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How Californians Pay For Electricity Is Going To Change, But Will It Be Better Or Worse?

By: Sheryl Carter |

The agency that oversees California’s largest electric utilities will soon decide how much control Californians will maintain over their electricity bills and the California Public Utilities Commission (CPUC) could either reinforce, or weaken, customer incentives for investing in energy efficiency and rooftop solar power generation through the rate design they choose.

Until now, the only choice offered to the commissioners regulating the three investor-owned utilities serving over two-thirds of California’s electricity demand – Pacific Gas and Electric Company (PG&E), Southern California Edison (SCE), and San Diego Gas and Electric Company (SDG&E) was a proposed decision that would have unacceptable consequences for equity, smarter energy use, and clean energy in a state that prides itself on environmental leadership.

Fortunately, CPUC Commissioner Mike Florio just offered an alternative decision that would redesign our electric bills to reinforce California’s efforts to strengthen its ambitious climate and clean energy goals, improve its economic and public health, and help customer’s pocketbooks. This gives the commissioners a clear and easy choice to make on June 25. In contrast to the original proposed decision, Commissioner Florio’s alternative would:

Reject a new fixed charge on your bill – one that you could not avoid no matter how much electricity you saved — and instead adopt a minimum bill to ensure everyone pays something for their use of the system every month, but not harm low income customers or discourage energy efficiency;
Simplify and substantially reduce the highest rates to allow for lower bills for all customers with below-average usage and provide higher average conservation incentives than would result from the original proposed decision while still significantly reducing today’s highest-use rates; and
Transition most customers to a time-of-use rate by 2019 after an extensive pilot and study period to ensure the best design, protection of the most vulnerable customers (low income and medical needs customers), and effective outreach and education.

The more you use, the more you pay – the more you reduce, the more you save

It’s simple. Currently, virtually all of a utility’s costs to provide you with electricity are collected through a per kilowatt-hour charge on your electricity bill. The original proposed decision based on a recommendation from the utilities would institute a fixed monthly customer charge of $10 – no matter how much you use, reducing the amount you could save on your bill from investing in energy efficiency or rooftop solar. The alternative offered by Florio contends a monthly fixed charge is unreasonable because it reduces the incentive to conserve and customers overwhelmingly oppose it, but a minimum bill is reasonable because there is a cost to maintain access to service even if a customer doesn’t use any energy that month.

A minimum bill guarantees that the utility receives at least some payment from every customer – even if their use is zero. But the threshold is so low that nearly everyone uses more electricity than the $10 minimum bill level – except for some unoccupied houses and some rooftop solar customers who produce as much electricity as they consume (but would still want the grid to provide power when they can’t produce it and to receive the excess power they consume).

For most customers, however, their usage will pass $10, and then the minimum bill basically disappears and they are charged on their per kilowatt-hour use – and continue to save at that rate as well.

Balances rate design changes by simplifying and meaningfully reducing the highest rates

Under the current tiered rates, customers are charged a lower price per kilowatt-hour for initial consumption and a higher price as usage increases. The difference between the low and high prices did get quite large in the last decade. However, the proposed decision over-corrected, virtually erasing any difference in price for low and high usage and thus a lot of the conservation incentive. Commissioner Florio’s alternative would trim high-tier rates much more moderately, thus shifting a smaller share of costs to low users while still substantially reducing the rates of the highest users.

In explaining his preference for changes that would provide a platform for a clean and equitable transition for the electric industry, Commissioner Florio said:

“I’m concerned the tier flattening of the Proposed Decision shifts too many costs from high usage to low usage customers. Low usage customers typically have fewer means of conserving; their consumption is already limited to basic needs. The challenge of this shift is compounded if you add on an unavoidable fixed charge and acknowledge the strong correlation between usage and income. In contrast, my Alternate Proposed Decision preserves a measure of our historical allocation of costs to high usage customers who, if they wish to reduce their bills, can conserve, go solar, or invest in efficiency. I’m further convinced this is better for customers and the state, as conserving, using solar, and investing in efficiency are the bedrock our clean energy future.”

NRDC strongly concurs.

When you use electricity is as important as how much you use

Time-of-use (TOU) rates are higher at certain times of the day when electricity demand is higher. These rates, combined with strong demand-response programs (altering electricity use in exchange for compensation) and targeted energy efficiency efforts, would provide the utilities with an important tool to balance our increasingly dynamic electricity system and integrate much higher levels of renewables into the generation mix. Both proposed decisions would transition to TOU rates with a collaborative, phased-in approach while protecting vulnerable groups. However, Florio’s plan would also include a credit to reduce the cost to low usage customers and account for climate zone differences (higher credit for hotter zones).

The clear choice

NRDC has been fighting for a rate design that, together with California’s energy policy and programs, would encourage the cleanest, most energy efficient, and affordable system possible. We believe that Commissioner Florio’s alternative meets these objectives while balancing the other needs of the system and we will be encouraging the commissioners to vote for adoption.