AB 327's Solar Threat: A Fact Sheet

What does AB 327 (Perea) say exactly? 

AB 327, authored by Assemblymember Henry Perea (D-Fresno), is a residential rate reform bill that requires the following:

  • Up to a $10 monthly fixed charge on all residential ratepayers, $5 monthly charge for CARE customers.
  • Remove a 10-year limit on frozen rates for ratepayers who consume low amounts of electricity (150% of baseline). By allowing the utilities to increase rates for the lower tiers (1 & 2), they can lower rates for the upper tiers. This is being referred to as a “flattening of rates”.
  • Allows voluntary Time-of-Use rates but prohibits mandatory TOU rates prior to 2020.
  • Make additional changes to the CARE program to protect low-income ratepayers.

What exactly is tiered pricing?
Tiered pricing grew out of the California Energy Crisis of 2000/2001 and the desire to protect ratepayers from the utilities drastically increasing electric prices to recoup their lost investments from deregulation.  Most utilities have a 4-5 tiered pricing structure.  The first two tiers, 1 & 2, are occupied by ratepayers who use average or below average amounts of electricity. The way in which these averages are calculated are based in part on the varied climate zones of the state (e.g. baseline for hot Fresno is different than foggy San Francisco) and the available fuel sources to help heat and cool their homes. The upper tiers (4&5) are used by heavy electricity users. Tiered pricing is not based on income, just usage.

Example of Summer Tiered Pricing in San Diego

Residential Rate Tiers Cost/kWh Example Usage kWh   Total Cost/Tier
Baseline Tier 1 $0.14 350 = $49.00
30% of Tier 1 Tier 2 $0.16 105 = $16.80
70% of Tier 1 Tier 3 $0.29 245 = $71.05
All other usage Tier 4 $0.31 300 = $93.00
      1000   $229.85

What does it mean to flatten rates?
Basically what AB 327 contemplates is removing a decade-old restriction on raising rates for those living within the two lower tiers (e.g. lower energy users) and lower rates for those within the upper tiers (4&5). By raising the lower tiers and lowering the high tiers, the utilities are seeking a “flatter” or more equal rate between the different tiers.

What is Time-of-Use pricing, or Time-Variant pricing?
Whereas tiered pricing is about how much electricity you consume in a month, time-of-use or time-variant pricing is about when you consume electricity. With tiered pricing, you essentially pay more for your electricity the more you use (the opposite of going to Costco and buying in bulk and getting a better price per unit). With Time-of-Use pricing, you essentially pay more or less based on when you use the electricity. The idea is to price electricity based on the cost to the utility, which often is based on when the electricity is delivered. Electricity tends to be more expensive during the hot summer afternoons, when demand, is high than during the middle of the night. This has a lot to do with air conditioning loads. Both rate designs help promote conservation, efficiency and distributed generation by driving consumers away from high energy consumption and away from using electricity during hot summer afternoons. It is just good, sound policy.

One argument against both rate designs is that someone living in the Central Valley has a harder time reducing their air conditioning usage on hot summer days than, for example, their laundry usage. In other words, it is easier to curb use of non-essential appliances during peak time-periods than it is to curb essential appliances, like air conditioners. However, California’s peaking power plants are typically the dirtiest, adding pollution during the time of day/year that California has the worst air quality. Peak demands also dictate how many transmission lines and other expensive investments are needed – even if they service the state only a few hours out of the year.

How would AB 327 impact clean energy solutions, and in particular, solar power in California? 
AB 327 would enact the most significant change in residential rate design in the past decade and would move California backward when it comes to promoting conservation, efficiency and clean distributed generation. It would ease pressure on consumers to reduce their overall electricity usage by allowing a monthly fixed charge and simultaneously flattening out rates. Consumers would be obligated to spend $120 per year, no matter how much is saved through efficiency and conservation or how much of their own electricity they generate via renewable energy. Instead of investing in energy efficiency or solar power to shave off high electricity costs due to high electricity demand, consumers would have a lessened desire to make changes to how much electricity they are consuming.

According to the Sierra Club, flattening tiers could be equivalent to increasing the cost per installed watt of solar by $2.50 (30% of total cost), an effect that would be roughly equivalent to canceling the federal tax incentive for rooftop solar. Another analysis byNRDC shows that a monthly fixed charge combined with flattening of rates could cause a 30% increase in the amount of time it takes to recover energy efficiency investments. By levying a fixed $10 charge on all customers, the utility can now afford to drastically shift costs from their upper tiers which are the most cost effective tiers as it pertains to the savings borne by energy efficiency and solar.

CALSEIA’s Questions 
Why can’t the Legislature just remove the rate freeze on the lower tiers (1&2) and lower the upper tiers (4&5) – as a way to relieve some of the pressure felt by the middle class Central Valley ratepayers – without charging a fixed monthly charge? Why are the utilities insisting on doing both things, things that hurt efficiency and solar power? And, why are they insisting on legislative approval for a fixed monthly charge when the PUC, once rates were unfrozen, would have the authority to adopt a fixed charge if they deemed it necessary on their own? The answer isn’t clear but certainly begs to be asked. CALSEIA believes that the fixed charge should be removed entirely from AB 327.

Who’s for AB 327?
The investor owned utilities – PG&E, So Cal Edison, and SDG&E – are the main proponents of AB 327.

Who’s against AB 327?
Lining up against the fixed charge within AB 327 are energy efficiency groups, environmental organizations, solar power groups and Latino groups.

What is the timeline and key decision points for AB 327? 
AB 327 was introduced in the state assembly this year. It was passed by the full assembly at the end of May but it is important to note that it contained none of the most controversial elements that it contains now. AB 327 was amended in the Senate Energy Committee in June, to include elements like the fixed charge and now rests in the Senate Appropriations Committee.

The legislative session ends Sept 13th. All bills have to be passed by both chambers and put on the governor’s desk by this deadline. Senate Appropriations has until August 30th to pass bills and send them to the Senate Floor. There are likely to be at least two Senate Appropriations hearings, on August 19th and 26th, at which the bill can be heard.

What can we do to stop AB 327? 
Contact your state senator and assembly member and urge them to oppose the fixed charge within AB 327.  Sign on to CALSEIA’s Solar Company Sign-on letter by emailing your name, company, and a message that you would like to be added to the letter to kjones@calseia.org.