That was the headline from the cleantech blog I opened May 27, 2011 as I surveyed my email inbox, sipped my first cup of coffee and tried to wake up. There were other stories about the decision by the California Public Utilities Commission to approve a revised rate design for electricity rates, but this ‘Victory for Solar Friendly PG&E Rates’ symbolized this morning the inherent conflicts in utility rate design—it is almost always a zero-sum game.
“The California Public Utilities Commission voted down proposals by PG&E that would have been a big step backward for solar customers. The two major victories were 1) the CPUC opted to maintain its 4 tier rate structure, wherein high usage customers are given a strong price signal to conserve electricity or invest in solar to offset the cost of high usage, and 2) PG&E will not be allowed to implement a fixed customer charge,” the blog story from Vote Solar read.
On the warm side of the hills where a growing share of PG&E’s customers live and try to make a living sufficient to feed their family and afford their rising utility bill, the reaction was very different.
The CPUC action in this rate design case split the differences between the parties. It did allow PG&E to reduce the rate tiers but did not permit the increase in the customer service charge. This PG&E rate re-design proposal came about because of outrage in Bakersfield over high utility bills as PG&E was installing smart meters. This outrage has come to be known as the Bakersfield Effect because it brought customers out into the street ‘totally ticked off’ blaming their smart meter for the high bill caused by the socially engineered rate design.
PG&E’s spokesman Tom Bottorff said after the CPUC decision that PG&E customers who use large amounts of electricity will pay 17.6 percent less than they do now under the new rate design approved but will still pay nearly three times as much as the Tier 1 customers.
For years Tier 1 rates have been called “lifeline rates” designed to provide low cost rates to the first block of energy use to benefit poor, seniors and others in need. But apartment dwellers in San Francisco and homes in the foggy Bay Area use less electricity and thus benefits from the tiered rate structure because they don’t use their air conditioners in summer. On the warm side of the hills or in the central valley portion of PG&E’s service territory it is a different story. There the steeply progressive nature of PG&E’s residential rate structure hits hard whether you are low income or not. PG&E had proposed to reduce the tiers even more than the CPUC approved and more evenly distribute the cost of service by moving a portion of the revenue requirement to a larger customer service charge paid by all residential customers—about $3.00 per month which would have affected the folks in the fog.
The next paragraph in the Vote Solar cleantech blog post revealed the truth about the rate design contest that the CPUC had just resolved:
“Why does this matter? Because rate design, or the process of setting electricity prices, is one of the most important factors in the financial decision for energy customers to go solar. Since much of a solar energy system’s value comes from the utility payments it is offsetting, electricity rates have a significant impact on a solar customer’s return on investment.”
“In the PG&E rate case, the utility had proposed eliminating its 4th residential tier – effectively moving its highest consumption customers into a lower tier and raising rates for others. This closely follows PG&E’s decision to eliminate Tier 5, which recently penalized existing PV owners and makes the changing price dynamics for solar even more extreme – not helpful when you’re trying to encourage investments with long-term payoffs. We modeled the impact of these proposals across a variety of consumption levels, PV system sizes and geographic locations under the two rate scenarios. The modeling showed that most PV customers would lose bill savings in a big way under PG&E’s proposed changes. The graph below illustrates the impact to a typical Tier 4 customer:
Furthermore, PG&E proposed a fixed $3.00 charge in lieu of its existing minimum charge. On policy grounds, Vote Solar opposes flat charges like these because they represent a lost opportunity to incentivize energy conservation and customer investment in PV; in other words, no amount of customer activity would be able to reduce that charge. And the net effect of the proposal would be to drive up rates for low usage customers and reduce rates for high usage customers.”
There you have it!
The reason the solar lobby in California vigorously opposed PG&E’s rate design proposal had nothing to do with the public concern about rising utility bills and EVERYTHING to do with keeping rates as high as possible on the warm side of the hills to improve the competitive position of solar energy companies.
You see solar still costs more even though its costs have been dropping—than other power generation supply options. But PG&E and other investor owned utilities in California are required to procure 33% of the electricity consumed from renewable sources even if they cost more. That is one factor driving up utility rates. So the best hope of solar companies to make a profit and be sustainable is to keep the 33% RPS pressure on utilities to buy the output of their projects and keep the rates high to make solar look more cost effective.
It’s enough to make you green—-with envy. You can be sure this Vote Solar bragging is not taking place in Bakersfield or elsewhere in the Central Valley—but safely in the fog of their 300 Brannon Street, San Francisco office.
- Consumers Win Partial Victory Over PG&E Rate Proposal (yubanet.com)
- DRA Declares Proposed Residential Customer Charges on Electric Bills Are Illegal (yubanet.com)
- PG&E rates to drop for heaviest utility users (sfgate.com)