Utilities Launch Residential Rate Reform

By Published On: December 2, 2013

With rate restructuring legislation in place, utilities are busy proposing new residential electricity rate structures to the California Public Utilities Commission. Their proposals, pursuant to AB 327, provide relief for large residential users by eliminating the highest rate tier and shifting the incremental costs to smaller energy users. “Customers want fairer, simpler rates, and this proposal takes an important step in that direction,” said Tom Bottorff, Pacific Gas & Electric senior vice president for regulatory affairs. The utility was joined by Southern California Edison and San Diego Gas & Electric, which made similar proposals last week. PG&E’s Nov. 22 rate reform proposal would eliminate its top rate tier and restructure its rates to lower the average cost of power for consumers in the top two of its four separate tiers by 5 cents/kWh. At the same time, average rates for small residential customers would go up 1.2 percent to cover the costs of providing service no longer paid for by the large residential users. Like PG&E, the other two electric utilities would eliminate their top tiers to trim power bills for big residential users and recover costs no longer covered by them by raising the rates on small users. Under Edison’s proposal, for instance, tier 4 customers would receive a reduction on their marginal energy use from 30.8 to 26.8 cents/kWh. Small users who do not exceed the tier one usage threshold would see their charge rise from 12.8 to 15.8 cents/kWh. All users also would pay a 91 cent fixed fee for service. Low-income customers would enjoy discounts on these rates. The proposal is designed to address what Edison attorney Bruce Reed wrote is an “enormous disparity between rates paid for usage in tiers 1 and 2 and rates paid for usage in tiers 3 and above.” The disparity has grown since the Legislature following the state’s 2000-01 energy crisis effectively capped the amount that utilities could charge tier 1 and 2 customers who use less energy. The result, according to Reed, is that “customers whose usage remained primarily in tiers 1 and 2 have actually enjoyed declining real rates over the last 10 years, while higher-usage customers have endured significant rate increases.” Overall, he explained, large residential users now pay the utility $600 million/year more than it costs to provide electricity service, an effective subsidy for tier 1 and 2 users. It’s much the same at all the state’s investor-owned power utilities. The utility filings come as the commission issued a proposed ruling the same day turning down an earlier request by SDG&E for similar residential rate changes. San Diego made a filing in a separate proceeding, and before lawmakers passed AB 327 in October (Current, Oct. 10, 2013). The proposed ruling by administrative law judge Amy Yip-Kikugawa advocates taking up the changes in the commission’s new rate proceeding through which it plans to implement the law. Legislators passed the bill to address growing dissatisfaction with the state’s power rate structure. There are cross-subsidies between geographical areas in the current structure. Rates have risen faster for residents of hot inland areas that use more air conditioning, while remaining relatively flat for households along the cooler coast. The bill gives the commission the authority to flatten the rate structure and impose surcharges on consumers in order to spread out the fixed costs of providing power service. It protects low-income customers against significant rate increases, which won support for the bill from ratepayer advocacy groups like The Utility Reform Network. The commission plans to finish residential power rate restructuring under AB 327 by next spring.

Share this story

Not a member yet?

Subscribe Now