This post is intended to highlight trends in energy rates in territories where we market our products and services so that our customers have a reference point on claims that we and our competitors make. This is not a static post and will be updated as these rates change, typically twice a year.
The information below is divided into a state-level macro analysis as well as micro-level summaries on particular rate schedules from individual utilities. The macro trends are typically used to explain broad trends, such as the long-term feasibility of solar energy. The micro-level analysis can be used to explain why it is better to have a Time-of-Use bill if you have solar, work during the day, and perhaps, drive an Electric Vehicle.
This post is current as of March 18, 2013.
The state of California is composed of several different utility territories. The three biggest by land mass served are Pacific Gas & Electric (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E). These three utilities are called Investor Owned Utilities (IOU) as they are not tax-payer (or rate-payer) owned entities. In this case, all three companies, or their parent affiliates, are publicly traded on the stock markets.
The other common utility a home or business owner will purchase power from is a municipal utility. Examples include the Los Angeles Department of Water and Power (LADWP), Anaheim Public Utility (APU), Sacramento Municpal Utility District (SMUD), and many others which are typically administered by the city in which they operate.
In the case of the Investor Owned Utilities, pricing is naturally maximized to generate the most profit. Whereas municipal utilities, owned by voters living within the territory, tend to price energy to serve their constituents best. Consequently, energy rates tend to be higher in the territories served by IOU’s and lower in those served by municipal utilities. It may seem odd that a random home owner in California has a more than 50% chance of paying a higher electric bill simply because a geographic boundary gives an IOU the right to sell them power versus a municipal utility. But there is a regulator body called the California Public Utility Commission which oversees unchecked energy pricing.
Understanding all that is involved in the structure of energy markets in California is beyond the scope of this article. However, it is important to understand that when looking at statewide averages in a macro context, these averages may either seem low or high to a particular home owner depending on where they live. And the conclusions drawn concerning rate increases, future pricing, and other forecasts need to be put into context of geographic location before they are determined to be conservative or aggressive.
With all this in mind, the following chart below shows total revenues collected, energy consumed, and average costs per kilowatt-hour ($ / kWh) by year for residential households in the state of California.
The data above are provided by the United States Energy Information Association (IEA) and is a great source of information concerning energy policy and structure in the United States. Population totals are taken from US Census data.
Statewide, residential households have seen an average electric rate increase of 2.4% per year, with the current rate averaging $0.155 per kilowatt-hour (kWh).
Explanations on the causes of rate increases vary widely among different audiences. Our goal in this post is to validate that energy rate increases are inflationary and will persist year after year at a minimum of 2% or more. Why? Since solar arrays have essentially no variable cost component in energy generation, any utility rate increase only improves the return on investment (ROI) for households with solar systems.
The table above also includes population estimates from the US Census. By including these figures, we are able to calculate the per-capita amount of energy consumption. Ironically, personal demand for energy is flat at about 6 kWh per day per person. Energy demand in aggregate has increased to 88.4 million MWh in 2011 from 66.6 million MWh in 1990, or 1.5% per year on average. But population has also increased during the same time period by about 1.2% per year. Thus, rate increases are not necessarily a function of increasing demand or population influx.
As we noted earlier, not all electricity providers price the electricity they sell at the same rate. In the territory served by Southern California Edison, residential pricing is based on a five-tier structure. The lower tiers, one and two, have the lowest rates which are intended to satisfy about 50% to 60% of the average household energy need. Tier 1 is called the baseline allowance.
As household energy consumption exceeds the baseline amount, higher and higher rates are charged for supplying the additional energy. The chart below shows how energy prices have held relatively steady for tiers one and two. Meanwhile, prices in tiers three, four and five have escalated significantly starting around 2005.
The table summarizes the historical rate increases in each of the five tiers. For example, in Tier 5, there has been an annual compounded rate increase of 6.56% per year since September 2003. Compared to the statewide average, households with above average energy requirements are paying about two times the price ($0.30 versus $0.15) and experiencing increases of 6.5% instead of the average 2%. Even households with modest energy consumption in the Tier 3 bracket are paying more than the statewide average.
As noted above, our goal in this post is to validate that energy rate increases are inflationary and will persist year after year at a minimum of 2% or more to help justify rate increase assumptions in a solar energy analysis. In the case of customers living within the Southern California Edison territory with modest energy consumption, we are noting energy increases of at least twice this rate. The consequence of this difference is that customers will achieve an overall lower long-term cost of energy and a greater ROI with a solar system on their roof.
As of May 2012, our household switched from the standard Domestic D rate to a Time-of-Use (TOU) rate. In doing so, we managed to lower our electric bill by calling an SCE customer service representative and agreeing to go onto the rate. NOTHING was changed to the house or our behavior.
Since we use a majority of our energy before 10AM and after 6PM during the week, and we have solar generating electricity to the grid during the 10AM to 6PM period, the TOU rate allows our household to consume at a lower rate during the early morning and evening, yet sell back at a higher rate during the day. The yellow box below details the unusual circumstance that our household enjoys: being a net consumer of electricity every year, however paying no electric bill. In this example, we were a net consumer of 1,700 kWh but had a credit of -$32.56.
As time permits, I will be posting a more detailed analysis of Time-of-Use rates and how they may benefit our customers, in particular, those who own solar systems and/or own an Electric or Plug-in Electric vehicle.
To date, since May 2012, our Time-of-Use bill is -$19.50 with a net consumption of 1,796 kWh. If we were on the standard Domestic D rate, our to-date bill would be $247 with the same net consumption of 1,796 kWh.