California electricity rates to undergo biggest change in 15 years

California Public Utilities Commissioner Michael Picker listens to speakers during a meeting of the five-member commission in San Francisco, Thursday, Dec. 18, 2014. (AP Photo/Jeff Chiu) California Public Utilities Commissioner Michael Picker listens to speakers during a meeting of the five-member commission in San Francisco, Thursday, Dec. 18, 2014. (AP Photo/Jeff Chiu) Photo: Jeff Chiu / Associated Press Photo: Jeff Chiu / Associated Press Image 1 of / 3 Caption Close California electricity rates to undergo biggest change in 15 years 1 / 3 Back to Gallery

California regulators radically revamped the way electricity rates work in the state, approving changes Friday that will raise monthly utility bills for the most energy-efficient homeowners while giving many bigger energy users a break.

The California Public Utilities Commission voted unanimously to narrow the gap between prices paid by people who use very little electricity and those who consume more. Over time, that gap has grown so wide that the most efficient Californians now pay less for electricity than the utilities spend supplying it to them.

California has long charged utility customers higher prices for using large amounts of electricity as a way to encourage conservation. And while the commission’s vote will benefit many homeowners who use more than average, the biggest energy “hogs” now will face a new penalty, a “super-user electric surcharge” designed to prod them to conserve.

In addition, most residential customers will soon pay different prices for electricity use at different times of day, with the highest prices likely hitting in the afternoon. The move, long studied by California officials, could reduce the strain on the state’s power grid when electricity demand reaches its daily, late-afternoon peak.

Shifting some electricity use to midday or the evening, in turn, could help the state integrate more solar and wind power into the energy mix. Solar power plants hit their maximum output just after noon, while California’s wind farms generate most of their electricity at night.

“The electricity industry is changing fast, and utility rates haven’t kept up with it,” said commission President Michael Picker. He said Friday that the utility commission needed to “make sure rates are reasonable and fair to all California utility customers.”

Phasing in changes

The changes will be phased in by 2019. They affect customers of Pacific Gas and Electric Co., Southern California Edison and San Diego Gas & Electric Co. — not the customers of municipal utilities such as those serving Sacramento or Los Angeles.

“We’re committed to helping our customers and their families understand the changes and the best ways they can be energy-efficient and save money,” said Greg Snapper, spokesman for PG&E.

However, one element of the new rate-reform package will start this year. The commission approved a “minimum bill” for residential customers, deciding that each will pay at least $10 a month, or $5 for low-income households.

Most people already pay far more than that. But with many Californians installing home solar arrays and slashing their utility bills, the commission wanted to ensure that all customers pay their share for maintaining the power grid. The utilities had wanted to impose a $10 fixed monthly service fee on their residential customers.

The changes do not, by themselves, raise the utilities’ revenue or profit. Rather, they shift how much of that revenue comes from different types of residential customers.

The reforms represent the largest changes to California utility bills since the state’s electricity crisis 15 years ago. In many ways they address problems lingering since then.

Electricity rates at the state’s three big utilities currently are based on four escalating “tiers” of usage. But in the aftermath of the crisis, state legislators froze prices in the lowest two tiers. For years, all electricity rate increases — to pay for new equipment, safety upgrades or the state’s expanded use of renewable power — hit only the upper tiers, not the lower, letting the gap between them grow wider.

‘Loud and clear’

Legislators unfroze the lower tiers in 2009 and in 2013 ordered a complete overhaul of utility rates. That triggered an intense lobbying fight between utilities and consumer groups that continued up until Friday’s vote.

“Public opposition to eliminating conservation incentives was loud and clear, as was utility support,” said Mark Toney, head of The Utility Reform Network, a consumer group. “This is a lose-lose for customers, but business as usual for the CPUC, which has once again done PG&E, Edison and SDG&E’s bidding.”

Commissioners wanted to bring relief to many homeowners who consistently land in the upper tiers, arguing that they were in effect subsidizing their thriftier neighbors. But the commissioners also wanted to preserve the principle that bigger users should pay more for power than those who conserve. Balancing those goals proved tricky.

The new plan will cut the number of tiers from four to two, with electricity prices in the upper tier set 25 percent higher than prices in the lower tier. For many above-average users, that represents a substantial break. PG&E customers, for example, currently pay twice as much for electricity in the fourth tier as they do in the first.

Changing the number of tiers and cutting the difference between them will raise bills for the most energy-efficient households. Neither the commission nor PG&E, however, offered any specific estimates Friday.

Surcharge on top users

The commission also voted to slap a surcharge on the biggest residential energy users, those whose electricity usage is four times higher than the bottom tier. Any electricity consumed above that threshold will cost more than twice as much as electricity in the bottom tier.

The plan’s final details represented a last-minute compromise.

The commission was initially set to vote on a proposal to cut the number of tiers from four to two, with just a 20 percent price differential between them and no super-user surcharge. Worried about the impact on energy-efficient Californians, Commissioner Mike Florio then proposed an alternative with three rate tiers, each separated by 33 percent. The utilities preferred the first proposal, while consumer advocates largely backed Florio’s alternative. That led to the compromise approved Friday.

David R. Baker and Hamed Aleaziz are San Francisco Chronicle staff writers. E-mail: dbaker@sfchronicle.com, haleaziz@sfchronicle.com

Twitter: @DavidBakerSF, @Haleaziz

e major changes

Rates will be based on two tiers of electricity usage, instead of the current four.

Many households with above-average electricity use will save money, while the most energy-efficient households will pay more.

The biggest residential users will face a “super-user surcharge” designed to prompt conservation.

Starting in 2019, most residential customers will pay different prices for electricity at different times of day.