TOU-ELEC; 12

o SCE’s Schedule TOU-D-PRIME 13

 Reduction of non-CARE average volumetric kWh rates as described in individual 14

IOU exhibits: 15

o PG&E: From $0.34/kWh to $0.22/kWh 16

o SCE: From $0.36/kWh to $0.24/kWh 17

o SDG&E: From $0.47/kWh to $0.27/kWh 18

 Elimination of the Minimum Bill. 19

Table II-2

Illustrative Proposed IGFCs

Table II-3

Illustrative Summary of Impacts to Default Rates

B. Background 1

1. Recent Rate Design Policy Issues 2

The impetus for Track A (IGFC) of this proceeding stems from Assembly Bill (AB) 205, 3

which was passed on June 29, 2022, and chaptered after being signed into law by Governor 4

Newsom on June 30, 2022. The Commission has previously considered but declined to adopt 5

fixed charges for residential customers, and instead, required the three electric IOUs to 6

implement residential minimum bills. The Joint IOUs provide a brief history of how the 7

Commission’s thinking on residential fixed charges has evolved over time and emphasize the 8

Status Quo rates are the model calculated counterfactual rates, not current actual rates.

importance of adopting IGFCs that apply equitably to all customers and meaningfully reduce 1

volumetric rates in the instant proceeding. Substantive rate reform is critical for California to 2

reach its GHG reduction and climate goals. 3

From 2013 until AB 205 was passed, the previous statute (Public Utilities Code Section 4

739.9) included a cap that limited residential fixed charges to approximately $10/month for non-5

CARE customers and $5/month for CARE customers.

AB 205 removed this cap and required 6

the CPUC to approve a compliant IGFC structure for default residential rates by July 1, 2024.

The Commission has previously considered default residential fixed charges in various 8

proceedings but the Energy Division IGFC Guidance for this proposal states that parties are not 9

bound by these prior Commission decisions.

Nonetheless, as a foundation, the Joint IOUs provide a brief background of the history of 11

residential fixed charge proposals in California and the Commission’s current direction regarding 12

historical determinations about residential fixed charges. The Joint IOUs proposed fixed charges 13

approximately ten years ago in the Residential Rate Reform Rulemaking (R.) 12-06-013 14

(RROIR). While Decision (D.) 15-07-001 set a multi-year glidepath to consolidate and narrow 15

the tier differentials in effect at that time, the Commission declined to adopt a default residential 16

fixed charge, stating that it was not appropriate to adopt a fixed charge at the same time as 17

residential customers were being defaulted to time-of-use (TOU) rates.

The Joint IOUs were 18

directed to concurrently file rate design window (RDW) applications by January 1, 2018, which 19

could include proposals for default residential fixed charges.

D.15-07-001 additionally stated 20

that the Joint IOUs should, separately from the Residential Rate Reform OIR (R.12-06-013, 21

AB 327 (Reg. Sess. 2013-2014), Pub. Util. Code § 739.9(f), which also provided for an annual

Consumer Price Index increase to these base capped fixed charge levels, starting in 2015.

AB 205 (Reg. Sess. 2021-2022).

Administrative Law Judge’s Ruling Providing Guidance for Phase 1 Track A Proposals and

Requesting Comments on a Consulting Services Proposal (Jan. 17, 2023), Attachment 1, R.22-07-

005, Phase 1 Track A: Income-Graduated Fixed Charge Guidance Memo.

D.15-07-001, at p. 328, Conclusion of Law (COL) 17.

D.15-07-001, at p. 327, Ordering Paragraphs (OP) 9-11.

RROIR), “in their individual GRC Phase 2 proceedings, … work to identify customer-related 1

fixed costs for purposes of calculating a fixed charge.”

Within PG&E’s 2017 GRC Phase 2,

the Commission established a separate track 3

(Fixed Charge Track) to adopt categories of fixed costs that could be included in a residential 4

default fixed charge. The final decision in the Fixed Charge Track, D.17-09-035, adopted an 5

extremely narrow definition of what costs could be included in the default residential fixed 6

charges proposed in A.17-12-011.

That narrow definition

would have limited the Joint IOUs’ 7

non-CARE fixed charges to approximately $7.10/month for PG&E,

$8.84/month for 8

SDG&E,

and $6.68/month for SCE.

Using such a definition today would do little to reduce 9

volumetric rates and incentivize beneficial electrification because volumetric rates would be 10

reduced by less than $0.02/kWh. 11

In 2021, the Commission adopted a final decision in PG&E’s 2020 GRC Phase 2 (A.19-12

11-019) that reversed its stance on categories of costs that may be recovered in default residential 13

fixed charges and wipes the slate clean when considering the appropriate manner for designing 14

residential fixed charges.

In D.21-11-016, the CPUC also adopted PG&E’s new optional 15

“electrification” rate (E-ELEC), finding that: (1) “[t]he findings and conclusions in D.17-09-035 16

should be applied only in the context of A.16-06-013”

, and (2) “any future proposals for a 17

Id., at p. 6.

A.16-06-013, Application of Pacific Gas and Electric Company to Revise its Electric Marginal Costs,

Revenue Allocation and Rate Design.

Administrative Law Judge’s Ruling Consolidating Proceedings (Jan. 25, 2018), consolidated A.17-

12-011, A.17-12-012, and A.17-12-013.

D.17-09-035 would have limited costs recovered in a fixed charge to certain marginal customer

access costs using the “minimum cost approach”, which includes costs for only the “smallest” type

customer. See, D.17-09-035, at p.33.

See, PG&E Rate Design Window 2018 Supplemental Testimony, Fixed Charge Proposal in Phase III,

A.17-12-012, at p. 1-4.

See, SDG&E Prepared Supplemental Testimony of Jeff P. Stein, A.17-12-013, at p. JS-3.

See, SCE Amended Supplemental Testimony on Impact of Federal Tax Legislation on Proposed

Rates and Fixed Charges, A.17-12-011, at p. 2.

D.21-11-016, at p. 113.

D.21-11-016, at p. 165, COL 32.

default residential fixed charge or optional residential fixed charge (as in this case) should be 1

able to proceed without the need to comply with cost category and EPMC [Equal Percent of 2

Marginal Cost] determinations made in a since-closed proceeding that failed to make a 3

determination concerning a residential fixed charge on the merits.”

Additionally, it is worth 4

noting that the Commission determined the adopted settlement on PG&E’s new E-ELEC 5

(“Electric Home”) rate, which included a residential fixed charge, was “intended to further state 6

policy goals related to decarbonization and therefore has a particular policy purpose that may 7

justify any dissonance with previous Commission decisions regarding the application of EPMC 8

to residential fixed charges.”

With these findings in mind, there is no reason to limit fixed charges to a certain level or 10

hold to prior precedent. While parties may look to previous Commission decisions for reference 11

and historical context, party proposals that cite to D.17-09-035 as a reason to limit fixed charges 12

to a certain level should be dismissed, as the Commission has stated that D.17-09-035 does not 13

hold precedential value outside of A.16-06-013.

Basing IGFC proposals on D.17-09-035 14

would make little sense in this context anyway, as the average IGFC must be large enough to 15

result in a sufficiently lower volumetric energy rate, and D.17-09-035 would limit volumetric 16

rate reduction to approximately $0.02/kWh. 17

It is important that an IGFC floor apply to all customers. Application of the IGFC to all 18

residential rates, including optional “electrification rates” currently offered by each large IOU, 19

will ensure fair treatment for all customer types and provide equal incentive for all customers to 20

electrify. If the IGFC were instead applied selectively, where some residential rate schedules 21

would have a fixed charge while others did not, this would provide an opportunity for customers 22

who would be adversely impacted on schedules with IGFCs to instead take service on one of the 23

optional rates without an IGFC, to avoid paying the IGFC. 24

Id., at p. 114.

D.21-11-016, at p. 114.

Id.

It is still permissible under AB 205 for the Commission to adopt different sets of IGFC’s 1

for different residential rates. For example, the Commission might approve somewhat higher 2

IGFCs for PG&E’s Schedule E-ELEC, SCE’s TOU-D-PRIME, or SDG&E’s EV-TOU-5 and 3

TOU-ELEC rates than it adopts for other more standard rates, because doing so would better 4

support the state’s decarbonization efforts. Therefore, the Joint IOUs’ proposals recommend that 5

all residential rates, including optional rates, must have at least the same minimum IGFC Income 6

Brackets as the default rates. 7

The Commission should adopt appropriate fixed charges for all residential customers, and 8

not delay implementing an IGFC for certain rate schedules, because doing so would result in a 9

loophole that could allow higher income customers to receive a lower fixed charge if they mass 10

migrate to rates with delayed (or no) IGFCs. Although simultaneous implementation across rates 11

might take more up-front time, it avoids the pitfalls of mass voluntary migration to the lowest 12

possible fixed charge. 13

2. Next 10 Research on Potential Fixed Charges 14

Academic research by Next 10 Research and the Energy Institute at the UC Berkeley 15

Haas School of Business (Next 10/Berkeley Haas) played a key role in inspiring the conceptual 16

development of AB 205. Specifically, two Next 10/Berkeley Haas reports released in 2021 and 17

2022, detail concerns about the inequity of the current residential rate structure. These reports 18

suggest several methods of reform that would: (1) improve customer equity by making rates 19

more progressive, and (2) more closely align volumetric rates with marginal costs, which would 20

serve to incent widespread adoption of beneficial electrification technologies needed to achieve 21

decarbonization that meets state climate and GHG reduction goals. The Joint IOUs describe 22

these two reports in detail below. 23

On February 23, 2021, Next 10/Berkeley Haas released a report titled “Designing 1

Electricity Rates for An Equitable Energy Transition” (2021 Report).

This report used 2

historical data from the Joint IOUs to show that the price of electricity in the Joint IOUs’ service 3

territories is two to three times higher than the actual cost to produce and distribute the electricity 4

provided, and this results in electricity rates that disproportionately harm lower income 5

electricity customers.

The 2021 Report opines that recovery of fixed costs within the volumetric charge is 7

“quite regressive” and suggested options for reducing the volumetric rate, including non-income 8

differentiated fixed charges or shifting cost recovery of programs and policies to the state budget. 9

It acknowledges that even a non-income differentiated fixed charge would bring significant 10

efficiency benefits.

However, given potential concerns with both approaches, the 2021 Report 11

recommends a progressive fixed charge structure for residential customers.

The 2021 Report 12

determined that “[a]n economically efficient volumetric price will recover some amount of 13

revenue, but it will be substantially less than the total revenue requirement for the California 14

IOUs.”

It also considered what electricity rates might look like if their structure were as 15

progressive as California's income tax and sales taxes, and recommended structures in which 16

low-income customers would not be made worse off by rate reform. It further recommended that 17

the state, not the utilities, be the income verifying entity, as the state already has income tax 18

information. The 2021 Report also acknowledged that the utilities do not have the infrastructure 19

Next 10 and Energy Institute at Haas, Designing Electricity Rates for An Equitable Energy Transition

(hereinafter Next 10, 2021 Report), (Feb. 23, 2021), available at

https://www.next10.org/sites/default/files/2021-02/Next10-electricity-rates-v2.pdf.

Next 10, 2021 Report, at p. 4.

Next 10, 2021 Report, at p. 3. While the report also expresses concern that a non-income

differentiated fixed charge would also be regressive, even in a pre-AB 205 context any fixed charge

implemented by the IOUs would at least include income differentiation through the existing CARE

and FERA programs.

Next 10, 2021 Report, at pp. 30-34.

Next 10, 2021 Report, at p. 35.

in place to verify incomes of all residential customers and that any utility-run income-1

verification system without direct cooperation from other state agencies would be problematic.

The 2021 Report discussed a theoretical structure, stating that the dollar amount of a 3

uniform fixed charge necessary to fully eliminate the cost recovery gap (if all account holders 4

were charged the same monthly fee, based on 2019 rates), would be $74.02 for PG&E, $58.80 5

for SCE, and $70.07 for SDG&E.

Rates have increased since 2019, so the Report’s monthly 6

figures would have been higher had they been based on 2023 effective rates. Figure II-6 below 7

shows theoretical 2019 fixed charges for PG&E if the structure were as progressive as income 8

tax or sales tax.

Under the 2021 Report's illustrative structure, households making greater than 9

$150,000 annually would be required to pay fixed charges of $150 per month or higher. 10

Figure II-6

2021 Next 10 Report Theoretical Fixed Charges - PG&E

Next 10, 2021 Report., at p. 38.

Id., at p. 40.

As stated in the Next 10/Berkeley paper, although sales tax applies equally to purchases made by

customers of any income level, wealthier customers typically pay more sales tax because they make

more purchases.

On September 22, 2022, Next 10/Berkeley Haas released a follow-on report titled 1

“Paying for Electricity in California: How Residential Rate Design Impacts Equity and 2

Electrification” (2022 Report).

This second report, which built on the 2021 Report, and 3

continued to use historical IOU data determined that the costs of programs and policies that go 4

beyond the cost of producing and distributing electricity are now the main driver of retail 5

electricity price increases. These added costs, which drive up the price per unit of volumetric 6

energy, threaten the state’s climate goals by disincentivizing electrification of buildings and 7

vehicles. In other words, separating out fixed costs from the currently combined, artificially high 8

volumetric rate, and instead recovering them in a separate fixed charge line item removes a 9

disincentive to electrification by reducing customers’ volumetric electric rate component. The 10

2022 Report also explored in detail how these higher costs disproportionately affect lower-11

income households, as higher energy bills in a lower-income household are a higher percent of 12

total income. Next 10/Berkeley Haas calculated what they refer to as “residual cost burden,” or 13

the difference between the amount the customer pays on their bill and the incremental cost to the 14

utility of providing that household with power.

The 2022 Report concluded that recovering 15

this residual cost burden in volumetric rates raises the annual operating cost of electrification 16

technologies, referred to as the “electrification cost premium.” The current structure of 17

recovering non-incremental costs in higher retail electricity rates significantly increases 18

operating costs of EVs and electric heating.

Both the 2021 and 2022 Reports were instrumental in conceptualizing how an IGFC 20

might be envisioned for California. The influence of Next 10/Berkeley Haas’ work is apparent 21

in the text of AB 205, which requires no fewer than three income thresholds, so that a low-22

Next 10, Paying for Electricity in California.

Id., at p. 4.

Id., at pp. 19-21.

income ratepayer in each baseline territory would realize a lower average monthly bill without 1

making any changes to their usage.

While these two Next 10/Berkeley Reports helped conceptually spur adoption of an IGFC 3

approach in AB 205, there are many practical operational issues that require consideration when 4

actually designing and implementing an IGFC that complies with the conceptual guidance in AB 5

205. The Joint IOUs’ proposal maintains compatibility with current operational and data 6

capabilities, and achieves an equitable, reasonably progressive structure that improves 7

affordability for low-income customers and incentivizes electrification. 8

3. The Joint IOUs’ Proposals Align with Modernized Rate Design Principles 9

The Commission is in the process of modernizing the Rate Design Principles (RDPs) in 10

Track B of this proceeding.

A Proposed Decision was issued on March 17, 2023, with a final 11

decision targeted for the CPUC’s April 27, 2023, business meeting. Therefore, the current 12

procedural schedule for submittal of Track A IGFC Opening Testimony on April 7 cannot 13

precisely reflect the Final Decision on modernized RDPs. Nonetheless, the Proposed Decision 14

for modernized RDPs provides general directional guidance that can help inform parties’ initial 15

IGFC proposals. First, the Proposed Decision indicates that parties should not prioritize energy 16

efficiency and conservation over beneficial electrification, consistent with AB 205.

The Joint 17

IOUs’ proposals seek to reflect, as much as possible, key elements of the recent Proposed 18

Decision recommending modernized RDPs, while aligning with AB 205’s requirements. 19

Although prior Commission decisions had expressed concern that fixed charges would 20

likely not encourage additional conservation,

the average kWh rate levels resulting from the 21

Joint IOUs’ proposed IGFCs (approximately 22-27 cents/kWh) are similar to the volumetric rate 22

levels at the time of Mass TOU Default, when the Commission concluded that the impact of a 23

Pub. Util. Code § 739.9(e)(1).

Rulemaking 22-07-005 Assigned Commissioner’s Scoping Memo and Ruling, p. 4.

PD, p. 14.

D.15-07-001, at p. 214.

fixed charge on conservation is likely to be small.

Under the recent Proposed Decision, the 1

term conservation is no longer used; rather the proposed revised RDP 4 states that “[r]ates should 2

encourage economically efficient (i) use of energy, (ii) reduction of greenhouse gas emissions, 3

and (iii) electrification.” In addition, RDP 5 states “rates should encourage customer behaviors 4

that improve electric system reliability in an economically efficient manner” (which seem to 5

effectively include conservation). Thus, the CPUC will have to balance the clear goals of 6

beneficial electrification from AB 205 with the other elements of the RDPs, while it decides how 7

to make future rates compliant with AB 205 so as not to inhibit beneficial electrification.

The recent Proposed Decision also emphasizes that “[r]ates should avoid cross subsidies 9

that do not transparently and appropriately support explicit state policy goals. Similarly, the 10

recent Proposed Decision’s RDP 9 would provide that “[r]ate design should not be technology-11

specific and should avoid creating unintended cost-shifts.” The Joint IOUs’ proposed IGFCs 12

will also provide customers with bill stability through reduced month-to-month bill volatility, to 13

help customers manage their bills, as well as to encourage economically efficient decision 14

making 15

Additionally, the Joint IOUs’ proposed IGFCs take into account the Proposed Decision’s 16

RDP 7, on customer understandability. The four household Income Bracket approach balances 17

customer understandability with a meaningful fixed charge to encourage beneficial 18

electrification. If the CPUC’s final decision on RDPs were to differ significantly from the 19

Proposed Decision, the Joint IOUs reserve the right to consider whether revised Joint IOU IGFC 20

proposal might be warranted, and work with the Commission and other parties on how best to 21

accomplish that, if needed. 22

Id.

Track B of this proceeding is considering changes to the RDPs.

C. Basis for the Average IGFC Level 1

The sections below describe in detail the multi-step process the Joint IOUs utilized in 2

designing proposed IGFCs. In sum, the first step is to determine the overall proportion of 3

residential revenue requirements that should be collected through the fixed charge instead of 4

volumetric rates. Second, once the average fixed charge Income Bracket has been determined, it 5

must be established how the volumetric rate design is impacted. Then, after volumetric rate 6

levels are calculated, the third and last step is to determine what discount or surcharge levels are 7

appropriate to result in a graduated, progressive fixed charge level for each successive income 8

“bracket.” The same generic methodology was used by each of the Joint IOUs to develop each 9

IOU’s average fixed charge and average volumetric rate. 10

1. Methodology for Determining Average Fixed Charge Level 11

The top priority and guiding principle of the fixed charge is to bring volumetric rates 12

closer to cost basis. As seen in Table II-4 below, today’s default utility rates

are far higher than 13

marginal costs as measured by both :(1) recent PG&E GRC Phase II marginal costs, and (2) the 14

CPUC’s 2022 version of the avoided cost calculator (ACC). This disconnect has the 15

consequence of discouraging additional beneficial use of electricity, both for electrification but 16

also for home health and safety. 17

64 AB 205 mandated the CPUC “shall” authorize IGFCs at least for the IOUs’ “default residential rate”

and “may” adopt IGFCs for other rate schedules. For PG&E, the default residential rate is E-TOU-C,

for SCE the default rate is TOU-D 4-9, and SDG&E’s default residential rate is TOU-DR-1.

Table II-4

PG&E Default Rates Compared to Marginal Cost Metrics

The Next 10/Berkeley research suggested that a fixed charge be implemented at a level 1

such that volumetric rates are approximately aligned with marginal costs.

As shown in Table 2

II-4, achieving this would require average fixed charges over $100 for non-CARE customers, 3

varying by what definition of marginal costs is used and what marginal cost categories are 4

defined as “fixed costs.” While the Joint IOUs have opted to propose fixed charges somewhat 5

lower than these benchmarks, the values required to reduce volumetric rates to marginal cost 6

form at least one “bookend” to illustrate the highest level of the average fixed charge possible 7

(which would result in the greatest reduction in the volumetric charge and thus best support 8

electrification goals) and encouraging economically efficient use of energy. 9

Another way to evaluate what could be considered the upper end of the range of possible 10

average fixed charges would be to determine which portion of utility revenue requirements do 11

not vary with usage and what fixed charge level would be required to collect those costs, leaving 12

Includes all 2022 Avoided Cost Calculator Categories – Energy, Cap and Trade, GHG

Adder/Rebalancing, Generation Capacity, Distribution Capacity, Transmission Capacity, Ancillary

Services, and Methane Leakage.

Includes all PG&E Marginal Costs used in cost-of-service study (MEC, MGCC, MDCC (Primary,

New Business, Secondary)). Excludes transmission marginal cost. MDCC values presented on $/kWh

basis for comparison purposes only.

Next 10 2022 Report: at p. 28.

only costs that do vary with usage still collected in the volumetric rate. Table II-5 below shows, 1

for non-CARE customers, what fixed charge level would collect the entirety of the fixed cost 2

revenue requirement categories identified in the Public Tool,

by utility. 3

The final version of the Public Tool was made available for public use on March 23, 2023.

Table II-5

Illustrative Fixed Cost Revenue Requirement Categories in the Public

Tool ($/month charge) – Residential Non-CARE Customers

***

****

Of these, the Joint IOUs include certain categories in their respective proposed IGFCs. In 1

the textual discussion further below, we provide additional detail on why a given category of 2

fixed costs would be appropriate to collect through the IGFC, or not. Also, Table II-6 below 3

provides a summary of the proposed components in the cumulative fixed charges and cumulative 4

volumetric rate reduction that results from each component. 5

The value of $7.88/mo. represents a settled marginal cost value used for revenue allocation purposes

in SCE’s 2021 GRC Phase 2 Proceeding. SCE’s filed marginal customer costs based on the RECC

methodology is $10.94/month.

Includes Distribution Primary New Business for PG&E.

Varies by IOU but includes all NBCs other than PPP and PCIA listed on Revenue Allocation Tabs.

For PG&E, based on bundled customer-months billing determinant. For SCE and SDG&E, based on

the Public Tool calculated total generation revenue on “Rate Design Detail” tab, Cell F380, divided

by total residential customer count, then ratioed to calculate non-marginal generation costs.

Table II-6

Revenue Requirement Categories Underlying the Joint IOUs’ Proposed Fixed Charges

and Resulting Reductions in the Volumetric Rate Component

Marginal Customer Access Costs (MCAC): MCACs represent the incremental costs of 1

connecting an additional (i.e., marginal) customer to the grid that are not driven by volumetric 2

energy usage or demand. The two cost components of MCACs are: 1) the marginal customer 3

equipment costs (MCEC) consisting of final line transformer, service line drop, and meter costs, 4

and 2) the ongoing and variable Revenue Cycle Service (RCS) costs associated with keeping 5

customers connected to the grid, such as customer billing, meter reading, and credit and 6

collections. This category should be collected through a fixed charge. 7

Marginal Distribution Demand Costs: Marginal distribution demand costs measure the 8

cost of serving an additional unit of customer kilowatt (kW) demand on the electric distribution 9

system. Distribution demand costs reflect the costs to deliver electricity from the substation to 10

the customer’s premise based on the customer’s maximum kW demand and consist of substation 11

and circuit facilities costs and applicable operations and maintenance (O&M) costs. Each utility 12

Table values calculated by dividing associated revenue requirements by customer-months and kWh

billing determinants used in the Public Tool. Totals differ from class average fixed charge due to

effects of the CARE discount.

defines these marginal costs slightly differently, and we therefore defer additional discussion to 1

each IOUs’ separate rate design exhibit. 2

Non-Marginal Distribution Costs: The Joint IOUs propose to collect all non-marginal 3

distribution costs through the fixed charge, as these do not vary with the volume of electricity 4

consumed. There are many costs recovered through distribution rates that are not directly linked 5

to marginal costs. The Joint IOUs recover the costs of wildfire mitigation and vegetation 6

management, reliability improvements, safety and risk management distribution costs, ongoing 7

distribution operations and maintenance, many regulatory balancing accounts, and various 8

programs and policy mandates through its distribution rates. These costs are not driven by a 9

customer’s usage, and therefore should be collected through the IGFC. 10

Transmission and Reliability Services: Transmission costs and retail rate design fall 11

under the jurisdiction of the Federal Energy Regulatory Commission (FERC), and therefore do 12

not fall within the scope of a CPUC proceeding setting the Joint IOUs’ retail IGFC rate 13

component. Conceptually, many of the costs to operate and maintain the transmission system do 14

not vary with usage, and in theory could be considered appropriate for inclusion as a fixed 15

charge. However, due to the jurisdictional boundary in this CPUC proceeding, the Joint IOUs 16

are not proposing that the IGFC be authorized to collect any transmission costs. 17

Public Purpose Programs (PPP): The PPP charge funds essential programs such as 18

energy efficiency and CARE discounts that have no relationship to the volume of electricity 19

consumed by customers and are explicitly authorized by AB 205 to be collected through a fixed 20

charge. These critical public policy programs should be funded through the intentionally 21

progressive mechanism of the income-based fixed charge because continuing to include them in 22

a flat volumetric rate can have regressive effects contrary to equity goals. In the Public Tool, 23

this category is split into three subcategories (Non-CARE Exempt, Self-Generation Incentive 24

Program (SGIP), and Residential CARE contribution). All three subcategories are appropriately 25

recovered through the IGFC. 26

Other Non-bypassable Charges: All non-bypassable charges (NBCs) would 1

theoretically be better collected through an IGFC than volumetric rates, given that the underlying 2

revenue requirements do not vary with customer usage. However, as discussed in the Joint 3

IOUs’ Briefs on AB 205 statutory interpretation, the Wildfire Fund Charge, Competition 4

Transition Charge, and prospective charges for continued operation of Diablo Canyon likely 5

cannot be collected through the IGFC due to statutory restrictions. Further, there are other 6

charges that lack such statutory restrictions, but nonetheless have contractual restrictions, 7

including the Wildfire Hardening Charge and the Recovery Bond Charge/Credit. Remaining 8

non-bypassable charges that should be collected through a fixed charge are the current Nuclear 9

Decommissioning Charge (ND) and New System Generation Charge (NSGC)/Local Generation 10

Charge (LGC). The ND funds the decommissioning of nuclear power plants that have already 11

been built; changes in customer usage will have no impact on the level of these costs. Likewise, 12

NSGC/LGC funds essential generation reliability resources procured per state policy 13

requirements. 14

Marginal Energy Costs (MEC): MECs are those costs necessary to procure a marginal 15

amount of energy; MECs reflect a combination of wholesale market prices and costs of meeting 16

renewable portfolio standard requirements. Since MECs are tied directly to wholesale electricity 17

market prices, these costs are appropriately recovered through volumetric rates. 18

Marginal Generation Capacity Costs (MGCC): MGCCs reflect changes in generation 19

capacity costs that are associated with usage coincident with peak demand. These generation 20

capacity costs do not include the cost of energy itself, as such costs are instead captured by the 21

MEC calculation. Instead, MGCCs look at the cost of the physical capability to generate 22

electricity, which usually consists of costs to construct a new power plant and its associated 23

operation and maintenance costs. While MGCCs do not strictly vary according to volumetric 24

usage, they are more appropriately recovered through time-varying rate designs. How this aspect 25

of rate design should be altered is being appropriately addressed in other phases of this 26

proceeding. 27

Power Charge Indifference Amount (PCIA): The PCIA is a charge to ensure that both 1

IOU customers and those who have left IOU service to purchase electricity from other providers 2

pay for the above market costs for electric generation resources that were procured by the IOU 3

on their behalf. “Above market” refers to the difference between what the utility pays for 4

electric generation and current market prices for similar resources. While traditionally 5

denominated as a $/kWh charge, the underlying costs recovered through the PCIA do not vary 6

with volumetric usage. Much of PCIA reflects early investments in high cost GHG free 7

resources to grow the clean energy industry, not to meet least cost procurement needs. As such, 8

it could be argued that these costs would be better recovered through a progressive cost recovery 9

mechanism, such as the IGFC. Nonetheless, the Joint IOUs are not proposing to recover PCIA 10

costs through the IGFC at this time. 11

Non-Marginal Generation Costs: This value is residually calculated by subtracting 12

MEC, MGCC, and PCIA from the total generation revenue requirement, and reflects the degree 13

to which present procurement costs exceed the marginal costs estimated in the most recent GRC. 14

The Joint IOUs do not propose to collect these costs through the IGFC. 15

Electrification Incentive Adjustment: To reach a volumetric rate that is more 16

accurately cost-based and more effectively incentivizes electrification and the transition to 17

carbon-neutral energy, SDG&E is proposing a new rate component, the Electrification Incentive 18

Adjustment (EIA) rate. Because PG&E’s and SCE’s proposed fixed charges result in an average 19

volumetric rate that is $0.25/kWh or lower, PG&E and SCE are not proposing an EIA rate 20

component that would act as a policy adder to the fixed charge. The purpose of this rate 21

component for SDG&E is to collect more revenue in a fixed charge and in real time return that 22

same revenue through a credit to the volumetric rates. The concept is similar to the Conservation 23

Incentive Adjustment/Total Rate Adjustment Component (CIA/TRAC), which functionally 24

collects more revenues from higher usage customers and returns that revenue in real time as a 25

discount to Tier 1 (baseline) rates based on a specified differential. The EIA charge would 26

collect more funding through a $/month fixed charge and reduce $/kWh rates than would 27

otherwise be possible under the Joint IOUs’ determination of costs that should be collected from 1

the IGFC at this time. This charge is a transparent way of increasing the fixed charge to a level 2

that will allow for enough volumetric rate reduction to incentivize beneficial electrification. The 3

EIA is discussed in more detail in SDG&E’s rate design testimony (Exhibit SDGE-01). SDG&E 4

is also requesting a two-way balancing account to track this new rate component, which is also 5

discussed in Exhibit SDGE-01. 6

D. Income Graduated Fixed Charge Discount Levels 7

1. Summary 8

The Joint IOUs’ proposed IGFC structure will include four household Income Brackets 9

(or levels) at the household

level, with the lowest two brackets consisting of CARE and FERA 10

customers. The upper Income Brackets would apply to all non-CARE/FERA customers, with 11

the highest bracket representing approximately 20-25% of the residential population, based on 12

each utility’s respective population as represented in the Public Tool. As discussed in more 13

detail in the Joint Income Verification Chapter, the Joint IOUs’ proposed Income Brackets are 14

designed to leverage existing household income data from the CARE and FERA programs and 15

utilize Federal Poverty Levels (FPL) for Income Bracket 3 (moderate-income) and Income 16

Bracket 4 (higher-income), consistent with how CARE and FERA program eligibility is 17

currently determined. The Joint IOUs are not proposing to verify customer incomes, and instead 18

use a CPUC-administered process for reasons described in the Joint Income Verification and 19

Policy Chapters. With this framework, the Joint IOUs are not required to collect household 20

income, anew, on their entire respective customer bases, but rather focus on an evolutionary 21

income verification process in the non-CARE/FERA segments. The Public Tool does not 22

“Household” means customers, consistent with the definition of “low-income electric and gas

customers” used in Section 739.1 with respect to the CARE program, which defines such customers

as those with “annual household incomes that are no greater than 200 percent of the federal poverty

guideline levels.” A “household” should be defined as the persons residing in the home. Joint

Utilities Opening Brief on Statutory Interpretation Questions, at p. 20; Joint Utilities Reply Brief on

Statutory Interpretation Questions, at p. 11.

provide income data stratified by FPL, but the ALJ Ruling Providing Additional Guidance for 1

Track A Proposals and Staff Guidance Memo on Using the E3 Fixed Charge Tool to Prepare 2

Opening Testimony

provides guidance on how to use the Public Tool to model FPL thresholds. 3

The Public Tool provides CARE/FERA information and non-CARE/FERA customer data in 4

increments that correspond to FPL, which allows for grouping of customer populations into 5

brackets that correspond to FPL when assuming a household size of three as required by the Staff 6

Guidance Memo. The Joint IOUs’ proposals for Income Brackets thresholds are based on the 7

data in the Public Tool, and therefore, may need to be adjusted once customer incomes are 8

verified, if the percent of customers falling in one bracket produces disproportionate impacts on 9

the population in a given Income Bracket. The Joint IOUs propose the following household 10

Income Brackets: 11

 Bracket 1 – Extra Discounted Fixed Charge (applicable to a subset of the lowest 12

income CARE customers) with household income of up to 100% of Federal Poverty 13

Level. 14

 Bracket 2 – Discounted Fixed Charge (remaining CARE and FERA customers that do 15

not fall in Bracket 1). 16

 Bracket 3 – Fixed Charge for Non-CARE/FERA customers with household income 17

up to or equal to 650% of Federal Poverty Level. 18

 Bracket 4 – Fixed Charge for Non-CARE/FERA customers with household income of 19

greater than 650% of Federal Poverty Level. 20

a) Lower Average Monthly Bills for Low-Income Customers 21

AB 205 requires that the fixed charge discount be set “so that a low-income ratepayer in 22

each baseline territory would realize a lower average monthly bill without making any changes 23

ALJ’s Ruling Providing Additional Guidance for Track A Proposals, Staff Guidance Memo on Using

the Public Tool to Prepare Opening Testimony (Mar. 23, 2023), at p. 5.

in usage.”

As discussed in the Joint IOUs’ Statutory Interpretation Brief, we interpret this to 1

mean that the average low-income customer in all baseline territories must realize at least some 2

bill savings as a result of the IGFC implementation relative to current rate design. In practice, 3

this means that the required discount level is informed by the amount of bill savings realized by 4

low-income customers in the lowest baseline usage territory. Each IOU’s specific Rate Design 5

Testimony exhibit discusses this requirement in more detail. 6

E. Impact of the IGFC on Rates and Other Rate Design Issues 7

1. Impact of the IGFC on Volumetric Rates 8

The Joint IOUs propose to reduce volumetric rates consistent with current rate treatment. 9

For PG&E and SDG&E, as presented in Table II-7, below, this means the revenue from the 10

IGFC would be applied as an equal cents per kWh reduction in the underlying volumetric rate, as 11

none of the costs proposed to be collected through the fixed charge are currently time-12

differentiated on these rates. For SCE, this means applying the volumetric reduction based on 13

the System Average Percent Change (SAPC) methodology consistent with the method used to 14

perform revenue requirement adjustments for all rate classes. However, certain rates require 15

additional consideration, as displayed in Table II-7 and outlined in section II.E.6, below. 16

Table II-7

IOUs’ Volumetric Rate Adjustment Methodology by Rate Schedule

Volumetric Methodology PG&E SDG&E SCE

Standard Rate Schedules: Equal

Cents per kWh or SAPC

E-1

E-TOU-C

E-TOU-D

E-ELEC

TOU-DR1

TOU-DR2

DR-SES

TOU-DR

TOU-ELEC

Domestic

TOU-D (4-9)

TOU-D (5-8)

Other Rate Schedules: IOU

Specific

EV2 EV-TOU

EV-TOU-2

EV-TOU-5

TOU-D-PRIME

AB 205 and Cal. Pub. Util. Code § 739.9(e)(1).

Each of the Joint IOUs’ respective inclining block tier non-TOU rates, as well as their 1

respective default TOU rates, currently include two tiers, with all Tier 2 rates (or “above-2

baseline” rates) set 25% higher than Tier 1 (“baseline”) rates, per the CPUC’s residential rate 3

reform tier flattening glidepath decision.

For PG&E and SCE, this is implemented in the 4

underlying tariffs as the CIA component, while for SDG&E it is implemented as the TRAC 5

component. The Joint IOUs do not propose to change the 1.25:1 tier ratio in existing tiered rates. 6

However, the overall reduction in volumetric rates that results from addition of the IGFC will 7

result in an overall decrease in the $/kWh difference between Tier 1 and Tier 2 rates. 8

2. Adjusting the IGFC Over Time for Revenue Requirement Changes 9

The Joint IOUs propose that, between their respective GRC Phase II proceedings, each of 10

their IGFC rate components, as adopted in the Demand Flexibility OIR, should be updated to 11

follow changes in the underlying revenue requirements. This means that if an IOU’s distribution 12

revenue requirement were to go up or down by 5%, its IGFCs would each change by that same 13

amount. This contrasts with how fixed charges have previously been implemented for the Joint 14

IOUs, where a given fixed charge did not vary when the underlying revenue requirements 15

changed, rather, the difference was made up with other rate components. SCE has already 16

transitioned its TOU-D-PRIME to use the same treatment proposed here. Under the new context 17

here, where the fixed charge rate component must be used as a mechanism to ensure volumetric 18

rates do not inhibit state decarbonization policy, fixed charges must be allowed to change over 19

time. Further, the fixed charge proposals parties are making in this proceeding are distinct from 20

other existing fixed charges for non-residential rates in that they collect more than just a portion 21

of distribution costs; pursuant to AB 205, the Joint IOUs propose that the entirety of several non-22

bypassable charges be collected through the fixed charge, all of which have varying revenue 23

requirements over time. 24

D.15-07-001, at p. 330, COL 37.

3. IGFC Review and Assessment Over Time 1

The knowledge of historical performance will not be available to the Joint IOUs when 2

initially setting rates with an IGFC. Over time the IGFC may require adjustments to its structure 3

and method of service as real-world data associated with revenue recovery, customer 4

participation, and equity of rates is obtained. The Joint IOUs propose the following review and 5

assessment process to determine the ongoing success of the IGFC structure. 6

The Joint IOUs propose to conduct the review and assessment process in each of their 7

respective GRC Phase II proceedings. In this manner, the review and assessment will be 8

performed in an already scheduled CPUC proceeding where interested parties are convened to 9

examine the utilities’ marginal cost and rate designs broadly. Including the IGFC structure 10

within these proceedings is an efficient use of resources and will align any changes to the IGFC 11

with changes to the underlying marginal costs and related rate elements, such as time-of-use 12

differential and volumetric rate designs. The GRC Phase II calendar provides an adequate time 13

interval (i.e., four-year cycles) for any changes to take hold before the next assessment, and also 14

allows for mid-cycle Rate Design Window Applications in the event a more immediate 15

adjustment is necessary. 16

The review and assessment of time-of-use pricing periods is conducted in a similar 17

manner. In each GRC Phase II proceeding, the Joint IOUs submit a prescribed

study to assess 18

if the existing time-of-use pricing periods are still applicable given changes to the underlying 19

costs drivers being evaluated in the GRC Phase II. Parties to the proceeding can then offer 20

supporting or opposing positions through the various vehicles available to them in the regulatory 21

process. An independent evaluation of the arguments presented by parties is then conducted by 22

the CPUC’s Energy Division. 23

The primary metrics to be considered in the assessment relate to revenue recovery and 24

operational requirements. With respect to revenue recovery, the assessment will determine the 25

D.17-01-006.

effectiveness of the IGFC structure in recovering the design level of revenue in each of the 1

attrition years. Here parties will examine inputs to rate setting and customer activities to help 2

determine the causes of any deviations, and the methods used to adjust rates in the attrition years. 3

For this purpose, parties will review forecasts of customer distributions across Income Brackets; 4

counts of customers who successfully appeal an Income Bracket placement, and allocation of 5

overall low-income rate benefits. 6

4. CARE Discount Structure Changes 7

AB 205 changed the methodology for determining CARE discounts. Current law 8

requires the “average effective CARE discount…not reflect any charges for which CARE 9

customers are exempted, discounts to fixed charges or other rates paid by non-CARE customers, 10

or bill savings resulting from participation in other programs…

” In addition, current law 11

maintains that the overall average effective CARE discount should be no less than 30% and no 12

greater than 35%. Previously, the CARE discount had been applied on a line-item basis to non-13

exempt billed charges, with an overall bill-to-bill difference relative to a non-CARE bill that 14

reflected an average effective CARE discount of 32.5% for SCE, 35% for PG&E, and 35% for 15

SDG&E. For each of the Joint IOUs, the average effective bill-to-bill CARE discount falls 16

within the statutory guidelines. 17

Consistent with the current language in Public Utilities Code Section 739.1, the Joint 18

IOUs propose a CARE discount structure in which the required 30% to 35% discount limit is 19

applied to non-exempted volumetric charges. Under this construct, the overall CARE customer 20

benefit would include CARE discounted volumetric rates, the low-income fixed charge discount 21

relative to the average fixed charge amount, and exemptions from specific charges to include the 22

CARE surcharge, SGIP, and the DWR Wildfire Fund. Since the IGFC discount required by AB 23

205 exceeds the 35% limit, we propose that only a portion of the IGFC discount be considered 24

part of the CARE program, such that the overall CARE surcharge amount remains unchanged, 25

Pub. Util. Code § Section 739.1(c)(1).

with the remainder of the IGFC discount funded within the IGFC. This approach ensures that 1

implementation of the IGFC maintains existing interclass revenue allocations. For an average 2

CARE customer, the sum of benefits would provide an average 45-50% bill-to-bill difference 3

relative to a non-CARE bill, as shown in Tables II-8-10 below. 4

Table II-8

SDG&E Illustrative CARE Bill Comparison

Monthly Bill Charge

Average Non-

CARE

FERA

Average CARE/

FERA

Effective

Discount (%)

Fixed Char

e $91 $30 (67)%

Volumetric Char

$109 $71 (35)%

Total Bill $200 $100 (50)%

Table II-9

SCE Illustrative CARE Bill Comparison

Monthly Bill Charge

Average Non-

CARE

FERA

Average CARE/

FERA

Effective

Discount (%)

Fixed Char

e $60 $18 (70)%

Volumetric Char

$106 $74 (30)%

Total Bill $166 $92 (45)%

Table II-10

PG&E Illustrative CARE Bill Comparison

Monthly Bill Charge

Average Non-

CARE/ FERA

Average

CARE/ FERA

Effective

Discount (%)

Fixed Charge

$65 $23 (65%)

Volumetric Charges

$104 $65 (37%)

Total Bill

$168 $118 (48%)

Assumes 400 kWh of usage.

Assumes 504 kWh of usage.

Assumes 476 kWh of usage.

5. FERA Interaction with IGFC 1

The Family Electric Rate Assistance Program (FERA), as currently implemented, has a 2

statutory 18% line-item discount on non-CARE rates (meaning FERA rates are 82% of non-3

CARE rates).

To be eligible for FERA, a customer household must be three or more 4

individuals with a combined income from 200% FPL up to 250% FPL. While the statutory 5

language for the CARE program was revised in AB 205 to make it explicitly compatible with the 6

IGFC also required by AB 205, no such changes were made to the statutory language for FERA. 7

Therefore, there is some ambiguity how the FERA program should interact with the IGFC. The 8

Joint IOUs propose that FERA participants be considered part of the second income category 9

along with CARE customers with incomes greater than 100% of FPL. Since the fixed charge in 10

this category is less than 82% of the mid-income bracket fixed charge, let alone 82% of the high-11

income bracket fixed charge, the Joint IOUs propose that this fixed charge discount supersede 12

the 18% discount these customers are entitled to under FERA. FERA participants will continue 13

to receive an 18% discount on non-CARE volumetric rates. The default version of the Public 14

Tool calculates FERA bills using non-CARE fixed charges, rather than the second income 15

bracket fixed charge as proposed by the Joint IOUs. As a result, the bill impacts from the default 16

version of the Public Tool do not reflect the utility proposal. The Joint IOUs also present 17

alternative results using a modified version of the Public Tool that does set all FERA fixed 18

charges at the intended level. Because the Public Tool is not designed to adjust all other rates in 19

response to the reduction in fixed charges paid by FERA customers, this technically understates 20

the rate levels of non-CARE customers. However, the small volume of FERA customers means 21

this has a de minimis impact – for example, only 0.06% less residential revenue is collected for 22

SCE. 23

PU Code Section 739.12.

6. Implementation of the IGFC on Non-Default Residential Rates 1

Parties have already submitted legal briefs on statutory interpretation of AB 205. With 2

the exception of the Solar Energy Industries Association (SEIA), all parties’ statutory 3

interpretation briefs appeared to agree that, as both a practical and policy matter, the IGFC must 4

be implemented on all rates. Besides the exceptions outlined below and in individual utility 5

testimony, the IGFC on default rates should be mirrored on all optional rates. To do otherwise 6

would enable higher income customers to easily evade the higher IGFC levels they are intended 7

to pay by switching to a rate without an IGFC (or with a lower IGFC). The impact of the IGFC 8

should be as consistent across rate schedules as possible while allowing some adjustments for 9

pro-electrification policy purposes. 10

There are three general exceptions to this policy: 11

First, the Joint IOUs may each have rates scheduled to be eliminated (for example, 12

PG&E’s EV-A and E-TOU-B rates will be eliminated in 2025). In the interest of simplicity, 13

these rates should retain their existing rate design if they do happen to have any overlap with 14

general IGFC implementation. These specific exceptions are described in more detail in the 15

individual IOU Rate Design chapters. 16

Second, the Joint IOUs’ separately metered EV rates should not have an additional full 17

IGFC, so long as, at the customer’s primary meter (for non-EV household electric usage), takes 18

service on a rate that does have a full IGFC.

The Joint IOUs’ separately metered EV rates 19

should mirror the overall rate levels of the non-submetering versions of the EV rates, which 20

would include the effects of the fixed charge. However, the separately metered EV rates may 21

still feature fixed charges to recover incremental billing and metering costs, while excluding 22

other costs in the customer charge. 23

SCE TOU-D-PRIME separately metered option will continue to reflect a credit for the final line

transformer and final line drop costs that are shared with the primary meter.

Third, existing optional residential rates with fixed charges (e.g., PG&E’s E-ELEC 1

(Electric Home) rate, which already has a $15 fixed charge, SDG&E’s Schedules EV-TOU-5 2

and TOU-ELEC, which have $16 fixed charges, or SCE’s TOU-D-PRIME rate) may need to 3

have higher overall fixed charges than the default rate’s IGFCs. If the Joint IOUs’ proposals are 4

accepted, there is no need for these rates to have higher fixed charges than the default IGFC. 5

However, if the CPUC were instead to opt for a set of IGFCs lower than the Joint IOUs’ 6

proposals, these optional rates should always at least collect current levels of distribution fixed 7

charges. For example, if the default rate IGFC collected $10 of NBCs and $7 of distribution 8

costs from non-CARE customers, the E-ELEC fixed charge should be $8 higher to account for 9

the current $15 distribution fixed charge. This will ensure the relative benefit of these optional 10

rates as being more pro-electrification than standard rates is retained until default rate design 11

evolves to more closely match the designs of these optional rates. 12

7. Size Differentiation 13

The Joint IOUs do not propose that the fixed charge be explicitly differentiated by 14

customer size, to avoid undue complexity of the initial IGFC rates. The Joint IOUs understand 15

that Public Utilities Code section 739.9(d)(1) requires that any approved fixed charge 16

“reasonably reflect an appropriate portion of the different costs of serving small and large 17

customers.” This language was added in 2013 through AB 327 and was not modified by AB 18

205. 19

Working with Energy Division, the ALJ’s December 9, 2022 Ruling (requiring legal 20

briefs on legislative intent) hypothesized a potential bundled fixed charge that might be 21

comprised of two elements: first, a set monthly basic service fee that is income graduated, with a 22

possible second “demand charge” element that meets the requirements of the fixed charge 23

definition in 739.9(a) which requires any fixed charge not to vary based on month-to month 24

changes in a customers’ kWh usage, a requirement that might be satisfied if the demand charge 25

were preset using another factor such as maximum amperage. 26

While in theory, the idea of a hybrid IGFC (e.g., with a residential demand charge or 1

other element to reflect size of kW demand), could have merit, there are several difficulties with 2

doing something like that now. The IGFC is already complex given the addition of income 3

graduation, and layering on any size differentiation would make the hybrid fixed charge concept 4

overly complex and more difficult for customers to understand. Thus, the Joint IOUs do not 5

support such a hybrid structure at this time. 6

Our proposed IGFCs nonetheless reflect the same underlying statutory intent. The 7

portion of distribution costs that most clearly vary with the demand of individual customers 8

(MDCC- Primary and Secondary for PG&E, Distribution Design Demand MC for SCE, MDDC 9

for SDG&E) will continue to be collected through volumetric rates, as will all transmission and 10

generations costs. Further, home size is presumably correlated with household income. As such, 11

the income differentiation inherent in the IGFC can (and should) be deemed to be a reasonable 12

proxy for the differing costs of serving large and small customers. This proxy approach avoids 13

adding further complexity, while still accomplishing the overall intent of the statute. 14

However, if the CPUC instead wishes to explore a different approach that adds an 15

express size differentiation component to rates (other than $/kWh charges and the IGFC as a 16

proxy for size), then it should do so in the broader context of demand charge reassessment in 17

Track B of the DFOIR proceeding. That said, regardless of the venue for such a decision, the 18

Joint IOUs do not support the use of either housing type (e.g., single family vs. multifamily) or 19

home electric panel amperage as a basis for such a charge. Either approach presents significant 20

data challenges in that billing quality data is not readily available for either of these two 21

characteristics. Developing billing quality data and reprogramming the billing systems to update 22

such data fields would require additional costs and likely be error-prone. Given that 23

implementation of the basic IGFC will be complex, the CPUC should not compound these 24

difficulties by requiring establishment of other novel billing determinants at this time. 25

As an alternative, the Joint IOUs suggest that the CPUC could explore the concept of a 26

threshold-based demand charge. This concept would involve a demand charge that would only 27

apply to demand beyond a specific level. Such a demand threshold level could be set either 1

based on population statistics of demand levels to ensure relatively few customers are exposed to 2

such a charge, or based on end-use specific load data to ensure the threshold does not expose 3

most customers adopting building/transportation electrification technologies to a demand charge. 4

If the threshold were set at 12 kW (e.g., a 5 kW house load plus a 7 kW level 2 EV charger), a 5

customer with a demand of 15 kW would only be assessed a demand charge on 3 kW. This 6

alternative approach could mitigate some of the traditional concerns with implementing a 7

demand charge on residential rates. 8

8. Elimination of Minimum Bills 9

The Joint IOUs propose to eliminate minimum bills. In R.12-06-013, the CPUC 10

authorized the application of minimum bills to residential customers and approved an amount of 11

$10 for non-CARE customers and $5 for CARE customers.

Because of the all-volumetric 12

design of residential rates, the minimum bill or minimum charge was instituted as a billing 13

mechanism applied to customers whose monthly usage fell below a minimum amount deemed 14

necessary to support the recovery of costs for power delivery and customer billing. In this 15

proceeding the Joint IOUs’ proposal to set fixed charges at a level to reasonably recover a 16

portion of delivery related costs, customer related costs, and certain public policy costs, at a 17

minimum, negates the need to assess a minimum charge or minimum bill on residential 18

customers. 19

B. Calibration Mechanism for Structure Revisit 20

As discussed in the Cost Recovery Chapter, the Joint IOUs are proposing a calibration 21

mechanism in the event that actual revenue collection from the IGFC varies significantly from 22

forecasted collections. This is discussed in more detail in the Joint IOU Cost Recovery Chapter. 23

D.15-07-001, at pp. 283-284, 291.

C. Public Tool Results 1

The Joint IOUs have included the “Printable Results” tab from the Public Tool as 2

Appendix B, as required by the Staff Guidance Memo on March 23, 2023.

Individual IOU 3

results are discussed in each IOU’s Rate Design Testimony.4

Administrative Law Judge’s Ruling Providing Additional Guidance for Track A Proposals, March 23,

2023.

III. 1

INCOME VERIFICATION 2

A. Introduction 3

This Chapter covers the Joint IOUs’ assessment of and proposals for how to accomplish 4

verifying customers’ household incomes, as required to implement the IGFC’s that AB 205 5

directed the CPUC to adopt in this proceeding. 6

Verifying customers’ household incomes will present new challenges for both IOUs and 7

customers. The Joint IOUs explored multiple options with the goal of minimizing anticipated 8

customer pain points, while also maximizing accuracy of the initial income bracket assignment. 9

Many options proved to have challenges of being administratively burdensome, costly, and 10

having unclear levels of accuracy. The Joint IOUs’ proposal aims to reduce these barriers 11

through the use of real, accurate data with a single statewide Third Party implementor. 12

Specifically, the Joint IOUs propose that the income verification process (including the initial 13

Income Bracket placement, customer appeal process, and periodic updates to income bracket 14

assignment) is conducted by a Third Party under the supervision of the CPUC, using a data 15

model that has access to Franchise Tax Board (FTB), Department of Social Services (DSS), and 16

census block data to place customer households in the correct Income Bracket. However, 17

regardless of the adopted approach, all parties should anticipate that due to the newness of the 18

process there will undoubtedly be unforeseen challenges, and possibly high levels of customer 19

resistance despite planned outreach and education, during the initial years of implementation. 20

1. Income Assignment and Verification - Objectives and Evaluation Criteria 21

The primary objective of an income assignment and verification process is to assign 22

customers to the correct Income Bracket based on household income. Secondarily, a further 23

process should be provided to allow any customer to appeal their assignment, as well as a longer-24

term process for periodically monitoring the ongoing accuracy of the household’s assigned 25

Income Bracket. The Joint IOUs recommend that initial income bracket assignments, customer 1

appeals and periodic updates be conducted by a Third Party under contract and supervision of the 2

CPUC. Among other benefits, the Third Party will ensure statewide consistency so that all 3

electric IOUs (small and large) can benefit from economies of scale. Specifically, the Joint IOUs 4

recommend the CPUC overseeing a Third Party, similar to how the CPUC administers income 5

verification for the telecommunication utilities’ LifeLine program utilizing the best available 6

data, including data from the FTB and DSS, to most accurately assign customer to household 7

Income Brackets. 8

Selecting an appropriate process for IGFC income assignment and verification involves 9

competing considerations which must be carefully balanced. These considerations include: (1) 10

customer impact and acceptance, (2) accuracy, (3) cost to implement, (4) complexity, (5) 11

implementation timing, and (6) an accessible and understandable appeals process if a customer 12

seeks a reassessment of their household income bracket assignment. To develop a proposal that 13

meets these objectives and balances these considerations, the Joint IOUs identified multiple 14

evaluation criteria, through input from stakeholder workshops as well as subsequent research and 15

collaborative discussions. The Joint IOUs’ IGFC income verification evaluation criteria are 16

listed below: 17

 Customer Impact and Acceptance 18

o Minimize customers’ privacy concerns about this new collection and use of 19

household income data 20

o Build trust in the income verification process 21

o Enable ease of required customer actions 22

o Facilitate customer understanding and awareness of the new fixed charge rate 23

component, as well as the income verification and appeals process 24

o Enable the income assignment process to be as transparent as possible while 25

protecting privacy 26

o Facilitate a positive and consistent statewide customer experience 27

 Accuracy 1

o Make the process as effective and efficient as possible, including for: 2

o Resolving customer appeals claiming an incorrect household income 3

assignment, and 4

o Periodically refreshing household income categorizations for all customers 5

o Minimize free ridership as well as potential impacts to other IOU programs with 6

self-certification enrollment 7

o Minimize inadvertently mis-categorizing low-income customers into other 8

income groups due to verification challenges that low-income customer may face 9

o Select a data source (or sources) that is comprehensive while also simple and 10

cost-effective 11

 Cost 12

o Minimize initial start-up costs to implement 13

o Minimize ongoing operating, labor, communications, data storage and 14

maintenance costs 15

 Complexity 16

o Avoid requiring unduly complex systems 17

o Minimize manual processes 18

o Limit the resource burden and cost of ongoing maintenance 19

o Minimize the number of customer appeals 20

o Make the appeals process simple to implement and easy to access 21

 Time to Implement 22

o Balance expediency of implementation with accuracy of income bracket 23

assignment and degree of effectiveness 24

o Consider timing effects of either complying with existing statutes or seeking 25

possible legislative amendments that may be needed for the most optimal 26

approach 27

o Availability of information for and speed of placement of new California 1

residents in the correct Income Bracket 2

D. Stakeholder Input 3

1. Key Stakeholder Input 4

The Joint IOUs sought feedback from a diverse group of stakeholders regarding income 5

verification process options. To this end, PG&E requested an IOU-facilitated follow-up 6

workshop noticed to all parties, which was held on December 21, 2022. One key insight gained 7

from this workshop was that a consistent approach is needed across the small and large IOUs that 8

could leverage existing data to the maximum extent possible. Some stakeholders also noted that 9

the IOUs may not be the best choice to conduct income verification. As presented in Chapter 5 10

of this exhibit, marketing research has already revealed that customers do not want their IOU to 11

collect their income.

E. Income Definition 13

The Joint IOUs recommend that the definition of qualifying income that has already been 14

established for the CARE program (e.g., Wages, Social Security, Pensions, Child Support) 15

should be used as the starting point for identifying the fixed charge Income Bracket into which 16

low-income customers should be placed. By doing so, a consistent definition of “income” would 17

be used across the CARE program as well as the new IGFC rate component’s household Income 18

Brackets. The CARE program is an opt-in program with an application through which 19

customers self-certify that their income is within the qualifying threshold (or by self-certifying 20

that they qualify through categorical eligibility by participating in one of several listed 21

programs). Because the definition of qualifying income was first established through the Low 22

Income proceeding, the Joint IOUs recommend that further discussion or review of the definition 23

of qualifying income be conducted in that proceeding. The Joint IOUs recommend that the time 24

component of qualifying income be aligned with calendar year. 25

F. Household Income Brackets 1

As discussed in the Rate Design chapter of this exhibit, the Joint IOUs recommend four 2

fixed charge household Income Brackets. The Joint IOUs developed their recommended Income 3

Bracket proposal by, first, creating two low-income brackets, namely: (1) Income Bracket 1 4

(extra discounted) for CARE customers with household incomes of 100% FPL and below, and 5

(2) Income Bracket 2 (discounted) for CARE customers with household incomes greater than 6

100%, plus FERA enrolled customers. Sub-dividing the group of low-income customers into 7

two brackets allows the most economically vulnerable households to receive a lower fixed 8

charge than that which would result from blending these two subcategories into a single 9

category. 10

Next, the Joint IOUs divided the Non-CARE/FERA households into the third and fourth 11

household Income Brackets: (3) Non-CARE/FERA customers with household income up to or 12

equal to 650% of Federal Poverty Level, and (4) all remaining Non-CARE/FERA households, 13

with incomes starting at 650% FPL. Providing two Income Brackets above the two lowest 14

brackets provides some relief for moderate-income households while carrying out AB 205’s 15

intent that low-income customers pay “a smaller fixed charge and high-income customers pay a 16

higher fixed charge.”

By providing two levels of progressively higher non-low-income fixed 17

charges, the Joint IOUs are balancing the desire for simplicity with equity concerns. This 18

proposed design results in an equitable distribution of IGFC impact among very low, low, 19

moderate- and higher-income households. 20

The proposed household Income Brackets and estimated number of customers in each 21

bracket are shown in the Table III-11. 22

Pub. Util. Code § 739.9(e)(2).

Table III-11

Joint IOUs Percentage of Residential Customers by Income Brackets

Income

Bracket

Income Bracket Eligibility Estimated Percentage of Total Residential

Customers

PG&E SDG&E SCE

1 CARE Customers

0% to 100% FPL

13% 12% 11%

2 CARE/FERA Customers

> 100% FPL

15% 15% 15%

3 Non-CARE/FERA Customers

<= 650% FPL

47% 50% 55%

4 Non-CARE/FERA Customers

> 650% FPL

25% 23% 19%

G. Income Verification Options Evaluated by the Joint IOUs 1

1. Introduction 2

The Joint IOUs investigated methods for determining and verifying customer household 3

income for the purpose of assigning a monthly fixed charge, including: 4

(1) using currently available income data from the income qualified programs 5

administered by the Joint IOUs, 6

(2) leveraging available state processes such as the CalFresh Confirm process or the 7

CPUC-administered LifeLine (TelCom low-income) Program

, 8

(3) partnering with consumer credit reporting companies to access and match household 9

income data, 10

(4) using customer stated or verified income data, and 11

(5) using an IOU-developed data model to verify income data. 12

All of these methods have significant hurdles that would need to be overcome to 13

effectively verify income for the purpose of assigning a monthly fixed charge. This discussion is 14

Using the data in the Public Tool.

As suggested in the Energy Division’s Income Graduated Fixed Charge Guidance Memo issued

January 17, 2023.

intended to serve as a list of the most thoroughly investigated proposals but does not represent an 1

exhaustive list of all ideas considered. 2

2. Using Current Program Information 3

Currently, the Joint IOUs receive customer-supplied income data to verify eligibility for 4

income qualified opt-in programs including CARE/FERA, and Energy Savings Assistance 5

(ESA). 6

For the ESA program, participation is temporary because energy efficiency services 7

occur at a single point in time. Accordingly, ESA applicants provide qualifying income 8

information when they apply to participate. While this income data is eventually verified during 9

the enrollment process, such a process would not be useful for assessing an ongoing fixed charge 10

because: (1) the income information is only provided as part of initial enrollment and (2) 11

applications for these programs are handled by contractor networks that could not scale to handle 12

the full residential customer population. 13

In contrast, CARE and FERA are ongoing opt-in income-qualified programs, which 14

allow customers to continue to participate year-over-year as long as they remain eligible. 15

Initially, CARE/FERA eligibility is determined during enrollment through self-reported data that 16

customers include in their application. The initial CARE/FERA self-certified information 17

includes: (1) household size and (2) either proof of (a) their participation in one or more public 18

assistance programs or (b) their household income

and income sources. Every year, each large 19

IOU validates a sample of its CARE/FERA-enrolled customers through a Post-Enrollment 20

Verification process through which SCE, PG&E, and SDG&E validate approximately 7%, 8%, 21

and 6% of enrolled customers, respectively. The Joint IOUs do not collect income data from 22

The SCE and SDG&E CARE/FERA applications have a “fill in the blank” question for customer

income level. The PG&E CARE/FERA application includes a selection of income ranges and asks

the customer to “check a box”. As a result, SCE and SDG&E have information on a customer’s

specific income level while PG&E currently has a customer’s income range. PG&E will begin

collecting specific income information in mid-2023 for new CARE applicants and customers

undergoing recertification.

customers for purposes other than enrollment in income qualified programs. Also, because that 1

information only covers a subset of the residential population and is (a) only verified once during 2

enrollment (in the case of ESA and similar programs) for all applicants, and (b) re-verified on an 3

irregular basis for some (not all) CARE/FERA-enrolled customers, this process is not robust 4

enough to be appropriately relied upon for determining the level of a mandatory monthly income 5

graduated fixed charge on a long-term basis. Further discussion about the challenges of building 6

on the CARE/FERA processes to expand to income verification or stated income collection to 7

customers of all income levels can be found further below, in the “Using Customer Stated or 8

Verified Income” section (III.E.5). 9

3. Using Available State Processes 10

a) DSS’s “CalFresh Confirm” Data 11

The Joint IOUs also investigated whether the DSS’s CalFresh Confirm process might be 12

a useful means of income verification for the IGFC. The Joint IOUs reviewed documentation on 13

CalFresh program eligibility and income verification methods and also spoke with program 14

administrators from the DSS as well as one of the data providers for the CalFresh verification 15

program. 16

The CalFresh Confirm process could enable verification that a customer is a CalFresh 17

recipient, and therefore has a household income <200% of the FPL. However, the Joint IOUs 18

determined that the CalFresh Confirm system has several significant limitations, most notably 19

that it does not match the Joint IOUs’ proposed household Income Brackets. It only confirms 20

whether the information entered matches the information for an individual CalFresh recipient, 21

which would only be partially useful in trying to validate whether the total household income 22

makes that residential account eligible for either Income Bracket 1 or 2. However, income 23

verification for customers with low incomes who are not CalFresh recipients, as well as 24

moderate- and higher-income customers, cannot currently be accomplished by CalFresh. In 25

general, the CalFresh program in its current form would not be immediately transferrable to 26

income verification for the purposes of the IGFC, since it uses only a single income cut-off that 1

does not match the proposed total household cut-offs for establishing two low income-graduated 2

fixed charge brackets. It is conceivable that a Third-Party verification process could be built 3

using the same underlying data but including additional income cut-offs. However, the Joint 4

IOUs understand that at least one of the data-sources underlying CalFresh is credit agency data 5

that requires affirmative customer consent to complete the verification, which poses significant 6

administrative challenges for the IGFC. In this situation, affirmative customer consent would 7

have to be collected from each and every one of the Joint IOUs’ 10.8 million residential 8

customer accounts. This would not just have to be done once during the initial deployment, but 9

repeatedly, as individual as well as household income varies over a person’s lifetime.

In 10

addition, consent would have to be obtained for each new account turn-on, from both the named 11

customers on the account as well as every other individual in their household. The repeated, 12

large-scale collection of such consent documentation would be costly and would impose a 13

significant burden on customers (as well as dilute the IGFC’s benefits for electrification if 14

verification costs were included in rates). Further, it is likely many customers would not 15

respond.

Under this kind of verification model, non-respondents may have to be placed on a 16

higher ‘default’ Income Bracket, which could cause equity concerns for customers who are 17

legitimately eligible for a lower fixed charge but failed to respond. 18

Year over year income variation reached 25 percent or more for a quarter of households between

2004 and 2005. Congressional Budget Office, Recent Trends in the Variability of Individual

Earnings and Household Income (June 2008), available at

https://www.cbo.gov/publication/41714?index=9507.

Section E.5 of this exhibit discusses available information on customer response rate to the CARE

Post Enrollment Verification process, which can be used as a proxy to indicate customer likelihood to

respond to consent requests.

b) CPUC/ Third Party LifeLine Low Income Program for Telecom 1

Utilities 2

The Joint IOUs also reviewed the Telecommunications’ LifeLine program’s income 3

verification process, to see if a similar process could be used to verify income for the IGFC. The 4

LifeLine income verification program is administered through a CPUC interagency contract with 5

a Third Party, an organization called Maximus. The LifeLine process requires customers to go 6

through an income verification process at the time of enrollment as well as automated 7

recertification. The LifeLine program primarily uses enrollment in CalFresh (51%) or MediCal 8

(43%) as a proxy to confirm LifeLine eligibility, but also accepts enrollment in other programs, 9

or proof of Federal/State income or Supplemental Security Income (SSI).

The LifeLine 10

program, which serves approximately 1.3 million households,

currently costs $46 million for 11

the three years between October 2022 - October 2025 to administer (including enrollment of 12

applicants, verification of Income Brackets, operation of information technology systems, 13

operation of a call center, and database management).

The Joint IOUs have not been able to 14

determine what portion of program funding is used to verify customer income but note that even 15

its current steady state cost of approximately $11.80 per customer per year is significant, 16

especially given that 94% of eligibility is being verified through enrollment in other state 17

programs. In addition, CPUC decisions show that the LifeLine program initially had significant 18

challenges that required adjustments resulting in today’s program.

Thus, LifeLine’s current 19

Consensus and Collaboration Program and Institute for Social Research, California State University,

Sacramento, California LifeLine Program Assessment & Evaluation(May 2022), at p. 38 available at

https://docs.cpuc.ca.gov/PublishedDocs/Efile/G000/M478/K367/478367564.PDF.

Id., at p.18.

See Administrative Law Judge’s Ruling Providing Guidance for Phase 1 Track A Proposals and

Requesting Comments on a Consulting Services Proposal (Jan. 17, 2023), Attachment 1, R.22-07-

005, Phase 1 Track A: Income Graduated Fixed Charge Guidance Memo, at p. 10. This $46 million

over three years comes out to an average of 15.3 million per year for 1.3 million households, or about

$11.80 per household per year.

The Joint IOUs would appreciate assistance from Energy Division in researching what the earlier

costs were for the LifeLine programs’ income verification administration by the CPUC, which would

be more comparable to the start-up nature of the IGFC.

costs are not directly transferable for IGFC income verification because the majority of IOU 1

customers have household incomes above LifeLine requirements or do not otherwise qualify for 2

income-qualified public assistance programs that could be used as a proxy. Customer 3

households with incomes above the LifeLine income requirements will instead require income 4

verification through more complex means, such as review of tax records or income statements, 5

which is likely to be more costly than using a proxy as is done for 94% of LifeLine customers. 6

Furthermore, whereas 98% of LifeLine applicants verify income in person through the direct 7

application process,

it is unlikely that a similar process would scale to meet the income 8

application needs of the Joint IOUs’ approximately 10.8 million residential electric customers. 9

For these reasons, the Joint IOUs conclude that though the LifeLine program provides an 10

example of a centralized CPUC managed Third Party income verification process, its processes 11

and current costs are not likely to be a direct indicator of the structure or costs of the type of 12

Third Party administered income verification needed to support an IGFC. Like CARE/FERA, 13

the LifeLine program is a discount program for low income households, and its income 14

verification requirements put the onus on a customer to seek enrollment and prove income 15

eligibility by way of documentation or enrollment in another income-qualified program. 16

Nevertheless, the LifeLine income verification process provides a workable example for having 17

a Third Party administrator handle income verification under the Commission’s direction. 18

4. Using Credit Agency Data 19

The Joint IOUs investigated whether a Third Party could partner with consumer credit 20

reporting agencies to access and match household income data for IGFC household bracket 21

assignments, appeals, and periodic refreshes. The Joint IOUs found that existing products 22

provided by credit agencies, such as Experian’s “Income Insight,” and Equifax’s “Work 23

Number” are not designed to be the sole source of data for decision making to determine income 24

Consensus and Collaboration Program and Institute for Social Research, California State University,

Sacramento, California LifeLine Program Assessment & Evaluation (May 2022), at p. 38, available

at https://docs.cpuc.ca.gov/PublishedDocs/Efile/G000/M478/K367/478367564.PDF.

categorization

, as discussed below. Rather, they were developed to 1) provide information 1

useful for marketing products to a specific income segment, or 2) serve as a check against 2

income information that has already been received from a potential customer. The Joint IOUs 3

understand that Equifax’s “Work Number” product is used to verify eligibility for several state-4

level social programs such as Medicaid, Supplemental Nutrition Assistance Program (SNAP), 5

Public Housing, and for child support enforcement, but it requires affirmative customer consent. 6

In addition, the Joint IOUs found that these types of products primarily source their income 7

information from payroll reporting data but contain only limited or no data on other sources of 8

income (such as pensions, investments, rental income, child support, etc.), and similarly require 9

customer consent to access. 10

When considering the Joint IOUs’ use case of assigning an IGFC using income data 11

models, the contacted credit agencies relayed that this was not the intended use of their product, 12

would violate the terms of use, and may be inconsistent with the Fair Credit Reporting Act 13

and/or other credit laws. When presented with an alternative use case of placing all customers 14

into the highest Income Bracket and allowing customers to apply for a lower bracket, credit 15

agencies responded that their products could be used to corroborate a customer’s stated income 16

as long as in the case of a mismatch between the customer’s income statement and the credit 17

agency data, the customer retained the option to verify their income with documentation. While 18

this use case is allowable, the Joint IOUs do not find it feasible because 1) it would require 19

defaulting customers to the highest household Income Bracket which would result in customers 20

being assigned a fixed charge that is potentially higher than appropriate for their actual income; 21

2) these products mostly rely on payroll data which will leave significant gaps for customers 22

whose income is not based on reported payroll wages; 3) it would be burdensome to require the 23

majority of customers to contact the Joint IOUs and provide consent for Joint IOUs to use credit 24

Credit agencies the Joint IOUs spoke with relayed that their products could not be used in ways that

would result in adverse action against a customer, and placing customers in different price levels

could be construed as adverse action.

data to confirm their income and assign them to the correct Income Bracket; 4) it would result in 1

operational impacts such as high call volumes, and frequent Income Bracket changes; and 5) it 2

does not provide a pathway for the Joint IOUs to update income data for a customer except with 3

customer consent, which means the Joint IOUs would have to rely on stale data or receive a new 4

customer permission each time to check their stated income against a credit agency product. 5

Across the US, several government programs rely on the “Work Number” product by 6

Equifax for verification of income eligibility, for social programs such as Medicaid, SNAP, 7

Public Housing, or for child support enforcement. This product contains income data provided 8

by employers and payroll providers. This product has the advantage of covering nationwide 9

payroll data and eliminates the need for manual verification of payroll income. However, while 10

the “Work Number” product provides a high level of confidence for a portion of payroll data it 11

does not provide data on other sources of income; thus, it would not provide an accurate 12

estimation of actual household income information. A process would still have to be devised to 13

handle customers without a match in these income databases (including but not limited to new 14

U.S. residents with no prior income record, young customers with no prior income record, and 15

non-person account owners (such as businesses which hold accounts on residential rates). 16

Simply defaulting such customers to the highest bracket of the IGFC would be financially 17

impactful to many legitimately lower income customers. For example, a student moving away 18

for college and with no prior income record would be assessed the highest fixed charge, even if 19

they legitimately have no income. In addition to customers without a match, payroll data may 20

also underestimate total income for certain customers. A shortcoming of payroll data is that it 21

does not capture data from income sources other than payroll records, which would significantly 22

underestimate real household income for certain segments of the population, e.g., those with 23

investment income, such as seniors who may be living on a fixed income such as a pension plus 24

social security, but whose total net worth is quite high. Based on IRS data for federal tax returns, 25

about 20% of individuals residing in California who filed a federal tax return had no income 26

from salary or wages

which suggests that the individuals in this 20% of California’s population 1

may not show up in payroll data. More importantly though, Equifax’s “Work Number” product 2

does not allow for pre-assignment of income data to each household, rather it only permits 3

Equifax to share income data about the customer verification after receiving permission from 4

that customer for Equifax to share data about the customer. There is also no refresh ability 5

without additional permission from the customer, which is problematic given data for some 6

customers is known to be highly variable over time. 7

Based on the research the Joint IOUs have been able to complete thus far, the Joint IOUs 8

have determined that data sets available for purchase from credit reporting agencies are not 9

designed to be used as the source of data for assigning an income categorized fixed charge 10

bracket and attempting to use these data sets for this purpose may not be authorized by the data 11

protection laws with which credit agencies are required to comply. Overcoming existing credit 12

data protection laws, including the FCRA, appears to require either: (1) obtaining consent from 13

each of over 10 million customers to use their income data (which was not viewed as being 14

practicable on such a wide scale, for a rate component that is required rather than an “opt-in”), or 15

(2) obtaining an amendment to the FCRA statute that exempts provision of data for IGFC 16

purposes (which seems unlikely to happen in time, or at all, given the many interest groups who 17

might object or seek their own exemptions). 18

5. Using Customer Stated or Verified Income Data 19

Due to the constraints on the availability of income data described above, the Joint IOUs 20

explored the option of obtaining and verifying data from all customers directly. Even more than 21

obtaining consent from all customers to use credit agency data, obtaining stated income data 22

directly from all customers is not practicable due to high cost and customer impact. The 23

In 2020, according to the Internal Revenue Service, only 80% of federal income tax filers residing in

California had income from salaries or wages, IRS: SOI Tax Stats - Adjusted Gross Income (AGI)

Percentile Data by State, available at https://www.irs.gov/statistics/soi-tax-stats-historic-table-2.

100

The customer population enrolled in CARE/FERA is 24%, 25% and 27% for PG&E, SCE, and

SDG&E respectively.

CARE/FERA program experience is useful to consider as it does collect some stated income 1

data. Approximately one quarter

100

of the Joint IOUs’ total residential customer base are 2

currently enrolled in CARE/FERA programs. Of these, approximately 40% of current 3

CARE/FERA enrollees were enrolled in the program based on the customer’s own statement of 4

household size and total household income, whereas approximately 50% were enrolled based on 5

their stated participation in one or more ”proxy” assistance programs (see above) the final 10% 6

were enrolled due to known participation in another income qualified program.

101

Most 7

customers on CARE/FERA must recertify their eligibility every two years (four years for 8

customers on a fixed income). 9

Each year, the Joint IOUs require approximately 6%-8% of their CARE/FERA 10

participants to verify their stated information or else they will be removed from the program. Of 11

the verification group, only about 28% respond and complete the verification process; the 12

remaining 72%

102

who do not reply are removed from the opt-in CARE/FERA programs until 13

they can apply again and certify their household is income-qualified. The Joint IOU’s 2022 costs 14

for CARE and FERA income verification were approximately $2.1 million, which represents 15

about $9 per customer verified.

103

This process, however, is not appropriate for the IGFC, 16

because customers who fail to respond cannot simply be removed from the IGFC. Fixed charges 17

are mandatory, and presumably, non-respondents and customers who fail to recertify every 2 or 4 18

years would be defaulted to a predetermined fixed charge such as the highest fixed charge until 19

proven otherwise. 20

100

The customer population enrolled in CARE/FERA is 24%, 25% and 27% for PG&E, SCE, and

SDG&E respectively.

101

Monthly Reports of PG&E, SCE, and SDG&E on Low Income Assistance Programs for December

2022 available at https://liob.cpuc.ca.gov/monthly-annual-reports/.

102

Opinion Dynamics, 2019 California Low Income Needs Assessment , Final Report (Dec. 13, 2019),

(hereinafter 2019 LINA Report), available at https://www.cpuc.ca.gov/-/media/cpuc-

website/divisions/energy-division/documents/energy-efficiency/iqap/2019linavol3.pdf.

103

Monthly Reports of PG&E, SCE, and SDG&E on Low Income Assistance Programs for December

2022 available at https://liob.cpuc.ca.gov/monthly-annual-reports/ as mentioned in section E2 above ,

this represents steady state program verification cost not the CARE start-up verification cost which

are believed to have been higher, but research continues.

The 2019 Low Income Needs Assessment (LINA) Report sheds further light on the 1

process challenges of the CARE program’s recertification and verification methods.

104

For the 2

2018 program year, about 28% of CARE participants statewide were selected for post-3

enrollment processes, of which: 4

• 21% were due for recertification (i.e., renewal application), with 39% of those being 5

removed from the program, and 61% retained. 6

• 4% were selected for income verification, with 69% of those removed from CARE 7

and 31% retained. 8

• 3% were selected for income verification due to high usage, 96% were removed from 9

CARE and 4% were retained. 10

According to the LINA Report, the post-enrollment processes perform well at removing 11

income-ineligible customers from CARE, however, LINA survey evidence also shows many 12

removed participants reporting that the removals had not necessarily been income-related. 13

Specifically, the 2019 LINA Report’s survey of customers no longer on CARE showed: 42% 14

reported the reason for removal as “inconvenience/forgot,” 23% “didn’t know how to continue,”, 15

and 9% reported “issues with the process.” This suggests that there are process issues that 16

prevent many eligible customers from responding to CARE recertification or verification 17

outreach. 18

These findings from the 2019 LINA Report suggest that modeling income information 19

collection and verification on CARE processes could result in many customers being defaulted to 20

higher income categories than may be warranted, simply due to not providing or certifying 21

income information. In the CARE program, such customers tend to then call the IOU once they 22

receive a higher, non-CARE bill and seek to get back on the program, which creates both a 23

burden on the customer as well as program operational impacts (call center resources, billing 24

processing etc.). This also suggests that basing income bracket assignments on a high-quality 25

104

2019 LINA Report.

data source would significantly lessen customer and operational burdens on individuals and 1

systems as opposed to a method modeled on CARE-type processes. 2

Examining the CARE program’s income verification process and costs illustrates that an 3

IOU-led process similar to the CARE Post-Enrollment Verification process would be 4

unreasonable and exceedingly expensive to scale to the entire electric residential population. For 5

the Joint IOUs, the cost of CARE Post-Enrollment Verification in 2022 was $2.1 million, to 6

verify the selected subset of approximately 230,000 CARE customers. This equates to 7

approximately $9 per customer on average

105

. But such average cost per customer is based on 8

current CARE processes after decades of refinement, such that the per-customer costs for 9

administering a completely novel IGFC income verification process would almost certainly be 10

higher due to startup costs. Scaling the current CARE verification cost of approximately $9 per 11

customer to the entire 10.8 million electric joint-IOU customers who need to have income 12

assessed to determine the IGFC bracket for each and every customer (since IGFC is not an opt-in 13

program) would put the cost at approximately $97 million. However, initial annual costs would 14

likely reach upwards of $100 million to implement when also factoring in startup costs (which 15

the cited $9 per customer cost does not include).

106

If verifying all customer income information is cost-prohibitive, proceeding only with 17

customer self-stated income information is unreasonable for reasons of accuracy and billing 18

integrity. There would be little incentive for a high-income customer to provide accurate data 19

and it is also likely that a significant portion of customers would fail to provide income data,

107

forcing those customers to be assessed the default fixed charge. 21

105

Monthly Reports of PG&E, SCE, and SDG&E on Low Income Assistance Programs for December

2022 are available at https://liob.cpuc.ca.gov/monthly-annual-reports/.

106 The Joint IOUs are still researching the earlier level of CARE income verification costs closer to the

time CARE was started, if available.

Start-up costs for the IGFC are likely to differ from and be more

expensive than CARE both because the IGFC is not an opt-in program requiring initial self-

certification but also involves all levels of income so it would have to process about ten times as

many customers’ household income verifications per year.

107

PG&E’s and SCE’s research demonstrate that customers are uncomfortable with IOUs having their

income data.

With this in mind, the Joint IOUs considered and rejected a stated income approach, due 1

to severe downstream financial and operational impacts and significant adverse customer 2

impacts. This approach would collect stated income from all customers and then verify income 3

for a subset of customers (e.g., a similar percentage as the CARE/FERA programs, that is, 7-9% 4

annually). However, many customers would likely not submit their income information and it is 5

unclear how many customer appeals this will result in, and what the corresponding total cost to 6

process these appeals would be. If the analysis used the current steady-state CARE/FERA 7

application processing cost of approximately $2-3 per customer (which is likely lower than any 8

new and larger-scale program like the IGFC), the upfront stated income collection could cost 9

approximately $25-30M each time the data were refreshed, but this would likely be dwarfed by 10

the cost of a high volume of appeals. It would also require every customer to repeatedly take 11

action to report income, imposing a significant burden on customers. Stated income collection, 12

at a minimum, would require notification of each customer and processing information received 13

from the customers. Such an approach would likely be more operationally impactful and cost-14

prohibitive than other potential approaches (but more research is needed to make valid estimates 15

to compare). Notably, income information would need to be requested from every customer both 16

before launch as well as periodically thereafter (e.g., every 1-2 years), and a secure system would 17

have to be designed and implemented to collect, store, and update customer stated income 18

information through various channels, such as business reply cards, the call center, and online 19

self-service, so as to protect customer privacy concerns. Too much is unknown about the stated 20

income collection approach, but what is understood caused the Joint IOUs not to propose it. 21

Most importantly, collecting stated income directly could result in a large number of non-22

responses. As noted above, the 2019 LINA study

108

provided evidence that there is a large drop-23

off of customers from CARE during recertification (61% retained) and even more so during 24

income verification (only 31% retained) due to reasons other than income qualification. For 25

108

2019 LINA Report.

instance, it is possible that customers do not read/open their mail, or do not know how to 1

complete the income verification. Per LINA, two thirds of removed customers experienced 2

process issues with CARE that prevented them from remaining on the program. If two thirds of 3

the 39% of customers removed during recertification were removed due to non-response or other 4

process issues, this suggests that a quarter of all prior participants fail to reenroll in CARE due to 5

process issues. Conceivably, collecting stated or verified income data from customers for the 6

purposes of the income-graduated fixed charge would encounter similar process barriers as the 7

CARE program. If the non-response rate approaches 25%, it could trigger a large number of 8

appeals down the road. 9

Therefore, the Joint IOUs have concluded that an IOU-administered income verification 10

process that seeks to collect customer-stated income information directly from each customer 11

would not only be cost-prohibitive but would likely result in larger numbers of customer non-12

responses and refusals to provide household income data, due to both process barriers and 13

privacy concerns regarding the Joint IOUs’ possession of their household’s specific total income 14

data. Simply assigning non-respondent customers to the fixed charge for the highest income 15

category would result in financial impacts to customers who should have been made eligible for 16

a lower fixed charge, but who failed to submit income information. The Joint IOUs considered 17

whether such customers could instead be assigned to the fixed charge for the moderate-income 18

level, but this would create disincentives for high-income customers to provide income data 19

which in turn could result in under collections or would dampen the IGFC’s ability to reduce 20

fixed charges for low-income customers, as fewer customers would be paying the higher income 21

fixed charge. 22

6. IOU Developed Data Model 23

Another option the Joint IOUs considered was to predict income based on publicly 24

available data points. Developing an income data model is also challenging due to a lack of 25

publicly available source data that can be used as a reliable proxy for income at the household 26

level. While there is publicly available data on aggregate incomes by area, such as by census 1

tract from e.g., the Current Population Survey

109

, American Community Survey

110

, etc. that can 2

be useful to discern income trends among populations and communities, such data is not reliable 3

for predicting each individual household’s income within that area. Using census tract income 4

data to assess an IGFC could result in significant under-identification of low-income customers 5

living in moderate- and higher-income census tracts, and vice versa. For these reasons, the Joint 6

IOUs do not recommend using current publicly available data or developing internal models to 7

determine and verify customer household income solely based on population data. It is 8

important for IGFC income bracket placement to be as fair and accurate as practicable, to 9

minimize customer appeals and to stabilize IOU revenue collection and resulting rates. Using 10

modeled data would not be likely to provide accurate results, which could undermine trust and 11

result in operationally unsustainable levels of appeals. 12

7. Key Findings on Evaluated Options 13

The options evaluated above did not lead to emergence of any single clear-cut solution 14

that would minimize customer action, while also providing highly accurate results in a manner 15

that is feasible, ensures billing integrity and is cost effective. To summarize: 1) Neither current 16

program information nor current state programs are directly adaptable to the needs of income 17

verification for fixed charge purposes; 2) Population-based data models cannot accurately predict 18

individual household income; 3) The direct collection of customer-stated income is costly and 19

burdensome and will likely result in considerable non-response; and 4) Obtaining affirmative 20

consent to use credit-agency data, while somewhat more accurate and less burdensome to the 21

customer, is still costly and the lack of data will likely affect a significant portion of customers. 22

109

Current Population Survey Data available at https://www.census.gov/programs-

surveys/cps/data.html.

110

American Community Survey Data available at https://www.census.gov/programs-

surveys/acs/data.html.

There are two reasons the Joint IOUs have concluded that accurate initial income bracket 1

assignments are essential to have before the initial launch of any IGFC. First, by presenting 2

customers with an accurate initial income level assignment, customer trust and acceptance of the 3

new IGFC is anticipated to be higher. If, instead, there is a higher degree of inaccuracy in the 4

initial income bracket assignments, customers are likely to question the overall implementation 5

of the rate structure, they may be less likely to accept the change, and the Joint IOUs will have to 6

address high levels of customer dissatisfaction. Second, inaccurate initial assignments would 7

result in more customers filing appeals seeking to be placed in an alternate income bracket. This 8

would drive up costs to manage the higher volume of appeals. Focusing solely on the cost of 9

appeals while using the CARE Post-Enrollment Verification system as a proxy for costs, an 10

initial income bracket assignment process that results in 20% of customers appealing could result 11

in approximately $20 million in costs across the Joint IOUs service territories. Given the data 12

above about lack of Federal income information or State tax filings for over 20% of Californians, 13

it seems more likely that the appeal rate might be higher than 20%. Many of the millions of non-14

low-income customers could also disagree with the results (given that it’s based on household 15

income, not one individual’s return). 16

It Is impossible to know the exact degree of accuracy of any of the methods described 17

above without conducting an actual data analysis using real customer income data, but pursuing 18

a method that has even a 20% appeal rate would be costly. Aside from such Credit Agency 19

products likely not being available for direct income verification without affirmative customer 20

consent due to legal constraints, the Joint IOUs review of available credit agency data suggests 21

error rates in excess of 10-20% assumed in the cost estimates above. This would impose very 22

significant administrative costs no matter who is running the program, and would certainly result 23

in a more negative customer experience than under a more accurate process. 24

A high number of customer income bracket appeals could also impact utility revenue 25

stability as the utility would need to adjust rates the following year to account for the misplaced 26

customers. One of the benefits of the IGFC rate structure is that it is anticipated to stabilize rates 27

for residential customers. Adopting an income bracket assignment process and data source that 1

is less accurate puts this benefit at risk. 2

8. Recommendation 3

Based on the initial research above and the necessity of accurate income bracket 4

assignments, the Joint IOUs have concluded that the optimal approach would be for the CPUC to 5

contract with a Third Party that would use actual income data on a consistent statewide basis. 6

The LifeLine program provides a precedent for having a Third-Party administrator handle 7

income verification under the Commission’s direction. In D.05-04-026, the Commission 8

concluded that income certification/verification should be performed by a Third Party 9

Administrator (TPA) “under the direction of a state agency, namely the Commission.”

111

As 10

noted above, the LifeLine program is targeted towards low-income customers and therefore not 11

directly transferable to the requirements for a fixed charge at various Income Brackets, but it 12

nevertheless provides proof that Third Party administration is an established and workable model 13

for income verification purposes. 14

Under such a model, each customer would be assigned to an Income Bracket based on 15

available data specific to their household, and then be given an opportunity to appeal -- as 16

opposed to having to proactively submit income data. The primary venue for obtaining such 17

income verification data would be California’s FTB. In 2020, the FTB received approximately 18

18.5 million state income tax returns

112

, covering 13.2 million California households

113

and over 19

39 million inhabitants. However, it is estimated that the FTB does not have income information 20

for up to 20% of California households who do not file any state income tax return

114

. A 21

111

D.05-04-026, at p. 26.

112

Franchise Tax Board, Personal Income Tax (PIT) Annual Report 2021, available at

https://data.ftb.ca.gov/California-Personal-Income-Tax/PIT-Annual-Report-2021/y7ws-kpcd.

113 There are more individual tax returns than households because more than one earner can live at the

same address.

114

The Joint IOUs estimate that up to 20% of customers may be missing from an FTB data set through

an analysis reviewing Census demographic data and FTB County resident tax filing data.

customer may choose not to submit a California income tax return if they file as a single 1

individual and earn less than $20,913 per year

115

. This suggests that the pool of customers who 2

do not file state tax returns are likely to predominantly be part of lower-income households. To 3

address this gap, additional data from the California DSS’ CalFresh program should also be 4

included as part of the verification process, to provide additional income data for lower-income 5

customers who may not be included in the FTB data set. As an example of how this could work, 6

LifeLine executed an interagency agreement to use the CalFresh verification results.

116

It is 7

conceivable that CalFresh verification could be enhanced to use the underlying data sources to 8

meet the needs of income verification for the purposes of the electric fixed charge. One 9

challenge remains obtaining customer consent for this step, but that would be for a much smaller 10

group of customers without any FTB data match. 11

An amendment to the existing California Revenue & Taxation Code would appear 12

necessary to allow the FTB to accomplish mass provision of individuals’ income data to any 13

outside entity administering the IGFC categorization and appeals process. Access to customer-14

specific information from the California Department of Social Services, such as CalFresh, may 15

also require amendment to existing law, or direct customer consent. It is also conceivable that a 16

verification system could then use other secondary data source in a hierarchical order, which 17

would reduce the incidence of “no matches” in the data. For example, as a secondary step in 18

case there is no FTB or DSS data, the customer of record could be asked to either submit income 19

information or to provide permission to verify income against a secondary database. As a final 20

backstop for the “no-match” population, census tract data could be incorporated to make an 21

educated guess for initial assignment, to help mitigate the possibility that a low-income customer 22

115

Franchise Tax Board, Filing Requirements, available at

https://www.ftb.ca.gov/file/personal/residency-status/index.html.

116

CPUC, 2021 Annual Report California Lifeline Program, Program Years January 20219-December

2021, p.18, (April 2022), available at https://www.cpuc.ca.gov/-/media/cpuc-

website/divisions/office-of-governmental-affairs-division/reports/2022/2021-ca-lifeline-annual-

report.pdf.

would be initially assigned to the highest income bracket, with communications to the customer 1

providing them information on how to appeal if necessary. 2

H. Income Verification and Appeals Process 3

1. Income Verification Ownership and Implementation 4

The Joint IOUs recommend that the income verification process, described in further 5

detail below (including initial assignment, handling any customer appeals, and the periodic 6

refresh process), be conducted by a Third Party under the supervision of the CPUC. It is not 7

practicable or cost-effective for each individual IOU (across the range of large and small IOUs 8

regulated by the CPUC) to implement its own income verification process. Rather, using a 9

single Third Party, supervised by the same governmental entity (as the CPUC has done with 10

LifeLine), allows there to be a consistent statewide approach which should result in increased 11

overall accuracy. Supervision of the Third Party by the CPUC would help to further maintain 12

customer trust that their income information would not be accessed in any way by the IOUs. 13

Furthermore, centralizing statewide income assignment and verification under a single 14

administrator will benefit the customers of all the state’s IOU’s (small and large) by realizing 15

economies of scale, as well as creating a one-stop-shop that consistently uses the same process 16

equally for all. 17

Establishing a single Third-Party entity to conduct the income verification process, 18

supervised by the CPUC, minimizes the cost of implementing the IGFC and limits access to 19

income data, helping to establish customer trust in the process. In contrast, income verification 20

conducted by each utility would result in replication of costs for a similar process. Further, with 21

a Third Party conducting income verification, the State could also leverage the information it 22

receives for other purposes and programs, providing additional benefit to Californians. Indeed, 23

existing income verification programs beyond LifeLine are established or processed at the state 24

level, for similar reasons.

117

Although the energy utilities do have some experience running the 1

CARE/FERA programs’ income verification process, that process only verifies a small number 2

of low-income customers each year, and even that is expensive and labor-intensive for a steady-3

state program, let alone a start-up like the IGFC. The Joint IOUs have concluded that the 4

CARE/FERA verification process is not reasonably scalable to provide initial and periodically 5

recurring IGFC verification for the approximately 10.8 million residential electric customers who 6

must receive a new IGFC on their electric bill. As discussed in the section above, scaling current 7

CARE processes to income verify all residential electric customers in the Joint IOUs service 8

territory could cost approximately $97 million, plus added “start-up” costs. The Joint IOUs 9

conclude that doing so would be cost-prohibitive. Moreover, collecting stated income from a 10

customer that applies for inclusion in a discount program like CARE or FERA (and in so doing 11

represents they have qualifying income and consents to a utility verifying this representation) is 12

fundamentally different from collecting and/or accessing personal, private income data from 13

millions of customers who do not seek any discount in order to place those customers on income 14

brackets to determine the fixed charge they will pay. 15

Furthermore, the Joint IOUs have limited experience building income verification models 16

and may only be able to use public income data, which is not available at the household level.

118

For these reasons, the Joint IOUs recommend the IGFC income bracket assignment and appeal 18

be administered through the CPUC, contracting with a Third Party (or another public agency if 19

needed), rather than trying to develop an entirely new process to be conducted by the Joint IOUs. 20

Finally, initial marketing research conducted by the Joint IOUs revealed that many 21

customers will likely be concerned about IOUs having access to customer income data. The 22

117

Covered California, Government Code Title 22.

California Health Benefit Exchange.SB 1208 (Reg.

Sess. 2021-2022), Low-Income Utility Customer Assistance Programs: Concurrent Application

Process.

118

The US Census Current Population Survey, available at https://www.census.gov/programs-

surveys/cps/data.html and American Community Survey, available at

https://www.census.gov/programs-surveys/acs/data.html only provide income data down to the

census tract level.

challenges associated with income “verification” are compounded to the extent that a customer’s 1

assigned household income bracket and corresponding fixed charge will depend not only on the 2

named customer’s income, but on the collective income of that customer’s entire household. 3

Establishing a neutral Third-Party to conduct the process will ensure that a trusted, transparent, 4

and secure process for evaluating customer household income and income bracket placement is 5

consistent across the state. 6

For the reasons outlined above, the Joint IOUs reiterate that income bracket assignment 7

and appeal processes should be conducted by a Third Party under the supervision of the CPUC. 8

Although the LifeLine program (which depends on residents seeking out the discount and 9

affirmatively providing proof of income eligibility) does not provide a template for a system in 10

which each household served by a utility is assigned to an income bracket based on household 11

income data collected or accessed without the customers’ involvement, it does provide an 12

example of a verification system that is administered by a Third Party administrator (TPA) under 13

the supervision of the CPUC. As such, the Joint IOUs propose to utilize an administration model 14

here that is similar to the LifeLine program

119

to handle IGFC income bracket assessment and 15

appeals, as depicted in Figure III-7 below. 16

119

Consensus and Collaboration Program and Institute for Social Research, California State University,

Sacramento, California LifeLine Program Assessment & Evaluation (May 2022), at p. 37, available

at https://docs.cpuc.ca.gov/PublishedDocs/Efile/G000/M478/K367/478367564.PDF.

Figure III-7

Proposed High Level Chart of Entities Involved In Administration and

Implementation of Income Bracket Assignment and Appeal Process

As depicted in the chart above, the Joint IOUs proposal seeks state funding for income 2

verification to support the policy goals of the IGFC and not adversely impact customer rate 3

affordability. Including funding for the state-administered process of income verification in 4

electric rates would dilute desired impact of beneficial electrification for residential customers. 5

The Joint IOUs propose to collaborate with the CPUC to seek funding for the income 1

verification costs from the State Budget. 2

2. High Level Utility Process Overview 3

The IGFC differs from CARE/FERA because it is not an opt-in rate rider, but a 4

fundamental rate component to ensure that fixed costs are fairly recovered, on an ongoing basis, 5

for the benefit of all customers -- as well as the environment -- by reducing the volumetric rate 6

thus supporting the state’s decarbonization climate action goals through building electrification. 7

Therefore, the Joint IOUs recommend that the IGFC be applied to each and every rate under 8

which all residential customers take electric service from an IOU. Because there are fixed costs 9

to serve every residential customer, and AB 205 requires an income graduated set of fixed 10

charges, there must be some process for categorizing each and every one of the over 10.8 million 11

electric residential households served by the Joint IOUs into appropriate Income Brackets. 12

PG&E, SCE, and SDG&E have approximately 4.9 million, 4.7 million, and 1.3 million electric 13

residential households, respectively. Every one of these residential households must be 14

categorized into the appropriate Income Bracket and then periodically reverified in the future 15

because of income changes. Thus, the type of income verification needed for even a simple 16

graduated fixed charge, at full scale, is a new and complex challenge that will undoubtedly 17

present unanticipated difficulties and unintended effects. At a high level, the Joint IOUs 18

anticipate that there will be three primary components of the verification process: (1) initial 19

income bracket assignment, (2) processing of any appeals and taking any remedial action 20

necessary, and (3) a periodic reverification that makes any necessary changes to income bracket 21

assignments. Each step is described briefly below. 22

a) Initial Income Bracket Assignment 23

During the initial income bracket assignment, customers are placed in the appropriate 24

Income Bracket by the process to be established by the Third-Party, under the CPUC’s 25

supervision. The Joint IOUs are responsible for providing the customer data including customer 1

account information (e.g., name and address, and social security number if available), and the 2

file is used by the Third Party to identify the appropriate Income Bracket, using income data that 3

the Third Party obtains from one or more sources such as FTB and other state entities. The 4

customer’s assignment is then relayed back to the utility, who is responsible for informing the 5

customer of their income bracket placement and providing contact information for assignment 6

appeal with the Third Party. The Joint IOUs stress that in advance of implementation, thorough 7

testing of the income bracket assignment process with real customer data is necessary to 8

demonstrate the accuracy of initial placements and minimize appeals. The testing results could 9

also be used to influence staffing levels for customer support services, such as call center 10

staffing. Further, the Joint IOUs recommend that the Third Party selected by the CPUC for 11

income bracket assignment meet key criteria such as strong data modeling capabilities, a 12

reputation for secure handling of customer data, and accurate results to establish public trust in 13

the process. Information regarding customer outreach and education in this phase is detailed in 14

the Marketing and Outreach, Chapter 5. 15

For existing customers, this process is expected to occur in advance of implementation to 16

give customers adequate time to appeal if their initial income bracket placement is incorrect. 17

New customers would be informed about the income verification process at some point during 18

the move-in process. This process has a more compressed timeline than the initial income 19

verification. The income bracket assignment would have to occur during the first billing cycle 20

and in many cases, the first customer bill cycle is less than a full month. New customers will 21

have to be provided notice of their income bracket assignment so that an appeal can be initiated 22

if needed. From a customer perspective, the ideal solution is to check income during the move-23

in, through regular data exchange with the Third-Party income verifier. The customer could then 24

be immediately informed of their assigned Income Bracket, either over the phone during a call 25

center turn-on, or on the IOU website during a self-service turn-on. 26

It is probable that some populations of customers will not be matched with Third Party 1

data during initial income bracket assignment or during turn-on. For example, there may be a 2

lack of data for new immigrants, customers whose primary residence is in another state or 3

country and who pay no California taxes, or residential accounts that are held by a non-person 4

entity, e.g., a property management company, non-profit organization, or a Home Owners 5

Association taking service for common space lighting. The total number and breadth of these 6

cases is not known. The non-matches are likely higher as a percentage of new move-ins than as 7

a percentage of the existing customer population. The Joint IOUs recommend that the Third-8

Party track and report out on the number of customers that cannot be matched with income data 9

annually. That data should be evaluated to determine what subpopulations exist and if those 10

subpopulations can be identified and assigned an appropriate fixed charge level. The 11

Commission should address the evaluation of this population in a ruling at such time as relevant 12

data become available which is likely within two years of implementation of the IGFC. In the 13

meantime, in cases where a customer is not able to be matched with income data, a secondary 14

data source could be applied. In the absence of such a process, Joint IOUs should assess Income 15

Bracket 3 and inform the customer of the appeal process. In addition, the Joint IOUs 16

acknowledge that some customers may be uncomfortable with any level of data collection, and 17

so an opt-out policy is needed to allow customers their right to privacy. In this scenario, 18

customers opting out would be assessed the highest fixed charge. 19

For a small proportion of customers enrolled in the CARE and FERA programs, Joint 20

IOUs have self-reported income data that has been provided by the customer directly, as long as 21

the customer enrolled based on income, or voluntarily provided income when enrolling via the 22

categorical eligibility method. Additionally, only approximately 6-8% of customers who 23

participate in CARE/FERA programs are subject to income verification through existing 24

processes. As such, Joint IOUs will use Third Party data to assign Income Bracket 1 or Income 25

Bracket 2 fixed charges for customers enrolled in the CARE and FERA programs. If at any 26

time, a CARE/FERA customer becomes no longer enrolled in CARE or FERA the customer will 27

then be assigned an Income Bracket 3 or Income Bracket 4 fixed charge based on Third Party 1

data. Likewise, a non-CARE/FERA enrolled customer who then enrolls in CARE or FERA 2

would be assigned to the Income Bracket 1 or Income Bracket 2 fixed charge. The Joint IOUs 3

recognize that the CPUC’s decision authorizing the IGFC may, once implemented, warrant a 4

CPUC re-examination of current CARE/FERA processes, and recommend that any efficiencies 5

or revisions be discussed in the Low Income Proceeding. 6

b) Appeals Process and Customer-Initiated Income Updates 7

The Joint IOUs’ proposed CPUC process for resolution of customer disputes over their 8

IGFC Income Bracket assignment will provide all residential electric customers an ongoing 9

opportunity to “appeal” and seek what they assert to be a more appropriate categorization of their 10

total household income assignment. The Joint IOUs recommend the customer appeal or dispute 11

resolution process should consist of the following steps: 12

1. Customer contacts the utility through either the call center or the website, and is 13

directed to the Third-Party website or call center to initiate an appeals claim 14

2. Customer claimant provides the Third Party with all requested information, which 15

could include but is not limited to: a complete listing of the legal names of all residents in their 16

household, and for each household member: recent pay stubs, copy of federal tax filings and W2 17

or 1099, affidavit from employer (for cash wages only), finally signed releases from each 18

household member allowing access (for each person) to data from the Department of Social 19

Services, or other such agency 20

3. Third party conducts the appeals process by reviewing the provided 21

documentation and, if necessary, using the releases to obtain any appropriate additional income 22

verification data, and determines whether appeal should be approved or denied 23

4. Third party informs the customer 24

5. Third party informs the respective IOU of the results of the appeal 25

6. IOU adjusts customer’s IGFC Income Bracket within its billing system 26

This recommended appeals process (to be conducted by the Third Party under the 1

supervision of the CPUC) may have three mutually exclusive potential outcomes. 2

The first is a denial determination, with the Third Party deciding that the customer’s 3

initial household income level placement had been correct or that the customer has not submitted 4

sufficient or qualifying information to prove that the assigned income level was incorrect. In 5

such instances, the appeal would be denied, with the customer and their IOU being informed that 6

no change will be made to the customer’s existing, assigned income level. 7

The second potential outcome would be approval by the Third Party if it finds a 8

significant enough change in total household income to warrant a revision to the customer’s 9

previous IGFC Income Bracket placement. In such instances, Third Party would have found that 10

its initial Income Bracket placement (at the time of the most recent IGFC data refresh, or account 11

turn-on) had been correct; nevertheless, the Third Party could still approve the appeal if the 12

available evidence successfully showed that household’s total income had since changed enough 13

to merit placement in a different fixed charge category, going forward. The Third Party would 14

inform the customer that their appeal has been approved and, simultaneously, notify their IOU to 15

update that customer’s fixed charge Income Bracket assignment, as of the next one or two billing 16

cycles after the date of the ruling and notice to the customer and IOU. One to two billing cycles 17

is the standard duration to allow adequate time to process other types of account changes 18

initiated by a customer. Sufficient time is needed for the IOU to process a change in account 19

information reflected in the billing system. The Joint IOUs do not plan to rebill customers for 20

updated income information as this does not constitute a billing error. The Joint IOUs would 21

place the customer onto their updated household Income Bracket prospectively. It is standard 22

practice to receive updated information from a customer that qualifies them for a program or rate 23

and place them into the program or rate on a going-forward basis, per customer request. 24

Examples include 1) a customer applying for CARE for the first time, despite potentially having 25

qualified in the past; 2) a customer buying an electric vehicle, but not sharing information about 26

the purchase and only taking service on an EV rate until months later; 3) a customer installing a 27

smart thermostat, but not signing up for a demand response program until the following year. In 1

these cases, the Joint IOUs do not retroactively place customers on these rates. 2

For efficiency, it is important for the CPUC to consider a limitation on the frequency with 3

which appeals could be made by a given customer. Likewise, because the customer must 4

provide evidence of their updated household income to result in a change to their fixed charge 5

level, then it is important that an account so verified may maintain the new fixed charge level for 6

a certain period of time. To avoid overriding the verified income information, a good option 7

would be to restart the clock for the regular data refresh with the completed appeal. Otherwise, 8

the customer could be caught in an endless appeals loop, which could result in customer 9

frustration. Therefore, any change to the fixed charge Income Bracket pursuant to appeal should 10

be set for a predetermined period (e.g., one or two years). It would be appropriate to apply the 11

same period of time as for the regular data refresh cycle. This will require that an account 12

having gone through appeal and verification be identifiable as such in the Joint IOUs’ billing 13

systems and it will require the Third Party transmit information to the Joint IOUs on the outcome 14

of the appeals process for individual customer accounts. At a minimum, the Third Party should 15

provide the IOU an updated start/end date for the validity of the Income Bracket assignment. 16

The third potential outcome would be that the customer appeal is approved if evidence 17

provided by the customer can demonstrate that their initial household Income Bracket placement 18

at the most recent Income Bracket assignment was already incorrect (e.g., because the income 19

data was incorrect and put them into the wrong category). IOUs have rules governing “billing 20

errors” which are defined similarly as errors by the utility that result in incorrect meter reads or 21

clerical errors that result in the customer being placed on the wrong rate or being charged based 22

on the wrong billing factor or calculation.

120

While the Joint IOUs do not consider the situation 23

where a customer was placed on an Income Bracket assignment based on information provided 24

by the CPUC contracted Third Party which was later overturned on appeal to constitute a billing 25

120

See PG&E Rule 17, SCE Rule 17.D and SDG&E Rule 18.C.

error, this assumption should be confirmed in the CPUC’s decision. Furthermore, the Joint IOUs 1

recommend that the CPUC order the IOUs to update their applicable Rules governing billing 2

errors to explicitly state that the situation described above does not constitute a billing error and 3

does not warrant a retroactive bill correction. If the CPUC disagrees and finds that in these 4

instances a rebill is warranted, this type of appeal would require the Third Party to review the 5

information the customer provides with their appeal application seeking to verify it, as well as an 6

additional process for submitting information to the IOUs about the appropriate time period to 7

rebill (e.g., to provide the date as of which the income level needed to be corrected). Depending 8

on the level of accuracy of the income verification data the Third Party uses, this enhanced 9

appeals process to correct an actual income data mistake is likely to be more time- and labor-10

intensive than the other two appeal outcomes. The volume of appeals requests and therefore the 11

operational and financial impact of this third appeals outcome will depend on the accuracy of the 12

underlying data. The higher the quality of the data, the less likely the need for appeals. 13

In general, the as-yet unresolved details about this process that the CPUC will determine 14

in its final decision would likely result in significant impacts on the operational requirements for 15

and costs of such income verification appeals. For instance, if the CPUC decides that accounts 16

with no income data match should be defaulted to the highest fixed charge Income Bracket, then 17

it would seem much more likely that more account owners might initiate the appeals process, 18

which in turn would result in additional processing. In contrast, putting accounts with no data 19

match on Income Bracket 3 could create revenue impacts, but in turn lower appeal volumes and 20

processing costs. This would provide disincentives for customers with high income and no data 21

to provide their true income level. As mentioned above, the Joint IOUs recommend that the 22

population without a data match be analyzed to determine the best approach, and potentially a 23

secondary data source be used for such accounts. Another important determinant of the impact of 24

the appeals process is when customers are informed about the Income Bracket and their ability to 25

update information or appeal. If customers are informed about the ability to appeal at initial 26

assignment and at each change of the Income Bracket, the onus would be on customers to inform 1

the Third Party managing the income verification in a timely manner. 2

c) Periodic Refresh 3

The final component of the overall income verification process is periodic refreshes of 4

household income categorization. During this phase, the Third-Party would re-evaluate each 5

customer’s existing household Income Bracket placement, applying the same method used to 6

identify initial placement, but would incorporate any results of the appeal process that may have 7

resulted in a customer being moved to an alternate Income Bracket as well as any other newly 8

available household income data. As with the initial Income Bracket assignment process, the 9

Third Party being supervised by the CPUC would conduct the analysis and assign Income 10

Bracket to customer accounts. The Joint IOUs would only be provided the refreshed 11

categorization results for all customers, so as to inform customers whose household income level 12

placement has changed. The Joint IOUs recommend considering operational impacts to the 13

IOUs’ respective internal processes, such as billing and call center volume, when determining 14

the appropriate refresh cadence, timing, and cost recovery. 15

I. Currently Projected Costs of Joint IOUs’ Proposal 16

The Joint IOUs anticipate that, under their recommended approach where the CPUC 17

would contract with and supervise a Third-Party income verification process, all of the electric 18

IOUs (small and large) would still incur incremental costs during the income level assignment 19

and appeal processes. Such cost categories include marketing and outreach costs, call center 20

costs, IT and billing operations costs to move customers to a different Income Bracket and revise 21

customer bills based on the appeals process, and administration costs to staff and maintain 22

operations relating to the new income verification process. The majority of these costs are 23

presented in the next two chapters, on Implementation and Marketing chapters, with the 24

exception of staff administration costs. Estimated costs for administration and support costs for 25

each Joint IOU, specific to income verification, under our recommended CPUC-supervised Third 1

Party approach, are listed here in Table III-12 below. 2

Table III-12

Summary of Each Joint IOU’s Internal Costs to Support our Recommended CPUC-

Supervised Third-Party Approach to IGFC Income Verification

NOTE: Labor costs cover four years, and include labor for compliance related activities, and anticipated

impacts to CARE program

CostCategory PG&E SCE SDG&E Total

Labor $1.6M $0.5M $0.7M $2.8M 

J. Anticipated Costs for CPUC-Supervised Third Party Income Verification 3

The Joint IOUs anticipate that the costs for the recommended implementation of income 4

verification under a CPUC supervised Third Party implementer are likely to include such cost 5

categories as: (1) data transfer and potential purchasing and modeling costs, (2) data 6

management and storage costs, (3) systems and business process costs, including the costs of 7

handling appeals, notifying the customer-appellant as well as their IOU of the outcome, and (4) 8

customer outreach and call center costs to handle customer concerns and results of appeals, (5) 9

other resource costs including ongoing program management costs. The initial costs to start-up 10

this new income verification process and apply it to 10.8 million residential electric customers of 11

the Joint IOUs cannot be reliably estimated, however, until more information is known. The 12

Joint IOUs look forward to working with Energy Division and the parties to this proceeding, 13

perhaps in a workshop forum, to further define and research each of the potential costs. 14

As mentioned above, the LifeLine program cannot currently be used as an accurate cost 15

comparison point for the IGFC, for two major reasons. On the one hand, LifeLine program costs 16

may include other cost elements such as customer outreach, etc. that go beyond what we believe 17

would need to be handled for fixed charge income verification and more research is needed to 18

make sure the LifeLine totals can be made apples-to-apples comparable with the IGFC income 19

verification only functions proposed here. On the other hand, the LifeLine program may 1

underestimate IGFC costs because of differences like: (1) an initial IGFC assignment is 2

mandatory whereas LifeLine is an optional rate rider for which a customer application to 3

participate is provided first, and (2) the larger scope including numbers of customers as well as 4

breadth of income types necessary for IGFC income verification seem likely to cause increased 5

overall costs. It is not yet possible to know the precise cost of the much larger scope involved for 6

the IGFC, which must initially verify income for about 10.8 million customers of all Income 7

Brackets, as well as conduct appeals and periodic reverification. At a minimum it could be 8

expected that the statewide IGFC start-up costs of the IGFC would be higher than the current 9

costs for LifeLine. The Joint IOUs also anticipate that startup costs would be more significant. A 10

comparison of existing income verification program costs and how they might be initially 11

estimated to compare to IGFC is shown in Table III-13, below: 12

Table III-13

Comparison of Third Party Income Verification Implementation Costs

* See Administrative Law Judge’s Ruling Providing Guidance for Phase 1 Track A Proposals and Requesting

Comments on a Consulting Services Proposal (Jan. 17, 2023), Attachment 1, R.22-07-005, Phase 1 Track A:

Income Graduated Fixed Charge Guidance Memo, at p. 10. This $46 million over three years comes out to

an average of 15.3 million per year for 1.3 million households, or about $11.80 per household per year.

**CARE costs displayed here only include costs relating to applications, recertifications, and verification

processes. The CARE program includes additional annual costs in categories such as general administration,

IT programming, pilots and studies, measurement and evaluation, regulatory compliance, and marketing and

outreach costs. Source: Monthly Reports of PG&E, SCE, and SDG&E on Low Income Assistance Programs

for December 2022 available at https://liob.cpuc.ca.gov/monthly-annual-reports/.

***Source: The 2022-23 Budget: California Food Assistance Program available at

https://loa.ca.gov/reports/2022/4532/CA-Food-Assistance-Program-021122.pdf

Program Cost per

year

Cost per

Participant

Difference from IGFC

LifeLine $46M for 3

years*

$11.80 IGFC is anticipated to cost more because it is a

much larger scale program. Some Lifeline costs

are not comparable due to major program

differences, including that LifeLine only

manages 1.3M customers, while IGFC would be

implemented for about 10.8M electric

customers.

CARE**

1. Application/

Recertification

2. Verification Costs

1. $3.4M

2. $2.1M

1. $2.37

2. $9.40

IGFC is anticipated to cost more due to scale of

program in comparison to CARE. Similar to the

logic above, IGFC requires that all 10.8 M

electric residential customers are transitioned to

the rate structure, resulting in more costs than

the optional CARE rate for X customers.

Further, the CARE program processes have been

refined and improved since the 1990’s. IGFC is

anticipated to have startup costs that are not

reflected in this comparison.

CalFresh CalFresh costs were researched and found to be $2.1 billion from 2020 to

2021,*** but due to the nature of funding, which includes state and federal

funding, exact income verification costs were unable to be determined. However,

due to the high frequency of required verifications for CalFresh, IGFC costs are

anticipated to be lowe

AB 205 did not mention the IGFC costs in its estimated fiscal impact for the bill. 1

However, because the legislature adopted the IGFC out of concern that high electric rates tend to 2

disincentivize adoption of beneficial electrification technologies necessary to decarbonize 3

California’s economy, the CPUC should consider whether the costs of verification should be 4

borne by ratepayers at all, given its likely magnitude. Instead, since the fixed charge is being 1

income graduated for the public purpose of both climate action as well as improved equity and 2

keeping rates affordable, (especially for lower income customers), the CPUC should consider 3

requesting state funding to cover the income verification costs rather than putting the costs into 4

electric rates that would directly undercut the state’s decarbonization and climate action. Further, 5

once this system is established, there will likely be benefits to other Third Parties across the state, 6

such as the State Agencies who are administering State Programs where income verification is 7

required (e.g., CalFresh, Medicaid, LifeLine). 8

1. High-Level Cost Estimates for the Other Major Scenarios Evaluated but not 9

Recommended – In-House IOU Income Verification 10

The Joint IOUs acknowledge that the guidance provided by the ALJ requests that parties 11

provide cost estimates for alternative scenarios to help the CPUC gather a full range of options to 12

compare and evaluate. One primary element of the Joint IOUs’ income verification proposal is 13

that the processes should be conducted by a Third Party and overseen by the CPUC. As 14

discussed in Section F.1 above, there are both cost and policy supporting arguments for this 15

structure. Regarding cost, utilizing the most accurate data set will limit costs associated with 16

handling calls and analysis for appeals. Additionally, utilizing one centralized party for 17

administration would minimize costs as economies of scale are able to be achieved. Furthermore, 18

a centralized administration structure would provide consistency across the state and help enable 19

smaller utilities to implement the IGFC structure. As the CPUC currently oversees a similar 20

process with the LifeLine program, they are the ideal party to oversee this process. 21

As stated above, the Joint IOUs are not able to estimate costs for establishing an in-house 22

IOU income verification process because, despite an exhaustive and ongoing search as described 23

in Section E of this chapter, the Joint IOUs lack access to a data source that would provide an 24

acceptable level of data accuracy. Adopting a data source with significant gaps and/or a high 25

probability of mis-assignment of Income Bracket would likely result in a higher number of 26

customer appeals requiring manual verification of income documentation, thus the potential cost 1

of such a verification process are likely to be higher than the Joint IOUs’ proposal. Although the 2

Joint IOUs currently perform manual verification for a small subset of CARE/FERA customers 3

as described in Section E.5, the process is very costly and not scalable to meet the demands of a 4

process for the entire residential population of the Joint Utilities. 5

Implementation costs are discussed in the Implementation Chapter. Most Implementation 6

costs are not driven by any particular income verification method and as such are unlikely to 7

change significantly based on selection of a method other than the IOU recommended model. 8

Exceptions to this are calls relating to appeals. Those figures currently assume an accurate data 9

set based on state tax data and other state data sources. Should a less accurate data source be 10

used, the costs for handling calls related to the misassignment of Income Brackets and appeals 11

would increase roughly proportionally with the decreased accuracy of the data. 12

K. Timeline for Implementation of Third-Party Income Verification 13

As noted in the CPUC guidance memo, legislation will likely be required to allow the 14

FTB to provide taxpayer data to another entity (such as the CPUC supervising a Third Party 15

implementor) for purposes of IGFC income verification. It is possible that other legislation will 16

be needed to modify existing customer privacy laws as it relates to sharing of income data. The 17

Joint IOUs anticipate that any necessary legislation could still occur in the 2023 legislative 18

session. Assuming legislation is adopted swiftly in 2023, in 2024, any impacted state agency or 19

agencies could issue new regulations and implement any necessary changes to website privacy 20

statements, which could be made effective in January 1, 2025. In 2024, the CPUC could begin a 21

solicitation for a Third Party to perform the income verification function in anticipation of 22

receiving income data from the FTB and other state agencies once it becomes legally accessible 23

in the following year. In 2025, the Third Party would develop processes to receive FTB and data 24

from other state agencies and develop a process to determine household income and associated 25

household Income Brackets. Concurrently in 2025, the Third Party would enter into agreements 26

with the IOUs and begin to work through data sharing protocols and requirements as well as 1

cybersecurity reviews. Work between the IOUs and the Third Parties is likely to begin in 2026, 2

and the remaining steps are discussed in detail in the Implementation chapter of this exhibit.

121

In Summary: 4

 2023: Legislation for FTB & State Agency Data should be passed. 5

 2024: State agencies issue updated regulations and implement changes to privacy 6

statements; CPUC solicits for and contracts with a Third Party implementer. 7

 2025: Third Party develops solution. Joint IOUs enter into contracts with the Third 8

Party for IOU implementation functions, such as data sharing. See Chapter 4 Section 9

C.1 Implementation Timing Table IV-17, line 8. 10

 2026: System integration with Third Party begins, see Chapter 4 Section C.1 11

Implementation Timing Table IV-17, line 7. 12

121

The Joint IOUs have worked hard to assess a practicable timeline for implementation of the Joint

IOUs’ IGFC Income Verification proposal that balances the desire to expedite with the need to be

realistic and cost effective; that timeline is represented in this testimony. However, the Joint IOUs

are committed to implementing our respective IGFCs as soon as practicable, and we are open to

exploring other practicable solutions for accelerating the timeline proposed above.

IV. 1

IMPLEMENTATION 2

A. Introduction 3

In this chapter, the Joint IOUs describe our plan for implementing the Joint IOUs’ 4

proposed IGFCs, with a focus on: (1) required changes to the Joint IOUs’ respective billing 5

systems, (2) the need for increased customer support staff resources for activities such as 6

managing customer inquiries, and (3) adjustments to customer-facing rate tools. Other features of 7

the Joint IOUs’ implementation plan are covered elsewhere in this testimony but cross-8

referenced in this chapter. For example, the Joint IOUs’ recommended income assignment and 9

verification process is covered above in Chapter 3 (Income Verification), while the overarching 10

marketing, education and outreach (ME&O) plans are described in Chapter 5 (Marketing 11

Education and Outreach), as well as in each of the Joint IOU’s utility-specific separate exhibit. 12

The showings in this Chapter are presented in the following sections: 13

 Section B outlines the principles that guide the Joint IOUs’ implementation approach 14

and provides a high-level overview of our proposed plan. 15

 Section C describes the significant billing technology infrastructure changes that will 16

be required to implement IGFCs for each of the Joint IOUs’ various residential rate 17

schedules. This section also outlines the Joint IOUs’ recommended approach to 18

transitioning customers as well as updates that will be required to online customer-19

facing tools to incorporate IGFC rates. 20

 Section D describes the Joint IOUs’ proposed coordination activities with Community 21

Choice Aggregators relating to IGFC implementation. 22

 Section E describes how the Joint IOUs’ existing customer support processes will be 23

leveraged and, if necessary, amended to assist customers during the transition to 24

IGFC rates. 25

 Section F provides cost estimates for implementation activities that are not separately 1

covered in Chapters 3 and 5 (Income Verification and ME&O). Section F also covers 2

estimated costs associated with the Joint IOUs’ proposed Measurement and 3

Evaluation activities that are further detailed in Chapter 2 (Rate Design). 4

 Section G describes how the Joint IOUs plan to address the Energy Division’s IGFC 5

Guidance Memo to assess implementation costs associated with other parties’ 6

proposals. 7

The implementation cost estimates for the Joint IOUs proposal, provided in this chapter, 8

may need to be adjusted based on the final rate structure and other programmatic directives 9

provided in the CPUC’s Final Decision. 10

B. Implementation Objectives and Plan Overview 11

The Joint IOUs’ proposals for implementing the transition to rates with IGFCs may be 12

further refined based on additional stakeholder and customer feedback. Currently, our approach 13

seeks to: 14

 Provide customers timely notifications about when the structural IGFC changes will 15

take effect. 16

 Offer customers an opportunity to appeal their assignment to a given Income Bracket 17

before they are transitioned to a rate with IGFCs. 18

 Promote customer understanding of why changes are being made to existing rates. 19

 Educate customers about how they will be affected and where they can find 20

information about their IGFC for their current rate. 21

 Provide customers information and tools to explore how they may benefit from 22

electrification and reduced bill volatility with the IGFC. 23

The Joint IOUs’ testimony on Marketing Education and Outreach (ME&O), outlined in 24

Chapter 5 below, covers the strategies the Joint IOUs propose to use to ensure timely 25

notifications and promote customer understanding. The proposed ME&O effort will include 26

significant outreach to build customer awareness and understanding ahead of the transition to 1

rates with IGFCs. These efforts will also inform customers about their specific fixed charge 2

household Income Bracket to which they have been assigned and will describe how customers 3

can appeal that assignment prior to being transitioned to the new rates with IGFCs. The 4

Marketing approach outlined in Chapter 5 is further supported by the IOU-specific supplemental 5

exhibits which present cost estimates based on each IOU’s unique circumstances. 6

The Joint IOUs plan to transition all residential customers to rate plans with IGFCs, as 7

described in Chapters 1 (Policy) and 2 (Rate Design). In Section C, below, the Joint IOUs 8

elaborate on our planned transition approach. The following is a brief overview of the Joint 9

IOUs’ transition plan. 10

 Prior to transitioning customers, the Joint IOUs will need to receive the Income 11

Bracket for each customer, which each IOU will utilize to provide its residential 12

customers with information on how they are likely to be impacted by the new IGFC 13

rate design. 14

 Prior to the transition, each IOU will also need to make the necessary billing system 15

and website changes and provide IGFC-related training to our customer contact 16

center personnel. 17

 After the IGFC transition, customers will continue to have access to online tools that 18

enable them to determine their best available rate given their historical usage patterns. 19

 On an ongoing basis, customers will receive periodic notifications of any re-20

assignment to a different Income Bracket, along with information about how to 21

appeal that assignment through the Third Party process. 22

C. Billing Information Technology System Changes 23

As is described in Chapter 2 (Rate Design), implementing an IGFC component into the 24

Joint IOUs’ residential electric rates will require structural billing system changes with 25

reprogramming and related testing to modify each of the following residential rate plans to 1

include IGFC components: 2

Table IV-14

Joint IOU Residential Rates Impacted by IGFCs

IOU Rates that will be modified to include IGFCs

PG&E E-1, E-TOU-C, E-TOU-D, EV2-A, E-ELEC

SCE Domestic, TOU-D-4-9PM, TOU-D-5-8PM, TOU-D-PRIME

SDG&E TOU-DR-1, TOU-DR-2, DR, DR-SES, EV-TOU-2, EV- TOU-5, TOU-

ELEC

Additionally, the following rate modifiers that may be used in combination with each 3

residential rate plan will also be made available and tested for the new IGFC rates: 4

 Legacy NEM 1 and 2 5

 Net Billing 6

 CARE, FERA 7

 Medical Baseline 8

 Critical Peak Pricing (SmartRate for PG&E, Summer Advantage Incentive for SCE, 9

Time of Use Plus for SDG&E) 10

 Summer Discount Plan (SCE), Smart Energy Program (SCE), ACSaver (SDG&E), 11

Summer Saver (SDG&E) 12

Each of the Joint IOUs’ systems will need to interface with the database provided by the 13

Third Party, which will contain information about each customer’s categorization into the 14

appropriate household Income Bracket.

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Each IOU can then use this data to update its billing 15

122

The Joint IOUs expect that, due to customer privacy requirements, the data provided by the Third

Party will only indicate which of the four household income categories a customer’s electric service

account was assigned.

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system(s) and other tools to reflect the household Income Bracket assignment of each customer 1

so the account is charged the corresponding monthly fixed charge amount. The approach for 2

developing this database is described in Chapter 3 (Income Verification). 3

1. Implementation Timing 4

The Joint IOUs’ Billing Implementation timelines are shaped by dependencies with the 5

Third Party income verification process described in Chapter 3, as well as with the ME&O 6

efforts set forth in Chapter 5 of the Joint IOUs’ IGFC testimony. Some workstreams can be 7

completed in parallel but dependencies between the workstreams put constraints on when the 8

IGFC rates can go live in each of the Joint IOU’s billing systems. The Joint IOUs estimate a 9

minimum of 32 months from the time at which contracting and cyber security review have been 10

completed between each IOU and the Third Party, and the “go live” date on which customers 11

will begin to receive bills with IGFC rates.

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The following key implementation workstreams 12

are interdependent with income assignment/verification and ME&O: 13

 Contracting and cybersecurity reviews must be completed with the Third Party 14

 Income assignment data must be integrated with the Joint IOUs’ billing systems and 15

tested (estimated to span 12-18 months for integration plus another 1-2 months for 16

testing) 17

 Modeling of customer bill impacts must be completed for IOUs who plan to send 18

customers this information in their pre-launch customer notifications (estimated to 19

span 1-3 months) 20

 Customer notifications must be sent out enough months ahead of the initial launch of 21

IGFCs on bills to allow customers to respond and for the Third Party to resolve 22

appeals (estimated to span 6 months) 23

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Timing and costs for PG&E to make necessary changes to its billing system may vary due to its

multi-year billing modernization initiative. Please see PG&E’s supplemental implementation chapter

for more details.

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Table III-12 illustrates a preliminary timeline for billing implementation and key 1

dependencies. Due to uncertainty about when the Third-Party income assignment and 2

verification system will provide household income bracket assignments, the Joint IOUs are 3

showing the timeline with reference to month “t” which indicates the month in which the IGFC 4

goes live in the Joint IOUs’ billing systems and customers begin receiving bills that show the 5

IGFC rate component and the reduced volumetric rate. 6

The Joint IOUs believe that income assignment information must be available and billing 7

calculations must be coded into the Joint IOUs’ billing systems roughly 12 months before the 8

“Go Live” month when customers would begin receiving bills under IGFC rates (line 1 in Table 9

IV-16 below). This would allow integration of the income assignment data with Joint IOUs’ 10

billing systems (line 6), which would then allow rate modeling of what customers’ impacts 11

would be on the IGFC rates to enable such information to be included if and as appropriate in the 12

Joint IOUs’ pre-launch notifications sent to customers. These notifications will be staggered to 13

avoid overloading the Joint IOUs’ contact centers with customer inquiries triggered by the new 14

IGFC changes set forth therein. The exact timing for each utility will likely be different for each 15

IOU based on system capabilities and customer preferences. 16

The integration of income assignments into the billing system, as well as other needed 17

system changes, is estimated to take about 12-18 months. This is based on discussions with the 18

Joint IOUs’ Information Technology (IT) organizations as well as on prior experiences in system 19

integration with Third Party vendors when a two-way data feed is required. This effort would not 20

begin until contracting and cyber reviews have been completed with the Third Party which is 21

estimated to be the end of 2025 as described in the Income Verification Chapter Section H. This 22

timeline is an estimate across all three utilities and may increase or decrease in duration for a 23

given IOU, based on the time required for that IOU to execute these steps. Timing may also be 24

impacted by other unknowns related to implementation of the income verification process. 25

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Table IV-15

Implementation Milestones

Line Month Milestone/Activity Dependency (Line)

1 t minus 0 (t-0)

months

Launch date when customers’ bills start

separately showing the IGFC and reduced

volumetric charge

2 t-6 through t-1 Third party processes customer appeals 3

3 t-6 through t-3 Customer notifications sent 4

4 t-9 through t-7 Customer impacts are modeled and customer

communications are prepared

5 t-11 through t-10 Complete integration and testing of income

assignment data and billing system changes

6 t-12 Income assignment data from Third Party is

fully integrated into IOU’s billing system(s)

7 t-31 through t-13 IOUs Implement IT changes needed to

restructure rate calculations and bills to show

the IGFC line item and integrate income

assignment data flow from Third Party

8 t-32 Contracting and cybersecurity review

completed with Third Party

n/a

2. Approach to Transitioning Customers 1

Once all of the required prerequisites have been accomplished, including: (1) Joint IOUs’ 2

billing system changes are in place, (2) household income categorizations have been prepared by 3

a Third Party for all customers and transmitted to each IOU, and (3) appropriate pre-transition 4

ME&O has been accomplished, the Joint IOUs will transition their residential customers to IGFC 5

rates during a time of year when customers’ attention is less likely to be diverted to higher bills, 6

weather events, or potential outages. This timing aims to reduce the chance that the impact of the 7

transition to IGFCs could be confounded by other changes that also affect the customer’s total 8

bill. 9

At the time an IOU’s customers are transitioned to a rate with an IGFC, Net Energy 10

Metering and Net Billing customers will retain their banked bill credits accrued prior to the 11

addition of the IGFC, and these bill credits will carry forward through the end of their relevant 12

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true-up period. By design, rate changes or changes to an existing rate will not trigger the relevant 1

true-up period to end prematurely in the billing system. 2

Customers will be transitioned to the updated version of the same rate schedule on which 3

they currently take service (like for like), after it is modified to include the new IGFC line item 4

as well as the reduced volumetric rate. This avoids the customer having to navigate changes to 5

other elements of their rate structure, while also understanding the IGFC changes. The Joint 6

IOUs’ cost estimates assume that the transition to new rates will occur during one billing cycle 7

over approximately one month, with customers transitioning on their billing cycle date, which 8

varies by customer. However, the exact rollout approach is still being reviewed. 9

3. Updates to Current Customer-Facing Tools 10

The Joint IOUs currently provide residential customers access to online rate analysis 11

tools that help customers determine their best rate option. The tools leverage a given customer’s 12

latest year of historical electricity usage to determine what their bill would have been on 13

alternative rates and show customers the lowest cost rate. Current customer-facing tools will be 14

updated with IGFC rates to help customers determine their best rate option once they have 15

transitioned. Also, PG&E and SCE offer an online solar calculator to our customers, where 16

customers can use their last year’s usage history to examine the economics of investing in solar. 17

This tool will also be updated to reflect the changes in rate structure resulting from the final 18

IGFC decision. 19

SCE and PG&E also offer budget assistant tools that helps customers predict their 20

upcoming bill amounts. All of the Joint IOUs provide Bill-Forecast and/or Bill-to-Date 21

capabilities for their customers. These tools will likewise have to be updated. 22

4. New Tools 23

To support decarbonization through beneficial electrification, the Joint IOUs propose to 24

explore developing additional tools during the roll-out of IGFCs, such as adding technology 25

modeling to existing rate analysis tools or offering calculators that estimate the price of energy 26

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for an electrification technology compared to non-electric technologies. Our current cost 1

estimates do not include the cost of implementing and maintaining such tools. 2

D. Coordination with Community Choice Aggregators 3

The Joint IOUs propose to coordinate with Community Choice Aggregators (CCAs) 4

about the rate design changes adopted by the CPUC. As is explained in Chapter 2 (Rate Design), 5

generation costs will not be included in the IGFCs so CCA generation rates will not be directly 6

affected. Joint IOUs will also communicate with the CCAs in their service areas about IGFC 7

transition plans and monitor any CCA transition activities that might occur simultaneously so 8

that customer communication about the multiple changes to their billing is considered. 9

E. Customer Support Resources - Contact Centers 10

Each of the Joint IOUs has customer contact centers that collectively fielded about 12.5 11

million customer calls per year on average between 2019 and 2022 (PG&E fielding about 6.4 12

million customer calls per year, SCE fielding about 4.5 million, and SDG&E about 1.6 million 13

calls per year). The majority of these calls are related to billing and rates which, as a category, 14

generally have the highest average handle times among residential calls. The Joint IOUs 15

anticipate a considerable increase in customer inquiries before, during, and after deployment of 16

the IGFC rates because the changes required for the IGFC are a new rate framework that 17

customers will have to navigate. The Joint IOUs’ proposal will seek to minimize customer calls 18

through use of self-service Interactive Voice Response software and online resources to provide 19

information that may respond to the customers’ questions without requiring them to talk with a 20

live customer service representative. Even with those measures, the Joint IOUs expect that the 21

volume of calls coming into our call centers will increase, with the magnitude of increase 22

dependent in part on how accurate the household Income Bracket assignments are, which will be 23

influenced by the type of data available used in the process the CPUC ultimately adopts. An 24

approach like the Joint IOUs’ proposal to have an independent Third Party, supervised by the 25

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CPUC, that uses highly accurate data sources will likely result in fewer misassignments and 1

resulting customer appeals than an approach that depends on less reliable income data sources. 2

Based on the income assignment approach described in Chapter 3 (Income Verification), the 3

Joint IOUs expect that calls would increase significantly in the period before, during, and shortly 4

after deployment of the fixed charges. Each of the Joint IOUs has provided current estimates of 5

the associated costs of handling increased calls if the Joint IOUs’ IGFC rate and process 6

proposals are adopted without modification. Deviations from the Joint IOUs’ proposal have the 7

potential to increase these costs significantly. A summary of PG&E’s, SCE’s, and SDG&E’s 8

respective IOU-specific information can be found in each of their supplemental exhibits SCE-01, 9

PG&E-01, and SDG&E-01. 10

F. Costs 11

The Joint IOUs’ current cost estimates associated with our proposed income verification 12

approach are described in Chapter 3 (Income Verification). Costs associated with the Joint IOUs’ 13

ME&O approaches are covered in Chapter 5 (Marketing, Education & Outreach). In this 14

Implementation chapter, the Joint IOUs outline and provide cost estimates for other costs 15

associated with implementation. For convenience, this Exhibit presents as Appendix C, a table 16

reflecting the currently estimated IOU costs under the Joint IOUs’ proposal for Implementation, 17

IOU Income Verification, and ME&O. 18

1. Implementation Costs 19

Key implementation costs include IT billing system changes and revisions to rate 20

calculations that support a number of customer-facing tools. Significant costs are also likely to 21

be incurred by the Joint IOUs’ contact centers, which will need to be appropriately staffed and 22

trained to field questions about how and why the IGFC-related changes are being made to 23

residential rates, as well as address customers’ questions about household Income Bracket 24

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assignment and verification. Table IV-16 below presents the currently estimated costs, by Joint 1

IOU, for the anticipated major cost areas: 2

Table IV-16

Estimated Implementation Costs by IOU

Cost per IOU (in thousands of dollars)

Cost Category PG&E SCE SDG&E Joint IOUs’ total

Billing IT Implementation including

incorporation of income data into

billing system and coding and testing

of new rates

$5,000 $5,900 $6,500 $17,400

Updates of customer-facing online rate

tools and Distributed Energy Resource

calculators

$1,010 $59 $1,200 $2,269

Contact Center Training and

Operations (in the year prior to

deployment and two years after

deployment)

$15,910 $9,900 $5,138 $30,948

Program/Project Management of

Implementation

$2,400 n/a $1,560 $3,960

Total: $24,320 $15,859 $14,398 $54,577

These estimates are based on the Joint IOUs’ implementation proposal, and they do not 3

reflect costs associated with other approaches to implementation, or the costs resulting from the 4

CPUC’s 2024 final decision, if it differs from the Joint IOUs’ opening testimony proposal herein. 5

The Joint IOUs request the authority to file an Advice Letter, within 90-days after the CPUC 6

issues its Final Decision. In this filing, the Joint IOUs will provide more detailed implementation 7

costs for which we will seek balancing account recovery, as described in Chapter 6 (Cost 8

Recovery). 9

Exhibits (PG&E-01), (SCE-01), and (SDG&E-01, et seq.) provide more detail on each of 10

the Joint IOUs’ currently expected individual, IOU-specific Implementation cost estimates. 11

Differences between costs and timing among the Joint IOUs are primarily explained by the 12

following: 13

 SDG&E serves fewer customers than SCE and PG&E, thus SDG&E’s customer-14

specific costs can be expected to be lower. 15

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 SCE believes it has sufficient resources for Program/Project Management to 1

implement the Joint IOUs’ proposal but reserves the right to reassess costs once 2

the final decision’s approach is adopted. 3

2. Measurement and Evaluation 4

To evaluate the effectiveness of the transition to residential rates with IGFCs, the Joint 5

IOUs propose that the CPUC provide sufficient funding to assess whether the IGFC transition 6

has met the policy objectives outlined in the Assigned Commissioners Phase 1 Scoping Memo 7

for R-22-07-005 that are relevant to income-graduated fixed charges. One of the Joint IOUs 8

should be tasked with leading the Measurement and Evaluation (M&E) effort for all affected 9

IOUs. 10

The policy objectives to be evaluated include: 11

 Goal (b) make electric bills more affordable and equitable 12

 Goal (d) enable widespread electrification of buildings and transportation to meet the 13

state’s climate goals 14

The Joint IOUs’ proposed process for assessing and evaluating the IGFCs’ ability to meet 15

the goals set forth in the CPUC’s final Track A decision can be found in the Rate Design 16

Chapter. 17

G. High-Level Estimates of Timing and Cost for Other Anticipated Proposals 18

The Energy Division’s January 17, 2023, Guidance Memo states that “IOUs should 19

provide estimated timelines for different implementation options that the IOUs anticipate that 20

other parties will propose.”

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It is very difficult to anticipate and understand what other parties 21

are recommending without having seen the details of what they actually propose in their 22

concurrent Opening Testimony due April 7, 2023. The Joint IOUs have been informally 23

124 Administrative Law Judge’s Ruling Providing Guidance for Phase 1 Track A Proposals and

Requesting Comments on a Consulting Services Proposal (Jan. 17, 2023), Attachment 1,R.22-07-005,

Phase 1 Track A: Income Graduated Fixed Charge Guidance Memo, at p. 10.

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communicating with a number of stakeholders as we have worked to develop our Opening 1

Testimony, but parties have still been in the process of determining their specific proposals. The 2

Joint IOUs intend to review all proposals as quickly as possible, as well as conduct discovery to 3

gain clarification through data requests, if needed. Additional information evaluating and 4

comparing high level impacts of their proposals, including its impacts on implementation costs, 5

will be provided in Reply Testimony, to the extent practicable.6

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V. 1

MARKETING EDUCATION & OUTREACH 2

A. Introduction 3

The Joint IOUs recognize that Marketing, Education, and Outreach (ME&O) is 4

fundamental to gaining customer awareness, understanding, and acceptance of the IGFC. 5

The Joint IOUs’ ME&O approach is constructed with the understanding that energy costs 6

are a disproportionate burden on lower-income families, with households across California 7

struggling to pay their bills. It is an opportunity to educate customers about how implementing 8

the IGFC will help address equity and affordability. Additionally, the IGFC sets the stage for 9

beneficial electrification in California by reducing volumetric charges for all residential 10

customers. Effective communication with customers before, during, and after introducing the 11

IGFC for electric service will be critical to improving customer understanding and reducing 12

complaints. 13

The overarching ME&O approach outlined in this chapter aims to demonstrate how the 14

Joint IOUs propose to test, adjust, and inform customers that the IGFC will help cover 15

incremental costs associated with providing electricity in a less regressive, more efficient 16

structure. The expected outcomes of the ME&O are awareness, understanding, and acceptance. 17

B. Research Insights 18

1. PG&E 19

In fall 2022, PG&E hired C-Space to conduct initial qualitative research exploring 20

customer reactions to messaging and positioning of descriptive language for a residential Fixed 21

Charge (PG&E’s 2022 Messaging Research). This initial research also identified customer-22

facing names for this rate component that would be intuitive to customers and accurately 23

represent the intent underlying AB 205’s directives to the CPUC requiring it to approve 24

conforming residential IGFCs for all IOUs by mid-2024. 25

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More specifically, PG&E’s 2022 Messaging Research set out to understand: 1

1. Customer perceptions of a generic illustrative fixed charge rate component, and 2

whether their perceptions change based on potential impact to their bills; 3

2. Reactions to different amounts for this charge, as well as the reaction to the charge 4

varying based on household income categories; 5

3. How clearly did customers understand the exploratory descriptions, and what did 6

customers want to learn about the IGFC; 7

4. Best way(s) to message this charge for understanding and acceptance; 8

5. Through what communication channels would customers prefer to receive 9

information to learn about the IGFC; 10

6. Recommendations on what customer-facing name customers prefer for referring to 11

Fixed Charges. 12

PG&E’s 2022 Messaging Research was conducted in English and Spanish and included 13

both CARE and non-CARE customers. Methods included video focus groups of high, 14

medium, and low-income customers across hot and cool climate zones (three one-hour video 15

focus groups, 4-5 participants per group), in-depth one-to-one interviews in hot climates of 16

Spanish speakers, and an online survey (284 participants). 17

a) Stimuli 18

Customers were given a written description to introduce the concept of a Fixed Charge 19

based on an early generic understanding of a potential implementation. The description was 20

intentionally written in a straight-forward, factual manner to monitor initial customer reactions, 21

understanding of basic concepts, pinpoint areas of potential confusion or need for further clarity 22

of details (information we may not have today but that will come later in this process). The 23

research purposefully did not initially state the potential dollar amount(s)of residential fixed 24

charges, to allow early discussions to probe for what preconceived amounts could be in each 25

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customer’s mind. The initial descriptive statement, without yet putting forth any fixed charge 1

dollar amount, was provided as follows: 2

PG&E’s 2022 Messaging Research also probed customers on what potential names for 4

the charge might be considered, and provided the below examples, in addition to “Fixed Charge” 5

to gain reaction as to which one is most descriptive: 6

 Basic Services Charge 7

 Customer Services Charge 8

 Base Charge 9

 Standard Charge 10

 Shared Services Charge 11

b) Key Findings 12

Results from PG&E’s 2022 focus groups and survey provided clear direction on how to 13

evolve messaging and outreach to achieve greater customer understanding and acceptance. 14

Highlights include: 15

 Initial reactions to the IGFC involve confusion and distrust. Customers had a lot of 16

questions about how the charge would work and the impact it would have on their 17

bills. 18

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 Customers from all income groups expected their bills to increase with the 1

implementation of the IGFC 2

 Customers presumed the IGFC amount may go up to $20 or $25 dollars at most and 3

reacted negatively to any amount above this range. 4

 There is a general concern that the IGFC would not incentivize conservation. Many, 5

especially CARE customers in the study, felt the IGFC would be unfair to those who 6

intentionally try to minimize their energy usage. 7

 The income-based structure doesn’t sit well with most customers, as many are 8

confused about whether or how PG&E might get such income information as 9

well as perceived it as unfair. There should be clear and open communication 10

before implementing the IGFC. Customers would like to have data to 11

understand the calculations, real examples of what the charge covers, bill 12

mock-ups, and comparisons with the previous way of charging. 13

 Email and bill inserts are preferred channels of communication, but some customers 14

point out that a personalized approach is also needed. They would like to have 3-6 15

months of notice before the new residential IGFC first appears in their bills. 16

 When asked to provide feedback on potential names for the charge, customers most 17

preferred “Basic Services Charge,” followed by “Base Charge.” Customers said the 18

terms “Basic” and “Base” helped them identify that the charge represents the 19

foundational costs to maintain and operate their service, which is completely separate 20

from their energy usage. These terms also helped them understand that all residential 21

customers would experience a fixed charge. 22

 PG&E’s 2022 Messaging Research indicated that moderate- and higher- income 23

customers understand and are even in favor of lower income customers not having to 24

bear the higher portion of this charge. However, their initial reactions to the concept 25

were not positive and they appeared to need further information, with real examples 26

of before and after bills, to increase understanding and acceptance. 27

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2. SDG&E 1

In the first quarter of 2023, SDG&E hired Travis Research to facilitate qualitative 2

research to help inform the ME&O strategy and implementation. The primary goals of the 3

qualitative research were to understand customers' current rate structure better, gauge their 4

reactions regarding an IGFC, and gain initial feedback on messaging areas. A total of 22 in-5

depth interviews lasting up to one hour each was conducted with participants representing the 6

following customer segments: low income, moderate-income, and high-income, as well as 7

Spanish-speaking and existing solar customers. 8

SDG&E's key Q1 2023 research findings showed that: 9

 Participants assumed the IGFC would automatically result in higher bills; 10

 There was concern about increased usage being more affordable, with several 11

mentioning it goes against the conservation message that they've been receiving for 12

years; 13

 Email was the preferred communication channel, slightly higher than direct mail 14

followed by the SDG&E app; 15

 Participants indicated a preference for three- to six-months' notice before 16

implementation of the IGFC, although some thought that a month might be sufficient; 17

and 18

 Several participants felt the dollar differential between the basic service fees for low-19

income vs. high-income was too large. This further fueled the opinion that this 20

structure is unfair to customers who make more money; although some were more 21

open to the concept of higher-income households paying more. 22

3. SCE 23

In the first quarter of 2023, SCE conducted an online survey of nearly 700 residential 24

customers using the cloud-based platform, Alida, about perceptions of a fixed charge. Insights 25

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from SCE’s Q1 2023 Research generally align with the research insights from studies conducted 1

by PG&E and SDG&E. 2

The concept of an IGFC was not well-received by residential customers. The charge 3

evoked negative feelings of worry, helplessness, anger and/or confusion, with 66% feeling that it 4

was not acceptable for SCE to have access to their income data and that they believed it was 5

effectively a tax, and another way for SCE to make higher profits. 6

Other relevant insights from SCE’s Q1 2023 Research include: 7

 Customers would be more likely to support a fixed charge based mainly on their 8

usage instead of solely on their income level (54% support vs. 25% oppose this 9

option). 10

 Overall, customers believed it was not fair that the fixed charge be based on their 11

income, but instead, it should be based on usage. For example, energy conscious 12

lower users felt they were being penalized through fixed charges. Also, they stated 13

they already pay high property taxes, and believed that the IGFC would increase their 14

financial burden. 15

 When asked if customers would seek out additional information on the charge, only 16

13% said no. 17

C. Joint IOU ME&O Proposal’s Objectives 18

The objectives for the Joint IOUs’ proposals for ME&O outreach are to: 19

 Help customers understand that the way they have been charged for electricity will be 20

changing, why and when the new structure is being applied, what the funds will be 21

used for, how their bill may be impacted, and helpful ways to manage energy costs; 22

Inform existing residential customers of their household’s income-based 23

categorization and provide a way for customers to dispute their income bracket 24

assignment if incorrect 25

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 Explain how the IGFC will be a separate line item shown on their bill rather than a 1

change in rate design; educate that the new IGFC charge line item on their bill had 2

previously been embedded in their volumetric energy use charge (and how all 3

customers’ volumetric charge will be going down once the fixed costs are relocated to 4

a separate line item); 5

 Assure low-income CARE and FERA customers that their assistance program 6

discounts will not be affected by the IGFC, as well as that after the shift to a separate 7

IGFC line item, they may actually see lower bills as a result; 8

 Craft targeted messaging for subgroups more likely to need specialized outreach, as 9

discussed below; 10

 Explore the use of clean energy and electrification messaging, while explaining that 11

the pricing structure encourages adoption of technologies that allow expanded use of 12

lower-priced, cleaner, more plentiful electricity and reduced use of GHG-emitting 13

fossil fuels; 14

D. Lessons Learned from Residential Time-of-Use Transition Inform IGFC Outreach 15

Strategies 16

Recent IOU experiences transitioning millions of residential customers to default Time-17

of-Use (TOU) rate plans provide useful insights to help inform customers, calm potential 18

backlash, and make sure vulnerable customers are included in the conversation. Key lessons 19

from the TOU default TOU transition, as shown in Table V-17 below, include communicating 20

with customers early and often about how the change will impact their bills, what the IGFC 21

covers, the reasoning behind it, and how it will create a more equitable, cleaner energy future. 22

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Table V-17

Useful Lessons from Residential Default TOU Transition to Inform IGFC

The Joint IOUs took RROIR’s default TOU transition lessons, summarized above, and 1

applied them to come up with the following IGFC outreach strategies: 2

 Integrate and coordinate general market communications with targeted direct 3

channels, to create awareness, understanding, and acceptance; 4

 Leverage the IOU’s network of CBOs, earned media, and external stakeholders, to 5

help increase awareness and understanding of the IGFC; 6

 Use customer segmentation to create personalized, tailored communications; 7

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 Take a multi-touch approach, with targeted marketing and outreach, to drive 1

awareness across all customers; and 2

 Strategically integrate messaging into other marketing efforts, as appropriate. 3

E. Plans to Refine Outreach Plans Based on Findings from Additional Research 4

The Joint IOUs plan to conduct additional research prior to the start of outreach to 5

continue to learn from customers about their preferred approach to IGFC messaging and 6

education, so as to enable parties to further refine their marketing, education and outreach using 7

the customer voice. We will share research approaches and outcomes to align on results, and 8

implementation of these learnings on customer outreach. Areas of research may include: 9

1. Refine and validate language that clearly communicates the intended message; 10

2. Identify areas of potential confusion that may require further clarification 11

3. Validate materials and tools to address specific customer needs; 12

4. Learn when and how to differentiate messaging by the three phases and by bill impact 13

and customer segment; 14

5. Identify clear and well-received terminology to use in customer-facing 15

communications when referencing the IGFC; and 16

6. Test and validate specialized messaging necessary for customers in Income Brackets 17

1-4, as well as for solar customers segments within the various Income Brackets, 18

among other targeted customer segments as appropriate. 19

F. Target Audiences 20

The Joint IOUs propose to use bill analysis as well as IGFC household income category 21

assignments (once the Third Party makes that list available) to determine target audiences as well 22

as to assess impacts and determine customer segments. Customer segments may include low-23

income, moderate- and high-income/low-usage users, as well as solar customers, and segments 24

large enough to warrant in-language communications, among others. These segments may 25

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require the Joint IOU’s proposal here to be adjusted for any further incremental outreach efforts 1

and specialized messaging found to be appropriate (as it cannot yet be included here). If so, such 2

additional specialized messaging for segment-specific communications would need to be tested 3

and validated through additional research as described in section F above. 4

G. Rollout and Implementation 5

To effectively support ME&O efforts, customer communications are planned to begin 6

approximately six months ahead of the Joint IOUs’ transition showing the IGFC on customers’ 7

bills. The Joint IOUs propose multiple touchpoint communications in a phased approach, with 8

additional rate communications after the transition. In addition, outreach to external stakeholders 9

and community leaders, including elected officials, Community-Based Organizations (CBOs) 10

and media may start as soon as the CPUC’s final decision on the IGFC is issued. 11

Similar to the residential default TOU transition, the IOUs’ customers will need time to 12

become aware of the new IGFC rate structure, understand what costs are being pulled out of the 13

volumetric rate and charged separately through a new fixed charge line item, as well as 14

understand how this structural change will likely affect their own household electricity bills. 15

Therefore, the Joint IOUs propose to use a phased approach when communicating with 16

customers, to achieve customer awareness, understanding, and acceptance. This approach will 17

inform the timing of tactics and allow for progression of the messaging and outreach channels. 18

Phase 1 – Awareness: Setting the context for what the IGFC is, why it is being 19

implemented, and when it will take effect; 20

Phase 2 – Inform: Further emphasis on individual bill impacts including the income 21

category a customer has been assigned, and the income verification and appeals process; 22

these materials will also reinforce available online resources where customers can get 23

more information; and 24

Phase 3 –Engagement: After IGFC implementation, outreach will focus on the total bill 25

experience. Ongoing rate education will reinforce the desired behaviors to support the 26

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state’s decarbonization goals, along with the cost saving benefits of shifting usage out of 1

the higher cost and higher emissions TOU peak times, as well as promote other bill 2

management solutions. 3

Table V-18 (below) outlines three sample personas and touchpoints for each phase as 4

outlined above to help bring to life how a customer may experience education and outreach. 5

Actual customer touchpoints may vary depending on the customer segment, service territory and 6

any final directives provided through this proceeding. 7

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Table V-18

Joint IOUs’ Proposed Phased IGFC Communication Sample

H. Messaging Phases and Customer Journey 1

The Joint IOUs plan to differentiate messaging by the phases noted above, as well as by 2

bill impact and customer segment once it is tested and validated through additional customer 3

research.

In Phase I (Aware), all customers will receive base messaging that provides over-arching 5

information about the IGFC. Early messaging will communicate how the charge will apply to all 6

residential customers. Communications will detail the various fixed charge Income Brackets as 7

well as emphasize why the change is occurring.

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Marketing materials will be developed to illustrate what the proposed IGFC means for 1

customer bills, and to engage stakeholders, such as media, elected officials, and CBOs early in 2

the process. The change in the way customers are billed could easily be misunderstood unless 3

the narrative is communicated in advance and proactively supported by examples of customer 4

bill outcomes. 5

Building on Phase 1 (Aware), Phase 2 (Inform) will expand to clearly explain what to 6

expect when and where to find personalized information. This is a key step toward educating 7

customers about the proposed IGFC as the focus evolves to the benefits most customers will gain 8

from the rate structure, including helping to achieve California’s climate goals and increase 9

electrification. Messaging may also include how the IGFC helps low-income customers, 10

provides more transparency in electric bills, and makes bills more predictable. 11

The Joint IOUs also plan to create representative scenarios with representative amounts 12

of monthly usage combined with CPUC-adopted fixed charges for the various IGFC Income 13

Brackets. This will also include a comparison of several typical bills before and after the IGFC 14

is applied. These scenarios will include a breakdown of the IGFC and the volumetric usage 15

charge to illustrate how the costs are not new but have only been reallocated. As with other 16

major changes to rates or bill structures, it will be critical to steer customers toward tailored 17

information about how it may directly affect their own bills. This information will be provided 18

on the Joint IOUs’ websites, in customer notifications, as well as through other channels detailed 19

in the Tactics section below. 20

Once the IGFC has been implemented, the Joint IOUs propose to focus on Phase 3 21

(Engage) to continue educating customers about energy-saving and efficient electrification 22

behaviors and actions they can take to help manage their bills. Messaging may promote energy 23

management solutions, such as available incentives and rebates, building and transportation 24

electrification and Time-of-Use, and assistance programs. 25

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I. Integrated Campaign Tactics 1

The Joint IOUs plan to use various outreach channels to form a holistic, integrated 2

education and outreach campaign to support IGFC implementation. Tactics may include direct-3

to-customer messaging, broad customer outreach, and paid channels, as well as IOU-owned 4

channels. In-language materials will be developed based on target audience, and may vary, 5

depending on each IOUs’ unique service area’s demographics. 6

Integrated campaign tactics may include: 7

1. Direct-to-Customer: Direct Marketing tactics will be part of specific, targeted 8

campaigns that will leverage customer segmentation data. Timing scenarios are for illustrative 9

purposes and may change due to exact implementation and operational requirements. These 10

tactics include: 11

a. Direct Email or Direct Mail: Direct channels will be used to inform customers 12

of the IGFC and will drive them online to learn more and find applicable bill examples that apply 13

to their households. This approach will help inform customers and satisfy their need to 14

understand how the IGFC will affect their electric bills. As with the TOU transition, the Joint 15

IOUs propose to deploy multiple touchpoints throughout the customer journey. The Joint IOUs 16

anticipate direct customer outreach may begin up to 180 to 90-days prior to the transition, to 17

notify them of their IGFC bracket and the appropriate cadence and response channels for 18

submitting bracket assignment change requests. Each IOU will adopt their own plan, depending 19

on the details of the final decision, the rate structure, and the IGFC implementation timing. 20

(1) For increased cost efficiencies, the Joint IOUs plan to adopt an “email 21

first” communication channel approach, in which customers will be contacted by email if they 22

have email addresses on file. Direct mail will be used for those customers without email 23

addresses on file. 24

b. Bill Package: Additional opportunities to directly reach customers about the 25

IGFC include leveraging customer bill inserts, “onsert” messages, and/or on-bill messaging at 26

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least 60-days or one to two bill cycles prior to implementation and throughout the first transition 1

year. These tactics will help educate customers at the point at which they may be the most 2

confused. A short explanation can guide customers to a website for more in-depth information. 3

2. Web Presence: Many customers will go online as the primary source of 4

information about the new IGFC. The Joint IOUs’ websites will provide both higher-level 5

explanations of the IGFC as well as more in-depth information of the services it covers and the 6

illustrative impacts it may have on bills. The web is an important channel to support and educate 7

as many customers as possible, when it is convenient for them to self-serve information. It is also 8

critical to help the Joint IOUs reduce the volume of follow-up calls to customer contact centers. 9

Content will include: 10

a. An overview of the income verification process, and guidance on how to appeal 11

their assigned income bracket; 12

b. Visual examples of high, medium, and lower electricity bills before and after the 13

IGFC is implemented. Research findings indicate this must be explained through visuals that 14

customers can easily understand. These visuals will illustrate how rates were previously 15

structured, how the IGFC will adjust their bills based on various fixed charge amounts and 16

usage, and how the per-unit price of energy is lowered accordingly for all customers 17

3. Media Relations/IOU Blogs: The Joint IOUs anticipate the IGFC will receive 18

press attention, perhaps even before the CPUC makes its final decision. Customers and the 19

media may misconstrue the IGFC as a new charge or many focus on the fixed charge amount 20

itself, without the full context of the reduction in volumetric rates that results from showing 21

customers on a separate line item their costs for basic services that do not vary depending on 22

their usage. The Joint IOUs will engage and inform media about the construct of the proposed 23

IGFC, the legislative impetus behind it as a way to better support decarbonization, how all other 24

customer classes within California’s IOUs as well as other utilities and business entities employ 25

fixed charges, as well as how customers’ bills within each electric IOU’s service territory, may 26

be impacted for each of the four Income Brackets. Accurate local reporting about the IGFCs will 27

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be critical. Communication channels will include media engagement, social media and the Joint 1

IOUs’ blogs (Currents for PG&E, News Center for SDG&E, and Energized by Edison for SCE). 2

4. Digital Newsletters: The Joint IOUs propose to leverage their own digital 3

newsletters or similar email communications to feature information about the IGFC and link to 4

more information available online. 5

5. Paid Media: Using the successful individual default TOU paid media campaigns 6

as a case study for localized, paid outreach, the Joint IOUs plan to consider employing a 7

campaign to inform customers about the bill change. Paired with outreach through other 8

channels, cost-effective paid media can be used to target customers by geography, income (at the 9

ZIP code Level), in-language, and provide supplementary coverage to support other channels. 10

Before committing to customer funding for this effort, the Joint IOUs will explore customer 11

interest levels for this channel of messaging, and test ads to ensure they are simple, clear, 12

resonant, and that they add value beyond utility-owned communication channels. Paid media 13

channels may include highly targeted digital, search, and community and/or ethnic print 14

advertising. 15

6. Social Media: Social media channels (i.e., Twitter, Facebook, Instagram, 16

Nextdoor, and/or YouTube) may be leveraged as an interactive and targeted way to broadly 17

inform customers about the IGFC. Posts will be, brief, clear, and easy to understand, and will 18

guide customers to obtain more information online via direct links. 19

7. Collateral: Printed materials, such as brochures and fact sheets, may be produced 20

for use with various customer segments and through various channels, such as outreach teams, 21

field representatives, branch offices, and CBOs. 22

a. Quick-Response (QR) Codes: QR codes may be leveraged, where appropriate 23

and feasible, on print materials as another opportunity to connect customers directly to the Joint 24

IOUs’ websites, where they can find additional information and resources. 25

8. Integration: The Joint IOUs each will also identify opportunities to integrate 26

fixed charge messaging into other relevant ME&O efforts being otherwise undertaken by that 27

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IOU. Message integration will be based on how well the audience and calls to action overlap, 1

and which channel is used. In addition, different channels will be evaluated individually for their 2

potential to carry multiple messages. Messaging will also be integrated into planned outreach to 3

specific target groups such as low income, solar, and other program outreach. 4

J. Community Outreach Tactics 5

1. Community Based Outreach (CBO) 6

The Joint IOUs will collaborate with CBOs to help educate customers about what the 7

IGFC means for them and engage them in solutions including connecting them to valuable 8

programs, services, and tools. These organizations represent the diverse communities of PG&E, 9

SCE, and SDG&E service areas, spanning across agricultural, residential, civic, and public 10

sectors. Many of these CBOs are small grassroots agencies serving individuals with access and 11

functional needs, including those who are multicultural, multilingual, low-income, seniors, and 12

Limited English Proficient (LEP) audiences in communities of concern. 13

Together, the CBOs and the Joint IOUs will communicate why and when the IGFC is 14

being implemented, how customers may be impacted, the income verification processes, and 15

how they can appeal their assigned household income bracket. Additionally, low-income 16

customers who participate in CARE and FERA will be reassured that their program participation 17

benefits will not be impacted and shown how they may get greater assistance from the IGFC. 18

Efforts to inform customers about available resources for managing energy costs will 19

continue. CBOs regularly share communications about programs and services, such as Energy 20

Savings Assistance, Medical Baseline, and available rebates and incentives, through social 21

media, newsletters, eblasts, blog posts, and direct stakeholder engagement efforts like digital 22

webinars. 23

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2. Joint IOU Employee Outreach 1

ME&O activities will also include outreach and education to employees prior to the 2

implementation of the IGFC. Employees may be engaged through internal channels, including 3

internal events, emails, and internal online resources. Internal customer-facing groups will be 4

leveraged to help drive early education about the IGFC for utility-employees, especially those 5

whose work is customer-facing about the IGFC. Customer-facing groups may include the 6

employees at each of the Joint IOUs’ Customer Contact Centers, payment locations and branch 7

offices, field service teams, and credit and collections groups. 8

3. External Stakeholders: 9

Information will be provided to external stakeholders, including elected officials, tribal 10

leaders, local media, and Community Choice Aggregators, to help them understand the impetus 11

of the IGFC as well as its benefits, and to address potential questions from constituents. 12

K. Metrics and Tracking 13

The Joint IOUs propose to measure and track key pieces of outreach data to monitor 14

progress in reaching customers with messages about the IGFC. In more broad-based messaging 15

channels, this will include measurements including press article mentions, reach and/or 16

impressions of paid media, outbound targeted communications (like e-newsletters), bill 17

messages, email response, call center feedback, customer listening post, etc. Reporting on 18

account-level notifications and customer responses regarding IGFC assignments will also be 19

tracked. 20

L. Budget 21

In this section, the Joint IOUs identify ME&O-associated research and tactics that require 22

incremental revenue recovery to implement. Essential implementation costs include incremental 23

labor resources needed to develop, manage and implement the proposed ME&O tactics and the 24

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deliverables. The Joint IOUs are recommending a digital-first approach to mitigate costs. 1

However, not all customers have an email address on file and will require direct mail, which is 2

more costly. Additional prices that can drive up the ME&O budget include paid advertising. 3

Again, to mitigate costs and still effectively reach customers, the Joint IOUs are proposing more 4

targeted paid media strategies. The following are estimated ME&O costs, by IOU: 5

Table V-19

Initial Estimates of ME&O Costs, by IOU

These are still relatively high-level estimates based on what is currently understood about 6

implementation of the Joint IOUs’ Opening Testimony proposals; they may not reflect costs 7

associated with implementing whatever differing directives the CPUC may issue in its final 8

decision at the end of this proceeding, after all the evidence has been considered. The Joint 9

IOUs respectfully request the authority for each IOU (including the small IOUs) to file an 10

Advice Letter within 90-days after the Final Decision in which each IOU will provide its more 11

detailed final ME&O costs to implement what the final decision authorized, for which the Joint 12

IOUs propose be recovered through the balancing account approach described in the Cost 13

Recovery Chapter. 14

Chapters PG&E-01, SCE-02, and SDG&E-01, et seq., provide more detail on each of the 15

Joint IOUs’ respective utility-specific cost estimates related to these proposals. Differences 16

among the estimated costs provided by each of the Joint IOUs are primarily based on the 17

residential population size as well as the demographics within each IOU’s unique service 18

territory, as well as other IOU-specific considerations such as numbers of media markets and 19

costs of using such media markets’ channels.20

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VI. 1

COST RECOVERY 2

A. Introduction 3

This chapter discusses the cost recovery for the Joint IOUs’ proposal to establish an 4

income-graduated fixed charge for residential rates (IGFC) as discussed in other chapters of this 5

joint testimony and in the concurrently served IOU-specific testimony. This chapter discusses 6

the cost recovery and rate allocation (together “cost recovery”) for the Joint IOUs’ proposal to 7

establish an IGFC for residential rates, as discussed in other chapters of this joint testimony and 8

in the concurrently served IOU-specific testimony. The Joint IOUs provide preliminary cost 9

estimates in their separately submitted testimony sponsored by their respective witnesses. These 10

preliminary estimates are contingent on the Commission approving the IOUs’ proposals in the 11

Joint IOUs’ testimony and in the separately submitted testimony of each IOU. If the 12

Commission requires modifications to the Joint IOUs’ proposals, or approves different 13

proposals, the Joint IOUs’ estimates presented in their opening testimony would no longer be 14

applicable. As necessary, the Joint IOUs reserve the right to develop and submit updated cost 15

estimates based on the Commission’s final, adopted implementation approach. Specifically, 16

upon the issuance of a final Commission decision, the Joint IOUs expect that work for the 17

purpose of updating costs according to whatever was adopted will begin, and a process that can 18

allow cost recovery will be needed. After the Commission's final decision, as the IOUs, Energy 19

Division, and other interested third parties work through implementation, updates to these cost 20

estimates may be needed. Therefore, the Joint IOUs propose that the CPUC adopt cost recovery 21

mechanisms and processes that can accommodate the development of updated costs in the future. 22

Additionally, this chapter also discusses potential impacts to the cost recovery 23

mechanisms as a result of the new rate design associated with the IGFC and the corresponding 24

lower volumetric rate, shifting the recovery of certain categories of authorized costs from 25

volumetric rates to the fixed charge. The IOUs assert that the cost recovery authority for costs 26

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that are moved from a volumetric basis to the IGFC will not change. The IOUs anticipate that 1

there may be changes needed to their respective tariffs and preliminary statements as a result of 2

shifting the recovery of these costs from volumetric rates to the IGFC and propose to submit 3

separate advice letters with those modifications prior to the fixed charge going into effect. 4

Finally, this chapter proposes an IGFC Calibration Mechanism that would allow for 5

timely recovery of any large revenue imbalances (i.e., undercollections) as a result of 6

uncertainties around the accuracy of the income level forecasting, especially in the initial years 7

after implementation. A calibration mechanism will allow the Joint IOUs to adjust rates timely 8

to avoid large undercollections growing throughout a given year to an amount that would 9

significantly impact the following year’s rates. 10

The Joint IOUs propose the following cost recovery proposals for the Commission’s 11

consideration and approval: 12

 Authorize each Joint IOU to separately submit a Tier 2 advice letter after the approval 13

of the final decision to provide a budget consistent with the final decision and the 14

related revenue requirements; 15

 Authorize each Joint IOU to separately submit a Tier 1 advice letter, 30-days after the 16

issuance of a final decision in this proceeding, to establish a new two-way balancing 17

account to recover the costs associated with the final IGFC approach approved by the 18

CPUC at the end of this proceeding, to be recovered from all customers through 19

public purpose program (PPP) rates; 20

 Approve the Joint IOUs’ proposal that the Income Verification costs associated with 21

the IGFC be paid for through state funding rather than through ratepayers, which 22

would be accomplished by either having the IOU incur the Income Verification costs 23

as a debit in the IGFCBA with an offsetting credit for the amount of state funding 24

received or by having a Third-Party incur the costs with state funding provided 25

directly to the third party (in which case no debits or credits for Income Verification 26

would be included in the IGFCBA); 27

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 Approve the Joint IOUs’ proposal to separately submit a Tier 1 advice letter before 1

the IGFC goes into effect to modify any applicable tariffs and/or preliminary 2

statements, as needed, to maintain appropriate operation of cost recovery mechanisms 3

for cost items removed from volumetric rates and included in the IGFC; and 4

 Approve the Joint IOUs’ proposal for an IGFC Calibration Mechanism to allow for 5

timelier recovery of any large revenue imbalances. 6

The Joint IOUs request the Commission approve their Joint Cost Recovery Proposal as 7

reasonable and necessary to implement each of their proposals to establish an IGFC for 8

residential rates, to promote the state’s electrification policy and adoption of technologies that 9

use electricity and reduce or avoid greenhouse gases (GHG). 10

B. Cost Recovery and Rate Making Proposal 11

1. Cost Recovery Advice Letters Filings 12

The costs separately presented by each of the Joint IOUs in its respective utility-specific 13

testimony are estimates based on what is known at present and are not meant to represent each 14

individual IOUs’ forecasted budget or the amount requested for recovery in rates. Upon issuance 15

of a final decision in this proceeding, the Joint IOUs propose to separately submit Tier 1 advice 16

letters within 30-days to each establish a new two-way balancing account, the Income Graduated 17

Fixed Charge Balancing Account (IGFCBA). The Joint IOUs propose that the effective date for 18

this new balancing account be the effective date of the decision in order to allow for an 19

immediate commencement of the work needed to implement the new IGFC. All costs recorded 20

to the IGFCBA would be incremental and would not include costs requested in the IOUs’ 21

General Rate Cases (GRCs) or other Commission-approved funding. 22

Additionally, the Joint IOUs propose that each IOU submit a separate Tier 2 advice letter 23

after the final decision is issued to provide a budget and the associated revenue requirements 24

based on the elements for the fixed charge adopted in the final decision. All actual costs incurred 25

by each IOU from the effective date of the final decision would be included in that IOU’s 26

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respective budget submitted in its Tier 2 advice letter. The revenue requirements included in 1

these Tier 2 advice letters, once approved, would become the authorized revenue requirements 2

used in the IGFCBA, as further discussed below. All costs recorded to the IGFCBA would be 3

incremental and would not include costs requested in the respective IOUs’ General Rate Cases 4

(GRCs) or other Commission approved funding. 5

2. Income Graduated Fixed Charge Balancing Account (IGFCBA) 6

As described in the Joint IOUs’ testimony and in the separately submitted testimony by 7

each IOU, the IOUs have identified three main cost categories associated with the IGFC: (1) 8

income verification,

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(2) implementation, and (3) marketing, education, and outreach (ME&O). 9

The Joint IOUs propose that all costs incurred by the IOU, i.e., the actual incremental operations 10

and maintenance (O&M) expenses and the capital-related revenue requirements associated with 11

the actual incremental capital expenditures, be tracked and recorded in a new balancing account, 12

the Income Graduated Fixed Charge Balancing Account (IGFCBA). 13

The IGFCBA will be a two-way balancing account that will track and record on an 14

annual basis the difference between (1) actual O&M expenses incurred plus the capital-related 15

revenue requirement associated with actual capital expenditures, and (2) the total authorized 16

revenue requirement. To the extent the actual capital-related revenue requirements and O&M 17

expenses are greater than or lesser than the authorized revenue requirement, the Joint IOUs 18

respectfully request authorization to recover or return, without further reasonableness review, the 19

difference (i.e., the December 31 balance) on an annual basis. The Joint IOUs propose to return 20

or recover the December 31 balance in their respective IGFCBAs from all customers through the 21

following year’s PPP rates

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using the annual year-end rate change advice letter process adopted 22

125 Income verification costs recorded to the IGFCBA and recovered from customers would be those

costs not funded by the state of California‘s general fund as discussed below in Section B.4. of this

chapter.

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PG&E would transfer the December 31 balance in its IGFCBA to its Public Policy Charge Balancing

Account (PPCBA). SCE would transfer the December 31 balance in its IGFCBA to its Public

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in Resolution E-5127. The annual authorized revenue requirements would be recovered on a 1

forecast basis in PPP rates.

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The Joint IOUs propose to no longer utilize the IGFCBAs once 2

the ongoing revenue requirements associated with maintenance and operations can be forecast 3

and included as part of GRC base rates.

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This timing will likely vary by IOU given the 4

difference in the timing of each of the Joint IOU’s GRC Phase 1 four-year cycle. 5

The Joint IOUs believe that two-way balancing account treatment is appropriate to 6

recover the cost categories outlined above because these costs are incremental amounts necessary 7

to comply with Assembly Bill 205. Additionally, two-way balancing account treatment is 8

appropriate in situations where the program or activity is highly volatile, difficult to estimate, 9

outside the utility’s control, and/or material to customers and investors. Two-way balancing 10

account treatment in these circumstances would ensure that neither customers nor investors are 11

disadvantaged unduly by inherently unpredictable program costs. As previously described above 12

and in the separately supplemental testimony concurrently provided by each of the Joint IOUs as 13

separate links within the same Notice of Availability used to serve this Joint IOU Opening 14

Testimony, there is a high degree of uncertainty in the ultimate cost of establishing an income-15

graduated fixed charge for residential rates. Two-way balancing account treatment provides a 16

reasonable method for addressing this uncertainty. A two-way balancing account requires the 17

Joint IOUs to return to their respective customers any revenue collected that exceed actual costs, 18

while allowing for unforeseen costs to be recovered.

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Purpose Programs Adjustment Mechanism (PPPAM). SDG&E would include the balance within its

annual PPP advice letter.

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PG&E would record its forecast authorized revenue requirement in its PPCBA. SCE would record its

forecast authorized revenue requirement in its PPPAM. SDG&E would record its forecast authorized

revenue requirement in its IGFCBA.

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For PG&E, the ongoing recovery once in GRC base rates would be via the Distribution Revenue

Adjustment Mechanism (DRAM). For SCE, the ongoing recovery once in GRC base rates would be

via the Authorized Distribution Base Revenue Requirement (ADBRR). For SDG&E, the ongoing

recovery once in GRC base rates would be via the Electric Distribution Fixed Costs Account

(EDFCA).

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If the utility does not have the ability to recover unforeseen costs, that can result in deferred or

delayed work. To prevent this, the Commission has authorized two-way balancing accounts to ensure

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The Commission adopted a similar cost-recovery approach in the Gas Leak Abatement 1

proceeding (Rulemaking (R.) 15-01-008), when it authorized PG&E to create the two-way New 2

Environmental Regulations Balancing Account (NERBA)

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for incremental costs to implement 3

best practices to reduce methane emissions from gas systems. In doing so, the CPUC explained: 4

“The primary purpose of balancing accounts is to 5

ensure that a utility recovers its CPUC authorized revenue 6

requirement from ratepayers for a given program or functions, but 7

no more or less. [¶] Two-way balancing accounts authorize a utility 8

to collect more or less than the authorized revenue requirement for 9

an existing program depending on actual costs, and are intended to 10

ensure that the utility does not make or lose money to uncertainties 11

in the scope of work. [¶] The Commission typically reviews the 12

entries and the net balance in a balancing account and authorizes 13

recovery from or refunds to rate payers on an annual basis.”

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More recently in D.22-11-009, the Commission authorized PG&E to establish a two-way 15

balancing subaccount, the Third-Party DGEMS Contracts Subaccount, in the Microgrids 16

Balancing Account (MGBA)

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to record and recover costs related to Third-Party contracts for 17

multi-season Distributed Generation-Enabled Microgrid Services (DGEMS). Although the 18

Commission considered authorizing a one-way balancing account in which the amounts to be 19

spent and recovered from customers would be capped, it noted that “the costs incurred by PG&E 20

in any given year under a Third-Party Distributed Generation Enabled Microgrid Service 21

contract is likely to be different than the costs of it reasonably forecast at the time of the 22

proposing solution. Thus, the use of a one-way (capped) balancing account is suboptimal given 23

the variability.”

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As such, the Commission considered it “more reasonable”

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to authorize a 24

two-way balancing account while controlling costs through stakeholder review via the GRC or a 25

separate application. 26

that work is not deferred or delayed. See Section 8.1.1 of D.21-08-036, which directed SCE to

establish a two-way Underground Structures Replacement Balancing Account (USRBA) given lack

of clarity on the scope of the work and the desire for work not to be deferred.

130 See PG&E Gas Preliminary Statement Part DZ.

131 D.17-06-015, at p. 131.

132 See PG&E Electric Preliminary Statement Part IT.

133 D.22-11-009, at p. 47.

134 D.22-11-009, at p. 47.

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The Joint IOUs’ proposed approach to IGFC cost recovery, using a two-way balancing 1

account, allows the flexibility to “to ensure that the utility does not make or lose money due to 2

uncertainties in the scope of work.”

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Oversight would be achieved through the submittal of the 3

Tier 2 advice letters outlined above that would include a budget and revenue requirements based 4

on the adopted final decision. Therefore, it is reasonable and appropriate for the Commission to 5

authorize the establishment of two-way balancing accounts to recover the costs associated with 6

the IGFC for the reasons outlined above. 7

1. Recovery of the IGFCBA Via the PPP Rate Component 8

As discussed in the Policy and Rate Design Chapters above, the legislature intended 9

implementation of the IGFC to support California’s efforts against climate change and remove 10

the current disincentive to broad-scale customer adoption of beneficial electrification 11

technologies to reduce California’s GHG emissions. For these reasons, it is appropriate that the 12

costs needed to help support the movement to IGFCs are recovered from all customers because 13

all customers should experience the intended benefits of this change. The PPP charge funds 14

programs considered by law to benefit society. This includes costs to administer income 15

qualified programs such as the California Alternative Rates for Energy program (CARE) and 16

energy efficiency programs. Given the public purpose benefit associated with the integration of 17

IGFCs into residential rates, the related costs for this transition should be included in the PPP 18

rate, as the most appropriate rate component in which to recover costs associated with this shift. 19

2. Recovery of Income Verification Costs through State Funding 20

As discussed in the Policy Chapter, the Joint IOUs propose that the state of California’s 21

general fund be used as the primary funding source for costs related to income verification. As 22

discussed in the Income Verification Chapter of this Exhibit, recovery of all income verification 23

costs through rates could overly exacerbate the unaffordability of electric rates; thus, its inclusion 24

in rates could inappropriately disincentivize the beneficial electrification that caused the 25

135 D.17-06-015, at p. 131.

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legislature to pass AB 205. The Joint IOUs propose to collaborate with the CPUC to seek state 1

funding for these costs, lest the well-intended income verification for a first-ever progressive 2

fixed charge structure undermine the overall legislative intent. 3

If the costs associated with income verification are incurred by the IOU, but seeking state 4

funding for income verification is successful, the Joint IOUs propose that these costs be recorded 5

as debit entries in the IGFCBA with any offsetting state funding received recorded as credit 6

entries in the IGFCBA, which results in a net zero cost to ratepayers. If the IOUs do not incur 7

the costs associated with income verification (i.e., the costs are directly incurred by a Third-Party 8

and are not “charged back” to the IOU), no amounts (debits or credits) would need to be 9

recorded in the IGFCBA. Ultimately, if there are any income verification costs incurred by the 10

IOUs that are not offset with state funding, those costs would be recoverable from ratepayers via 11

the IGFCBA and the PPP rate as discussed in Sections B.2. and B.3 of this chapter. 12

C. Recovery of Authorized Costs via the IGFC 13

The new rate design associated with the IGFC, and lower volumetric rate will shift how 14

certain categories of authorized costs are recovered from a volumetric basis to a fixed charge. 15

The Commission will ultimately determine which costs will be included in IGFCs and moved out 16

of the volumetric rates. Shifting recovery from a volumetric basis to an IGFC basis should not 17

change the cost recovery authority for costs that are moved. For instance, GRC Phase 1 18

authorized distribution costs should still be entitled to rate recovery for differences between 19

forecast and actual sales or forecast and actual IGFC revenues. Other costs that are subject to 20

two-way balancing account recovery for the difference between authorized costs and actual costs 21

must continue to be recoverable on that basis, whether they are part of a fixed charge or 22

volumetric rate. 23

The Joint IOUs have not yet been able to determine what, if any of their respective tariffs 24

or preliminary statements, might need modification if costs authorized for recovery therein are 25

moved to a fixed charge, instead of volumetric rates. That evaluation will depend on what the 26

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Commission approves for inclusion in the fixed charge. Therefore, the Joint IOUs propose that, 1

after the CPUC’s final decision but before the fixed charge goes into effect, each IOU would 2

separately submit its own Tier 1 advice letter with proposed modifications to tariffs and/or 3

preliminary statements, if needed to maintain appropriate operation of cost recovery mechanisms 4

for cost items removed from volumetric rates and included in the fixed charge. 5

D. IGFC Calibration Mechanism 6

To enable ratesetting, the Joint IOUs will each need to forecast the number of residential 7

customer accounts that will fall into each IGFC income brackets. If there are deviations in what 8

the IOUs have forecasted compared to the income brackets that customers actually fall in when 9

billed, the potential exists for revenue imbalances that would have to be recovered in the 10

following year’s rates. It is most likely that this potential revenue imbalance would be an 11

undercollection, meaning that the forecasts overestimate the number of customers that would be 12

billed at the higher IGFC brackets because customers moving down in income level are more 13

likely to notify the utility given the potential economic hardship relative to customers who saw 14

increases in income. 15

Given the uncertainty around how accurate the income bracket assignment will be, 16

especially in the initial years after implementation, the Joint IOUs propose the authorization of 17

an IGFC Calibration Mechanism to allow for timelier recovery of any large revenue imbalance 18

undercollections as opposed to allowing the undercollections to grow throughout the year to an 19

amount that significantly impacts the following year’s rates. 20

The Joint IOUs’ proposed IGFC Calibration Mechanism would function as follows: 21

 Beginning each year in January, and every month thereafter throughout the remainder 22

of the calendar year, an IOU will track the amount of revenue that was forecast to be 23

recovered via the IGFC (this can be done either at an aggregate level or at each 24

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income bracket with the IGFC) and the amount that was actually recovered via the 1

IGFC.

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 If the revenue imbalance results in an undercollection that exceeds 10 percent of the 3

forecast revenue to be recovered from the IGFC on a cumulative monthly basis,

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an 4

IGFC Calibration threshold will have been exceeded.

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 Once an IGFC Calibration Mechanism has occurred, the IOU will have the option in 6

its next regularly scheduled rate change to do one of the following three activities: 7

o Option 1: Increase rates for the remainder of the calendar year

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to recover the 8

IGFC Calibration Mechanism Balance that exists as of one month preceding the 9

date of the rate change (i.e., a June 1 rate change would implement the under 10

collection that had accumulated from January through April, since May numbers 11

are not available until after June 1) AND adjust the IGFC income bracket 12

customer account forecast to mitigate the revenue imbalance from continuing to 13

accumulate on a going-forward basis; OR 14

136

This functionality will need to be built into the IOUs’ respective billing and revenue reporting

systems, the costs of which would record to the IGFCBA.

137

For example, if the IGFC was set to recover $200 million in both January and February and only

recovered $185 million and $180 million, respectively, the 10 percent IGFC Calibration Mechanism

Threshold would not have been reached. However, in March, if the IGFC was set to recover $200

million and only recovered $170 million, the 10 percent IGFC Calibration Mechanism would have

been reached because only $535 million of the $600 million forecasted would have been recovered

(and that difference (i.e., the $65 million) exceeds 10 percent of $600 million (i.e., $60 million)).

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There are no new cost recovery accounts needed to track the undercollection. Instead, the

undercollection will record to the IOUs’ existing revenue balancing accounts based on which costs

are ultimately included in the IGFC.

139

For example, if the IGFC Calibration Mechanism Balance was $300 million as of April 30 (and

assuming all of the costs included in the IGFC are distribution-related costs solely for the purposes of

this example), the IOU would increase its June 1 distribution-related revenue requirement by $300

million for the remainder of the calendar year to be recovered from all customers. Whatever balance

remained at the end of the calendar year would be included in the annual year-end ratesetting true-up

process as directed in Resolution E-5217. Assuming perfect ratemaking and all else being equal, this

would result in an undercollection of only $125 million at year-end instead of $300 million (and

significantly more given the undercollection would likely have continued into the remaining months

of the year).

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o Option 2: Only adjust the IGFC income bracket customer account forecast to 1

mitigate the revenue imbalance from continuing to accumulate on a going-2

forward basis (but do not change rates to recover the existing IGFC Calibration 3

Mechanism Balance);

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OR 4

o Option 3: Take no action. 5

 The Joint IOUs would use their Tier 1 or Tier 2 rate change advice letters (based on 6

the tier level presently used) to effectuate the IGFC Calibration Mechanism process, 7

including the rationale for selecting Option 1, 2 or 3. 8

 The Joint IOUs propose to have the IGFC Calibration Mechanism take effect in the 9

second year following the implementation of the IGFC to minimize rate volatility in 10

the first year of implementation (recognizing this could result in sizeable 11

undercollections that would be recovered in the second year after implementation). 12

Ideally, the IGFC Calibration Mechanism will ultimately prove to be unnecessary. 13

However, the Joint IOUs respectfully request that the Commission authorize the establishment of 14

this mechanism to protect against the potential for sizeable undercollections that would result in 15

upward pressure on rates for customers in the following year and cash flow and financing 16

impacts to the utility in the current year. 17

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This option would most likely be utilized in situations where an undercollection resulted from

deviations to the IGFC income level forecast, but the revenue balancing account overall was

overcollected or barely undercollected. This could occur, for example, during periods where an IOU

overcollects on the volumetric portion of the rate due to weather-related events like heat waves.