California revamps electricity rates based on income

State reworks monthly utility bills to be based on household income, a decision that may result in higher bills for some PG&E customers while lowering costs for others of a lower-income bracket

SACRAMENTO – Although the cost of utility rates have hiked up in recent time due to aging power grids in the state, new legislation is making it so a household’s electricity bills are not just based on usage; but also on how much money a household makes.

On June 30, 2022, Governor Newsom approved Assembly Bill (AB) 205, which tasked the California Public Utilities Commission (CPUC) with changing how California residents will pay for electricity, making it so utility bills are based on household income instead of the standard across-the-board payment structure currently in place. The CPUC has until July 1, 2024 to select one of the rate proposals it received regarding the new fee structure.

The Utility Reform Network (TURN), a California-based consumer advocacy organization, submitted one of the six proposals. According to Mark W. Towney, TURN executive director, his organization’s proposal will benefit middle and lower-income families; which could benefit the residents of low-income areas like Tulare and Fresno counties.

“Our proposal has a fixed monthly charge of $5 for CARE (California Alternative Rates for Energy) customers, $30 for middle income customers and $60 for high income customers,” Towney said.

As reported by the U.S. Census Bureau for 2021, the median household income in Tulare County is $57,394, which is 31.8% below the state average of $84,097. The median for Fresno County is $61,276, which is 27.1% below the state average.

For the new utility rates, Southern California Edison (SCE), Pacific Gas and Electric (PGE) and San Diego Gas & Electric (SDGE) – investor-owned utilities (IOU) – submitted a joint proposal on April 7. Under this proposal, each company would charge its customers a fixed monthly rate based on income. For example, SCE and PGE customers with a household income of $28,000 or less would pay a fixed rate of $15 per month; SDGE customers pay $24 per month.

At the high end, customers with household incomes of $180,000 or more would pay SCE $49; PGE customers would pay $53; SDGE customers, $74.

Towney said the proposed amounts are not what customers will pay monthly; these are fixed rates. Customers will continue to pay a kilowatt usage rate, which is how much power customers use during a specific period, but the fixed rate will reduce the kilowatt usage rate.

A DEEPER PROBLEM

California has some of the highest electricity rates in the country. According to the U.S. Energy Information Administration, only residents in Connecticut, Massachusetts and New Hampshire pay more cents per kilowatt hour. But according to Towney, California’s energy woes go way beyond monthly rates.

California’s exorbitant energy rates are directly tied to its aging and dangerous power lines.

Since 2017, PGE has been blamed for over 30 wildfires in the state. These fires destroyed more than 23,000 homes and claimed over 100 lives. The company has proposed a $13.5 billion settlement with the victims; PGE customers defer these costs by paying higher electricity bills.

But according to Towney, the problem with the IOU joint proposal is it fails to address the problem of California residents being unable to afford their electricity bills.

“PGE is asking for rate increases of something like 50% over the next few years,” said Towney. “That is unsustainable.”

These proposed rate increases will go towards covering the cost of burying 10,000 miles of power lines. The alternative is to insulate the lines and leave them overhead.

“They can do it way faster and at a quarter of the cost,” Towney said. “It will take PGE over 10 years (to bury the lines). You can insulate and be done in three years.”

Towney said PGE has many rate increases planned for the next four years. “If the rates keep going up, the savings we’ve talked about will be wiped out,” he said. He added TURN is fighting for a cap on rate increases.

“The utilities have to learn to live within their means, just like everybody else. That’s our position,” Towney said.

GETTING BURNED FROM SOLAR

Meredith Fowlie is a UC Berkeley professor and is the faculty director at the school’s Energy Institute at Haas. In a recent blog and in an editorial that Fowlie wrote for The San Diego Union Tribune, Fowlie applauded the proposed income-graduated fixed rates that will usher in new utility prices beginning in 2025.

However, Fowlie also acknowledged the new system is not perfect.

In an April post from Haas’s Energy Institute Blog – regarding the proposed rate formula – Fowlie wrote:

“Under this kind of reform, there will be winners and losers. Most low-income households will ‘win’ reductions in their electricity bills. Households like mine – higher-income households with rooftop solar – are the biggest losers.”

According to Fowlie, for those thousands of California households that invested in rooftop solar systemsand were able to partially recoup their investments in the form of refunds from the utility companiesthe proposed rate changes may effectively wipe out what these individuals saved by using solar. This is because their relatively high income levels may result in significantly higher utility bills, regardless of their solar expenditures.

But Fowlie notes that while lower-income households will benefit from the new rate formula, which was the driving force behind the legislation, there is no guarantee that these lower-income households will avoid the brunt of shouldering the higher energy costs – costs that rooftop-solar customers typically avoid through the use of their solar systems.

Fowlie continued in the same blog: “…that only a fraction of the savings I see on my bill are savings that my solar panels are actually generating for the world. A significant fraction of my cost ‘savings’ are just cost-shifted onto someone else’s bill since these costs still need to be paid.”

According to Fowlie, these costs will continue to be paid by all PGE customers, regardless of the new rate formula.

The CPUC only recently received the six proposals; it is too early in the process to know if there will be failsafes to ensure this cost sharing is not disproportionately placed on lower-income earners. It is also too early to know who will benefit most from the proposed rate changes.

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