Income-Based Electric Bills: Fact and Fiction
California is within the means of making income-graduated fixed rates an element of ratepayers’ electric bills. That is the primary post in a series that follows that proceeding.
Under recent laws, California is moving to a novel system that features income-based fixed charges for electricity. Some critics contend that it is a giveaway to incumbent utilities. It’s not. Others have implied that the costs reflect recent costs to ratepayers on top of existing rates. This can also be not accurate. There are, nonetheless, essential questions regarding how the brand new rate structure shall be designed and implemented.
In a series of posts, I’ll be following the ongoing proceeding on the California Public Utilities Commission (CPUC) charged with implementing this recent policy. The series will dive into the fabric, financial, and equity concerns prompting the law, the sensible design challenges for its implementation, and the ideological divisions between its supporters and critics. This introductory post will seek to make clear what the statute prompting the reform requires of the CPUC and explore the stakes of the brand new policy.
Public utility commissions are tasked with designing retail electricity rates that allow utilities to cover their costs and be certain that customers receive reliable and reasonably priced electricity service. California regulators are facing challenges, nonetheless, as they balance goals to rapidly “electrify every part” without drastically increasing customers’ electricity bills or overloading the grid, and to equitably distribute the prices grid operation and maintenance. This has turn out to be particularly difficult because the expansion of distributed resources like rooftop solar has reduced the shopper base across which these costs are spread. The 2022 California law that requires the CPUC to implement the income-graduated fixed charges is one attempt to handle these tensions. But this major change to electricity rates has inspired frustration and misunderstanding (a blog post from the authors of the Berkely study that originally proposed the policy addresses a few of the common misunderstandings here).
So, what does AB 205 actually require? The Legislature’s stated intent in shifting a portion of rates from volumetric charges (i.e., charges based on what number of kilowatt hours of electricity customers devour) to the brand new income-based fixed charge was to “help stabilize rates, equitably allocate and recuperate costs amongst residential customers,” and to “be certain that the fixed charges are established to more fairly distribute the burden of supporting the electrical system and achieving California’s climate change goals…” The relevant provisions of the statute amend Section 739.9 of the California Public Utilities Code with three major moves. The law requires CPUC to:
Separate out a charge to cover fixed costs by July 2024
First, the statute permits the CPUC generally to “adopt recent, or expand existing, fixed charges for the aim of collecting an inexpensive portion of the fixed costs of providing electrical service to residential customers,” and specifically requires the commission to authorize a hard and fast charge for default residential rates “no later than July 1, 2024.” The Commission has yet to find out exactly which costs shall be incorporated into the brand new fixed charges, but they ought to be costs that don’t vary based on customers’ energy use. Party comments from the foremost investor-owned utilities urged the Commission to adopt a set list of all costs that don’t vary with usage, which might “comprise the present universe of fixed cost categories that may be eligible for potential inclusion” in an income-graduated fixed charge. Party comments from the California Public Advocates Office suggested that these costs “should include but usually are not limited to; marginal customer access cost, non-marginal distribution costs, public purpose related charges, and wildfire-related charges.” Sierra Club and the California Environmental Justice Alliance offered specific suggestions of charges to incorporate, resembling the prices of nuclear decommissioning, PG&E’s Energy Cost Recovery Amount, and various costs of ensuring emergency preparedness and resilience (just like the Wildfire Fund Non-Bypassable Charges and the Wildfire Hardening Charge).
Apply the flat charge on an income-graduated basis
Next, the law requires these fixed charges to “be established on an income-graduated basis with no fewer than three income thresholds.” So, who pays how much? Commenters to the proceedings are currently weighing in on how much the income-graduated charge should reduce bills for low-income customers, whether the Commission should adopt a definition of moderate-income customers, whether there ought to be a cap on the initial increase in average monthly bills or high-income customers, amongst other questions related to the income-graduated design. Parties to the proceeding are also grappling with the sensible challenge of evaluating income for tens of millions of shoppers. Of their initial comments, the foremost investor-owned utilities really helpful that the primary round of income-graduated fixed charges use 4 income brackets that partially depend on existing income data from the low-income California Alternative Rates for Energy and Family Electric Rate Assistance programs.
Make sure that the charge aligns with equity and conservation goals
Finally, the law requires that the brand new fixed charges meet three criteria. The fixed charges must:
- Reasonably reflect an appropriate portion of the various costs of serving small and enormous customers.
- Not unreasonably impair incentives for conservation, energy efficiency, and useful electrification and greenhouse gas emissions reduction.
- Are set at levels that don’t overburden low-income customers.
Just per week ago, the Administrative Law Judge within the case issued a ruling that laid out the near-term timeline for the proceeding and guidance for the opening briefs that parties shall be submitting this fall. The opening briefs are directed to deal with issues essential to authorize the primary round of income-graduated fixed charges and only to handle the procedural elements of issuing the second round of charges.
AB 205 passed easily as a trailer bill but has received a major amount of press and pushback because it was signed into law. Critics argue that the brand new policy will discourage energy efficiency and (conversely) that it is going to not encourage electrification because customers deal with their overall bill relatively than parsing the difference between fixed charges and volumetric rates. A vocal contingent of householders who’ve invested in rooftop solar have taken to the CPUC public comments to precise their ire over what they see as a bait and switch: having been encouraged to speculate in solar only to have the structure of rates change in a way that reduces the advantage of solar investments. Supporters say that the brand new rate structure is crucial to California’s electrification goals and to making sure reasonably priced and equitable rates. Supporters include environmental non-profits, the general public advocate, and California’s three big investor-owned utilities, PG&E, SoCal Edison, San Diego Gas & Electric, which submitted a joint proposal within the CPUC proceeding. I shall be digging into each of those assertions in coming posts.
At stake is California’s ability to affect—a key component of California’s climate goals—and electricity affordability. The unfolding proceeding shall be a vital site for public conversation not only about electrification and affordability, nonetheless, but additionally in regards to the broad purpose and the technical details of electricity rate design. The anger the policy has prompted has exposed a set of fundamentally different frameworks, each descriptive and normative, for understanding electricity ratesetting. The continued debates highlight the basic tensions between incentivizing broad-scale electrification and incentivizing electricity conservation. The proceeding begs technical questions on how the costs might be effectively implemented on an income-graduated basis. The talk and determination of every of those questions may have implications for the longer term of ratesetting in California and nationally.
