If done correctly, Californians can save on utility bills by creating income-based charges (2024)

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by Theo Caretto

If done correctly, Californians can save on utility bills by creating income-based charges (1)

In summary

California’s utility regulators are exploring energy bill reforms that would structure charges based on household income. If done correctly, the change could lower bills for most Californians and shift the cost for maintaining the grid to higher earners who can afford it.

Electricity bills in California are increasing at an unprecedented pace, putting enormous strain on low-income households.

In just three years, residential rates havespiked63% for Pacific Gas & Electric customers, 52% for Southern California Edison customers, and 13% for San Diego Gas & Electric customers.One in fivehouseholds served by the state’s largest investor-owned utilities are now behind on their bills.

To provide relief for working-class households, the California Legislature passed a bill in 2022 that paved the way for regulators to adopt a more equitable rate structure known as an “income graduated fixed charge.” Done correctly, this reform would lower bills for most Californians by shifting some of the cost of maintaining the state’s electricity grid to higher earners who can afford it.

The California Public Utilities Commission, or CPUC, is now considering a range of proposals for how to craft an income graduated fixed charge. But before the state has gotten the chance to put forth a proposal for how to structure this reform, a misguided effort from lawmakers has sprung up to roll back the CPUC’s authority to move forward.

If the legislation proposed by lawmakers to kill rate reform succeeds, the state will miss out on a critical opportunity to get bills under control for low- and middle-income households. Sending California back to square one will hurt the households lawmakers have a responsibility to protect.

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The California Environmental Justice Alliance has proposed the most fiscally progressive income graduated fixed charge now before the CPUC. The proposal would equitably distribute costs by shifting more of the financial burden onto very wealthy customers.

CEJA’s proposal would set up strong protections for low- and moderate-income customers through a five-tier income-graduated structure that excludes a fixed charge for low-income households. They would only pay for the electricity they use. If adopted, it would immediately lower bills for over 85% of California households by ensuring multimillionaires pay their fair share.

On the flip side, PG&E, Southern California Edison and SDG&E have put forth aproposalthat would actuallyincreasebills for many low-income households, lumping households who make $65,000 into the highest income tier along with millionaires. That’s unacceptable – and more importantly, it would not comply with the letter of the law.

The CPUC must get the details of this reform right by rejecting proposals that fail to pave the way for the more equitable energy system we need. But leaving California’s regressive rate structure untouched – as the lawmakers are proposing – should not be on the table.

California’s current rate system recovers fixed system costs, including wildfire hardening, grid infrastructure and public benefits programs, from everyone at the same rate based on how much energy they use. This is regressive because California’s low-income customers foot the same bill per kilowatt hour as millionaires just to access electricity for basic needs.

Under a reformed system, all customers would pay much lower volumetric rates offset by fixed charges based on income. As a result, low- and moderate-income households would see bill savings, while more affluent customers would pay more.

California is facing a unique set of circumstances that call for transformational rate reform.

We already paytwo to three timesmore for electricity than it costs to produce, and more per kilowatt hour than most states. And upward pressure on rates is expected to increase in coming years as California overhauls the grid.

Meanwhile, ensuring all communities have affordable access to renewable energy and clean electrification is critical for combatting the climate crisis. Our electricity billing structure is a barrier, especially for low-income households that spend a disproportionate amount of their income on utility bills.

By lowering the volumetric price of electricity, income graduated fixed charges could make it more affordable for low- and moderate-income households to upgrade to an electric vehicle or heating system.

California leaders have an opportunity to make a meaningful difference in the lives of households who fight every day to keep a roof over their heads in an economy that is already rigged against them. Enough is enough. California needs to transform its outdated, regressive rate system.

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California's Utility Regulators Exploring Energy Bill Reforms

California's utility regulators are considering energy bill reforms that would structure charges based on household income. The goal of this reform is to lower bills for most Californians and shift the cost of maintaining the grid to higher earners who can afford it.

Increasing Electricity Bills in California

Electricity bills in California have been increasing at a significant pace, which has put a strain on low-income households. Over the past three years, residential rates have spiked by 63% for Pacific Gas & Electric customers, 52% for Southern California Edison customers, and 13% for San Diego Gas & Electric customers.

Income Graduated Fixed Charge

The California Legislature passed a bill in 2022 that allows regulators to adopt an "income graduated fixed charge" rate structure. This reform aims to lower bills for most Californians by shifting some of the cost of maintaining the state's electricity grid to higher earners who can afford it. The California Public Utilities Commission (CPUC) is currently considering various proposals for how to structure this reform.

Proposals for Income Graduated Fixed Charge

The California Environmental Justice Alliance (CEJA) has proposed a fiscally progressive income graduated fixed charge that would distribute costs more equitably by shifting more of the financial burden onto wealthy customers. CEJA's proposal includes a five-tier income-graduated structure that excludes a fixed charge for low-income households, ensuring they only pay for the electricity they use. This proposal could immediately lower bills for over 85% of California households.

On the other hand, Pacific Gas & Electric (PG&E), Southern California Edison, and San Diego Gas & Electric have put forth a proposal that could increase bills for many low-income households. This proposal would lump households making $65,000 into the highest income tier along with millionaires, which is seen as unacceptable and not compliant with the law.

Benefits of Reforming the Rate Structure

Reforming California's rate structure is seen as crucial for several reasons. Firstly, California already pays two to three times more for electricity than it costs to produce, and more per kilowatt hour than most states. The upward pressure on rates is expected to increase as California overhauls its grid. Secondly, an equitable rate structure would ensure that all communities have affordable access to renewable energy and clean electrification, which is critical for combating the climate crisis. Lastly, by lowering the volumetric price of electricity and implementing income graduated fixed charges, it could make it more affordable for low- and moderate-income households to upgrade to electric vehicles or heating systems.

Opposition to Rate Reform

There is opposition to rate reform from lawmakers who are proposing legislation to roll back the CPUC's authority to move forward with the reform. If this legislation succeeds, it could hinder the opportunity to control bills for low- and middle-income households and maintain an equitable rate structure.

In summary, California's utility regulators are exploring energy bill reforms that would structure charges based on household income. The goal is to lower bills for most Californians and shift the cost of maintaining the grid to higher earners who can afford it. Various proposals, including a fiscally progressive income graduated fixed charge, are being considered. However, there is opposition to the reform from lawmakers who are proposing legislation to roll back the CPUC's authority. Reforming the rate structure is seen as crucial to make electricity more affordable, combat the climate crisis, and ensure equitable access to renewable energy.

If done correctly, Californians can save on utility bills by creating income-based charges (2024)

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