Fresno Energy Costs Killing Families and Jobs

Written by CA Political News on February 08, 2010, 11:57 AM

PG&E customers feel sticker shock from rising rates

By Tim Sheehan, The Fresno Bee, 2/8/10

A Jan. 1 electricity-rate increase by Pacific Gas & Electric Co. may not feel like much now.

But when Valley temperatures climb into the 90s and air conditioners start to hum in earnest, the utility company could feel the heat as customers lose their cool over electric bills.

As PG&E prepares to make its case for yet another rate increase next year, growing frustration over high bills and mounting skepticism about the utility's new SmartMeters are prompting greater scrutiny of the company's prices.

Fresnans already grumble about getting higher bills for electricity than people elsewhere. A look at rates in other hot-weather communities in the southwestern U.S. suggests that they are right.

Compared to other utilities, PG&E's high-energy-use households bear a greater burden to subsidize lower rates for customers who use less electricity.

To encourage energy conservation in California, the prices charged for electricity by privately owned utilities slide upward as a household's consumption goes up. So the more power you use, the higher your rate.

For PG&E customers, it stands to be much higher. Its highest residential electric rate for single-family households is as much as four times what people pay in some other sun-scorched cities in the West.

That kind of comparison prompted George L. Strasser of Fresno to describe the Valley's power rates as "absurdly high" in a recent opinion column in The Bee.

"My wife and I moved to Fresno in 1975. We raised three kids here," he said. "I can tell you that for decades it did not cost an arm and a leg to stay comfortable in the summer. Now it does."

Since 2001, PG&E's residential rates have undergone dozens of adjustments that have boosted its average residential electricity rate by 53%.

Contributing to the uproar are concerns over new-fangled meters that measure a home's power use. The arrival of SmartMeters in the Valley last summer and fall coincided with sticker shock as many customers saw their utility bills jump. For example, Fresno resident Leo Margosian said the September bill for his condo was nearly four times higher than it was a year earlier.

PG&E customers were joined by state legislators in challenging the accuracy of the devices.

In response, the California Public Utilities Commission -- the agency that regulates private utility companies and their rates -- ordered an independent audit of PG&E's SmartMeter program.

PUC spokesman Andrew Kotch said the state expects to choose a consultant soon for the review, which is likely to take about six months.

PG&E said it field-tested more than 1,700 installed meters last fall and found no faults. Officials say they support the PUC's audit and are confident it will confirm the accuracy of the meters.

Baseline and tiers

Electric consumption is measured in kilowatt-hours, or kWh. Ten 100-watt light bulbs burning for one hour use 1 kWh of electricity. A typical refrigerator consumes about 1,100 to 1,200 kWh in a year. Air conditioning in an average home may use 2,000 kWh in a year.

PG&E, the utility that serves much of the central San Joaquin Valley and Northern California, charges for electricity based on five tiers. Each household gets a certain baseline allowance of electricity that is charged at the utility's lowest rate, 11.88 cents per kWh.

PG&E's baselines vary from region to region -- a higher allowance in hot-weather areas, lower in milder areas.

In Fresno, the summer baseline for a single-family home is about 543 kWh a month. Stockton's baseline is a little lower, about 495 kWh a month. And in San Francisco, where summer days can feel downright nippy, the allowance is about 249 kWh a month.

If a household's power use rises above that allowance, a higher rate applies for every kWh over the threshold. Prices rise incrementally as the amount of power used crosses into each additional tier.

PG&E's baseline rate is comparable to -- even a little less than -- baseline rates charged by Southern California Edison, another investor-owned company, or the Los Angeles Department of Water and Power, the municipal utility that serves much of metropolitan L.A.

In the Valley, PG&E's charge for 1,000 kWh -- about what the U.S. Department of Energy says an "average" home uses in a month -- is about $177 in Stockton and $168 in Fresno. Southern California Edison charges about $161 for the same amount of power in Bakersfield. In Pasadena, served by LADWP, the cost is about $135.

Elsewhere in the Southwest, the cost for 1,000 kWh is about $98 in Tucson, Ariz., and $129 in Las Vegas.

But customers with larger homes to cool, or swimming-pool pumps to run, can easily find themselves reaching into PG&E's three higher-rate tiers, where the price per kWh can be 12% to 38% higher than Edison's.

"Tiered rates are designed to reward conservation," said Mindy Spatt, a spokeswoman for The Utility Reform Network, or TURN, a consumer advocacy group.

But because the baseline and lower tiers are protected from dramatic rate increases, "when you look at how much higher PG&E's tiers are, all of the rate hikes have gone to the top tiers," Spatt said.

At its highest residential tier, PG&E charges 47.39 cents for a kilowatt-hour.

That's more than Southern California Edison, where the top rate is 34.25 cents; San Diego Gas & Electric, with a top tier of 20.2 cents; or the Sacramento Municipal Utility District, where the highest rate is 17.02 cents.

The differences are even more striking when compared to the highest rates charged in other southwestern states: 15.21 cents in Albuquerque, N.M., 12.1 cents in Las Vegas, Nev., or 11.47 cents in Austin, Texas.

There are plenty of factors that play into the rates, said PG&E spokesman David Eisenhauer. And when it makes its case to the California Public Utilities Commission for approval of its rates, the utility is entitled to recover its costs of doing business: fuel to generate the electricity, sending the juice out over transmission lines, maintaining wires and poles -- and a "fair return" for the company's shareholders.

"It's the pipes, poles and wires, and the cost of the actual commodity itself," Eisenhauer said. "We apply to the PUC and tell them how much money we need to run our business, and once that's determined, we distribute that based on the rate structure approved by the commission."

But such costs aren't unique to PG&E. Other utilities have to buy electricity or the fuel to produce it, and they have to maintain their distribution lines and other infrastructure, too. So why is PG&E's top tier so much higher than anyone else's?

Eisenhauer's explanation: PG&E's baseline allowances are higher than other California utilities.

"That results in more customers at a protected level," he said -- and it means increases can only be distributed among the upper levels.

In its last general rate increase in 2007, PG&E opted to design its rates to load the increases more heavily on the top two tiers, Eisenhauer said, while other utilities chose to spread the increases more evenly.

Feeling the sting

Spatt offers a different explanation for the rate discrepancy: PG&E's billion-dollar bottom line.

In its most recent financial statement, the utility's parent company, PG&E Corp., reported total profits of about $957 million through the first nine months of 2009.

"I don't know if it's greed or if it's overreaching. ... Maybe it's because they have a guaranteed rate of return," Spatt said. "But it's an extremely top-heavy utility with exorbitant salaries and huge lobbying and marketing expenses."

Amid the jumble of baselines, rate tiers, cost factors and profit margins, there's no precise answer to what it all means to an "average" power bill.

The U.S. Department of Energy estimates a typical American household will use about 11,000 kWh of electricity in a year, or about 916 kWh in a month. But that doesn't take into account geographical differences or seasonal swings in demand.

And other variables affect a home's energy use and its power bill -- the size of the home, whether there's a swimming pool or spa, the age and efficiency of appliances, and how vigilant the residents are about conservation.

How do electricity rates stack up?

But Spatt isn't convinced that any of those variables justify what PG&E charges at its top tiers -- or the extra $1.7 billion the would be generated in three years by a rate increase the utility is seeking from the PUC.

"TURN is going to review every single word of that document, and we're going to challenge everything we think is unnecessary, that is padding, that is overreaching," she said. "Ultimately, the problem is that PG&E keeps raising the rates, and the PUC keeps letting them do it."