California Electric Bills – a Tale of Two States

Over 800,000 households in California were shutoff from electric service in 2015 because they could not pay their utility bill. California residential electric rates are among the highest in the nation, exceeded only by a handful of states in the Northeast and Hawaii. Yet when TURN raises the issue of high electric costs with the utilities and regulators who are supposed to ensure “affordable” electric service, the response is a calm assurance that there is little to worry about, because monthly utility bills in California are lower than or equal to the national average. This simplistic response hides an uncomfortable truth – millions of residents in hot climate zones, which also tend to be the poorer areas of California, pay among the highest bills in the country. California’s average bills are skewed downward by residents in the temperate coastal areas who use relatively low amounts of electricity. The cost of living is high in California, and affordability of electric service is a serious issue for millions of families struggling to make ends meet.

The utilities are not wrong that average electric bills in California are lower than in other states, as illustrated in Figure 1.

Figure 1. Average Bills of all PG&E and SCE Customers are Lower than the National Average[i]

Lower bills are primarily due to our relatively mild climate and long history of building and appliance codes and standards, resulting in relatively low electric consumption. The large portion of California residents who live along the coast, and in major urban areas such as San Francisco, San Diego and Los Angeles, experience relatively mild weather, and generally do not need significant air conditioning. As a result, the consumption of a residential customer in California is about 60-65% of the national average.[ii] Very low consumption multiplied by high rates yields a bill still lower than the national average. A low-income program called CARE also reduces the bills of qualifying low-income customers (around 30% of utility customers qualify for the program), thus also lowering the average.

However, these “averages” conceal a critical fact that there are two different Californias. Two of the California electric utilities – PG&E and Edison – are the largest two utilities in the country in terms of the number of residential customers served, with very large service areas that include distinct climate zones. There is the coastal area, with relatively mild climate and low electric use. There is also the hot inland area, with much higher electricity consumption due to the need for air conditioning. Table 1 below shows the number of customers divided by “hot” and “non-hot” climate zones. Each of these two distinct climate regions in the service territories of SCE and PG&E would by themselves rank as one of the largest utilities in the country.[iii]

Table 1. California Utilities Have Large Numbers of Customers in Different Climate Zones[iv]

Hot Non-Hot Total
PG&E
CARE 628,991 553,228 1,182,219
Non-CARE 1,068,249 2,466,457 3,534,705
PG&E Total 1,697,240 3,019,685 4,716,924
SCE
CARE 520,065 727,840 1,247,905
Non-CARE 945,936 2,145,417 3,091,353
SCE Total 1,466,001 2,873,257 4,339,258

Comparing the average bills for SCE and PG&E to other utilities in the country masks the geographic diversity of California. A more appropriate comparison takes into account these fundamental differences in California’s climate, and the resulting consumption of electricity. The average bills for customers in hot versus non-hot (moderate and cool) climate zones are drastically different.[v] Figure 2 shows average bills for all SCE and PG&E customers. Figure 3 shows average bills for non-CARE SCE and PG&E customers—about 70% of all customers.[vi]

Figure 2. The 3 million SCE and PG&E Customers in Hot Climate Zones Pay 29%-73% More than Customers in Cool Climate Zones

Figure 3. The 2 Million non-CARE SCE and PG&E Customers in Hot Climate Zones Pay 32%-85% More than non-CARE Customers in Cool Climate Zones

When Figure 1 is recalculated to use these data, the result shows that average bills for the approximately two million non-CARE customers of PG&E and SCE in hot climate zones in California rank in the top 10 and 15 (PG&E and SCE, respectively) in the nation, as illustrated in Figure 4.

Figure 4. Non-CARE Customers in Hot Climate Zones Pay Bills about 20% Higher than the National Average

PG&E and SCE are fond of presenting data based on “averages.” Those averages mask critical distinctions, whether at the global, national or state level. In making decisions concerning affordability, decision-makers in California must recognize that the average bills of non-CARE residents in hot inland areas are significantly higher than national averages.[vii]

Some blame California’s high electric rates on our environmental policies, including our success in promoting renewable energy. There’s little behind these claims. California’s high electric rates are caused primarily by an unprecedented spending spree by PG&E, SCE and SDG&E on basic system infrastructure, the poles and wires that deliver electricity. More on this in a future blog.

 

[i] Data for the largest 50 IOU’s in the country by number of customers. Calculated from form EIA-861 data for 2015 collated by EIA.

[ii] For example, in SCE found that in 2012 its customers consumed about 60% of the national average. A.13-11-003, Exh. SCE SO-1, p. 14.

[iii] PG&E’s hot climate zone would be seventh highest in the nation (by number of customers), and SCE’s would be eleventh highest.

[iv] In comparison, there are only four other investor-owned utilities in the country (out of about 190 investor-owned utilities) with more than two million customers.

[v] These difference is true even though coastal customers actually pay higher “average rates” due to the fact that California has tiered rates, and customers in hot areas have higher “baseline quantities” subject to the first and lowest tiered rate. This has always been a confusing issue. The truth is that if a customer in San Francisco used as much electricity as a Fresno customer, they would actually pay a higher monthly bill.

[vi] There are about 1.07 million PG&E non-CARE customers in hot climate zones and about 0.95 million SCE non-CARE customers in hot climate areas, including Zone 10, or 0.38 million without Zone 10. SCE classifies Zone 10 as moderate, but data show it is a hot climate area based on temperatures.

[vii] This fact is true even though inland residents pay proportionately less per kilowatt-hour than coastal residents due to the higher “baseline” amounts in hot climate zones. Thus, there is already a small amount of “subsidy” for inland customers. Our point here is not that there should be more subsidy, but that we must recognize that high rates cause high bills for many California residents.