California’s Climate “Credit” for Dummies

14 Apr 2020

Editor’s Note: This is the third of a new Current series explaining the fundamentals of energy terms. With it, we hope to pull back the curtain on terms of art used in California utility regulation.

Updated April 16

Residential ratepayers of California’s two largest utilities are set to receive roughly $36 of climate “credit” on their power bills early under action taken by utility regulators.

Normally, they would not see that money until October, since the so-called climate dividend is credited to utility customer accounts in April and October of each year.

However, the California Public Utilities Commission voted this week on advancing to Pacific Gas & Electric and Southern California Edison electric ratepayers upcoming cap-and-trade revenues. San Diego Gas & Electric is to continue applying the credit in the summer when utility bills are highest because of hot temperatures. 

The amount returned to ratepayers is calculated in each of the utility’s Energy Resource Recovery Account Recovery. Using the 2020 forecasts, households in PG&E territory will see $17.86 subtracted from both their May and June bills, and for SCE households $18.50 each of those months.

As welcome as it is to receive the money early because of the severe economic downturn, it shouldn’t be seen as a credit given surging unemployment and the stay-at-home order, which is increasing residential energy usage.

This money, which lowers our electric bills twice a year and gas bills once, is more like a refund or deposit of money ratepayers already pay to cover carbon control costs.

In the olden days, a deposit was included in the price of soda and returned when you brought the empty bottle to the store. The climate money is similar in that you get the money back that you spent on products that create carbon emissions, such as fossil fueled power. But unlike a bottle deposit, which is based on the amount consumed, everyone gets same climate deposit regardless of how much energy they use.

The climate monies that the private utilities subtract from our electric and gas bills are generated by the state’s carbon cap-and-trade auction revenues.

Under the California Air Resources Board’s trading program, investor-owned utilities are given carbon allowances for free. They turn around and sell them in CARB’s quarterly auctions to power plants, natural gas producers and other industrial sectors that produce high volumes of greenhouse gases. These companies are required to buy carbon permits or allowances to reduce their emissions to help the state reach its climate protection target. Their costs for the requisite allowances are passed on to consumers.

Thus, back in 2014, the CPUC, which created the climate refund/credit for the private utilities, stated that “ratepayers should not confuse the return of greenhouse gas allowance revenues” via the climate credit, “as a credit from the investor owned utilities.”

Each electric utility calculates the amount of money to be returned to ratepayers and to fund clean energy and energy efficiency programs. They also subtract out their administrative and outreach costs.

This year, for example, SCE’s auction revenue is $459 million, with $93 million of that amount spent on clean energy programs. It’s allocated $253,000 for administering the climate refund, according to its spokesperson.

As of this last March, cap-and-trade revenue had generated $7.103 billion for the private electric and gas utilities since 2013, according to the Air Board. The program also generated $1.09 billion for public utilities, which are not regulated by the CPUC.

Source: CPUC

The private utilities have distributed more than $6 billion of the $7 billion in revenue to households, protected industries and small businesses, according to the CPUC. Of that amount, residences have received $5.3 billion in reduced electric and natural gas utility bills since 2014.

That breaks down to a total $334 for PG&E residential electric ratepayers, including those served by community choice aggregators in the utility’s territory, $414 for Southern California Edison ratepayers, and $356 for San Diego Gas & Electric households. On the gas side, refunds since 2014 add up to $82 for PG&E customers, and $55 and $73 for SCE and SDG&E customers, respectively.

–Elizabeth McCarthy

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