Californians’ energy bills are high. Investments in utility infrastructure to address wildfire risk or repair a leaky and dangerous gas system are driving prices higher, and the burden of these high energy costs is felt disproportionately by low-income, Black, Latinx, and Native American households, who spend a greater percentage of their income on energy bills.
One way to lower energy bills, while protecting our health, safety, and the climate, is by installing efficient, pollution-free electric appliances (and providing low-income households with all the support, financial and otherwise, they need to do so). Electricity rates in California are not rising as fast as gas rates. In addition, utilities are rolling out targeted rates designed to harness and reward the beneficial impacts of electrification; just last week, PG&E proposed a new electrification-targeted rate designed in collaboration with stakeholders, including the Sierra Club.
However, understanding how electric rates impact your monthly bill can be complicated, and the intricacies of how electrification lowers energy costs deserves more explanation. This blog will wade into the weeds of electric bills, breaking down why electric appliances offer potential savings, what constitutes an electrification-friendly rate, and how to estimate how much your household could save.
How Electrification Can Lower Energy Bills
First, heat pumps for space and water heating are incredibly efficient. Heat pump space heaters and heat pump water heaters consume 3 to 5 times less energy than an equivalent gas appliance because heat pumps transfer heat, rather than creating it through combustion. (If you’re interested, my colleague Rachel Golden wrote a longer explanation here.)
Second, heat pumps can be easily programmed to consume energy during times of the day when renewable generation like wind and solar is abundant and electricity is clean and cheap. Heat pump water heaters can heat the water you’ll use for a morning shower in the pre-dawn hours, when California wind is abundant and demand (and the price of energy) is low. Similarly, the hot water needed for the evening can be heated during the midday solar peak.
Well-Designed Electric Rates Support These Efficiencies
In order for electrification to reduce bills, electric rates need to be structured to reward customers for adding flexible electric load at these beneficial times of day. Ideally, an electrified home should have a rate that has both a time of use (TOU) structure, and a discount on the per-unit price of electricity (the price per kilowatt-hour [kWh]).
On a TOU rate, the price of electricity differs based on the time of day and the season. Electricity is cheaper during times of abundant renewable energy and low wholesale prices, and higher at times when gas plants are ramping up and solar is falling offline. TOU rates reward heat pumps’ ability to pre-heat (or cool) your home or water during off-peak times.
A discount on the price per kWh of electricity is appropriate for electrified homes in California because our per kWh rates contain more than just the cost of power: Folded into these hourly prices are the costs of (important!) programs like bill assistance for low-income customers and wildfire mitigation. But the resulting high rates disincentivize electrification. Per kWh prices can be lowered by providing a “baseline credit” that provides discounted power for added electrification load, or by moving some of these non-energy costs out of the per kWh price and into a monthly charge. (An important caveat: For default rates, fixed charges can be regressive because they punish small users, who tend to be low-income; but for specialized opt-in rates like for electrification, fixed charges can make sense.)
What Are Your Rate Options in California?
Electrified households in California have an abundance of rate plan options, and while there’s no one-size-fits-all solution, most households can save money by electrifying today. Rate names and details will change across utilities, but in general there are two types of promising options.
First, all three investor-owned utilities in California (SCE, PG&E, and SDG&E) currently offer an “all-electric baseline” to customers on their default TOU rates. This “baseline” is essentially a discount on a portion of electricity use for customers who have electric heating. (The Sierra Club is currently advocating for an additional baseline discount to support heat pump water heating, but that isn’t approved yet.)
Second, the three utilities will soon have rates specifically designed to support the growing wave of home electrification. SCE was the first utility to adopt an electrification-friendly rate, a TOU rate with a $12 fixed charge called “TOU-D-PRIME.” Last week, PG&E filed a proposal for its own electrification rate, which was designed in collaboration with the Sierra Club and other stakeholders. “E-ELEC” will be a TOU rate with a $15 fixed charge. SDG&E is required by the Public Utilities Commission to propose its own similar rate in the fall of 2021.
How Much Will PG&E Customers Save?
To ensure that PG&E’s new E-ELEC rate would work for electrified homes, the Sierra Club, the Natural Resources Defense Council, and the Building Decarbonization Coalition hired Synapse Energy Economics to model types of homes in different California climates, and calculate how different rates would change energy bills totals after the home electrified all of its gas appliances. In general, heat pump water heaters and heat pump space conditioning (both heating and cooling) lowered energy bills, while adding an electric oven or standard dryer tended to be slightly more expensive than gas. While all homes are different, here are the conclusions we can draw from the modeling:
Households on California Alternate Rates for Energy (CARE), an assistance program for low-income customers, can save $100-$400 per year on PG&E’s existing default rate. Synapse’s modeling showed that households who qualify for CARE will save the most by staying on PG&E’s existing TOU-C rate and enrolling in the electric heating baseline. In inland climate zones like Fresno or Sacramento, the savings add up to $360 per year. CARE-qualified households that use less heat -- in more mild climates like San Francisco, or those in apartments -- are estimated to save $100 each year.
Households in mild climates will save most on E-ELEC -- especially if they use more electricity when demand is lower (a process called “load-shifting.”) In more temperate climates like San Francisco, Synapse predicted PG&E’s new E-ELEC rate would generate well over $100 in annual savings. Importantly, Synapse’s modeling did not assume load-shifting in order to estimate the “worst-case” savings for electrification, so any household that is willing to program their heat pumps to run off peak can expect to save even more.
Designing rates for multi-family housing is more challenging. Synapse’s modeling showed borderline results for multifamily housing, with bill savings or bill increases well within the margins of modeling uncertainty. This result is probably because multifamily homes, heated and cooled by surrounding units, typically have less heating and cooling load to start with and thus less to save by electrifying. Continued work is needed to design a fair rate for these households.
Still confused? As part of the settlement, PG&E will be designing a bill impact calculator of its own, similar to the existing EV Rates Calculator, to estimate customers’ post-electrification load and pick the best rate for themselves.
With both PG&E and SCE now offering electrification rates, almost 80 percent of Californians will have access to a rate specifically designed to support building electrification. As part of the settlement, PG&E also committed to a public workshop process to evaluate who is saving money on E-ELEC and to consider further changes to improve the rate. Utilities and the Public Utilities Commission need to keep up the momentum in rolling out these rates, educating customers about their options, and refining them to suit more and more varied types of households so that all Californians have the ability to lower their bills and protect the climate by electrifying.