So I met a man from SDG&E the other day. It was a chance meeting as he was explaining to a customer how he was being charged for electricity. He was very informed and I picked his brain with a few question trying not to be to intrusive.  He explained some of the new changes in charges that will be forth coming. Flat rates for electricity in California

A little background.

 The great Enron Crisis of 2000 caused sweeping changes in rates and how we as consumers we are charged for electricity. Deregulation of the industry caused greed on a scale that seems unreal when we look back at. The idea of deregulation was that with competition that lacked in this regulated industry would naturally bring prices down. It did not work. The epic failure was manipulation of natural gas prices at the border of California forcing the utilities to charge at an exorbitant rate for their product. This was made me interested in energy and saving energy way back when

The result was Gray Davis who was not in charge when deregulation took place was forced from office as a shamed Governor. Enron collapsed and took down a wide range of companies with it in a heap of financial wreckage. The CEC stepped in with sweeping changes for the electricity costs in California. The utilities no longer charged for electricity but for distribution. They still billed and collected but their profit was to maintain the lines provide administration and were effectively out of the selling of electricity  as a business.

What took place was the basic cost for electricity was fundamentally changed.  Part of the idea was that consumers had a right to a reasonable cost for base electricity.  So the tier system was put in place. While I cannot speak for every utility I am familiar with SDG&E. The residential billing works like this.

Tier 1 Baseline 0-278 KwH usage current cost 15 cents

Tier 2  270-361 KwH  usage current cost 18 cents

Tier 3 362-556 KwH usage current cost 37 cents

Tier 4 557-? KwH usage current cost 39 cents

This system which has been in place since 2000 has seen very little in increases in tier 1 and 2 and significant changes in tier 3 and 4. The general idea was those with fixed incomes that were conserving would have a predictable price for electricity moving forward. Higher users contributed at higher rates. This tier system helped fuel the California Solar initiative as those with heavy tier 4 cost could eliminate those through PV production reducing the pay off for a system

I found a document that puts the average* for California Electricity usage at 564 kwh that seems a bit low from what I have seen but I will use it. That makes the monthly electric bill at $ 133.00. I think it is reasonable to add another 30 dollars as a minimum for gas year round bringing us to about a $ 163 per month average. Now it is important to note in this average the customers sees some tier 4 pricing. So for every 2.5 kwh over this 564 average we see about a $ 1.00 more on our bill. So a heavy user with a pool, a couple of refrigerators, incandescent bulbs etc let's say up to 1000 kwh is paying over $ 300 per bill. So there was a real tangible incentive to save. Of note when I took the cost of our 564 KwH user of all the tiers based on todays prices it averaged to 24 cents, coincidence?

What is now being worked out is averaging the tiers and having one cost for electric. So as he explained that he thought the price would be close to 24 cents the average user like above would see no change with a 135 dollar bill. However I would see a significant increase as would any who have made efforts to conserve. I would see a 50% increase in my 310 kwh 25 month average from $ 47.00 to $ 74.00. Our 1000kwh user however sees a decrease of about 20 percent and the electric bill drops to $ 240. Not only that but every kwh used above that amount they are seeing a 45% savings from the current rate structure. Of note when I took the cost of our SDG&E 564 KwH user of all the tiers based on todays prices it averaged to 24 cents, coincidence?

So why is this happening? California Assemblyman Perra from the Central Valley introduced AB 327 many clamored for a more fair system. There is no doubt that what Perra was looking for is more than noble it was the right thing to do for his constituents. The Central Valley has a couple of things that caused them to feel unnecessary pain. It gets wicked hot and damn cold. Housing stock especially for the hard working farm community is in poor condition. Heating it and cooling it is expensive for the constituents and often pay is low. This is the bread basket of California and some of the most diverse productive farms in the world. This is not about being uncomfortable this about it not being unbearable.

I do not disagree, there are other communities here in California that could use this help as well. But I question is this the wisest way to fix this problem?  Can they not come up with reasonable tiers in areas of harsher climate so that the average family that is not living over the top can be in a livable condition without being gouged? Can we not still provide a system by where those that choose to use more electricity will pay a premium for that luxury.

 I think they got this wrong for a few reasons.

1) The original price is a lost leader because if there is no profit in electricity rates and you just gave most Californians a break which appears to be priced to low on it initial offering. With lowering water in the pool which it appears on the surface to be the case. The only way to fill the pool back up would be higher costs.

2) Jevons Paradox The efficiency of a resource tends to increase rather than decrease  the consumption of  that resource. In this case money is the resource that became more efficient so if this follows to be true as it often does then we can expect that many will buy more electricity as it is more affordable. Which would be fine if the goal was to use more electricity.

3)  The grid weak as it was with San Onofre  being pulled off  line crippling it further. Increasing use will push the grid against the wall. If demand goes up the probability of the rolling brownouts is real.

While on the surface it seems we have the best intentions with AB 327 but I am not sure it was thought all the way through. I think at the end of the day costs will go up for some and down for others. However at the end of the day in my opinion use will go up and an increase in price  will naturally follow.

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Comment by Glen Gallo on November 23, 2013 at 3:39pm

Jim,

The question would remain who pays for the upgrades and who performs them.The current rebate programs have had trouble gaining ground and while I am unaware of a WAP type program in that area it does not mean it does not exist. I think adjusting the tiers of what is luxury and what is necessity is the crux of the problem. There are no easy answers but in my mind adjusting the tiers to be equitable might be the easiest and most cost effective relief. In California we can make whether or not to tie your shoe is a good idea a lasting debate. It would take strong leadership to push aside petty squabbles and move forward with sound, fair, tough decisions. California at this time lacks a culture of agreement and sound decisions and many play the NIMBY (not in my back yard) approach at all times regardless of the overall good. It might be that what Perra has pushed through is as good as we can do even though I contend it is not good enough. I could be wrong and hope I am. We should have an answer in a couple of years

Comment by Jim Peck on November 23, 2013 at 9:20am

Glen,

Thanks for this breakdown.  If the objective is to help those in need, would it not be best to leave the rates alone and use Efficiency upgrades in the valley in the low to moderate income sectors?  Perhaps increasing the benefits charges on Tier 3 and 4, appropriately.

j

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