California regulators could completely upend how utility bills are calculated thanks to legislation passed last year.
Assembly Bill 205 requires the California Public Utilities Commission to create an income-based fee for the state’s utility customers. That mandate offered no guidance besides the idea, so the CPUC requested proposals.
Plans from the state's investor-owned utilities, including San Diego Gas & Electric (SDG&E), and other interested parties were filed last Friday. A first major step in a long deliberative process.
“We’ve been focused a lot on comprehensive rate reform,” said Scott Crider, a senior vice president at SDG&E.
The mandatory fixed-fee concept is welcomed by the San Diego-based utility, which has the highest per kilowatt-hour electricity price in California. The rate is also among the highest in the nation.
The current electricity pricing system includes all the costs of maintaining, protecting and developing the grid, as well as the cost of state-mandated public purpose programs, into the cost of a kilowatt hour. That is known as volumetric pricing. The more electricity people use, the more people pay.
That means electricity consumers that use a lot of energy also pay more to support the grid.
The Sempra subsidiary proposes splitting the bill in half.
All of the costs to maintain the grid, pay for conservation programs, low-income relief programs, and protect the system from wildfires would be accounted for in a mandatory flat fee that customers would pay each month before they even use any electricity.
“This is really about taking our existing rates and really changing how electricity is priced for customers,” Crider said. “To make it simpler. To make it more predictable and to really create that saving for low-income customers.”
The savings would come because there would be different charges based on how much income a household makes.
SDG&E is proposing four different tiers.
Household income for a family of four:
- $28k or lower, Fixed monthly fee $24
- $28k-$69k, Fixed monthly fee $34
- $69k-$180k, Fixed monthly fee $73
- $180k or more, Fixed monthly fee $128
The actual cost of buying electricity for San Diego customers is significantly lower than the average $.47 per kilowatt hour price of SDG&E power, and since the flat fee would account for delivery charges, the price of a kilowatt hour would fall to about $.27.
“We really think that that is a way to keep bills stable,” Crider said. “Make it more transparent. And again, it helps us lower the cost of electricity by about 42%.”
If the proposal is adopted, California would be the first state in the nation to have a part of a household’s utility bill be determined by income.
“The fact is, is that lower-and-middle income customers on average are going to save money,” Crider said. “And we think that even our higher-income customers may not benefit right away, are going to see some very substantial savings as they begin to add those (electric vehicles), that electric water heater, in response to all the new state mandates here in California.“
The state hopes to end the sale of cars with internal combustion engines by 2035 and be carbon neutral by 2045. That requires major changes for transportation, housing, and business.
The utility argues that the lower electricity rate would encourage state residents to embrace technology that uses electricity instead of fossil fuels.
It is an idea UC Berkeley professor Severin Borenstein offered recently in a study commissioned by the non-partisan group Next 10. Borenstein is the Faculty Director at the Energy Institute at Haas and is on the board of the California Independent System Operator, the agency that runs the electricity grid.
The report concluded that income-based fees for electricity bring more equity into utility rates and help encourage customers to buy climate-friendly technology.
“So it would definitely improve the economics of electrification,” Borenstein said. “Whether it’s transportation, home heating, water heating, cooking, stoves and so forth.”
Borenstein contends customers would be more likely to install appliances that use electricity because the commodity price would go down.
“There have been no pilots, no experiments, no trials, as you call them, to see if this even works,” said Ahmad Faruqui, a Bay Area economist who’s worked on utility rate cases for decades.
Faruqui thinks utility customers will focus on the overall bill, which will go up for more affluent customers with disposable income to invest in cleaner technologies, not the lower unit cost of electricity.
And the proposal does nothing about the underlying forces pushing rates up, like cleaner, more modern technology.
Faruqui said 173 investor-owned utilities around the country charge a fixed rate to pay for part of their service. None base those fixed charges on income, and the average fee is about $10, with the highest at $40.
“And suddenly to go from $0 to even go to $25 is a humongous leap,” Faruqui said. “Then to go all the way to $128 dollars and to justify it on the basis of saying, we are just trying to make the state mandate more affordable. That’s just hyperbole.”
The solar industry is also bracing for bad news.
New rules taking effect this month slash the value of rooftop-generated electricity that can be sold back to the grid. That reduces the credits the solar panels can generate for their owners. And electricity generated on rooftops could not be used to pay down the fixed fee, which is currently included in the price of a kilowatt hour.
Fixed monthly fees would make it even harder for residents to recover the cost of installing solar panels.
The Solar Rights Alliance has not done a complete analysis of the proposals under consideration, but the group thinks the plan will be good for utility balance sheets. It is unclear if customers will benefit.
The group is not encouraged that the high fees are mandatory and customers lose financial incentives to conserve or generate their own power.
“In general, high fixed charges discourage people from reducing their energy use whether through energy efficiency, conservation or rooftop solar,” said Dave Rosenfeld of the Solar Rights Alliance. “We know that. That’s like, hands down, a proven thing.”
The CPUC is considering a number of proposals and regulators will have the final decision on how income-based fixed fees will be determined.
The panel will also decide where and when the fees will be applied.
