Most Southern California Edison residential customers are charged for energy use under a tiered structure in which the more electricity they use, the more they pay for each kilowatt hour. On April 1, the number of tiers was reduced from five to four as part of a continuing effort to spread the cost of electricity more fairly across all customers.
W h a t i s t h e T i e r S y s t e m ?
Each SCE residential customer is allocated a certain amount of low-cost electricity, called the baseline allowance, for daily household activities such as lighting, heating and running a refrigerator. Baseline allowances are required by law and administered by the California Public Utilities Commission, which regulates investor-owned utility services in California. As customers use more electricity beyond this amount, they’re charged progressively more. For instance, in tier one (the baseline allowance), one kilowatt hour of electricity costs 13 cents, but in tier three, it costs 27 cents.
In 2001, to keep electricity affordable for residential customers, the California legislature put a cap on the rates that investor-owned utilities could charge in the bottom two tiers. Because those rates are still restricted, about two-thirds of all residential energy use is still priced about the same as it was more than 12 years ago. “While those rates have remained largely unchanged, SCE’s costs have increased,” said Pricing Design & Research Director Russ Garwacki. “Clean, renewable power and building grid infrastructure to ensure reliability cost money, and all customers who benefit from these investments should help pay for them.” Per state law, these costs have been collected mostly from rate increases to the upper tiers, so customers who use more electricity—for instance, homeowners who live in hot inland regions and frequently use their air conditioners—shoulder a disproportionate amount of the financial burden and essentially “subsidize” customers who pay only the lower tier rates.
R e s t o r i n g B a l a n c e
On April 1, several changes went into effect to help correct this within the confines of existing law. With the CPUC’s approval, SCE reduced the number of tiers in its residential rate structure from five to four, making the cost difference between the bottom and top tiers less dramatic (see the illustration below). It also reduced the baseline allowance, spreading higher electricity costs more equally across all customers.
SCE is working with other California utilities to support legislation in Sacramento that would enable the CPUC to make the residential rate structure more equitable. “The ultimate goal is to ensure balance in rates,” said Akbar Jazayeri, SCE’s vice president of Regulatory Operations. “We want to make sure that all our customers pay a fair rate for the valuable electric services they receive.”