Middle or upper income? Brace for higher electric bills

People, the pain is real.

If you’re one of the 12 million-plus or so households in California that do not have solar panels — meaning you buy electricity from Southern California Edison, San Diego Gas & Electric, or Pacific Gas & Electric — your bills have essentially doubled over the past decade (has your income?). Electric bills in California are now twice the national average, and a new income-based, fixed service charge means they’re headed even higher for many middle- and upper-income folks.

This time, the 1 million-plus or so rooftop solar households won’t be shielded from their neighbors’ pain. Since most solar owners depend on the same infrastructure as everyone else for power once the sun goes down, they should also pay for its upkeep, the thinking goes.

Meet California’s first-in-the-nation, income-based fixed service charge, aiming to lessen the load on lower-income folks. The nitty-gritty details are still being debated — fiercely — but decisions are due by July, to take effect in 2025 or 2026. There are various proposals, but they stand to shrink what we pay for electricity by some 5 to 18%, while divvying up what we pay for the infrastructure that delivers that electricity according to how much money we make.

Low-income households could save some $300 a year, according to plans proposed by the Big Three investor-owned utilities (Edison, SDG&E and PG&E). Top-tier earners, making more than $180,000 a year or so, could see increases of some $500 a year.

“An income-graduated basis for the fixed charge would require higher-income households to pay a larger proportion of overall fixed costs to more equitably share the burden of funding electric system infrastructure,” says a report from the California Public Utilities Commission, which regulates rates. “The
CPUC is leading a proceeding to reform rates to implement this important equity tool.”

Right now, the cost of delivering electricity is largely baked into the rate you pay for electricity itself. One of the ideas here is to bifurcate infrastructure costs from actual power costs, on the theory it’s as expensive to get energy to homes that consume gob-loads of power as it is to get energy to homes that are highly efficient.

Edison, PG&E and SDG&E propose a standard fixed charge on all residential customers’ bills, except for lower-income customers enrolled in the state’s CARE or FERA programs, whose income already qualifies them for bill discounts. Their fixed charge would be lower, said Edison spokesman Jeff Monford, and on average would reduce bills for customers who need the most help.

There’s much critics hate here — including that some lower-income households might end up paying more, not less — but don’t lay blame or thanks for this sea change at the CPUC’s feet. It’s just following orders.

This progressive bit of ratemaking is brought to you via unassuming little paragraphs in a bill passed (with precious little public comment or debate) by the Legislature and signed by the governor last year: Assembly Bill 205. It repeals the existing cap on fixed charges — a wee $10 a month — and requires the CPUC to develop fixed charges “on an income-graduated basis with no fewer than three income thresholds, such that a low-income ratepayer would realize lower average monthly bill without making any changes in usage,” says a Senate analysis of the bill.

One proposal would charge the lowest-income users a fixed $15 a month (Edison and PG&E) or $24 (SDG&E), while the highest-income users would pay $85 a month (Edison), $92 (PG&E) or $128 (SDG&E).

The Public Advocates Office — the in-house Solomon-the-Wise at the PUC, charged with protecting the little guy — favors the change, though proposes smaller, flatter fixed charges than the Big Three investor-owned utilities.

While critics brand this a “utility tax” (highly effective red meat here in California), officials stress that these proposals do not change the amount of money the utilities collect.

Utility profits are set by the CPUC itself at roughly 10%. The easiest way to think about the change is like this: Under the old method, the utility collected $100. Under the new method, the utility will still collect $100 — but who is paying that $100, and how, will shift.

It’s really a modest change meant to lower the price of electricity so folks have incentive to ditch their gas cars and appliances and go all-electric, supporters say. It would also make bills more predictable and transparent.

Critics, from SAVE THE FROGS! to the California Assembly, disagree.

Entrenches high prices, doesn’t fix them

“We, the undersigned organizations and community leaders, are writing in strong opposition to the ‘Utility Tax’ provision embedded into Budget Trailer Bill AB 205 (2022),” says a letter to the governor and state legislators urging its immediate repeal.

“We object to the un-democratic and opaque way in which the Utility Tax was enacted, passed in three days without any public hearings or discussion. The people of California deserve a voice in any major policy change with such wide-ranging consequences.”

The letter summarizes the complaints of many critics and was signed by more than 200 organizations across California, including the Center for Biological Diversity, the California Latino Environmental Advocacy Network, Feminists in Action Los Angeles, Democratic Club of West Orange County, Indivisible San Jose and SAVE THE FROGS!

“Because of this provision, the utilities and other organizations … have proposed the highest fixed charges in the country, between $30 to $70 per month,” it continues. “That would be three to seven times the national average for such a fixed charge. …

“The Utility Tax entrenches the problem of high electricity prices, rather than solving it. Electricity prices are too high mainly due to the increasing costs of unnecessary long-distance power lines, liability when those lines create wildfire risks and generous utility profits that drive this spending. A Utility Tax does not fix that underlying problem because it just rearranges who pays what — harming millions of working-class people in the process.

“The true solution to stabilizing the high cost of electricity is to reduce our overdependence on long-distance power lines through greater conservation and local clean energy.”

Nearly two dozen members of the California Assembly — some quite progressive — fired off their own objections to the CPUC president.

“We have significant concerns about the direction of the CPUC’s implementation of AB 205 and its potential negative impacts on our constituents and believe that, at a minimum, more time will be needed to consider such a significant and far-reaching change in policy that will significantly impact ratepayers with only a theoretical benefit,” says the letter, dated Oct. 27. 

First, the CPUC has rejected a request to hold public hearings on “major changes” to the state’s electric rate structure. Given the breadth of impact to ratepayers, it’s only fair that a full, public process is conducted to hear from all folks who’ll be affected, not just the companies and nonprofits who are party to the proceeding. And, really, what’s the rush? The CPUC was authorized to do a fixed rate charge in 2013 when AB 327 passed, “but has felt no urgency to do so for the past 10 years,” the legislators said. “(W)e believe there is ample time to open this proceeding to the public.”

Second, the legislators worry that this approach could thwart conservation and increase electrical consumption by sending the wrong price signal to ratepayers.

“With these proposals, there would be a decoupling of electricity policy from the volumetric and conservation-based model that the CPUC has long been promoting. For instance, even under some of the lower proposed flat rates, analyses show that those who consume more electricity, such as a single-family home with pool, will receive a discount at the expense of a low-electricity user, such as an apartment renter. There is a very real possibility that these proposals could discourage the kind of conservation that is needed in order to avoid rolling blackouts that have threatened the state too often over the past several years,” the legislators wrote.

A $30 monthly fixed charge would cost lower-income folks an extra $360 a year, and lawmakers worry about the impact to current and future rooftop solar and battery users. Solar industry reps said business has plummeted since the PUC slashed how much new solar systems are credited for the energy they produce, making the payback period longer.

“While we understand that a fixed charge may be needed, we do not believe a policy shift of this magnitude should happen without sufficient time for a wide array of public input,” they wrote. “Further, the majority of the current proposals are unreasonable and the Commission must ensure that any fixed rate being considered be in line with national rates.”

Then there’s the income verification issue. The state knows all about how much money we make — but who wants to give that information to the electric company? There are varying ideas on that, from having a third party handle it to just sticking with the current CARE and FERC discount program rules, but it’s a hot topic that goes directly to privacy.

“Nobody wants to give their tax return to the power company,” writes Jim Lazar, an expert in utility rate design. “Income has no clear correlation to the electric utility cost of service. Poor people in rural areas are relatively expensive to serve; rich people in condos in urbanized areas are cheap to serve.  Does the lack of correlation to the cost of utility service make it a ‘tax’ under the laws of California? In California, most new ‘taxes’ require a different process than the PUC runs, including a public vote.”

Edison said no new income verification process is needed in the proposal put forward by the Big Three. But Lazar, an economist, predicts this effort will fail, and said that’s the fate it deserves.

Solutions?

This rejiggering of who pays that $100 and how doesn’t do anything to actually reduce California’s crazy high electricity rates. Hundreds of comments have been filed in passionate opposition.

“This is nothing more than thinly disguised attempt to put the screws to owners who have invested in solar panels,” said Gil Legault of Ladera Ranch. “Instead of incentivizing homeowners to go green, you’re doing the opposite.”

“This fixed rate proposal is a Marxist/Communist idea to make Socialism a reality in our utility companies,” said Donald Grass of Oceanside.

Economist Lazar has some ideas on how to lower California bills more equitably. One: Shrink the profit utilities are allowed to collect.

Mind you, they’re only allowed to collect profit on gridwork and infrastructure, not on power, and that margin is set by the CPUC itself. California utilities are allowed a higher rate of profit than most utilities in the U.S. and Canada, and the CPUC could take this up in a separate proceeding.

Another idea: Cap the amount of executive compensation that comes from ratepayers’ pockets.

These folks are exceptionally well-paid. Even the pauper of the bunch, Southern California Edison’s president and CEO, made $2.8 million in total pay and perks last year. PG&E’s got $3.6 million in cash compensation and another $10 million in stock, while SDG&E’s got $5.7 million in cash comp and $7 million in stock. The latter two both got other forms of comp as well.

Lazar suggests that anything above a certain cap — say the governor’s $224,000 salary? — should come from shareholders’ pockets, not ratepayers’ pockets.

California ratepayers have shouldered high costs for wildfire mitigation, a cost that might be better borne by the state. California also has the most generous low-income electricity discounts of any state — nearly 30% of consumers get a 35% discount — which is really a welfare cost, not a utility cost of service. That, too, should be borne by the state, Lazar writes.

Shrinking utility profit margins and transferring social costs to general government could actually work to lower California’s crazy electric rates. That should be the goal of regulators going forward. “The CPUC,” Lazar wrote, “is barking up the wrong tree.”

Want to let regulators know your thoughts? Go to https://bit.ly/46HMhm and click on “add public comment.”

Source: Orange County Register