PG&E's electric and natural gas rates are the way we collect revenue from our 5.4 million-plus customers. The revenue pays for a wide range of business operations reflecting state energy policies. It also pays for the various programs and services we offer.
The electric rate includes revenues needed for electric distribution and transmission as well as costs of procuring power. The natural gas rate includes revenues needed for natural gas purchasing and to pay for infrastructure such as pipelines. Both electric and natural gas rates include revenues needed to pay for public programs such as low-income and energy-efficiency programs. Our rates also include an approved rate of return for shareholder investments in infrastructure needed to serve customers.
PG&E combines approved changes to its electric rates only two or three times a year to limit the number of rate changes faced by our electric customers. We change our natural gas supply rates every month, as required by the California Public Utilities Commission (CPUC). The CPUC is a 5-member commission appointed by the Governor to better reflect competitive monthly gas market costs.
When PG&E needs to make any rate change, we submit an application to the CPUC. The application describes the upgrade required or a new program or service, along with the annual or multi-year costs and impact on rates. Our application is reviewed in a public hearing and by stakeholders such as groups representing residential and business consumers, low-income and community advocates, environmental groups, agricultural interests and others. After this process, the CPUC issues a decision on the basis of what is just and reasonable for customers to pay in rates. PG&E then incorporates the approved changes into rates.
PG&E files every three years for the CPUC to review and authorize revenues collected for certain electric generation and distribution and natural gas distribution operations costs. That process is called the General Rate Case (GRC) for electric. We file every four years for the recovery of natural gas transmission and storage operations under the Gas Transmission and Storage Rate Case (GT&S).
In addition to the CPUC, the Federal Energy Regulatory Commission (FERC) approves the retail transmission portion of rates that makes up about 14 percent of PG&E's electric bundled rates. The remaining 86 percent is for rates and charges to recover those costs overseen by the CPUC.
PG&E's standard residential electric and natural gas rates are tiered (where the price of energy increases as more energy is used during a billing cycle), as required by law in California, to encourage energy conservation. Under tiered rates, the price gets higher as more energy is used. Therefore, customers who use less energy see lower bills as a result of the lower price in the lower tiers. Customers who use more energy are billed at the higher price in the higher usage tiers.
In addition to standard tiered rates, PG&E offers discounted rates for eligible customers enrolled in our low-income assistance program, California Alternate Rates for Energy (CARE). We also offer the Family Electric Rate Assistance (FERA) program to families who are not eligible for CARE.
Most of PG&E's residential electric rate plans are tiered and offer a monthly base amount of electric usage at the lowest price. This monthly base amount is called the Baseline Quantity and differs by geographic region and Climate Zone. For residential tiered rates, Tier 1 includes the baseline quantity and Tier 2 extends from 101% of baseline or greater.
PG&E also offers electric Time-of Use-rates for residential customers. Some of these rates are tiered and others are not. Time-of-Use rates charge lower prices during off-peak energy periods and allow customers to potentially reduce their bills by shifting some of their usage out of the higher priced peak periods. Reducing electric usage during peak hours allows PG&E to reduce its cost to provide energy. Some Time-of-Use rates also have tiers.
While rates are the same across PG&E's entire service area, the amount of electricity allotted at the lowest available price (baseline) is different for each customer. That difference depends on location, the season (summer or winter) and the household heating source. The amount determined for the baseline quantity represents the minimum level of usage needed to satisfy a substantial portion of the electricity needs of the average customer in a specific geographic region called a Climate Zone. PG&E has 10 different Climate Zones across our service area. These zones don't follow county or city boundaries, but are based on areas with a similar geography and climate. Customers in hotter Climate Zones have higher baseline quantities than customers in cooler zones.