How to Estimate Future PG&E Rate Increases for California Customers

When you are considering whether a solar system makes economic sense, be sure to calculate future utility rate increases. In my solar cash flow calculations for customers, I estimate a 5% annual increase to calculate break even and return on investment. So the customer appropriately asks, "Why?"

All we can do is look to the past and ask if anything is likely to change in the future. In my utility (PG&E), rates have gone up 4 to 5 percent annually in each tier for the past 10 years on a linear average (see above). When you consider there is 100 percent increase in cost between tiers 1 and 4, and last year the amount of power in Tier 1 was reduced by around 10 percent, you could pretty easily make the case that the estimated annual increase is closer to 7%. I use 5% to be safe, and most other experts are in alignment with this thinking.

In any event, looking to the future, the California Public Utilities Commission in July 2015 approved a framework that pretty significantly changes the current tier structure, and it appears we will see a pretty major rate hike  over the next couple of years. 

This is the language from the bulletin by the California Solar Energy Association (CALSEIA):

"Residential rates will transition to a three-tiered structure. The differential between Tier 1 and Tier 2 will be 25%. The third tier will start at four times baseline/Tier 1 usage, and the rate will be 219% of the Tier 1 rate. The third tier will not be presented as Tier 3, but as a Super User Energy (SUE) Surchage, in order to send a strong signal that it is a penalty for consumption beyond normal levels. Only 2%-10% of customers are expected to reach the third tier."

You can see the implications of this reflected in the 2020 predicted rate column above. The new structure has already been approved, now PG&E will make its case that these should be the actual rates. The CPUC historically has pushed back a little on giving PG&E everything it wants -- to at least give an appearance of oversight and propriety I suspect -- so I expect rates will not go quite this high, but probably stay in the 4-6% annual increase range, which seems to keep PG&E shareholders happy.