Californians face higher electricity rates based on income
For households earning $28K per year or more; unless state legislature reverses course; 5 local legislators voted for bill
By Allen D. Payton
Bill Votes – AB-205 Energy. (ca.gov)
In 2022, the California legislature passed and Governor Gavin Newsom signed AB205 – Energy into law, which requires that the Public Utilities Commission (CPUC) “shall, no later than July 1, 2024, authorize a fixed charge for default residential rates.” As a result, the CPUC is currently reviewing proposals for a tiered, fixed-price structure, as directed by the bill.
According to FOX Business, the state’s three main, investor-owned utilities – Pacific Gas and Electric (PG&E), Southern California Edison (SCE) and San Diego Gas and Electric (SDG&E) – proposed a tiered rate plan: “Households earning $28,000-$69,000 would be charged an extra $20 to $34 per month. Those earning $69,000-$180,000 would pay $51 to $73 per month, and those earning more than $180,000 would pay a $85-to-$128 monthly surcharge.”
According to California Energy Markets, “The first version of the income-graduated fixed charge, or IGFC, could be implemented by SDG&E and SCE by 2026, according to Freedman. PG&E is in the process of changing its billing system, he said, so its implementation would likely be in 2027.”
That’s on top of the 13% increase for both electricity and natural gas rates for PG&E customers approved by a unanimous vote of the CPUC last November that went into effect on January 1, 2024. Plus, another vote on March 7 for $4-$6 in additional monthly fees for the typical ratepayer that will take effect in April, was approved for PG&E to recover $516 million in costs for wildfire mitigation, gas safety and electric modernization.
According to a Canary Media report, “The utilities are also proposing to significantly lower the per-kilowatt-hour charges that customers pay to counterbalance the big increase in fixed charges, and to structure both fixed and volumetric charges in a way that allows lower-income customers to save money overall. Still, the proposal, if enacted, would instantly make California the home of the nation’s highest monthly utility fixed fees, according to analysis by clean energy research firm EQ Research.”
The IGFC would require the CPUC to evaluate every ratepayer’s income annually in order to assess the appropriate fee.
Local Legislators Voted for Bill
Five of Contra Costa’s state legislators supported AB205 on party-line votes including Assemblymembers Tim Grayson, Rebecca Bauer-Kahan, Buffy Wicks, Lori Wilson and State Senator Nancy Skinner. The first four each voted for the bill, twice.
Assemblyman Jim Frazier didn’t vote on the bill in 2021 and State Senator Steve Glazer didn’t vote on AB205 during the State Senate’s floor vote in 2022. Newsom signed the bill into law on June 30, 2022.
Details of New Law
As of July 1, 2022, the applicable portion of the law now reads as follows:
“SEC. 10. Section 739.9 of the Public Utilities Code is amended to read:
(d) The commission may adopt new, or expand existing, fixed charges for the purpose of collecting a reasonable portion of the fixed costs of providing electrical service to residential customers. The commission shall ensure that any approved charges do all of the following:
(1) Reasonably reflect an appropriate portion of the different costs of serving small and large customers.
(2) Not unreasonably impair incentives forconservation, energy efficiency, and beneficial electrification and greenhouse gas emissions reduction.
(3) Are set at levels that do not overburden low-income customers.
(e)(1) For the purposes of this section and Section 739.1, the commission may authorize fixed charges for any rate schedule applicable to a residential customer account. The fixed charge shall be established on an income-graduated basis with no fewer than three income thresholds so that a low-income ratepayer in each baseline territory would realize a lower average monthly bill without making any changes in usage. The commission shall, no later than July 1, 2024, authorize a fixed charge for default residential rates.
(2) For purposes of this subdivision, ‘income-graduated’ means that low-income customers pay a smaller fixed charge than high-income customers.”
Californians Pay 27% More for Electricity Than National Average
According to Energy Sage, California residents currently pay 31 cents per kilowatt-hour compared to the national average of 18 cents per kilowatt-hour. “On average, California residents spend about $256 per month on electricity. That adds up to $3,072 per year. That’s 27% higher than the national average electric bill of $2,426.”
Effort to Reverse Course
Now, some members of the legislature are trying to backpedal on their votes and stop the IGFC increases from being approved. As they had unsuccessfully attempted last September, on Jan. 30, Republican lawmakers tried to bring an immediate vote to repeal AB 205 to the Senate floor, but Democrats who have the majority, voted to table the motion.
That same day, Assemblymember Jacqui Irwin, (D-Thousand Oaks) and 10 others introduced a bill to repeal AB205. According to Irwin’s press release about the new bill, “The CPUC has had the authority to implement a fixed rate charge, up to $10, since 2015, but has declined to do so. I see no need to rush now. It’s time to put some reasoning back into how we charge for electricity in California.” Bauer-Kahan is listed as a principal coauthor. It was also introduced in the State Senate.
According to the aforementioned Canary Media report, “The newly introduced bill, AB 1999, would limit the CPUC to adding a fixed charge of no greater than $10 a month on customers’ bills to pay for the rising costs of maintaining the state’s utility grids, regardless of household income.”
The bill is in the committee process, was referred to the Assembly Committee on Utilities and Electricity. If approved it will then head to the floors of both houses of the state legislature for votes and if passed, the bill will head to the governor’s desk for his signature or veto.
3/27/24 UPDATE: According to Sylvie Ashford, Energy & Climate Policy Analyst for The Utility Reform Network (TURN) which supports the implementation of an income-graduated fixed charge, and is one of the authors of the organization’s IGFC proposal,
- “The IOUs are no longer proposing the charge levels that you cite (e.g. up to $128 per month). The CPUC has already ruled that the first iteration of the fixed charge will have income tier cut-offs based only on the existing CARE/FERA programs, with no ‘high-income’ tier. The IOUs submitted new proposals in the fall, with a max charge of $51-$73 (page 5 of their brief).
- It’s not that utilities will “also” lower $/kWh rates. The fixed charge itself lowers rates, as is comprised only of costs that are included in rates today. It shifts some fixed costs out of electricity rates and into a separate line item.
- Thus, your headline that “Californians face higher electricity rates based on income” is incorrect. All customers will pay lower electricity rates (15% lower under TURN’s proposal). Some higher income customers will see higher overall bills only if their assigned fixed charge exceeds their savings from the reduced rates. (For example, TURN’s proposal has a maximum monthly fixed charge of $30, and we estimate those customers will see $3-7 bill increases, depending on their usage).”
Iin addition, she shared, “TURN believes that the fixed charge presents a critical opportunity to reduce low-income energy bills in the state. TURN also believes much more is needed to make bills affordable and intervenes widely at the CPUC to oppose rate increases. A few quick points:
- The fixed charge will not increase utility revenue/profits; it removes costs from rates and shifts them to a separate line item on your bill.
- This will reduce electricity rates ($/kWh) for all Californians, making it more feasible to operate electric vehicles and appliances.
- Because the new line item is based on income, it will also reduce overall bills for low-income Californians (likely to be defined as the low-income CARE/FERA discount programs, which cover 30% of the state) and it will make electricity bills less regressive.
- TURN strongly opposes the joint proposal of the utilities for fixed charges, and the CPUC is not considering it. The CPUC has already ruled that the first iteration of the fixed charge will have income tier cut-offs based only on the existing CARE/FERA programs, with no ‘high-income’ tier, so the average fixed charge will be low (TURN proposes an average of $23.50, which is the same charge already offered by the Sacramento Municipal Utility District).
Ashford was asked to explain how, if the cost of providing electricity does not differ from one user to the next in one of the three utility company’s service areas, it’s fair to charge one customer more based on their income. She was also asked weren’t renewals supposed to reduce electricity costs and aren’t we relying more on them, now for electricity generation in California,
Ashford responded, to your questions about the fairness of paying based on income, and why rates have been increasing when generation keeps getting cheaper (thanks to renewables): the problem is that your $/kWh electricity rates today are largely comprised of costs that have nothing to do with your personal usage. They are bloated with the fixed costs of the grid, like the utilities’ wildfire mitigation programs and infrastructure projects.
As a result, a UC Berkeley study found that California’s electric rates are highly regressive; low-income households pay more of their income on shared system costs. Households in hot climates, that need to use more electricity to keep cool, also pay more than their fair share of these costs. On the flipside, solar customers are paying less than their fair share, which has created a ‘cost shift’ that hikes rates for everyone else (source).
TURN is a strong advocate of reducing utility spending, which is the most important step to reduce rates. The fixed charge alone doesn’t address that problem, as it simply shuffles the collection of existing costs, but it will make bills more affordable for those that are disproportionately burdened by shared system costs.”
the attachments to this post:
Source – Energy Sage as of 3-10-24
Electricity rates increase
