How Rates Are Set

PG&E’s electric and natural gas rates are the way the utility collects revenues from its over six million customers to pay for a wide range of business operations. The electric rate includes revenues needed for electric distribution and transmission as well as power purchasing and power plant costs. The natural gas rate includes revenues needed for natural gas purchasing and to pay for infrastructure such as pipelines. Both rates also include revenues needed to pay for public purpose programs such as low-income and energy efficiency programs and a rate of return for shareholder investment in PG&E’s infrastructure.

Regulatory Oversight

PG&E typically changes its electric rates two to three times a year and its natural gas rates every month to reflect changing revenues needs. Whenever PG&E needs to make significant rate changes, it makes a proposal to the California Public Utilities Commission (CPUC). PG&E’s proposal is then reviewed in a public hearing process along with many stakeholder groups representing consumer, business, low-income, environmental, and agricultural interests among others. After this considerable review process, the CPUC then makes a decision on what is just and reasonable for customers to pay in rates after which PG&E reflects any change in rates as soon as possible.

PG&E files every three years for the CPUC to review revenues collected for its electric generation and distribution and natural gas distribution operations under its General Rate Case (GRC) and every four years to review its revenues collected for natural gas transmission and storage operations under its Gas Transmission and Storage Rate Case (GT&S). PG&E in 2011 finished its 2011-2013 GRC and 2011-2014 GT&S rate cases.

Besides the CPUC, PG&E is regulated by the Federal Energy Regulatory Commission (FERC), which determines the utility’s interstate transmission charges that make up about 10 percent of the revenues collected in electric rates. The remaining 90 percent are those revenues overseen by the CPUC.

Residential Rates

Residential electric and natural gas rates are tiered by law in California to encourage energy conservation with rates increasing in each tier. Customers who use less energy will see lower bills from less usage and will pay a lower overall average rate than customers who have more usage in higher-priced tiers.

There are two primary types of rates paid by PG&E's residential customers—rates for typical customers and rates for customers who are enrolled in PG&E’s low-income assistance program called California Alternate Rates For Energy (CARE). There are four non-CARE electric rates and two CARE electric rates, and there are two rates for non-CARE and CARE natural gas customers. All customers across PG&E’s service area pay the same rate in each tier.

Prior to 2001 there were two rate tiers for non-CARE electric customers. In response to California’s energy crisis, the state Legislature enacted a rate freeze for a portion of residential usage (what is now the first two tiers). Soon thereafter, the CPUC implemented five tiers of increasing rates for non-CARE customers. As a result of the rate freeze, revenue increases are collected in non-CARE Tier 3 and 4 rates (with Tier 5 usage billed the same as Tier 4 under a May 2010 Summer Rate Relief residential rate redesign approved by the CPUC).

Climate Zones and Baselines

While rates are the same across PG&E’s service area, the amount of electricity required to move up the tiers over a month is different for each customer depending on their location, whether summer or winter, and whether home heating is electric or natural gas. The amount assigned to the first tier is called a “baseline” and represents the minimum level of usage needed to satisfy a substantial portion of the electricity needs of the average customer in a specific service area called a “climate zone.” PG&E has 10 climate zones across its service area, which do not follow county borders but are instead based on areas with similar geographic and climatic characteristics. Each rate tier represents usage at or a percentage amount above this baseline amount. For instance, customers are charged the Tier Two rate for electric usage that is 101-130% above the baseline amount. People in hotter climate zones have higher baselines than those in cooler climates, meaning they must use more electricity to move into a new tier and a higher rate than people in cooler climate zones.

As a result of this tiered system and baseline/climate zone design, people across PG&E’s service area pay similar overall average rates for electricity. Not having the same baseline across PG&E's service area also prevents a customer in a hotter climate such as Kern County from subsidizing or lowering the bills of those customers in cooler climates such as San Francisco County.

Find Your Own Baseline

Related Terms

Baseline Quantity:
A minimum level of usage that is intended to satisfy a substantial portion of the energy needs of the average customer in a specific service area. Baseline quantities are set within a range specified by state law and implemented with the approval of the CPUC. Baseline quantities can vary depending on your location, the time of year (summer or winter), and your home's heating sources.

Rate Tiers:
Levels of energy usage that are priced beginning with Tier 1, the lowest, or baseline, usage level. Each increment, or tier, of use beyond the baseline level is charged at an increasingly higher price. The tiered structure was originally adopted by the State of California to provide a financial incentive for residential consumers to conserve energy.

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