Thoughts on Solar by Run on Sun's Founder & CEO, Jim Jenal

Our first post on the new SCE rate structures revealed that there were big changes coming to Residential customers.  In this post we will look a little closer at how those changes will affect your bill.

As we explained before, SCE’s new Domestic rate structure changes baseline allocations and completely eliminates the dreaded Tier 5.  Instead, the price of energy at Tiers 3 and 4 went up sharply (6.3% and 7.2% respectively) while summertime allocations generally declined.  (We didn’t discuss it in our previous post because it doesn’t affect that many SCE customers, but allocations for “all-electric” homes dropped dramatically, as much as 35% or more!  If you are in an all-electric home, you better be generating your own electricity!)

But the changes in the rate structure are complex - after all, non-summer allocations often increased and without Tier 5 it figured that some customers - those who use a great deal of energy - would actually benefit from the change.  We decided to find out.

Methodology

To assess the impact of the new rate structure, we modified our old SCE Domestic rate model (which we have used to estimate future savings from installing solar) to reflect the rate structure changes: new baseline allocations and the elimination of Tier 5 in return for modifications to the lower Tier rates.  Now we had two models - one based on the “2012 Historical Rates” and the other based on the new rates effective April 1, 2013.

Since the allocations vary by region, we chose Region 9 (which covers the cities surrounding Run on Sun such as South Pasadena and San Marino) as the home for our representative SCE customer.  We then ran our models based on a daily usage ranging from 10 kWh (way less usage than any single-family home in either of those cities) all the way up to 70 kWh (greater usage than all but the largest properties).  To account for summertime loads, we increased the daily usage by 50% for the months of June through September (a generally conservative estimate, especially as daily usage increases).

Winners and Losers

Here are our results (click for larger):

Despite the presence of four (or five for 2012) different rates, the actual graph is almost entirely flat, except for usage at the very bottom end of the scale.  Fairly early on, we see the 2013 rates bend up above the values from 2012 with the greatest increases between 18 and 36 kWh daily usage (more on that in a moment).

As predicted, however, the rate increase is actually a rate reduction - if you happen to own a mansion or are running a whole bunch of Grow Lights.  Indeed, for folks way out there on the right edge of this curve, they will see their annual energy costs decline by more than 1%!  How nice for them.

But how did the rest of us do?  Let’s zero in a bit on where the middle class lives and see what their rates look like - check this out:

For this graph we have restricted our usage values to the range of 18-36 kWh and narrowed the scale of our cost axis to start at $1,000 instead of $0.  The resulting “magnification” shows who is shouldering the bulk of this rate increase.  Customers in this band will see rate increases this year of anywhere from 2.88% to 4.85% (at 28 kWh), and keep in mind this is just one year of a multi-year rate increase plan.

Who are these lucky folks?  Well, in terms of potential solar clients, their system needs would range from 3.6 kW (just above our minimum system size) to 7.2 kW - in other words, the “sweet spot” of our potential residential clients.

So what is our takeaway from this analysis?  Well, as is seemingly commonplace these days, if you are  in the middle you are getting squeezed.  Folks on the low end mostly get a pass while folks on the high end are actually getting a break!  But if you are in the middle, it is your pocket that is getting picked.

Installing solar is your best hedge against the clever targeting by the team, no, make that the legion of lawyers and economists employed by the utilities to design these rate structures.  We cannot stop their scheming, but we can certainly assist you in fighting back!  Give us a call today, or better yet, fill out our online form and let’s put this new rate model to use in saving you some money!

Coming up later this week: how the new rate structures affect commercial customers.

In November we wrote that SCE’s rates were set to climb on average by more than 17% over the next three years.  Now we are starting to see how those rates are about to change and the differences are indeed dramatic.

In a 500+ page filing with the California Public Utilities Commission (CPUC), SCE documents major changes to both residential and commercial rate structures that will change how, and how much, SCE’s customers will pay in the coming years.

We will be breaking this filing down over time, but for a start, let’s look at changes for residential customers.

Changing the Baseline

Most residential customers of SCE pay according to Rate Schedule D (for ‘Domestic’) that charges based on a tiered structure.  At the bottom of the tier is the so-called baseline allocation - an amount of energy use per day allowed based on where the customer resides.

As SCE explains it on their FAQ page:

Baseline was never intended to cover 100% of average residential use, but rather to provide a significant portion of the reasonable energy needs to be charged at the lowest rate, and to encourage conservation of energy.

The CPUC established that the baseline quantities be allocated at 50% to 60% of average residential consumption for basic services such as lighting, cooking, heating and refrigeration, except for residential gas and all-electric residential customers, the baseline quantity is established at 60% to 70% of the average residential consumption during the winter heating season.

Under SCE’s new Domestic rate structure, baseline allocations will drop from their present 55% down to 53% of the average residential consumption.  Since all other aspects of the rate structure are dependent on the baseline allocations, these seemingly small drops can have a significant impact on how much a residential customer ultimately pays.  However, the baseline allocation reductions are an average over the entire customer base - some customers will see their allocation increase while others will see theirs go down.

Here’s a table showing old allocations versus new ones for customers in the Run on Sun service area:

Most everyone sees their allocation increase in the winter period - precisely when most of us need it the least.  But if you live in the San Gabriel Valley - where the vast majority of our clients do - you will see a real drop in your daily baseline allocation and folks in the Pasadena area are especially hard hit.  (NB: Customers of Pasadena Water and Power are not affected by this change - only those who get their electrical service from SCE.)

Overall, for SCE’s nine different regions, six will see a reduction in their baseline allocation during the summer season while three will see increases.  For the remainder of the year, one region will see their allocation go down, six will see it go up and three will remain unchanged.

Is Anyone Shedding Tears Over Fewer Tiers?

SCE’s old residential rate structure had five tiers: baseline (or Tier 1), Tier 2 (usage of the next 30% beyond baseline), Tier 3 (usage between 131 and 200% of baseline), Tier 4 (usage between 201 and 300% of baseline) and Tier 5 (all usage beyond 300% of baseline).  At each Tier, the cost increased substantially.  Whereas a kilowatt-hour of energy within your baseline allocation was charged at the (relatively) modest rate of just 12.9¢, that same kilowatt-hour in Tier 5 would cost 32.6¢ - more than two-and-a-half times as much!

Going forward, Tier 5 is eliminated altogether - which sounds like good news until one realizes that the cost of Tiers 3 and 4 are going up, and for customers with reduced baseline allocations in the summer, they will get into those tiers much sooner.

Here’s how the new rates compare:

While the two lowest tiers are essentially flat, Tier 3 goes up by 6.3% whereas Tier 4 jumps 7.2%.

But surely with Tier 5 eliminated altogether, some customers must do better under the new rate structure, right?  Ah, that is a question for another day, but wouldn’t a graph showing annual electric bills under the old and new domestic rate structure be something interesting to see?

We thought so to - that’s coming next time.

Who is this woman and
why is she attacking solar?

In case you had any doubts, the attack on the underpinnings of the solar industry - net metering - has begun in earnest as evidenced by this Declaration of War from PG&E’s “Chief Customer Officer,” Helen Burt. The only question now is, how will the industry respond?

In a recent post on the PG&E website, Ms. Burt continues the populist attack on solar, claiming that solar customers who use net metering (essentially every residential solar customer and all but the very largest commercial customers) are not paying “their fair share.”

Here’s her take:

When customers install solar and use Net Energy Metering, they avoid paying their fair share of the electricity grid they use at night and of various programs that further California’s environmental and social policies. Remaining utility customers pay for the fixed costs of the electricity grid and other programs, driving their rates higher.

Frankly, this is simply nonsense.  All customers, including those who install solar and use net metering, are billed the same way to cover the costs mentioned by Ms. Burt.  But here’s the thing, the amount of that payment is tied to energy usage - the more kilowatt-hours you consume in a billing period, the more you pay for grid maintenance. Is that the proper way to cover the cost of fixed assets?  Perhaps not, but one thing is for sure, it wasn’t the solar customers who designed PG&E’s rate structure.

So guess what?  If you invest in LED bulbs for your home or a more efficient HVAC system on your commercial building, you will lower the amount of energy you consume - and hence you will lower the amount you contribute to covering these same costs.  Is that also unfair?

As we reported at the time, the California Public Utilities Commission (CPUC) is performing a study now to try and assess the true cost-benefit equation from solar net metering and recently the folks at Vote Solar commissioned their own study which found a net benefit to all ratepayers - including those who do not install solar.  Ms. Burt dismisses those results as “predictable” - that is biased - without ever bothering to point out that the state’s public utilities, including PG&E, had previously released their own study, with just as “predictable” results.

Regardless of how the CPUC’s study turns out, Ms. Burt makes clear that PG&E is going to continue their assault on solar: “PG&E is working with the CPUC and Legislature to find solutions for customer solar installations that mitigate or eliminate these cross-subsidies from nonsolar customers to others."  Translation? “We intend to do everything in our power - using ratepayers’ money - to eliminate net metering!”

In PG&E’s view, they should receive any excess energy production from solar customers - which they immediately sell to the solar customer’s neighbors at full retail rates - for free.  Nice deal if you can get it - but is that fair?

Of course at bottom is the simple truth that solar installations are increasing throughout California and utilities like PG&E know that as solar costs come down, they are going to start losing more and more revenue.  Since distributed generation reduces their peak load, they have less and less justification to build more generation capacity, which is the basis for their guaranteed returns.  In a world where many more utility customers can afford to install solar, this is simply not a sustainable business model.  So PG&E is doing what every dying industry does - attacking the “fairness” of the competitor that is eroding their bottom line.

It will be up to the CPUC, the Legislature - and ultimately the solar industry - to see that the faux populism of utilities like PG&E is unmasked for what it is - naked self-interest.

The California Public Utilities Commission (CPUC) just approved a modified rate case for Southern California Edison (SCE) that will guarantee rate increases for the next three years.  According to an article discussing the decision by Marc Lifsher in the LA Times, SCE’s rates will increase on average by 5% this year.  But that is just the start of the bad news for SCE ratepayers - SCE’s rates will increase by 6.3% for next year and by an additional 5.9% in 2014!

According to a press release put out by the CPUC, SCE has twenty days to file new tariffs with the CPUC which will become effective immediately.

For a commercial SCE customer who presently pays roughly $10,000/month, they can expect to be paying $11,720/month once the three rate increases take effect - an increase of more than $20,000/year.

There can be no doubt that comparable - or higher - rate increases will continue.  Adding a solar power system to your business or home is easily the best hedge that you can have against such one-way cost increases.  Give us a call (626-793-6025) or click on that big Sun on the right and let’s get started today at putting you in charge of your energy future.

While a meaningful national energy policy is nowhere to be found, California continues to lead the way, announcing that its three Investor Owned Utilities (IOUs) have reached their intermediate target of 20% energy from renewables in 2011.  According to a Renewables Portfolio Standard (RPS) Status Report just released by the California Public Utilities Commission, Southern California Edison (SCE), San Diego Gas & Electric (SDG&E) and Pacific Gas & Electric each exceeded the 20% target for renewables in 2011.  Specifically, SCE lead the way with 21.1% of its energy delivered coming from eligible renewable sources, followed by 20.8% for SDG&G and 20.1% for PG&E.  Collectively, the three IOUs account for roughly 68% of the state’s electric retail sales.  Unfortunately, the report does not provide a breakdown of those numbers by type of renewable energy source.

Most of the gains are the result of utility-scale renewable energy products, but customer-side renewable energy generation - such as that created through the California Solar Initiative (CSI) - has also played an important role in two ways:

• First, while the system owner of a customer-side facility generally retains ownership of the renewable energy credits (RECs), in some instances they can be sold to an IOU which can then count it toward the RPS goals.
• Second, since customer-side generation reduces electrical demand that must be served by the IOU, it decreases the denominator in the percentage calculation thereby improving the reported RPS score.

Under the RPS, the IOUs must average 20% from 2011-2013, 25% from 2014-2016 and 33% by 2020.

Growth of renewables in California has been dramatic: between 2003 and 2011, 2,871 MW of renewable capacity came online, with over 300 MW coming online in the first half of 2012 alone.  But future growth stands to be even more dramatic with more than 2,500 MW scheduled to come online before the end of the year!  According to a report in Forbes, that is the equivalent at peak output to the electricity generated by five nuclear power plants - which is good news given the problems at San Onofre.