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.
PG&E typically consolidates changes to its electric rates two to three times a year to help limit the number of rate changes faced by our electric customers. PG&E changes its natural gas rates every month, as required by the California Public Utilities Commission (CPUC) to better reflect competitive monthly gas market costs. Whenever PG&E needs to make significant rate changes, it makes a proposal to the 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 finished its 2014-2016 GRC in 2014 and is currently presenting its 2017-2019 GRC and 2015-2017 GT&S rate case before the CPUC.
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.
PG&E's standard 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 five non-CARE electric rates and four 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. In addition, there are optional electric time-of-use rates for PG&E's residential customers. These rates charge lower prices during off-peak periods and allow customers who can shift some of their usage out of the higher cost peak periods the opportunity to reduce their bills. Such time-of-use rates recognize that reduced electric usage during peak hours allows PG&E to reduce its generation or purchase of electricity during the times when it is most expensive. Some of PG&E's time-of-use rates are tiered and others are not tiered.
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 (the first two tiers up to 130 percent of baseline). Soon thereafter in 2001, the CPUC implemented five tiers of increasing rates for non-CARE customers. As a result of the 2001 rate freeze, revenue increases were collected mostly in non-CARE Tier 3, 4 and 5 rates from 2001 through early 2016 (with Tier 5 usage billed the same as Tier 4 under a May 2010 Summer Rate Relief residential rate redesign approved by the CPUC).
Subsequently, residential rate changes approved by the CPUC in 2015 directed a reduction to three tiers in 2016, and two tiers in 2017. In addition, the CPUC approved a High Usage Surcharge for usage above 400 percent of baseline beginning in 2017.
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, from 2001 until 2016 customers were charged the Tier Two rate for electric usage that is 101-130 percent above the baseline amount. Contingent upon CPUC approval, in 2016, Tier 2 will be redefined to include all usage that is 101-200 percent of the baseline amount. The bill will continue to show four tiers but the price for Tier 2 (101-130 percent of baseline) and Tier 3 (131-200 percent of baseline) will be the same. 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.