What are Energy Alerts?
“The State of California has adopted a policy to encourage energy conservation, where utilities like PG&E charge residential customers on a tiered rate structure. The higher the tier, the more you’re paying for a kilowatt hour of electricity. Using the power of SmartMeter technology, PG&E will be able to alert you by text message, e-mail or automated phone call when your electric use is moving toward a higher-priced tier. These alerts can help you better manage your energy use and save.”
Energy Alerts are coming this summer—to receive an email letting you know when you can sign up go to: www.pge.com/energyalerts and enter your email address.
That’s what the postcard I received in the mail this week told me. I can just see the messages in my fears now:
Tier 3 Alert: Cool now? Turn it off or it’s really going to cost you!
Tier 4 Alert: You idiot! We warned you and now you must pay big time!
Tier 5 Alert: What did you do rob a bank or win Lotto?
Don’t Confuse Smart Meters with Complex Utility Rate Design
Figuring out my utility bill is a lot like doing my income taxes! And tiered rates are like the alternative minimum tax—it sounded great in theory but there are many unintended consequences. There is a risk linking smart meters with the issues of rate design for PG&E and other utilities. The risk is the public will blame the smart meter for high bills like they have in Bakersfield when the culprit is the rate design.
Maybe this is an attempt to improve the image of smart meters by telling customers the smart meter is your friend—use it to beat the rate design gremlins. Sorry guys, it won’t work.
The PG&E website is a useful source of rate information. ‘Understand Your Electric Charges’ is one section on the PG&E website. It takes you through the tiered rate design structure and shows you how baseline calculations affect your bill. This is a little like trying to figure out how to beat the IRS out of your alternative minimum tax penalty. The more you know the more you worry that they really are out to get you.
What are Tiered Rates?
Under current rate designs in use the more energy you use the higher the unit cost for that energy. The rate tiers range from 12 cents to 50 cents per kWh.
- Baseline Rates are 12 cents per kWh but your baseline amount varies depending upon where you live. How are baselines determined? “Baseline quantities are set within a range specified by state law and implemented with the approval of the California Public Utilities Commission. Since baseline quantities are set based on the average use for residential customers in an area, they can vary by geographic location, or baseline territory. Baseline quantities also vary by time of year (summer or winter), and are based on your home’s heating sources. Baseline quantities are set between 50 and 60 percent of the electricity the average residential customer uses in each territory. In the winter, all-electric customers have a higher baseline quantity, between 60 to 70 percent of average use, to account for electric heating.”
- Tier 2 Rates are 13 cents per kWh for 101% to 130% of baseline usage. This is likely the most common rate block for apartment dwellers and smaller homes on the cool side of the hills. More customers are likely billed at Tier 2 during shoulder months when temps are cooler and A/C is not needed.
- Tier 3 Rates are 29 cents per kWh and cover usage from 131% to 200% of baseline. This is when you will get your first alert that you usage rate is about to DOUBLE if you keep that A/C on so shut it off and go to the beach or to the mountains for the day, is the message.
- Tier 4 Rates are 42 cents per kWh and cover usage from 201% to 300% of baseline. You are living dangerously now and it is really going to cost you since you now will pay almost 4X the baseline rate. Be afraid! Be very afraid when you see the mailman.
- Tier 5 Rates are 50 cents per kWh and cover usage over 300% of baseline. The message here is we have already sucked almost all the money out of your bank account but to make sure you change your sinful ways we are going to put a lien on your first born to pay the bill.
Why do we put up with this?
The truth is that over time it just sneaked up on us brought on by different issues over time. For generations utility rates were driven by utility power plant construction. In boom times after WWII each new power plant brought on line—usually a coal plant— brought down the average cost of electricity and held rates down. Then the combination of inflation and nuclear power plant construction cost escalation changed everything driving up average costs and thus rates. The policy choice made was to introduce competition in the form of wholesale power generation to bring down average costs and force utilities to shop for better power supply deals. Conservation and demand side management became popular ways to control the need for more power plants. And for a while the combination of these market forces worked to impose market discipline.
But changing attitudes about energy and environmental issues changed the policy and regulatory focus. Renewable portfolio standards required utilities to purchase more wind and solar energy for their portfolios. Sometimes these supply resources were more costly but RPS standards set minimum targets which must be met regardless of cost.
As concerns about global warming heightened utilities were faced with changes in power plant technology, equipment and emissions limits.  That process has produced a growing policy bias against coal, but not much support for new nuclear power plants to meet baseload needs. Despite renewable energy market share growth, it is not sufficient to replace coal, not reliable enough to meet grid needs given its intermittence, and not available in many cases due to the lack of transmission to bring the wind and solar energy to load centers. The practical result is the US is becoming more dependent on natural gas to meet its energy needs as the default fuel. 
And then there is smart grid. Technology has improved our environmental and energy performance and made power generation more efficient. Smart grid provides the data about energy use to give customers insight to make efficiency more practicable and demand response policies more effective. But to realize the potential of smart grid we must do two things that turn the energy industry on its head. We must build more high voltage transmission to bring renewable energy to market in sufficient quantities to reduce dependence upon our coal fired generation base. And we must move from average cost electricity pricing to dynamic pricing to expose customers to price signals that encourage more energy efficient and environmentally responsible energy use.
Smart meters are a tool to implement these policy aspirations. They do not cause higher utility bills, but they are part of the ‘last mile’ utility regulators and legislators must travel to realize their policy aspirations for renewable energy, for emissions reduction and for smart grid. Energy alerts from my utility remind me of the day of reckoning ahead where it will not be the tiered rates for my average monthly use that will drive my utility bill but the dynamic prices of my energy use in near real time that will change perhaps as often as every ten minutes. So today my smart meter is a nuisance but in the not too distant future it may truly be my friend!
What is your tiered use? This question will repeat every ten minutes!
Would you like to receive energy alerts?