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Reading between the lines of California’s Utility Tier Realignment

 

Over the last several weeks, California’s investor owned utilities (IOUs) have pitched the CPUC (California Public Utility Commission) on a utility tier realignment plan.

Essentially, Southern California Edison (SCE), Pacific Gas & Electric (PG&E), and San Diego Gas & Electric (SDGE) are proposing the following:

  • The number of utility tiers will drop gradually from four to two by 2019
  • Electricity use in the higher utility tier will only be 20% higher than the lower tier
  • A $10 per month minimum bill for all rate payers (except CARE who will pay $5)

The result, they claim, is a more equitable tier structure where high electricity consumers no longer subsidize lower use consumers. Let’s look at some examples of how these changes may be applied if the proposal is approved.

Here is SCE’s proposed rate consolidation from 2015 – 2018:

SCE Utility Tier Changes

Proposed SCE Tariff Changes

 

Of the three IOUs, SDGE’s proposal contains the highest 2018 utility tiers for its customers:

SDGE Utility Tier Changes

Proposed SDGE Tariff Changes

 

PGE’s rate tier restructuring appears to be the lowest cost for its rate payers:

 

PGE Utility Tier Changes

PGE Proposed Rate Changes

In all cases, take a close look at the baseline tier. The first thing one notices is that in all cases the baseline rate increases at least 50% (66% for SDGE) over today’s baseline rates even as the top tiers collapse into a single lower cost tier. Tier 2 also increase significantly in every case (40-60%).

Since the average cost of electricity for those who purchase their solar systems is $0.08 – $0.12 per kilowatt hour over the 25 year estimated useful life of the solar panels, solar energy just got a whole lot more attractive for those using less energy. In fact, those ‘low’ $100-$150 monthly electric bills could increase to as much as $150-$225 or more per month. By 2018, solar energy will cost the average consumer 50% to 66% less than the cheapest utility ‘baseline’ rate!

Also note that if you buy a solar system in 2015, you’re likely to recoup most of your investment before the majority of the rate changes take place (especially if you can take advantage of the Federal Solar Tax Credit) and you’ll be grandfathered into today’s net-metering structure (expected to change in CA in 2017). Best, your savings continue to compound even after the tiers collapse because you’re buying electricity from yourself at a massive discount over Tier 1 (baseline) rates of 2018 and beyond.

Other important items in the April 21, 2015 Public Utilities Filing that are worth mentioning are:

  • Time of Use Rates (rates change from winter to summer and day to night)
  • Demand Charges (surcharges on power surges caused by using a lot of electricity at once)

Time of Use (TOU) essentially turns the new ‘2 tier’ structure into 4 (Winter/Summer – Day/Night) as illustrated below:

Time of Use Utility Tiers

Time of Use Rates Example

 

Commercial customers today are subject to both time of use and ‘demand’. Demand charges are an additional cost that is based on how much electricity you use at once. For example, when you come home from work on a hot summer evening you may:

  • Turn on your air conditioner to cool your home
  • Cook dinner
  • Use lights
  • Watch television or use other electronics
  • Run your dishwasher, microwave, or use other major appliances
  • Plug in your electric car(s), phone(s), tablet(s), or laptop(s)
  • Continue to consume baseline power (refrigerators, chargers, DVRs, vampire load, etc)

If you turn all of these items on at once during a single 15 minute period, you may experience a demand charge. Currently, SDGE is the only utility proposing demand charges for residential customers, but if accepted by the PUC, other utilities may follow suit. According to the rate proposal, you may be subject to additional charges above and beyond kilowatt hour charges as follows:

Residential Demand Charges

Proposed Residential Demand Charges

All of the information presented in this blog was derived from the 336 page PUC filing which can be referenced here: http://docs.cpuc.ca.gov/PublishedDocs/Efile/G000/M151/K305/151305677.PDF

It’s a lot of reading, but it’s worth looking through if you’d like to better understand how the future of electricity rates will affect you and your family. One question you may want to ask yourself while you’re perusing this lengthy document is: would the utilities (IOUs) support this proposal if they stood to make their shareholders less money?

The Desert Sun wrote an excellent primer on the topic. You can find it here:

http://www.desertsun.com/story/tech/science/energy/2015/04/30/southern-california-edison-energy-rates/26670409/

Unfortunately, these proposed changes have caused many residential customers to put their solar panel systems on hold since the IOUs have represented that the proposed consolidation of today’s tier structure will save consumers money. I would encourage you to read the proposal and decide for yourself whether or not this is true for you.

A few things are certain, if you own your solar panels, your effective kilowatt hour rate WILL BE HALF THE BASELINE RATE OR MORE by 2018 and if you install solar panels now, your solar system will likely pay for itself by the time these new rates take effect. Lastly, leveraging TOU (time of use) rates by selling high and buying low will keep the ROI on your solar investment attractive and may help you to avoid dreaded ‘demand’ charges during peak summer times.

We can all agree that these proposed changes introduce tremendous confusion into the marketplace, but we can also agree that being your own utility will always be significantly cheaper than paying a middleman/monopoly to provide that service to you. It also means that 336 page PUC filings such as this will have little if any impact on you or your wallet. So what if solar customers have to pay $10/month to connect with the grid. I actually think that’s pretty fair considering what you get in return (power at night and on rainy days), but if you have an issue with this new proposed charge, buy an advanced battery storage system from Tesla, Outback or Juicebox and live off grid. More on that later…