Summer 2014 - Residential Rate Changes

Last week on June 19^th, the California Public Utilities Commission (CPUC) approved and finalized the latest round of residential rate changes for all three investor-owned utilities. We wanted to make both existing and future potential customers aware of these upcoming changes, as they are scheduled to become effective within the next month.

San Diego Gas & Electric (SDG&E): the residential class average rate will increase 13% from $0.206/kwh to $0.233/kwh. All four tiers will see an increase, with the majority of the increases coming in tiers 1 and 2.

SDG&E, non-CARE rates (cents per kWh):

Southern California Edison (SCE): the residential class average rate will increase 10% from $0.172/kwh to $0.189/kwh. Tiers 1 and 2 will see large increases, while tiers 3 and 4 will see decreases, versus current rates.

SCE, non-CARE rates (cents per kWh):

How Will These Changes Affect Me?

All residential customers will obviously feel these changes. For solar customers specifically: when the 'class average rate' increases the value proposition of going solar improves, meaning the economics become more attractive. This applies to both existing solar customers and potential customers considering going solar. The actual bill impact for each customer will be different, because of the changing tier structure. The calculated energy savings from a unique solar project will depend on how much gross energy is consumed, and how much the solar system offsets. The fact that tiers 1 and 2 are increasing the most on a percentage basis, means that low usage customers will be better candidates for solar.

Policy Background:

Generally speaking, there are three primary reasons why electric utility rates change: (1) the utilities cost of buying or generating power changes, which gets passed on to the customer, (2) the utility makes infrastructure investments, which get passed on to the customer, (3) rate design changes are made in order to more equitably recover costs among customers. These upcoming "summer 2014" rate changes include elements of all three above stated reasons.

Flatter rate design, meaning a reduced differential between the high and low tiers, is a result of rate reform enabled by Assembly Bill (AB) 327. AB 327, signed into law by Governor Brown last October, removed the rate caps on tiers 1 and 2, and directed the CPUC to redesign residential rates to more equitably distribute and recover costs among customers. These "summer 2014" changes are the first round of AB 327 rate reforms, which will continue to be phased in through 2018. It is important to note that these recently approved changes are much less severe (i.e. less flat) than the original proposals all three investor-owned utilities originally submitted for summer 2014. The CPUC rejected the IOU's earlier proposals, stating that "interim rate proposals must stabilize and rebalance tiered rates through a reasonable phase-in schedule relative to rates in effect prior to January 1, 2014, and consistent with statutory requirements that differentials between tiers should be gradual, that rates not unreasonably impair incentives for conservation and energy efficiency, and that rates not overburden low-income customers." It is expected that AB 327 rate reform will continue to make residential rates flatter, which I will discuss in more detail in a later blog.