If it seems like your electricity bills have jumped over the past couple of years, it’s almost certainly not your imagination. Beginning in 2015, PG&E began a gradual process of radically restructuring their standard pricing tiers. However, this is only the beginning. By 2019, all of PG&E’s 5.4 electricity customers will be subject to an entirely different pricing structure.
In 2015, PG&E began reducing the number of pricing tiers, and rolled out a new optional pay structure.
Prior to 2015, PG&E customers paid for their electricity according to a standard 4 tier plan, in which rates increased depending on how much electricity a consumer used compared to the overall average.
In 2014, the tier structure looked like this:
- Tier 1 – 0 to 100% of average use – 13.63 cents/kWh
- Tier 2 – 101 to 130% of average use – 15.49 cents/kWh
- Tier 3 – 131 to 200% of average use – 31.95 cents/kWh
- Tier 4 – >200% of average use – 35.95 cents/kWh
This might seem a bit confusing, and lead someone to think that if they used, say, 135% the average amount, that their entire electricity usage would be billed at the 31.95 cent/kWh rate. This isn’t the case.
Let’s break it down. Let’s say that in March of 2014 the average customer used 1,000 kWh of electricity. Under the pricing system above, if a customer used 1,500 kWh of electricity that March, 150% of the average, their electricity cost would be calculated thusly:
- 1000 kWh – Tier 1 (0 to 100%) @ 13.63 cents = $136.30
- 300 kWh – Tier 2 (101 to 130%) @ 15.49 cents = $46.47
- 200 kWh – Tier 3 (131 to 200%) @ 31.95 cents = $63.90
- 0 kWh – Tier 4 (>200%) @ 35.95 cents = $0
- Total = $246.67 (before any additional fees or surcharges)
As should be evident above, the block of electricity that falls into Tier 1 is charged at the Tier 1 rate. Then the additional usage that falls into Tier 2 is charged at the Tier 2 rate, and the same with Tier 3. Because this hypothetical customer didn’t use more than 2,000 kWh of electricity (200% the average rate), no electricity is charged at that rate. The charges for each tier are totaled, and that provides the final cost.
But starting in 2015, PG&E began adjusting their pricing, as well as the tier structure. In 2015 and 2016, the rates were raised for each tier. More drastically, the number of tiers was reduced to 3 in 2016, and in 2017 the rates for the highest tier were raised drastically for the highest tier, as it is now subject to a “high usage surcharge.”
As of December 2017, the tier breakdown now looks like this:
- Tier 1 – 0 to 100% of average use – 19.979 cents/kWh
- Tier 2 – 101 to 400% of average use – 27.612 cents/kWh
- High Usage Surcharge – <400% – 40.139 cents/kWh
For perspective, if our hypothetical user described above used 1,500 kWh today, with average usage being 1,000 kWh, their bill would now run them $337.85, an increase of $91.18, or 37%. This is a pretty substantial increase, especially considering that inflation only accounts for approximately $20 of the $91 increase.
Unsurprisingly, there has been a lot of media attention on the high usage surcharge and its impact on the bills of homeowners who use a lot of electricity. But the reality is that it is the more typical users who are the hardest hit by the rate increases.
To illustrate why, let’s look at how much prices have increased for usage amounts that fell into the old 4 tier system:
- 0 to 100%: Old price = 13.63 cents | New price = 19.979 cents | Price increase = 46.6%
- 101 to 130%: Old price = 15.49 cents | New price = 27.612 cents | Price increase = 78.3%
- 131 to 200%: Old price = 31.95 cents | New price = 40.139 cents | Price increase = 25.6%
- >200%: Old price = 35.95 cents | New price = 40.139 cents | Price increase = 11.6%
Looking at the breakdown this way, it becomes quite obvious that while the highest tiers are the most expensive, the largest increases have actually been in the lowest 2 tiers. While the media has focused on the potential impact on high consumption users, it’s the moderate users who are suffering the most.
And this is why homeowners should be worried about what lies ahead. In 2018, PG&E will implement the third tier pricing adjustment since 2015, so the rates described above will climb even higher. But it’s in 2019 that things will really change.
PG&E’s new time-of-use pricing structure is going to hit pocket books even harder.
In 2016, PG&E introduced a price structure option that homeowners could chose to opt into: time-of-use pricing. Time-of-use does away with consumption-based pricing, and instead charges users according to when they use their electricity. When demand is higher—typically during the day and early evening—prices are higher.
As an example, here’s what PG&E time-of-use structure looks like during the winter:
In the summertime, an additional “partial-peak” tier is introduced with rates between those charged during off-peak and peak hours.
But the real concern isn’t the structure, but the rates that are charged, and the fact that as of 2019, all PG&E customers will be shifted to time-of-use pricing, and the old price tiers will be discontinued entirely.
What can you expect to pay when you’re shifted to time-of-use pricing? Well, during the winter months, the off-peak rate is currently 20 cents/kWh, and the peak rate is 22 cents/kWh. In the summer, rates go higher: Off-peak costs 21.2 cents/kWh, partial peak costs 23.9 cents/kWh, and peak costs 26.3 cents/kWh. Compared to the current Tier 1 rate, these represent a price increase of up to 31.6%. And these are the rates that you’ll be charged, regardless of how much electricity you use.
The takeaway of all of this is that you need to start finding ways to reduce your energy consumption as soon as possible, before your electricity bills start to truly skyrocket in 2019.
At Gilmore Heating Air & Plumbing, we give homeowners many different ways to make their homes more energy efficient and reduce their electricity bills. Whether it’s installing new insulation, upgrading to a new energy efficient HVAC system we have the expertise and experience to help you improve your home. And if you don’t know what the best route is for reducing your energy costs, we can help with that too. Just call us for a Home Energy Audit, and our experts will examine your home and identify the major culprits responsible for your out-of-control energy costs.