PG&E and Solar

Understanding how (and why) PG&E Quietly Subsidizes Solar

Residential Electrical Pricing: Tiers

The E-1 rate is the most common residential billing program.

E-1 has tiered-pricing, which means that every household gets a base quantity of inexpensive electricity, but, if the household consumes more than its baseline, the additional electricity is priced higher. Tiered rates reward thrifty consumers. Tiers also motivate those using a lot of energy to decrease their consumption.

PG&E rates change regularly, but as of January 1, 2015 E-1 are as follows:

E-1 Rate Rate per kilowatt-hour
tier 1 (Baseline) $0.16
tier 2 (101% – 130% of base) $0.18
tier 3 (131 – 200% of base) $0.27
tier 4 (201% and up) $0.33

At one time, baseline was defined as the average consumption in a climate zone. The tier 1 allowance was 70% of baseline, and tier 2 was 30% of baseline. Thus an average home would only be needing tier 1 and tier 2 electricity. But times change, and PG&E came up with a way to slip-in rate increases by decreasing the amount of electricity available in the cheaper tiers. These days tier 1 is approximately 55% of average use, and consequently the average home is definitely consuming tier 3 electricity.

The bill and graph below reflect rates a few years ago (lower tier 1, 2, 3; higher tier 4). Grab one of your own bills, and see what’s changed.

Underlined in green: the name of your rate schedule (E-1).

Boxed in red: the four tiers. Investing in solar doesn’t really make sense if your electric bill is just tier 1 and tier 2. But if you are paying for tier 3 and tier 4 electricity, PG&E is pushing you to purchase solar, and thereby lower your bill.

Here’s this bill, as a bar-chart:

When you add solar, you will eliminate kilowatt-hours, beginning with the most expensive. That means you will be eliminating vertical bars, from the far right, moving to the left.

If this household added just a small system, to reduce its purchases from PG&E by only 25%, the kilowatt-hours that solar installation would be producing would be worth 41 cents each, since the household would no longer need to pay PG&E 41 cents for that high-tier energy.

If the household stepped-up, and added a system designed to replace half the electricity purchased from PG&E, the system would be producing kilowatt-hours valued at about 34 cents each.

PG&E’s tiered pricing is a remarkably compelling reason to add solar.

Final Thought: the PG&E rates we are familiar with — with expensive electricity billed at as much as three times the rate of the cheap electricity — are consolidating. A decade ago legislation locked-in the low baseline rates, so all PUC-approved revenue increases required increases in just the high tiers. But various factions in California complained bitterly about this “unfairness,” and the rules have been rewritten; now the difference between the high tiers and low tiers is decreasing. What this means is homeowners should not invest in solar installations where shading, high lease rates, etc., make the cost of the energy close the the current $0.32 PG&E upper-tier rate. Solar salespeople may say that rates only go up, but that’s not the case with PG&E and its tiered pricing!

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