A controversial proposal to raise electricity rates for most Californians would “give a really big break” to the state’s wealthiest communities, top utilities regulator Mike Florio said.
Southern California Edison and other utility companies are pushing major changes that would raise prices for those who use the least and lower prices for those who use the most. Critics have slammed the proposal, saying it would harm low-income households and reduce the incentive for high-income households to invest in solar and energy efficiency.
Edison, Pacific Gas & Electric and San Diego Gas & Electric have defended their proposal, arguing that current rates unfairly penalize high-usage customers. Their planhas the backing of Michael Picker, president of the California Public Utilities Commission.
Florio, who also serves on the five-member commission, sees things differently.
Under Florio’s alternate proposal, electricity rates would still rise for low-usage customers and drop for high-usage customers. But neither change would be as dramatic as utility companies have proposed.
“I see it as only a very minor difference from that which we have today,” said Russ Garwacki, Edison’s director of pricing design and research.
The Desert Sun discussed the potential changes this week with Florio and Garwacki. Here’s a breakdown of what they had to say about four of the most important issues being debated: fairness, fixed charges, time-varying rates and impacts on conservation and solar.
Edison’s residential customers currently pay for electricity in four tiers, with rates rising as energy users cross the threshold into each tier. The first block of energy doesn’t cost very much, per unit of energy; the second block is more expensive. The third block costs even more, and the fourth block costs the most.
The difference between the first and fourth tiers is stark. Under Edison’s current rates, energy use in the fourth tier costs more than twice as much as energy use in the first tier.
Utility officials say that difference is fundamentally unfair.
High-usage customers, they argue, are paying more than their fair share to maintain the electric grid, while low-usage customers are paying less than their fair share. Edison estimates that its high-usage customers are “subsidizing” its low-usage customers by more than $600 million per year.
Under commission president Picker’s proposal, the number of tiers would eventually be reduced from four to two, with a price difference of just 20 percent between the two tiers.
“When we start talking about rate fairness, I think that’s something that’s universally acknowledged as a good thing — customers should pay their fair share,” Garwacki said. “They shouldn’t pay subsidies.”
California’s current rates are a product of the 2001 energy crisis, which saw rolling blackouts cripple the state and the utility industry teeter on the brink of collapse. To keep Edison and other utility companies afloat, state officials approved huge rate increases — in such a way that high-usage customers would permanently bear the brunt of any new costs going forward.
Today, that crisis-driven rate structure is outdated, Garwacki said. Over the past 15 years, he said, high-usage customers have paid more than their fair share for grid maintenance, clean energy, and other changes that have nothing to do with the energy crisis.
“Once somebody gets a subsidy, most people don’t want to give it up,” Garwacki said. “That’s why some people will say the bill impacts are unfair as a result of this proposed decision.”
Florio agrees there’s too big a gap between what high-usage customers and low-usage customers pay. He just thinks Edison’s plan is much too extreme.
Picker’s proposal would raise rates for 85 to 90 percent of Californians, often by as much as $15 to $20 per month, Florio said. That plan wouldn’t increase the utilities’ revenue because some customers would save money. But almost all of the savings, Florio said, would go to the highest-usage customers — who also tend to be the wealthiest.
“The current rates do need to change, but this is a very dramatic shift,” Florio said. “It’s really going have a negative impact on a lot of people.”
Under Florio’s proposal, the number of tiers would drop from four to three. Electricity use in the third tier would ultimately cost about 77 percent more than electricity use in the first tier.
“We should protect small users, who tend to be lower-income,” Florio said.
“It’s no secret that as households have more occupants, that drives a lot of the electricity that they use,” Garwacki said. “It’s a bit of a misnomer to think that just because a customer is high-usage that that necessarily means they’re high-income.”
Asked to respond to that argument, Florio pointed to a well-established link between income and energy use.
“I’ve looked at where those largest users live, and it’s the rich communities around the state. It’s not the middle class, as the utilities have tried to spin it,” he said.
Conservation and solar
Critics charge that the utilities’ plan would discourage conservation, energy efficiency and rooftop solar. That’s because it would make electricity less expensive for those who use the most — in other words, critics say, the people who can most afford to invest in efficiency and solar.
Rooftop solar systems could take two to four years longer to pay for themselves under Picker’s proposed changes, according to the California Solar Energy Industries Association. Similarly, investments in energy efficiency would take longer to pay off for some customers.
Edison officials say their proposal would have little to no impact on energy efficiency and solar.
Even under Picker’s proposal, Garwacki said, California would still have some of the highest electricity rates in the nation. Rooftop solar prices, he noted, continue to drop, and Edison will still offer incentives to buy energy-efficient air conditioners, refrigerators and other appliances.
While the changes might result in slightly less incentive for high-usage customers to conserve, they would also increase the incentive for low-income customers to use less energy, Garwacki said.
“It’s important that all customers receive a fair price signal, so they can make a fair and correct energy-efficiency investment,” he said. “You have low-income customers who have no incentive to conserve.”
It’s important to balance the need for conservation and solar with fairness for high-usage customers, Florio said. But he believes the utilities’ proposal strikes the wrong balance.
“Based on my experience, it just seemed like three tiers, each a third higher than the other, was a kind of place that was a good compromise,” Florio said. “There’s no science to that. It’s a judgment call.”
Ratepayer advocates have also criticized the utilities’ proposal to add a fixed monthly charge of $10, or $5 for low-income customers enrolled in the California Alternate Rates for Energy program.
The fixed charges, they’ve argued, would essentially be a regressive tax, hitting low-usage customers the hardest. Solar advocates, meanwhile, see the fixed charges as a thinly veiled attempt by Edison and other utilities to bring in some money from solar customers.
“If you can get people to pay you just to be your customer, that’s a pretty good deal,” Florio said. “Any business I know would love to have that.”
Utilities officials have dismissed that argument. Solar customers, they say, benefit from being connected to the grid, even though they don’t pay much for its upkeep. Hence the need for fixed charges.
“It’s important that customers who choose to install solar do so knowing what the true costs and benefits are,” Garwacki said.
Edison has estimated actual fixed costs at about $30 per month, but it’s only proposed to charge $10. All other customer classes, Garwacki noted — including businesses — pay some kind of fixed charge.
“It’s very strange that we would single out residential customers, and say that it doesn’t make sense for this group of customers,” he said.
Commission president Picker has proposed phasing in the $10 fixed charge over the next few years. Edison officials have criticized that plan, saying the charges should take effect immediately.
Florio’s proposal would reject fixed charges, instead implementing a $10 minimum bill for most customers, or $5 for California Alternate Rates for Energy customers. The fact that utilities have criticized his proposal, he said, is a sign that their intentions aren’t pure.
“If all they wanted was to collect some money from people who have no or very low usage, a minimum bill would satisfy them,” Florio said. “That’s why I think it’s pretty clear there are other motivations at work.”
Rate tiers and fixed charges are one conversation. “Time-of-use” rates are another conversation entirely.
The idea behind time-varying electricity rates is simple: The cost of electricity changes depending on the time of day and time of year, so we should pay more — or less — depending on when we use energy.
If there’s one thing Florio and Picker agree on, it’s that residential customers shouldautomatically be enrolled in time-of-use electricity rates starting in 2019. Consumers would have the option of switching back to the tiered rate structure, but experts say that most people would stick with the default rates.
Proponents say time-varying rates would help reduce our dependence on climate-altering fossil fuels. That’s because when demand is highest, Edison and other utilities are forced to buy expensive electricity from “peaker” power plants that wouldn’t otherwise be needed. Those plants are generally inefficient, spewing more air pollutants and planet-warming greenhouse gases than most energy sources.
By charging more for electricity when demand has traditionally been highest, utilities could reduce “peak demand,” limiting the need for peaker plants, proponents say.
Time-varying rates would also give consumers “another way to save,” Florio said, allowing them to reduce their bills by moving energy-intensive activities from peak times to non-peak times.
“You can’t expect people to move everything, but there are things that people can do to save money,” he said. “If you just go ahead and build another plant to meet that peak demand, everybody’s got to pay for it.”
The Utility Reform Network, a ratepayer advocacy group, is worried default time-of-use rates would have unintended consequences. For instance, the group has argued, the new rates could make electricity much more expensive during the summer, hitting desert residents hard during air conditioning season.
Florio said he’s concerned about impacts on desert residents, which is why his proposal doesn’t implement default time-of-use rates for several years.
“I expect we’re going to be doing a lot of analysis between now and 2019,” he said. “If we see that there are going to be adverse impacts, we’ll need to deal with that.”
Southern California Edison officials are somewhat ambivalent about default time-of-use rates.
While the company supports prodding residential customers toward time-varying rates, the transition should be gradual, Garwacki said. Edison doesn’t think customers should be automatically enrolled in the new rates, although that seems like a foregone conclusion now.
What happens next?
It’s unclear how soon the public utilities commission will choose between the dueling electricity rate proposals. The five-member panel could vote as soon as its June 25 meeting in San Francisco.
While Picker’s position is clear, Florio said he doesn’t know how the other three commissioners — Carla Peterman, Liane Randolph and Catherine Sandoval — will vote. It’s possible, he said, that he or Picker will modify their proposals to win support.
“It takes three votes. I’ve said how I would do it if I were king, but I’m not,” Florio said. “I think there will be other options floated, and it’ll take some time to sort this out.”
Sammy Roth writes about energy and water for The Desert Sun. He can be reached at firstname.lastname@example.org, (760) 778-4622 and @Sammy_Roth.
Have an opinion?
Members of the public can tell the California Public Utilities Commission what they think of proposed rate changes by emailing the commission’s public advisor, Karen Miller, at email@example.com. They can also send mail to: CPUC Public Advisor, 505 Van Ness Ave., Room 2103, San Francisco, CA 94102.
Source: California Public Utilities Commission
By the numbers
Right now, Southern California Edison customers pay for electricity in four tiers. Here are the rates:
•Tier 1: 14.9 cents per kilowatt-hour
•Tier 2: 19.3 cents per kWh (30 percent higher than Tier 1)
•Tier 3: 27.9 cents per kWh (87 percent higher than Tier 1)
•Tier 4: 31.9 cents per kWh (114 percent higher than Tier 1)
Michael Picker, president of the California Public Utilities Commission, has proposed collapsing the number of tiers from four to two. Under his plan, electricity use in Tier 2 would cost 20 percent more than electricity use in Tier 1, although actual rates have yet to be determined.
Mike Florio, another member of the public utilities commission, has proposed a three-tiered rate structure. Under his plan, electricity use in Tier 2 would cost 33 percent more than electricity use in Tier 1, and electricity use in Tier 3 would cost 77 percent more than electricity use in Tier 1.
Source: Desert Sun reporting