PG&E proposes simplified system of power rates

PG&E three-tier rate proposal lowers the top kWh price, narrows tier gaps, adjusts baseline, and adds a fixed fee, aiming to reduce bill shock while preserving energy conservation incentives under CPUC oversight and CARE safeguards.

Pacific Gas and Electric Company (PG&E) asked the California Public Utilities Commission (CPUC) for permission to streamline its system of residential electric rates next year to make them simpler and more equitable for customers across usage levels.

PG&E proposes to replace the complex five-tiered rate system with three tiers, signaling changes to electric bills for many customers, and to lower the rate, or price, that customers in the top tier pay for electricity. In a tiered system of rates, as required in California, customers pay more per unit of energy as energy use increases. The lowest band, or tier, is called "baseline."

Customers in Tier 5 currently pay almost 50 cents per kilowatt-hour (kWh), compared to 11.9 cents for Tier 1 (baseline) usage. Under PG&E's new proposal, the top rate that customers would pay — in Tier 3 — would be 29.8 cents per kWh, with rate stability in 2025 projected by PG&E. While still promoting energy conservation, the new top rate would limit high summer bills when exceptionally hot weather drives more electricity use for air conditioning.

"We've heard our customers tell us, loud, and clear, that rates for those who use the most energy are just too high," said Tom Bottorff, senior vice president of regulatory relations at PG&E. "Our proposal would set rates more fairly and equitably, and help avoid summer bill shocks, without sacrificing the incentives to use energy more efficiently."

The proposal is just the latest in a series of steps PG&E has taken to address customer concerns over rates, including solar market concerns from installers, in addition to a wide range of energy-saving programs that help lower monthly bills. In interim proposals filed with the CPUC last month, PG&E asked permission to cut average rates 2.5 percent and to narrow the wide gap in residential rates between Tiers 3 and 5. Those proposals would take effect June 1, if approved.

In its new proposal, which would take effect next year, PG&E would make several other changes in its residential rates to spread costs more equitably among customers:

• In 2011, the baseline level of usage in Tier 1 would be reduced from 60 percent to 55 percent of average use in each climate zone, which is more in line with baseline levels at other major California utilities. As a result, more consumption would be priced at Tier 2 and Tier 3 levels. Some customers would see an increase in bills, while others would benefit from the reduction in rates at the highest tiers.

• Lower-income customers who qualify for the California Alternate Rates for Energy (CARE) program, whose rates today are at their lowest level in 19 years, would begin paying a higher price for usage that extends beyond the second tier, amid ongoing debate over income-based charges in California, in accordance with legislation passed in 2009. This new price would still represent a substantial saving compared to rates paid by non-CARE customers. Customers who need help can also take advantage of a host of other financial assistance programs administered by PG&E.

• Customers would pay a flat monthly fee of $3.00 (or $2.40 for CARE customers) to cover fixed costs of service, such as the distribution system that connects customers to the electric grid. Such charges are commonly assessed by investor-owned and municipal utilities. The revenue from this charge would permit electric rates — the cost per kilowatt-hour — to be lower than otherwise, similar to proposed income-based fixed charges under statewide policy discussions.

Separately, as part of a regular CPUC review of utility costs, including smart metering investments, PG&E today proposed changes to better reflect the actual costs of providing electric service among various customer classes. As a result, costs allocated to residential customers would drop 2.9 percent, but would increase 4.6 percent for small business customers and 6.0 percent for agricultural customers. (All figures apply to "bundled service" customers who receive energy supply and distribution services from PG&E.)

Typical residential customers who use the system average of 550 kWh per month would see a $10.73 increase in average monthly bills in 2011, amid analysis of why prices are soaring statewide, from $77.40 to $88.13. (The exact figure will depend on the customer's climate zone and baseline allotment.) Customers who use 850 kWh per month would see an increase of $0.84 in their average bill, from $176.77 to $177.61. Customers who use 1,500 kWh would see a decline in average bills of $108.62, from $480.08 to $371.46.

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