This is part two of a two-part series. Read part one here.
An administrative law judge is mulling over proposals that will dramatically change the way most California residents pay for electricity.
The California Public Utilities Commission (CPUC), at the direction of the state legislature and governor, is asking the judge to move from a system that charges based on the amount of electricity used, to a system that includes an income-based flat fee and fees based on consumption.
A change in California’s utility code, added to a sweeping energy bill AB 205, directs regulators to create a new system which makes sure low-income residents pay less.
Nine official proposals were submitted. Six came from utilities. The rest were offered by consumer, business and environmental groups. The ideas will form the basis for new rules that legislation requires to be approved by next summer.
The scope of the plans is huge. Flat fees range from zero dollars for low income Californians to more than $140 for San Diego Gas and Electric’s (SDG&E) more affluent residents.
The flat fee would not cover the entire bill. Customers would still have to pay a volumetric charge for the electricity they use, but that rate would be lower because the flat fee is collected every month.
When approved, it will be the first time a utility in the United States has levied a flat monthly fee based on a household’s income. And many of the proposed fees are sharply higher than rates collected by more than 173 investor-owned utilities around the country.
“Even having $20 a month as a fixed charge is very, very rare,” said Ahmad Faruqui, an economist with years of experience analyzing utility rates structures. “Most of them are under $15. The national average is around $11.”
California’s three large investor-owned utilities, Pacific Gas and Electric, Southern California Edison and SDG&E, offered a joint proposal that covers about 80% of the state’s residents.
SDG&E asked for unavoidable monthly fees that range from $24 to $128 depending on income. Once fees are implemented, the cost of a kilowatt of electricity would be cut by more than 40% from the highest-in-the-nation kilowatt price.
The U.S. Energy Department currently puts that price at about 47 cents per kilowatt hour.
SDG&E officials said lowering the per kilowatt hour price will make it easier for customers to install electric-powered water heaters, heat pumps and electric cars. The utility said that will help California meet its climate goals.
“This is not a rate increase,” said Scott Crider, an SDG&E senior vice president. “And we’re also not asking to collect any more money from our residential customers and SDG&E is not going to make one single penny more as part of this proposal.”
However, SDG&E recaptures revenue from about 20% of its customers who have rooftop solar. That represents about 290,000 of its 1.35 million residential electric meters.
The utility said that money will be used to push down the cost of a kilowatt hour, the volumetric rate.
“But even solar customers,” Crider said, “They’re still going to save more compared to not having solar on the roof, so we think that there’s still a lot of value there.”
The Sierra Club has long opposed flat utility fees arguing they hurt poor customers.
But the group's position has changed. Their proposal’s average monthly rates are less than $40. But, the charge for high income customers is more than $140 a month in the SDG&E service area. Low-income customers would have no monthly fee.
“We’ve got to address the ability to electrify which really depends on the per unit price of electricity and we’re starting to get to the point where it is becoming uneconomical to certainly electrify your house."Matt Baker, California Public Advocates Office
The Sierra Club sees a chance to make the burden of electrification more equitable.
“Electrification and affordability. That’s the promise of an income-based fixed charge,” said Nihal Shrinath, the official handling the Sierra Club’s proposal.
He said the Club’s proposal preserves higher volumetric rates and the incentive to “conserve energy, pursue energy efficiency and install distributed energy resources such as rooftop solar and battery.”
The California Environmental Justice Alliance, a joint proposal from The Utility Reform Network and Natural Resources Defense Council, and one from the California Public Advocate’s Office fall in the middle range.
Average flat fees are between $20 and $40 and flat fees for the highest income brackets range from $40 to $80. Fees for low-income customers either are at zero or very low.
The per kilowatt rates only go down a little bit.
“We made a modest proposal to the Public Utilities Commission on both how high the fee is and spreads between the income groups and how we would verify the income,” said Matt Baker, director of the California Public Advocate’s Office.
California’s climate goals create pressure to make it easier to electrify the state’s economy. Lower per kilowatt rates can do that.
“We’ve got to address the ability to electrify which really depends on the per unit price of electricity,” Baker said. “And we’re starting to get to the point where it is becoming uneconomical to certainly electrify your house. At some point it will be uneconomical to electrify your car. And so, we really need to get a handle on that so we can electrify the economy and address our climate goals.”
The proposal for the smallest flat fee comes from the Solar Energy Industry Association. That plan calls for flat fees right around $10 a month with only small reductions in the volumetric rate. They argue that small fees are the right place to start because costs will only go up.
“The volumetric rates are going to come down in a one-time fashion and then they’re going to tick back up,” said Bernadette Del Chiaro, of the California Solar And Storage Association. “And the fixed fees are going to tick up and consumers are going to lose, really, their ability to control their monthly energy bill.”
The administrative law judge will design the final proposal from those recommendations.
The proposed decision can be outright adoption of one plan, a blend of several ideas, or a plan that includes elements from all.
The judge is expected to deliver a proposal in the spring and the CPUC is bound by law to have a final proposal approved by next summer.
