2023 Energy Rates and Who Sets Them
Aside from weather, usage and energy market conditions, your energy bill is impacted by regulatory proceedings at the California Public Utilities Commission (CPUC). SDG&E, alongside consumer advocates and other key stakeholders, participates in numerous CPUC proceedings throughout the year. We are committed to keeping you up to date on those proceedings that could affect what you pay for energy.
New Electricity and Gas Pricing Effective Jan. 1, 2023
As is the customary practice for regulated utilities across California, SDG&E implements new natural gas and electric rates at the start of every year, effective Jan. 1, 2023, that reflect the costs of providing clean, safe and reliable service that our customers expect.
All three key components that make up rates were updated:
- The cost of buying natural gas or electricity in the open market on behalf of our customers. As a reminder, SDG&E does not mark up the commodity cost.
- The cost of delivering energy to our customers, which includes pipes, wires, substations and other equipment.
- Miscellaneous state-mandated costs, including public benefit programs (energy efficiency, bill discounts and research & development).
Economywide, prices have been rising across a range of products and services, including electricity and natural gas. A key contributor to rate increases is the ongoing, steep rise in the natural gas market, which has impacted energy bills across the nation. The commodity, the cost of natural gas, accounted for more than 90% of the overall increase in the gas rate - and the majority of the increase in the electric rate.
SDG&E purchases natural gas to serve our customers who use natural gas appliances and for power plants to generate electricity. SDG&E does not profit from selling more natural gas or electricity to our customers.
The cost per unit of natural gas (known as a therm) has more than doubled increasing from $2.36 per therm in January 2022 to $5.11 per therm in January 2023. More than 90% of the increase in the overall gas rate is driven by the market price for gas – what SDG&E pays suppliers to buy the gas on behalf of our customers.
|
Type of Energy |
Winter Forecast for a Typical Residential Customer Actual customer bills will vary based on a number of factors, including usage and pricing plan, weather, and market conditions |
|---|---|
|
Electricity |
Delivery: Estimated Monthly Increase ~ $10 |
|
Generation: Estimated Monthly Increase ~ $13 |
|
|
Natural Gas |
Delivery and Procurement: Estimated Monthly Increase ~ $110 |
*The natural gas procurement charge is updated monthly to reflect market conditions and reflects average usage for February, which is typically the highest usage month of the year.
For customers who take service with a Community Choice Aggregator (CCA) for their electric generation, the CCAs set the electric generation charge shown on their SDG&E bill. The electric generation costs provided above are reflective of SDG&E’s pricing.
“The cost of heating a home with natural gas, the most common source of home-heating fuel in the US, is expected to jump more than 25 percent from last year.” - NY Times 9/12/22
“With frigid air penetrating the West Coast resulting in continued solid gas demand, massive price spikes continued throughout the region during the Dec. 12-16 trading week. The price gains are significant since they are on top of what were record levels the prior week.” - Natural Gas Intelligence 12/16/22
“This year’s gas rally has been driven by a global fuel crunch that’s rippling across markets as suppliers struggle to meet a post-pandemic surge in consumption, further exacerbated by Russia’s war in Ukraine.” - Bloomberg 4/17/22
After hitting historic highs this winter due to unprecedented market conditions in the western United States, the price for natural gas declined by 68% in February 2023 compared to January 2023, plunging from $3.45 per therm to $1.11 per therm.
SDG&E does not set the commodity price for natural gas. Instead, natural gas commodity prices are determined by national and regional markets. SDG&E buys natural gas in those markets on behalf of residential and small business customers, and the cost of buying that gas is billed to those customers with no markup — meaning SDG&E does not profit from the movement of gas commodity prices.
Besides cooking and heating, natural gas is also used to generate about 40% of the electricity nationwide. Natural gas is a globally traded commodity with prices that fluctuate daily based on various factors. According to the U.S. Energy Information Administration, the combination of factors that drove natural gas prices to new heights in January included widespread below-normal temperatures, higher energy consumption, supply and pipeline issues, and low gas storage levels in the Pacific region.
Aside from natural gas market conditions, rates also increased due to the ongoing need to make critical safety, reliability and climate resiliency investments. Other key long-term drivers for rate increases are the costs of:
- Hardening our regional electric grid against climate threats such as wildfires.
- Modernizing the grid to accommodate more renewables, energy storage, microgrids, electric vehicles and all-electric buildings in order to meet California’s ambitious goals to reduce greenhouse gas emissions.
We know our customers expect us to deliver clean, reliable energy that is resilient to increasingly extreme weather, and we work hard to balance that with our responsibility to keep bills as low as possible. As we continue to analyze how Jan. 1 rate changes may impact bills, we will provide updates.
We recognize that no one wants to see their energy bills go up, especially now. Still, we also recognize our responsibility to be transparent with our customers and help prepare them for higher energy bills this winter.
SDG&E customers are encouraged to take advantage of a variety of assistance programs, including bill discounts, debt relief, payment plans and energy efficiency programs. The Neighbor-to-Neighbor program, funded entirely by SDG&E shareholder dollars (not customer dollars), provides eligible customers with up to $300 to offset their outstanding bills. The federally funded Low-Income Home Energy Assistance Program (LIHEAP) offers financial help ranging from a few hundred dollars to a few thousand dollars, depending on household income, size and past due balances. Learn more at sdge.com/assistance.
Please visit sdge.com/MyEnergy for energy-saving tips, financial assistance and rebate information.
How Do SDG&E Electric Bills Compare?
We've always been honest that our electric rates are higher. However, most customers are more concerned about how much their bill is at the end of the month. Our usually moderate climate means less energy is consumed. So while rates have increased, SDG&E's average monthly residential electric bill is the lowest among California's major utilities and below the national average.
So why are SDG&E rates higher than other utilities?
There are several reasons:
- Higher use of renewable energy to address climate change
- Development of the nation's leading wildfire safety program to keep our communities safe
- Technology subsidies required by the state and paid for by customers, such as Net Energy Metering, increase electricity costs for customers without solar by about $260 per year
- Legislative mandates that account for about 24% of electricity rates
- Improvements to ensure the power grid remains reliable even during the few extreme hot days of the year
Another factor impacting SDG&E electric rates is declining sales. This is a tough one to explain. Because of our mild weather and the amazing job customers have done with conservation and solar installations, less electricity is being used. Less electricity use means the cost of the power grid is spread across fewer electricity sales (kilowatt-hours), which results in higher rates. Without this decline in electricity sales over the past decade, rates would be about 17% lower. Many water utilities in San Diego are facing this same challenge.
That's why SDG&E has the lowest average monthly electric use in the entire country and lower than average bills, but among the highest rates.
What's the good news? As more customers switch to electric vehicles and electric appliances like heat pump water heaters, electricity use is expected to grow significantly in the future, helping to reverse trend.
Who Sets Energy Rates?
SDG&E's rates and any fees paid by SDG&E customers are regulated and approved by multiple public agencies and with the participation of many stakeholders in a transparent, thorough review process.
The most prominent agency is the California Public Utilities Commission (CPUC). This agency consists of five people appointed by the governor. Any time SDG&E wants to start a major project, upgrade systems or change any rates, we must submit a detailed application to the CPUC. We’re required to demonstrate how the request fits within California’s energy future and how it could affect annual or multi-year costs and rates for customers.
Those applications then go through a rigorous review process by the CPUC and other interested stakeholders to ensure that SDG&E is making prudent and fiscally responsible decisions — for our individual customers and community at large.
After the review process, the CPUC issues a decision based on what is fair and reasonable for customers. We then incorporate any needed changes from the CPUC ruling, whether it's rates, or other revisions to what is proposed in the application.
For example, every four years SDG&E files a General Rate Case (GRC) request. This determines the amount of money needed for operational expenses like costs for building, operating and maintaining equipment including substations, distribution poles and transformers, as well as SDG&E's highly-skilled workforce. Other proceedings include Energy Resource Recovery Account (ERRA), which covers fuel and purchased power costs such as electricity, and a Cost of Capital proceeding which sets forth the rate of return the company can earn on its capital investments. All of these must be approved by the CPUC before SDG&E charges its customers.
In addition to the CPUC, the Federal Energy Regulatory Commission (FERC) approves the retail transmission portion of rates.
Additional oversight
While the CPUC and FERC regulate rates, there are additional agencies that provide oversight of SDG&E, the power grid, and the state’s energy policies:
- California Air Resources Board (CARB)
- California Energy Commission (CEC)
- California Independent System Operator (CAISO)
- Office of Energy Infrastructure Safety
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