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Controversial Two-Tier Rate Plan Approved in California

July 8, 2015 By Cheryl Kaften

Following a 5-0 vote on July 3, the California Public Utilities Commission (CPUC) has approved a plan that returns the Golden State to two rate tiers for power, with a 25 percent difference between them. The strategy also imposes a surcharge on “super” electricity users – defined as those who consume over 400 percent of the average California resident’s monthly electricity demand.

The newly approved rate structure does not affect low-income customers, who qualify for deeper discounts.

The two-tier system replaces a plan implemented in 2000, when recurrent brownouts were imposed statewide in order to avoid blackouts. At that time, regulators expanded the number of rate tiers from two to four, and froze the lowest tier rates in order to protect households from major fluctuations in energy bills.

Under that legacy process, once a ratepayer used the amount of power allotted for tier one, he or she then moves on to the next tier, where the price-per-kilowatt of power was higher. If the ratepayer went on to reach tiers three and four, the power rates increased dramatically.

The latest changes are set to impact 75 percent of residential customers — representing more than 10 million electricity accounts held through Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric Co.

Overall, the new pricing system will give the biggest consumers of power a break by charging them less than they have paid to date; and those who consume a smaller amount will see a slightly higher power bill, according to San Francisco’s KGO News, an ABC-TV affiliate, and the Associated Press.

The two-tier plan was strongly supported by electric utilities statewide, as well as by a swathe of inland ratepayers; it was decried by consumer advocates and environmental groups.

As Mark Toney, executive director of TURN, The Utility Reform Network, a San Francisco-based ratepayer advocacy group, described the situation, the approved proposal allows utilities “to bill customers a set amount [of up to $10/month], even if they use no electricity at all.”

That provides little incentive to save power, environmentalists believe. Specifically, Toney said, energy use in the fourth tier formerly cost more than twice as much as in the first tier. That stark difference, he and other consumer advocates contend, motivated ratepayers to save energy, and gave high-usage customers a financial incentive to invest in energy efficiency and rooftop solar.

However, utilities have urged a return to two tiers, claiming that, otherwise, high-use households were being asked to unfairly subsidized low-use households. They say that the gap has only increased as the years have passed, with low-use households not even paying for the cost of supplying electricity.

Specifically, the new pricing system will benefit customers who live inland, where it is often hotter than it is along the coastline and more air conditioning is required. For years, inland consumers have complained that the regional rate system favored ratepayers along the coast.

Now, San Francisco and other coastal cities will feel the impact of this new system. But the valley and some East Bay cities will enjoy its benefits.

“They have the advantage of being frozen in tier one in cooler coastal climates and smaller families,” said PUC President Michael Picker.

Ramping up to the final vote, ratepayer groups had been lobbying for a three-tier rate system proposed by CPUC Commissioner Mike Florio, which called for a 33 percent difference among three tiers. That item was on the July 3 agenda, but Florio bowed to pressure and publicly supported a revised version of a two-tier system preferred by the utilities and PUC President Michael Picker, according to KGO News.

Now that the vote is in, the three major utility companies in California can begin increasing rates within 60 days.The plan adopted July 3 also calls for pricing based on the time of use of electricity by 2019.

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