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Saturday, Feb 22 2014 09:00 PM

Changes to rate system could zap local energy customers

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    By Max Dolberg/ZUMApress.com

    An electricity meter is installed in a home in this file photo.

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BY JOHN COX Californian staff writer jcox@bakersfield.com

Worries that Bakersfield households could be socked with sharply higher energy bills are factoring prominently into deliberations on how to overhaul the way Californians pay for electric power.

A Bay Area consumer advocacy group has cited potentially heavy impacts to Bakersfield residents as a big reason not to automatically enroll utility customers in a program that in four years would charge people higher or lower rates depending on when they use energy.

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FOUR YEARS OF TRANSITION

Structural rate changes being proposed by staff of the California Public Utilities Commission would take place gradually over several years. If approved by commissioners later this year, they would culminate in 2018 with a switch to "time-of-use" pricing for residential customers. In that kind of system, consumers pay more per unit of energy if they use it during hours of peak demand -- typically the afternoon -- and less per unit for power consumed in mornings and evenings.

Here is the transition schedule under consideration at the CPUC:

2015

* California would switch from the existing, four-tier electric rate system to one with only three tiers;

* Discount rates available to qualified low-income customers enrolled in "CARE" programs would be decreased by 3 percent to 44 percent of their utility's cost of providing power;

* Electric utilities would be encouraged, but not required, to roll out optional, non-tiered time-of-use rates, as well as voluntary "critical peak pricing" programs in which rates rise during particularly hot days when air-conditioning strains the power grid's capacity to generate power;

* Consumer outreach and education programs would be initiated at all the state's investory-owned utilities, including Pacific Gas and Electric Co.

2016

* The three rate tiers would be flattened to reduce the difference between the highest price and the lowest;

* CARE rates would be raised by another 3 percent.

2017

* The tiered rate system would be collapsed from three to two different rates, with the difference between them set at a ratio of 1.3 to 1;

* CARE rates would be raised by another 3 percent.

* Outreach and education efforts would be intensified statewide.

2018

* All California investor-owned utilities' residential customers would be moved to time-of-use rates. They would have the option to opt out of the program and revert to the two-tier system;

* CARE rates would rise another 3 percent, leaving customers on such plans with a discount in the 30 percent to 35 percent range;

* Critical peak pricing programs would be available as an "optional overlay" to time-of-use or tiered rates;

* Customers on time-of-use rates or critical peak pricing programs (but not those enrolled in both) would receive one year of "bill protection." This would ensure their bills would be no higher than the tiered rate they otherwise would have been enrolled in.

-- Staff writer John Cox

"If this goes into effect, we're imagining the Bakersfield revolt of 2018," said Matthew Freedman, a staff attorney with San Francisco's The Utility Reform Network.

While the California Public Utilities Commission is not expected to render a decision on the matter until much later this year, agency staff favor signing up all ratepayers for the new program, then allowing customers to opt out if they so choose.

The debate boils down to how readily different customers can adapt to a rate structure that creates a financial reward -- or conversely, a penalty -- for rescheduling their energy use to mornings and evenings instead of afternoons, when generating power tends to cost the most.

Authorized by a state law Gov. Jerry Brown signed in October, the proposed time-of-use program is part of a larger effort to roll back a tiered rate system state legislators imposed in the aftermath of California's 2000-01 energy crisis.

A NEW APPROACH TO RATES

As utilities' costs have climbed, a freeze on the lower tiers set aside for the poor and most frugal energy consumers has resulted in a severe price imbalance. Heavy power users -- including many in Bakersfield -- may pay more than twice what their energy costs to generate, while their neighbors on the discounted rate pay about half what their electricity costs.

The new law not only allows the CPUC to curtail the tier system, but it provides for what's called a "time-of-use" rate structure that more closely reflects utilities' actual power generation costs. That means higher prices in the afternoon, when demand for energy is highest and more power plants must be brought online that are relatively inefficient and, often, more polluting.

Enabled by the time-recording "smart meters" first introduced in Bakersfield in 2006, time-of-use pricing is already the rule at most California businesses, and reports are that industry has adjusted well. But residential customers tend not to be as sophisticated about their energy use.

STEEP BILL INCREASES AHEAD?

TURN, the consumer advocacy group, argues that Bakersfield's hot summers will make it hard for people here to turn down their air-conditioners in the afternoon in order to avoid steep energy bills.

TURN estimates that virtually all Bakersfield households will see higher summer bills, and more than half will see increases greater than $30 per month, under a time-of-use program, based on rates charged by Pacific Gas and Electric Co. in 2013.

About 10 percent of PG&E's standard residential customers in Bakersfield -- and about 25 percent of those on discount rates for the poor -- will see bills more than $50 per month higher than what they paid last summer, the advocacy group projects.

The increases would be smaller on an annualized basis because air-conditioners aren't as widely used year-round.

Freedman said an extensive consumer education campaign could help people make changes that would lower their bills, "but it's going to be ugly if that's how we proceed."

CPUC staff question TURN's conclusions, saying some of the projected bill increases could be more a result of plans to scale back the tiered rate system. But Freedman, unconvinced of the agency's assertion that the increases would result mostly from adjusting the tiers, said sharply higher bills nevertheless would be of little consolation to ratepayers.

Commission staff stand by their recommendation that ratepayers be signed up to the time-of-use program on a strictly default basis. They worry the only ones who would "opt in" are customers whose patterns of energy use already reflect the behavior the program is designed to encourage on a large scale.

Details of the program are expected to be debated and refined over the next several months, and the director of the CPUC's Energy Division, Edward Randolph, said TURN's proposal for an opt-in alternative has not been ruled out.

HELPING PEOPLE ADJUST

Still, he said a better way to soften the impact on ratepayers in Bakersfield and other inland communities might be to adjust rates by geographical zones. For example, customers in parts of the Central Valley might pay rates with smaller differentials between afternoon and evening rates, as compared with ratepayers in coastal communities.

"We're going to take that into consideration," Randolph said.

What's more, he added, there's plenty of time to teach consumers how to make adjustments such as reschedule their refrigerator's defrost cycle to run in the early morning, or even "pre-cool" their home at 1 p.m. and then shut off the air conditioning hours later without running up a steep power bill.

Additionally, a new state law that authorized the rate changes provides for a one-year "bill protection" period ensuring that customer charges under time-of-use rates are no more expensive than they would have been under the tiered rate structure -- at least for the first 12 months of the new program.

"If we spend the time and think about it right now, I have a reasonable level of confidence that you can get to a point where most people will be comfortable with this and understand this," Randolph said.

PG&E'S PERSPECTIVE

PG&E, which is just one of the investor-owned utilities that would be governed by whatever program the CPUC approves, supports the idea of time-of-use energy pricing as a way to make electricity more affordable and reliable for Californians.

But like TURN, the San Francisco-based utility also wants to allow customers to "opt in" to such a program, rather than enrolling ratepayers automatically and letting them switch back to the tier system.

PG&E spokesman Jonathan Marshall said customers who choose their rate plan "will tend to be more engaged and, therefore, more likely" to shift their energy use to times when there is less overall demand for power.

Some policy analysts have asserted that utilities could ultimately lose money under time-of-use pricing. Such programs are intended to reduce energy consumption, lessening the need for investments in infrastructure, which is the primary way companies like PG&E make money.

Even so, the CPUC's proposal is not expected to have a significant effect on PG&E's profitability.

A local group that was instrumental in the campaign to reform the tiered rate system, Kern County Taxpayers Association, remains skeptical about time-of-use rates.

Executive Director Michael Turnipseed said many local PG&E customers "watch their bills and do the best they can" to reduce consumption.

Time-of-use pricing, he said, "is going to be a very expensive proposition here." For that reason, he suggested the CPUC keep afternoon-versus-morning rate differentials to a minimum in inland areas.

But diluting the program in that way could make it less effective at changing consumer behavior, cautioned Mike Campbell, program manager at the CPUC's Office of Ratepayer Advocates.

He suggested that the four-year transition period proposed to begin in 2015 would prepare people for the ultimate switch to time-of-use pricing.

Key to the whole process will be helping people adjust and telling them what their future bills will be based on, he said.

"We do know we need to educate folks," he said, "and that's part of what we're proposing."

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