Sacramento is one of the few California municipalities where customers still own their utility company. But recent and proposed changes to the Sacramento Municipal Utility District’s residential rate design threaten to significantly reduce customer incentives to move toward energy efficiency and distributed generation, and they will likely undermine investment decisions that customers have already made.
SMUD has already adpopted a fixed “System Infrastructure Charge”, currently set at $12 a month and scheduled to escalate to $20 by 2017. The customer incurs this fixed charge regardless of how much energy they use. Because SMUD collects a significant share of its revenue from these fixed charges, energy charges are lower than they would be otherwise, reducing incentives for customers to change their behavior and invest in efficiency initiatives like rooftop solar.
Now, SMUD is considering something called “tier convergence” — which in plain language means going from two-tiered rate to a flat rate in 2017 before adopting default time of use (TOU) rates in 2018.
Currently, SMUD’s customer usage up to 700 kWh per month in the summer is billed at a relatively low rate, while usage above this level is charged at a higher rate. This system ensures that all customers have access to a minimum amount of energy at a reasonable cost while heavy users face strong incentives to become more energy efficient.
SMUD’s proposal involves increasing the baseline rate and baseline usage level, exposing low usage customers to higher prices, and high usage customers to lower prices. From an energy usage standpoint, this approach combined with the fixed charge is highly regressive, penalizing low-usage customers and rewarding high-usage customers.
To put this in perspective, a customer who only uses 500 kWh/month in the summer, will see their monthly bill increase by around 30% in 2017 compared to what they pay today. By comparison, a customer who uses 2000 kWh/month will see their monthly bill shrink by about 17% in 2017 as compared to their bill today.
I haven’t studied SMUD’s ledgers. I don’t know their current financial picture. But I don’t see how a customer-owned utility can implement this kind of change without a more thorough vetting process to make sure these changes don’t run counter the values and priorities of the community SMUD works for. And that doesn’t seem to have taken place here.
SMUD should engage with stakeholders, including representatives from the environmental community, as well as solar and energy efficiency providers, to develop and evaluate alternative approaches to rate reform that are more consistent with state policy objectives.