The Bakersfield Effect: Life on the Warm Side of the Hills

I live in California on the warm side of the Mountains.  I worry that all my utility providers for electricity, natural gas and water are out to get me.

Am I being paranoid?

I have written before about the “Bakersfield Effect” where customers in that Central Valley city streamed into a town hall meeting waving their utility bills complaining about how smart meters had caused rate spikes.  The truth is those rate spikes had little or nothing to do with the smart meters but were caused by the combined effects of utility rate cases, tiered rate design, and hot summer temperatures on the warm side of the hills.

For years, California utilities and regulators have used inclining block rates to encourage energy and water conservation.  Under these rate structures the more you use the higher the unit cost for that consumption.  This is a great rate design for those who live on the foggy, cool side of the Mountains nearer the California coast who enjoy substantially lower utility bills than those of us live inland where it is warmer and we get slammed by the tiered rate design structure impacts.

This ‘lets make those warm side of the hills people pay for their wasteful ways’ attitude also fit the conventional wisdom of the cool side of the hills crowd that energy use beyond their own “lifeline” blocks is somehow wasteful and environmentally irresponsible. You can imagine how well this plays on Main Street in Bakersfield when the summer temps reach 105 degrees when they see some San Francisco type in her jacket because its 59 degrees in the city that same afternoon giving an interview on the wasteful energy ways of Bakersfield.

So what?  So running my A/C during a typical August or September peak cooling month can easily cost me more than $1,000 per month in my energy bill because of tiered rates—that is the’ Bakersfield Effect’.

For years we have lived with this and managed it by reducing A/C use, expanding patios, adding trees for shade, planting native plants that are less water intensive and other mitigations.  Level billing is our friend because it smooths out the volatility of payments even if it does not relieve the pain of higher rates.

Solar Power and Net Metering

California has been a big booster of solar energy and net metering was one of the incentives to get customers to capitalize the cost of solar rooftops to achieve California’s goal for solar market share growth.  Net metering permits customers to effectively run their utility meter backward essentially selling the solar power in excess of that consumed on site back to the utility.

The bill authorizing net metering limited sell back to 2.5% of annual energy use.  Over time PG&E was so successful in getting customers to consider solar that it was approaching the 2.5% cap.  But instead of declaring victory and celebrating goal achievement the solar industry went back to the Legislature and lobbied hard to raise the cap to 5% of retail energy sales.  PG&E fought this telling the solar boys to go pester Southern California Edison and San Diego Gas & Electric who were far behind PG&E in net metering to step up their game. But in the end the 5% net metering amendment was adopted and the Governor signed it into law.

One of the reasons that California is such a good solar energy market is that solar works best on the warm side of the hills at peak load times.  That tiered rate structure of inclining block rates I ranted about earlier has the perverse effect of enabling those who live on the warm side of the hills to successfully game the rate structure and afford to turn the A/C on in hot summer months.

How?

It turns out that the combination of net metering especially at 5% levels and the five tier rate structure of PG&E means that homes on the warm side of the hills using lots of energy for A/C in those hot summer months can actually earn a lot more net metering credits when their use pushes them into tier 4 or tier 5.  This dramatically increased the attractiveness of solar roof tops.

Previously with 2.5% cap on net metering solar roofs were OK but required a big upfront investment only to have the benefits of net metering cut off once the 2.5% cap was realized.  This was a good news story for PG&E as it neared the cap because it would receive the net benefit of all that solar roof top generation on peak beyond 2.5% without having to pay for it once the cap was reached.

The solar lobby beat PG&E opposition at the California Legislature, in part, by telling the oversimplified, but effective, story of how the utility was going to gain the benefit of solar generation while leaving customers stuck with capitalizing the solar panels.

The problem is many of the people on the warm side of the hills can not afford to put solar panels on their roof tops so they get slammed by the tiered rate structure.  But the solar lobby has a solution for that problem too with no money down solar leases.

Tiered Rate Change Ahead

PG&E lost the net metering battle but it may yet win the net metering war through its proposed change in tiered rate design structure.  PG&E has proposed to consolidate the five rate tiers into three tiers.  The net effect of this will be to reduce the net benefit of net metering for the best solar customers on the warm side of the Mountains—and thus mitigate the net metering impacts of the new law by reducing the payback amounts.

The effects of this proposed change in net metering structures is confirmed by the Lawrence Berkeley Labs report on residential net metering which quantified the unintended consequences of the five tier rate structure when combined with the net metering cap.[1]

The report showed that the bill savings per kilowatt-hour (kWh) generated by a PV system varies by a factor of 4 to 5 for residential customers of Pacific Gas & Electric (PG&E), and by a factor 2 to 3 for Southern California Edison (SCE) residential customers depending upon where they fell in the tiered rate structure.

“The residential rates currently offered by PG&E and SCE have inclining usage tiers whereby customers that consume more energy each month pay a higher price. Consequently, high-usage residential customers receive relatively high-value bill savings from net metered PV systems.” — Galen Barbose, one of the study authors at Lawrence Berkeley Labs.

The study also examined feed in tariffs and other alternative compensation mechanisms including paying for net metering at avoid cost but found none provided as much benefit in net metering payback at the current five tier rate structure.

Those who install solar roof tops expecting to see a substantial net metering payback on their investment may be in for an unpleasant surprise, but even with a three tier rate design the folks on the warm side of the hills are still going to get hammered in hot summer months.


[1] http://eetd.lbl.gov/ea/emp/reports/lbnl-3276e.pdf