Take a hike: SMUD aims to raise energy rates

Customers in the Sacramento Municipal Utility District are about to get pinched by California’s climate-change law and renewable-energy mandates. Let’s see if they notice.

SMUD is considering two consecutive rate hikes on electricity—a 2.5 percent raise in rates in 2016, followed by a 2.5 percent bump in 2017. Those would come immediately after similar-sized increases this year and last.

That’s four rate hikes in four years.

The new, higher charges are meant to cover the costs of expanding SMUD’s portfolio of wind and solar power. SMUD has to get greener, in order to meet the state of California’s mandate that all electric utilities get one-third of their power from renewable sources by the year 2020.

California’s “Renewable Portfolio Standard” is a major part of the state’s strategy for reducing greenhouse-gas emissions. The RPS was created in 2002, and at first required electric utilities to increase their renewables share to 20 percent. Follow-up legislation in 2011 raised the renewable requirement to 33 percent.

SMUD’s use of renewable energy rose quickly in the 2000s. But in the 2010s, SMUD’s energy mix has been puttering along mostly unchanged in the low-to-mid 20s. And the 2020 deadline is coming up quick.

You might ask, “Isn’t renewable energy, especially solar power, getting cheaper?”

Yes it is, says Scott Martin, SMUD’s manager of resource planning and pricing. But electricity generated by wind and solar is still about twice as expensive as electricity from natural gas power plants. And SMUD has to add a lot more renewable energy to the mix.

You might also ask, “Hasn’t SMUD known about the energy mandates for a long time? And weren’t the rate hikes of the last two years meant to cover those costs?”

Also true, says Martin. “You never quite know where your power supply costs are going to end up,” he explained. “So we had to go back and ask customers for additional money.”

But some customers are irritated by the repeated asks. “It’s extremely burdensome for businesses and residents,” says Natomas resident and SMUD-watcher Tom Reavey.

SMUD says the average monthly utility bill will see about a $2 to $4 increase, and rates are still lower compared to surrounding utilities. SMUD rates are 26 percent below those of PG&E, notes Martin.

One the other hand, when you compound one rate increase on top of another, on top of another, on top of another—that’s a 13 percent hike in four years.

And it’s more when you take into account a “hydropower surcharge” that SMUD is temporarily charging customers because of the impact of the drought on SMUD’s hydroelectric project on the upper American River.

There are other factors driving rates up. The cost of SMUD’s Energy Assistance Program—a subsidy for low-income residents—has increased from $12 million in 2005 to almost $50 million today. But demand for the EAP should ease as the economy improves, says Martin.

The biggest factor is renewable-energy costs. Reavey says he won’t blame the SMUD board if they vote to increase rates. But he says the state’s demands are “too aggressive.”

“These renewable-energy mandates are making electricity extremely expensive,” he adds.

Well, more expensive. We all knew that getting off fossil fuels would come with some costs.

It might have been better if SMUD got those costs right two years ago, instead of coming back to ratepayers so quickly.

We’re also seeing the downside of the state’s decision to go slow in the early years. SMUD, like other utilities, wasn’t required to add much new green power in the last 10 years. Now, the deadline is approaching fast and SMUD has to add a lot of renewables to the mix in a comparatively short period of time.

Of course, they say the cheapest kilowatt is the kilowatt you don’t use. That’s why, along with the new rate hike, SMUD staff is asking the board to approve charging all customers according to “time of use,” starting in 2017.

Time of use is pretty much what it sounds like. All the electricity you use in the 4 p.m. to 7 p.m. window of peak demand is going to be a lot more expensive than at other times of day.

Some customers have already been piloting TOU. If the board approves the item in June, TOU would apply to everyone. Under TOU, Martin says, the base rate will be lower than it is today. So, if you’re a bit more conscientious about your time of use, “it’s very possible that your bill could go down.”