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California utility regulator eyes progressive fee to lower electricity bills

The plan to partly base how much Californians pay for electricity on household income is not without its detractors.

(CN) — In an effort to ease some of the burden of California's high energy bills, the state’s three biggest private utility companies — Southern California Edison, San Diego Gas & Electric and Pacific Gas & Electric — have floated a plan to cut the price of electricity for lower income people by charging a fixed monthly fee based on income.  

Currently, utility customers pay according to how much electricity they use. The proposal would add a fixed monthly charge to customers' bills, with people making below $28,000 a year paying the smallest fee — a fee that goes up according to household income — while lowering the rate per kilowatt hour.

“We do believe that this proposal would provide benefits to millions of customers, especially those most in need,” said Ben Gallagher, a spokesperson for Southern California Edison.   

The proposed fixed rates vary by utility company. People in the lowest bracket would pay $15 a month for Edison and PG&E and $24 a month in SDG&E territory. People making between $28,000 and $69,000 would pay between $20 to $34 a month. Households making $69,000 to $180,000 a year would pay between $51 and $73 a month, while households making over $180,000 would pay between $85 to $128 a month. 

Gallagher said that the proposal was put forward in response to Assembly Bill 205, a wide-ranging bill passed by the Legislature in 2022 that among other things requires the California Public Utilities Commission to figure out a way to create an income-based fee for electricity that lowers the monthly bill of low-income residents. 

But AB 205 doesn't specify what that program should look like. So the commission will soon hear proposals for how to make the policy wishes come true. The commission must also consider how to square the bill with the state’s move to renewable energy sources and electrification and away from fossil fuels. 

In 2022, the Energy Institute at the Haas School of Business at UC Berkeley and a nonprofit called Next 10 released a study analyzing California’s electric energy rates and how to make them more equitable, while encouraging people to adopt non-fossil fuel technologies, like electric cars, heat pumps for homes and other renewable energy technology. 

The report attempted to explain why Californians pay so much for electricity. The authors concluded the high costs don't come from the generation of electricity as much as everything tacked onto bills, like the costs of climate change mitigation practices the utility companies, wildfire adaptations, and subsidies for research and development of new technologies. 

The utilities commission pointed out the analysis in a report to the state Senate, noting that since 2013, the average annual rate for customers has increased by 7% primarily because of the cost of wildfire mitigation work like “enhanced inspections and vegetation management efforts.”

“All indicators point to continued significant rate growth in the near term from wildfire mitigation efforts,” the report stated.  

Severin Borenstein, a professor at UC Berkeley, and the faculty director of  the Energy Institute at Haas, and one of the co-authors of the Institute and Next 10’s study, said it's not a good plan.

“We as a society are choosing to pay for all of these additional costs by jacking up the price of electricity, and that’s problematic,” Borenstein said.    

The Energy Institute and Next 10 report said the current practice amounts to a regressive tax on low-income Californians, since a bigger fraction of their paycheck goes to paying their energy bills than higher income residents. Wealthier people can also afford to install solar panels and battery systems while taking advantage of subsidies to pay for it, which people with lower incomes can’t afford to do. One way to make the system more fair is to mirror a progressive tax, charging low-income residents a smaller fixed cost for using electricity and a higher fee for wealthier Californians.

Republicans in particular hate the idea.

“This income based rate structure is not — this just needs to go away. This is a bad idea,” said state Senator Brian Jones, the Republican minority leader from San Diego.

Jones, along with other members of the state Senate Republican caucus sent a letter to the state utilities commission, asking commissioners to reject the income-based fixed rate system and find ways to assist middle-class families struggling with electricity bills by cutting mandates and regulations  

“This is un-American, and I’m sure it’s unconstitutional,” Jones said.   

“Crazy logic,” is how Ahmad Faruqui, an energy economist, described the plan. 

Faruqui said the fixed rates are too high, and the plan won’t incentivize anybody to buy an electric car or solar panels, mainly because the people in the lowest income bracket who will receive the most benefits from this program don’t have the money to buy an expensive electric car. Meanwhile, people with higher incomes won’t want to invest in solar panels and other infrastructure because the money they save by generating their own solar energy and their return on investment will gobbled up by the higher fixed rate.

Faruqui said he doesn’t think the commission will pass the proposal. But if it does, "all hell will break loose,” he said.  

Other proposals being offered to the utilities commission that would significantly lower the fixed rates but would still be progressive. Faruqui said he supports a fixed flat rate that's under $25 a month like municipal utilities in Los Angeles and Sacramento have over one based on income.

Another way to bring electricity bills down, according to the Energy Institute and Next 10 report: Stop asking customers to pay for wildfire and climate change mitigation efforts and put both in the state budget. 

“In some ways it makes a lot more sense than having to set up this whole institution. But the Legislature is not interested in it,” Borenstein said, likely because doing so would mean raising taxes.

But it would lower electricity bills. 

Categories / Environment, Government

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