The Sacramento Municipal Utility District board of directors unanimously approved plans for residential rate restructuring to phase out residential billing tiers. This move clears the way for time-based rates to become the standard for the utility in just a few years. The SMUD board also approved a general rate increase in 2014 and 2015.
The board’s approval of the residential rate restructuring and rate increase followed three months of public review and community outreach to explain the proposals.
The residential rate restructuring is part of an ongoing effort to better align SMUD’s charges with the true cost of serving customers. Under current rates, kilowatt-hour pricing for base energy use does not fully cover costs, while the base plus price covers more than the full costs.
To address the issue, SMUD will reduce the price difference between base and base plus energy use from 2014 to 2016. While the price per kilowatt-hour for base use will increase, bill impacts will be offset by increasing the amount of energy a household can consume before being charged the higher base plus price.
The base and base plus tiers will be eliminated at the start of 2017, setting the stage for time-based residential rates. All business customers already are on time-of-use rates. A separate rate action and board approval would be needed before time-of-use rates become standard for residential customers in 2017 or 2018.
SMUD and other utilities adopted tiers many years ago to encourage energy conservation. But in any given billing period, customers had no way of knowing when their energy use crossed the threshold from a lower cost tier to a higher cost tier. And some studies in recent years have suggested that tiers are ineffective.
Time-of-use and critical-peak pricing will have the potential to reduce peak demand in the summer by sending price signals encouraging customers to shift their energy use to off-peak hours.
With the installation of smart meters throughout SMUD’s service area, residential energy use is recorded in hourly increments and the meters’ wireless network allows two-way communications with customers.
Additionally, rate increases of 2.5 percent will go into effect for both business and residential customers at the start of 2014 and again at the start of 2015. The increases will cover rising costs, which are being driven largely by the need to increase state-mandated supplies of renewable energy and by high enrollment in SMUD’s discounted rate for low-income customers.
Next year’s rate increase will be the first since January 2011.
The impact of the rate changes on customer bills will depend on how much energy they use. Most residential customers will see bill increases of $2 to $4 a month through 2015.