PUC to gather in Fresno for forum on new electric rate system

Representatives of the California Public Utilities Commission will visit Fresno next week for a public forum to discuss a pair of new electric rate systems intended to simplify power bills across the state.

The rate design forum begins at 6 p.m. Tuesday at Fresno City Hall, 2600 Fresno St.

Utilities commissioners approved a new residential rate system earlier this summer that is supposed to more accurately reflect the actual costs of electricity. Key provisions include making time-of-use rates – in which customers are charged more for using electricity during peak demand times and less for the power they use in off-peak periods – the default billing system for households starting in 2019.

“We expect that the time-of-use rates approved by this decision will reduce overall electricity costs for all customers in the long term,” the PUC stated in its July 3 decision. The commission’s assertion presumes that customers will be more likely to conserve electricity during late afternoons and early evenings, when electricity costs more. Details of how time-of-use rates will work, however, have yet to be worked out by the state’s big utility companies.

For customers who prefer to remain on the more familiar tiered rate system, the PUC’s action also sets the stage for reducing the number of rate tiers from four to two by 2017 and requires a new surcharge starting in 2017 for customers who use more than 400 percent of their baseline electricity allowance each month.

Under the current system of four rate tiers, each customer gets a daily baseline allowance of electricity charged at a given rate for each kilowatt-hour (kWh) of power used. In the Fresno area, the summer baseline allowance for Pacific Gas & Electric Co. customers is 15.6 kWh per day. Allowances are lower in the winter, when homes are not using air conditioning. As a family’s electricity use increases and it crosses that threshold into a higher rate tier, the price rises for each additional kilowatt-hour. Cutting the number of rate tiers in half will, however, affect different households in different ways.

In PG&E’s service territory, “customers who do not regularly go above Tier 2 in usage will see a bill $2 to $6 higher by 2019,” according to information provided by the PUC. “Customers in higher rate tiers will see more dramatic decreases of $4 to $25 in their bills” because there are fewer of those higher-use households.

CPUC President Michael Picker, who will be in Fresno for the forum, said that because rates for the lowest two tiers had been frozen by law since 2001, rate increases since that time “imposed ever greater inequities on large-family households that were pushed into higher tiers in hot climate zones.” The July decision, he added, “helps align rates with the actual cost of service.”

Using PG&E’s current residential rates as an example, electricity use of less than the 15.6 kWh daily threshold is billed at a rate of 16.7 cents per kWh. For households using more, their Tier 2 electricity (from 15.6 kWh to 20.3 kWh) is billed at 19.8 cents per kWh. Tier 3 power (20.3 kWh to 31.2 kWh) is charged at a rate of 25.2 cents per kWh. And at the highest tier, Tier 4, households are charged 32 cents for any electricity they use over 31.2 kWh in a day – about double the cost of power in the Tier 1 baseline allowance.

Just what is a kilowatt-hour of electricity? It refers to the equivalent of a device using 1,000 watts of electricity over a one-hour period. A 100-watt light bulb lit continuously for 10 hours would use one kWh of power. A 40-watt bulb would have to burn for 25 hours to consume one kWh. More electricity-intensive devices, from electric ranges to central air conditioning, use considerably more power – taking as little as 15 to 20 minutes to consume one kilowatt-hour of electricity, depending on the unit’s energy efficiency.

PG&E’s daily summer baseline allowance in the Fresno area adds up to about 468 kWh per month; the U.S. Department of Energy estimates that an average home uses about 1,000 kWh of electricity in a month.

In an effort to prevent sticker shock for customers, the PUC approved a “glidepath” for PG&E to reduce the number of tiers, smoothing out the rate transition over the next few years by dropping to three tiers in 2016 and two tiers in 2017. In the unlikely event PG&E’s rates don’t go up in the next few years, each kilowatt-hour over the baseline allowance would cost 1.36 times as much as the baseline rate in 2017, or about 22.7 cents under current rates.

But 2017 also marks the start of the PUC’s “super user” surcharge for households that use more than 400 percent of their baseline allowance. Based on PG&E’s current rates, those surcharges would start at about 31.6 cents per kWh in 2017 (about 1.9 times the baseline rate) and climb to more than 2.1 times the baseline rate (about 35.6 cents per kWh) in 2019. The PUC estimates that the surcharge will apply to 2 percent to 10 percent of California’s residential power customers.

And while the PUC’s July decision is intended to push most California households into time-of-use billing rather than rate tiers, it’s up to the state’s big public power utilities – PG&E, Southern California Edison and San Diego Gas & Electric – to come up with proposed rates and structures for such a system, making the effects on customer bills much less certain. The PUC decision allows customers to opt out of time-of-use and remain in the two-tier rate system if they want to.

The advantage of time-of-use rates is that they “reflect predictable daily changes in the cost of electricity service and enable customers to reduce usage during peak hours when electricity prices are higher,” according to information from the PUC.

“Our decision helps align rates with the actual cost of service,” Picker said after the commission’s July vote. “It also helps build a more nimble rate structure to allow us to add more and more renewables to the grid and to encourage customers to use energy when we have excess renewables and to cut back during peak periods.”

The new two-tier rate system, however, has its critics. TURN, The Utility Reform Network, called the structure a “scheme … that will give energy hogs a break at the expense of customers who conserve.” The San Francisco-based advocacy group opposed leaving the door open for utilities to add fixed charges of $10 per household in the future.

“Consumer advocates and environmentalists had opposed utility proposals to eliminate conservation rewards and add fixed charges to customers’ bills, regardless of how much they use or whether or not they’ve installed solar panels,” the organization said in a statement released after the July vote.

The Sierra Club also weighed in to blast parts of the decision. “This will be a big change from today’s four-tiered rates, where the top tier costs twice as much as the first, and prices are kept low for people who use little electricity,” wrote Evan Gillespie, director of the Sierra Club’s “My Generation” campaign for cleaner energy sources.

“The Sierra Club opposed this virtually flat, two-tiered pricing structure because we believe it will discourage conservation among very high electricity users – those customers more likely to waste energy and most able to cut back.”

This story was originally published September 19, 2015 at 6:00 AM with the headline "PUC to gather in Fresno for forum on new electric rate system."