{"id":10448,"date":"2015-06-11T12:00:33","date_gmt":"2015-06-11T16:00:33","guid":{"rendered":"http:\/\/blogs.edf.org\/energyexchange\/?p=10448"},"modified":"2017-07-14T11:14:53","modified_gmt":"2017-07-14T15:14:53","slug":"residential-electricity-pricing-in-california-we-need-an-overhaul-not-a-tune-up","status":"publish","type":"post","link":"https:\/\/blogs.edf.org\/energyexchange\/2015\/06\/11\/residential-electricity-pricing-in-california-we-need-an-overhaul-not-a-tune-up\/","title":{"rendered":"Residential Electricity Pricing in California: We Need an Overhaul, not a Tune-Up"},"content":{"rendered":"

\"power-poles-503935_1280\"<\/a><\/p>\n

This post has been updated since its original publication on June 11th, 2015.<\/em><\/p>\n

Here at Environmental Defense Fund (EDF), we love win-win solutions. This is why we\u2019re big fans of time-of-use (TOU) electricity pricing (a type of time variant<\/a> electricity pricing). As I\u2019ve written before<\/a>, TOU pricing better reflects the true cost of electricity, which fluctuates throughout the day. What\u2019s more, it brings with it significant benefits for the environment, electric reliability, and people\u2019s wallets. By empowering customers to better control their energy bills and reduce our reliance on fossil fuels, everyone wins with TOU pricing.<\/p>\n

Thankfully, the California Public Utilities Commission (CPUC) included TOU pricing as one of the key elements in their plan to reform residential electricity rates. But how and what Californians pay for electricity \u2013 the best way to structure rates \u2013 is currently up for debate at the CPUC.<\/p>\n

The CPUC issued its proposed decision<\/a> on restructuring California\u2019s residential rates and moving customers to TOU rates in the new structure, which EDF strongly supports as an evolutionary leap forward.\u00a0 Subsequently, Commissioner Mike Florio issued an alternate<\/em> proposed decision<\/a> that nudges the current tiered rate system forward with a time-variation \u201cadder.\u201d Unfortunately, Florio\u2019s alternate proposal amounts to more of a tune-up than the substantial overhaul required to prepare for a future grid that runs on carbon-free renewables, like wind and solar, and also powers our cars, trucks, trains, and boats.<\/p>\n

<\/p>\n

EDF and other stakeholders \u2013 including utilities – prefer the original proposed decision because it more strongly assures that TOU rates will be used to their full potential.\u00a0 Yet, the alternate proposal has many merits too, and will similarly usher in TOU. \u00a0The CPUC will vote on which version to adopt later this month with the opportunity to issue changes based on either proposal.<\/p>\n

Proposed decision vs. alternate proposed decision <\/strong><\/p>\n

The good news is, both the proposed decision and the alternate proposed decision direct California\u2019s three investor owned utilities \u2013 Pacific Gas and Electric (PG&E), San Diego Gas and Electric (SDG&E), and Southern California Edison (SoCal Ed) \u2013 to develop TOU rates for widespread use, including transitioning some customers to TOU pricing automatically (a good thing, according to research on opt-in versus opt-out programs<\/a>). If EDF\u2019s recommendations are embraced, this will include technology enablement for those who need the most assistance in adjusting to time-variant pricing.<\/p>\n

There are, however, a few substantial differences between the two proposed decisions:<\/p>\n

1) Language about TOU<\/em>:<\/strong> The proposed decision orders transitioning customers to TOU rates starting in 2019 after several years of pilot studies. In contrast, the alternate proposed decision more softly requires utilities \u201cestablish a goal\u201d of defaulting customers to TOU. This difference may seem too small to matter but these directives are for the utilities to interpret, so the CPUC must be clear that TOU is to be the default.<\/p>\n

2) Number of tiers: <\/em><\/strong>The original proposed decision consolidates and simplifies the current four tiered rate structure<\/a> into a baseline allocation of energy at a set price according to regional energy burden (i.e., how much electricity an average home needs for basic services such as lighting and cooling) with a TOU electricity price. In other words, it creates essentially two-tiers where the upper (TOU tier) may vary with time of day.<\/p>\n

The alternate proposed decision recasts the current four-tiered rate structure into essentially three tiers: a baseline tier and higher usage surcharge, but allows price to vary with time. \u00a0In the tiered rate system, the price per unit of electricity increases as a customer uses energy during the month. Higher users pay more per unit of energy than low users when their usage exceeds a prescribed level. \u00a0The high-use surcharge of the alternate proposed decision is essentially a third tier, but it will be communicated to customers as a line-item surcharge.\u00a0 Similarly, the baseline rate (first tier) will be reflected as a line-item rebate. \u00a0\u00a0Reflecting the tiered pricing through line-items on the bill is a good approach to preserving the price differences associated with time-variation.\u00a0 That is, if the tiers and time-variant price components were combined, it could be a confusing message to market.Tiered rates mix up the message about shifting energy use to align temporally with when it\u2019s cheapest, including times when there is an abundance of renewable energy available \u2013 one of the biggest benefits of TOU. Instead, a TOU rate without the tiers will be easier for customers to understand \u2013 and respond to \u2013 by avoiding energy use during the time of the day when it\u2019s most expensive.<\/p>\n

Again, these differences might not seem important, but we must be deliberate in helping customers to manage their bills by planning the daily timing of their energy use. For programs like TOU to work, folks need to easily understand how the pricing works and how they can save money.<\/p>\n

3) Consideration of greenhouse gas emissions:<\/em><\/strong> Both the original and alternate proposed decisions suggest that the CPUC does not have enough information to tell whether or not TOU rates can reduce overall household energy use. EDF strongly supports requiring the investor owned utilities develop peer-reviewed evaluations of the emissions-reduction potential for TOU. In addition, a menu of dynamic tariff options (e.g., tariffs that vary hourly or subhourly based on real-time wholesale energy prices) that integrate utility-scale renewables and reward distributed energy resources (e.g., energy efficiency, rooftop solar, and energy storage) are also recommended. EDF is eager to be a helpful partner in scoping and executing the studies.<\/p>\n

4) Fixed charge vs. minimum bill:<\/em><\/strong> The original proposed decision would allow for the eventual adoption of a fixed charge, while the alternate would implement a minimum bill charge. Both are aimed at making sure each customer pays for at least some portion of their fair share to use and maintain the central electric grid on which we all rely.<\/p>\n

However, a fixed charge is just that: fixed<\/em> onto each bill and is anticipated to be larger than a minimum bill charge. A minimum bill, however, sets a floor for how much a customer can pay on their monthly bill. This minimum bill keeps intact incentives for clean distributed energy resources like rooftop solar, while the fixed charge can diminish savings from these upgrades and extend the payback period. \u00a0\u00a0On this topic, EDF, consumer advocates and other environmental groups favor the alternative proposal for a minimum bill instead of fixed charges.<\/p>\n

EDF\u2019s recommendation<\/strong><\/p>\n

Taking these differences into consideration, EDF supports the adoption of the original proposed decision \u2013 with one caveat: we agree with the alternate proposed decision\u2019s adoption of a minimum bill instead of a fixed charge.<\/p>\n

Further, for this to be successful, these aspects need to be incorporated into the final decision with directive for utilities to develop and be accountable for strong education, outreach, marketing and enablement. This is particularly important for low-income customers enrolled in utility programs like the California Alternate Rates for Energy (CARE)<\/a> program, which provides low-income customers with a 30-35 percent discount on their electricity and gas bills.<\/p>\n

We all know making big changes to residential electricity rates is difficult. We also know it\u2019s vital for California to realize a clean energy future if we are to avoid the damaging effects of climate change (like the historic drought we\u2019re currently experiencing). So, why not take this opportunity to develop truly innovative electricity pricing that delivers a win-win for all Californians and sets a standard for the rest of the nation?<\/p>\n","protected":false},"excerpt":{"rendered":"

This post has been updated since its original publication on June 11th, 2015. Here at Environmental Defense Fund (EDF), we love win-win solutions. This is why we\u2019re big fans of time-of-use (TOU) electricity pricing (a type of time variant electricity pricing). As I\u2019ve written before, TOU pricing better reflects the true cost of electricity, which …<\/p>\n","protected":false},"author":3455,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[200,42996,4127,177,72897],"tags":[],"coauthors":[],"class_list":["post-10448","post","type-post","status-publish","format-standard","hentry","category-california","category-smart-power","category-dynamic-pricing","category-renewable-energy","category-time-of-use"],"acf":[],"yoast_head":"\nResidential Electricity Pricing in California: We Need an Overhaul, not a Tune-Up - Energy Exchange<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/blogs.edf.org\/energyexchange\/2015\/06\/11\/residential-electricity-pricing-in-california-we-need-an-overhaul-not-a-tune-up\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Residential Electricity Pricing in California: We Need an Overhaul, not a Tune-Up - Energy Exchange\" \/>\n<meta property=\"og:description\" content=\"This post has been updated since its original publication on June 11th, 2015. 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