California regulator takes income-based electric bills off the table

The controversial plan to require California’s three biggest utilities to start charging their customers based on how much money they make has been shelved by state regulators — at least for now.

Instead, the California Public Utilities Commission is proposing a less radical — if not necessarily less controversial — approach to complying with a state law demanding that it examine new rate structures to reduce the burden of rising electricity rates, a problem that will only deepen as the state further embraces electrification.

That proposal? Reduce per-kilowatt-hour rates but institute a fixed charge of $24.15 per month for most customers of utilities Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric.

The proposal would add smaller fixed monthly charges of $6 per month or $12 per month to customers who are signed up for two different special rate programs for low-income earners. This carveout for low-income ratepayers is distinct from the income-graduated proposals that were under consideration.

Fixed charges are common features of utility bills across the country, the CPUC noted in a fact sheet accompanying the release of its proposed decision on Wednesday. That’s because utilities pay for a lot of fixed costs that aren’t tied to how much electricity customers use, and fixed charges are one way to recoup those costs.

In California, these fixed costs, which include the maintenance and expansion of distribution and transmission grids, energy-efficiency programs, low-income bill-assistance programs and more, account for roughly half the costs paid by customers. But California’s big three utilities have been barred from instituting fixed charges under previous CPUC decisions, forcing them to recover those costs by increasing the rates that customers pay for the electricity they consume.

CPUC’s proposal would reduce these rates, known as ​“volumetric” charges, by 5 to 7 cents per kilowatt-hour. That will make electricity cheaper for California residents. But the CPUC hopes it will also make it easier for customers to afford the increased electricity consumption of electric vehicles, electric-powered heat pumps and household appliances, which Californians must start buying en masse to meet the state’s clean-transportation and building-decarbonization policy goals.

This fixed-charge proposal will now be open to comment before the CPUC decides either to approve it or alter it. If approved, it would start going into effect for Southern California Edison and San Diego Gas & Electric in 2025 and for Pacific Gas & Electric in 2026.

The CPUC’s Public Advocates Office, which is tasked with protecting consumers, issued a statement in support of the proposal. ​“It allows for the implementation of a flat rate, which will reduce electric bills for low-income customers and cut the price of electricity for all customers,” Linda Serizawa, the agency’s interim director, said in a prepared statement.

But the new proposal is already drawing fire from some groups who say it’s the wrong approach to dealing with California’s skyrocketing electricity costs — and those critiques are coming from both sides of the debate over income-based rates.

“There is no empirical evidence that dropping the energy charge by 5 percent and recovering the lost revenue” via fixed monthly charges ​“will promote electrification,” Ahmad Faruqui, an energy economist and utility-rate expert who’s been an outspoken critic of the income-based fixed-charge proposal, wrote in a Twitter thread.

And a fixed charge that customers can’t avoid, no matter how careful they are to limit wasteful electricity consumption or how much they invest in energy efficiency, rooftop solar or other energy-saving home improvements, ​“will punish all frugal, efficient and green consumers,” he wrote. While most U.S. utilities do include fixed charges on their bills, the median nationwide is under $12, he noted — and most U.S. utilities charge far less for electricity than California’s utilities do.

The fight against fixed charges has also been taken up by California lawmakers. In January, state assemblymembers Jacqui Irwin (D-Thousand Oaks) and Marc Berman (D-Menlo Park) introduced a bill that would limit any fixed charges the CPUC approves to no greater than $10 a month — far less than the $24.15 per month charge in the CPUC’s proposed decision.

Also opposed to the newly proposed fixed flat charge are groups in favor of the income-based charges that now appear to be off the table. These groups argue that the CPUC should push harder to charge wealthier customers more for their electricity consumption. Lower-income customers now bear a higher financial burden from electric bills than wealthier customers, and California has among the highest and fastest-rising utility rates in the country.

“The CPUC is protecting the wealthiest Californians at the expense of everyone else,” Theo Caretto, an associate attorney with the advocacy group Communities for a Better Environment and representative for the California Environmental Justice Alliance, a coalition of groups pushing for an income-graduated fixed charge, said in a Wednesday statement. ​“Regulators need to correct course to deliver a progressive proposal that ensures the wealthiest pay their fair share.”

The idea of an income-graduated fixed charge was first proposed in 2021 by Severin Borenstein, head of the Energy Institute at the University of California, Berkeley’s Haas School of Business, and his colleagues, as a means of reducing the inequitable burden of rising electricity rates on Californians.

But since the concept was turned into a mandate for the CPUC to study via a provision in AB 205, an omnibus energy bill passed by the state legislature in 2022, it has drawn condemnation from anti-tax groups, energy-efficiency advocates, solar industry groups and everyday customers concerned about utilities accessing their private financial information.

Experts have also questioned the cost, complications and legality of methods for utilities to collect income information from every customer and alter their monthly bills accordingly.

With the CPUC’s new proposal, those issues would appear to be off the table. But that still leaves a debate over the proper role of fixed monthly charges — an issue that’s been a flashpoint for California utility policy in the past.