On May 9, the California Public Utilities Commission is scheduled to vote on whether to let the state鈥檚 largest power providers slap most customers with a new fixed charge. Think of it like paying for a subscription service, except instead of forking over a monthly fee to watch old Friends episodes, this one lets you enjoy the comforts of 20th century living.
Also, according to the proposed rule, the utilities will be required to lower the rate we all pay for each unit of power we consume.
On average, electric bills won鈥檛 go up or down, but most households aren鈥檛 exactly average. Under the proposed change, people who use less electricity will pay a bit more as a result of the fee, while those who rack up large power bills will save thanks to the lower usage rates.
The basic idea isn鈥檛 novel, even if it鈥檚 ; Most utilities across the country already collect fixed charges. But this proposed regulation comes with a distinctly California twist: The fixed charges would vary by income, with higher earners paying a $24 fee and lower-income households paying either $6 or $12.
The proposed charges are significantly less steep than ones proposed by the utilities themselves last spring, which . But with a , the $24 fee under consideration is still on the high end. Though most households will be compensated, at least partially, through lower rates, that sticker shock has engendered plenty of political outrage.
because the income-varying nature of the charge smacks of a progressive income tax. Many Democrats have lambasted the idea, too, because the lower volumetric rates will water down the incentive to mind one鈥檚 electric usage. The utilities say they need some kind of fixed charge to help pay down wildfire and other rising fixed costs.
"Those who consume more electricity, such as a single family home with (a) pool, will receive a discount at the expense of a low electricity user, such as an apartment renter,鈥� wrote Jacqui Irwin, an Assemblymember from Thousand Oaks, along with 21 of her fellow Democratic colleagues last fall.
Irwin is also the lead author of a , capping them at $10 for most customers and $5 for those enrolled in the .
What makes the debate especially unusual is where some of the state鈥檚 most influential environmental interests have come down on the proposal. Namely, on both sides. The Natural Resources Defense Council is for it. Environment California is against it. The
Once upon a time, environmental interests shared a united view about the best way to make use of the grid: The less the better.
Now, depending on which green activist you ask, the regulatory proposal is either a utility-backed break from the state鈥檚 long, eco-conscious tradition of encouraging energy conservation, or a necessary first step toward electrifying our homes and vehicles for the sake of the planet鈥檚 future.
鈥淭en years ago, even, the grid was mostly powered by fossil fuels,鈥� said Mohit Chhabra, an analyst with the Natural Resources Defense Council, which backs the proposed change. 鈥淭he question now, as the grid gets cleaner, is 鈥榃hen should you use more?鈥欌��
As the commission prepares for its vote early next month, the debate is the latest sign that the changing economics of electricity generation in California are beginning to upend the traditional politics of the grid as well.
The case for a fixed charge
The origin of the current debate dates back to at least 2021 when three UC Berkeley energy economists .
The report is heavy on jargon, but the gist is simple: Rates are just way too high.
Severin Borenstein, one of the report鈥檚 authors, said that isn鈥檛 a populist argument; it鈥檚 an economic and environmental one. Providing energy through the state鈥檚 is not only cheaper, but vastly more environmentally friendly than getting an equivalent amount of energy by burning gasoline or methane.
But because California has in the country, 鈥渢he cost of fueling my Prius at a gas station is about the cost of fueling a Tesla 鈥� and it shouldn鈥檛 be,鈥� he said. 鈥淲e are sending entirely the wrong price signals and it鈥檚 undermining decarbonisation.鈥�
The reason for the gap between the price California households pay and the actual cost of producing the energy, Borenstein argues, is that many of the costs that large utilities face 鈥� costs that have nothing to do with actually producing electricity 鈥� are larded onto the rates we pay per kilowatt hour. Those costs include paying off wildfire-related lawsuits, investments intended to ward off future fires, rebates for lower-income customers, electric vehicle charging stations, payments to customers with rooftop solar panels and upkeep of the grid itself.
The utilities say they need some kind of fixed charge to help pay down wildfire and other rising fixed costs.
The best way to pay for many of these costs would be out of the state budget, Borenstein argues 鈥� a political nonstarter. The report suggested an alternative: Cut rates and make up the difference with a fixed charge on every electric bill. Better yet, for the sake of fairness, make the fixed-charge vary by household income 鈥� an income tax of sorts, but paid monthly to the utilities.
Customers would still be on the hook, the argument goes, but at least bills would do less to discourage Californians from buying electric cars and induction stoves.
The next year included language that would let the state鈥檚 utility regulator do just that. An income-graduated fixed charge, the budget document read, would 鈥渆nable creation of better price signals that will enhance widespread electrification efforts.鈥�
A month later, that measure was with little public discussion. It wasn鈥檛 until late last year, after the public utility commission began soliciting feedback on the proposal it had been tasked by the Legislature to come up with, that legislators began sounding the alarm and introducing new legislation to reverse course.
Newsom鈥檚 office declined to comment on the current legislation. But in January, a spokesperson for the administration told reporters that the governor 鈥渓ooks forward to seeing a 鈥� with the 2022 budget bill language
Electrification vs. conservation
It鈥檚 not a coincidence that utilities in eco-conscious, politically blue California are rare among the nation鈥檚 power providers in doing without fixed charges. Sticking high energy users, believed to be higher income households, with more of the bill has always appeared to align with the state鈥檚 economically progressive bent. Charging more per unit of electricity also promotes energy efficiency.
Environmental advocates who oppose the change aren鈥檛 keen on lessening the current financial penalty for being an energy hog.
鈥淚t鈥檚 going to have this perverse impact of incentivizing wasting energy, encouraging people to buy the biggest car, the biggest house, leaving the lights on,鈥� said Laura Deehan, state director of Environment California, at a digital press conference on Tuesday. The change would also further discourage the uptake of rooftop solar panels, she warned.
It鈥檚 already been a punishing few years for the rooftop solar industry in California. In 2022, the public utilities commission receive for the excess energy they pipe back onto the grid. By lowering the per-unit cost of electricity that panel owners forgo, this year鈥檚 change would further chip away at the benefit of going solar, while also sticking those households with an unavoidable monthly fee.
鈥淗igh fixed charges pick winners and losers,鈥� explained Bernadette Del Chiaro, executive director of the California Solar & Storage Association, in an email. 鈥淭he winners are high energy users. The losers are low energy users. Adding solar and batteries to your home can also make you a low energy user. So, yes, we have a dog in the fight.鈥�
鈥淏ut the numbers of non-solar users impacted by this are much larger,鈥� she said.
Winners and losers
Who those affected customers are is its own spirited debate. The biggest losers will be middle income households who just miss the cut-off for a discount and who currently have small energy bills. The biggest winners will be the biggest users.
鈥淗igh usage customers tend to be wealthier people who can afford to pay these energy bills,鈥� said Josh Plaisted, founder of the engineering and regulator consulting firm Flagstaff Research, which conducted analysis of the proposed change for the Clean Coalition, a nonprofit that promotes policies that support rooftop solar, microgrids and other non-utility-based energy systems.
Under the fixed charge proposal, 鈥渁 home with a backyard pool in Walnut Creek is rocking it,鈥� he said.
Supporters counter that while higher income households do tend to use more energy, the .
Of all the things that determine whether a house uses a lot of energy or a little, income isn鈥檛 as important as local climate, household size and the efficiency of the building, said Chhabra. Wealthier families are more likely to have better insulated homes, solar panels on their roofs and live in expensive coastal cities, all of which tend to result in lower electric bills.
鈥淥nce you start looking through the details, a generic assumption like that just doesn鈥檛 hold,鈥� he said.
The CPUC estimates that a typical household that goes fully electric would save between $12 and $19 per month on their electric bill as a result of the new rate change.
For now the debate may be more symbolic than meaningful. While the biggest winners and losers under the proposed policy stand to see their yearly utility spending change by a few hundred dollars, both supporters and opponents concede that most customers will fall somewhere in the middle. Many may not even notice the change. Meanwhile, the change won鈥檛 affect commercial or industrial customers at all.
That鈥檚 not enough to break the bank for most, but nor is it likely to make the difference for a household weighing a gas versus an electric hot water heater. 鈥淐onnecting the fixed charge with 鈥榯his enables electrification鈥� just rings hollow,鈥� said Plaisted.
The that a typical household that goes fully electric 鈥� swapping out its gas-powered space and water heaters, its oven and its dryer with grid-powered alternatives 鈥� would save between $12 and $19 per month on their electric bill as a result of the new rate change.
Chhabra argued that the effect that a reduced rate will have on conservation is also likely to be negligible. California鈥檚 electric prices are 鈥渟till the highest in the country, save Hawaii, right?鈥� he said. 鈥淪o there鈥檚 still enough signal there.鈥�
But as California continues its campaign to wean itself off fossil fuels, the divide among environmental advocates and other members of the Democratic coalition who shape state energy policy isn鈥檛 likely to go away anytime soon.
鈥淲e are trying to balance conservation, efficiency, electrification and fairness,鈥� said Chhabra. 鈥淎nd you can鈥檛 give the best thing for everything all at once.鈥�
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