On May 9, the California Public Utilities Commission is scheduled to vote on whether to let the state’s 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’t go up or down, but most households aren’t 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’t novel, even if it’s wildly controversial here in California. 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 the ones proposed by the utilities themselves last spring, which topped out at $128 per month for the highest earners. But with a national average of roughly $11 per month, 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.
Republicans don’t like it 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’s 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,” 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 bill that would put a tight lid on fixed charges, capping them at $10 for most customers and $5 for those enrolled in the state’s biggest energy assistance program.
What makes the debate especially unusual is where some of the state’s 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 Sierra Club called it a “mixed bag.”
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’s 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’s future.
“Ten years ago, even, the grid was mostly powered by fossil fuels,” said Mohit Chhabra, an analyst with the Natural Resources Defense Council, which backs the proposed change. “The question now, as the grid gets cleaner, is ‘When should you use more?’”
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 published a report on what’s wrong with California’s electricity prices.
The report is heavy on jargon, but the gist is simple: Rates are just way too high.
Severin Borenstein, one of the report’s authors, said that isn’t a populist argument; it’s an economic and environmental one. Providing energy through the state’s increasingly solar- and wind-saturated electric grid is not only cheaper but also vastly more environmentally friendly than getting an equivalent amount of energy by burning gasoline or methane.
But because California has some of the highest retail electric rates in the country, “the cost of fueling my Prius at a gas station is about the cost of fueling a Tesla—and it shouldn’t be,” he said. “We are sending entirely the wrong price signals and it’s undermining decarbonisation.”
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—costs that have nothing to do with actually producing electricity—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 best way to pay for many of these costs would be out of the state budget, Borenstein argues—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—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 Gov. Gavin Newsom’s revised budget proposal included language that would let the state’s utility regulator do just that. An income-graduated fixed charge, the budget document read, would “enable creation of better price signals that will enhance widespread electrification efforts.”
A month later, that measure was tucked in a 21,000-word budget bill with little public discussion. It wasn’t 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’s office declined to comment on the current legislation. But in January, a spokesperson for the administration told reporters that the governor “looks forward to seeing a commission proposal that is consistent” with the 2022 budget bill language.
Electrification vs. conservation
It’s not a coincidence that utilities in eco-conscious, politically blue California are rare among the nation’s 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’s economically progressive bent. Charging more per unit of electricity also promotes energy efficiency.
Environmental advocates who oppose the change aren’t keen on lessening the current financial penalty for being an energy hog.
“It’s going to have this perverse impact of incentivizing wasting energy, encouraging people to buy the biggest car, the biggest house, leaving the lights on,” 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’s already been a punishing few years for the rooftop solar industry in California. In 2022, the public utilities commission cut the payment that panel owners 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’s change would further chip away at the benefit of going solar, while also sticking those households with an unavoidable monthly fee.
“High fixed charges pick winners and losers,” explained Bernadette Del Chiaro, executive director of the California Solar & Storage Association, in an email. “The 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.” /
“But the numbers of non-solar users impacted by this are much larger,” she said.
Winners and losers
Who those affected customers are is its own spirited debate. The biggest losers will be middle-income households that just miss the cut-off for a discount and who currently have small energy bills. The biggest winners will be the biggest users.
“High-usage customers tend to be wealthier people who can afford to pay these energy bills,“ 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, “a home with a backyard pool in Walnut Creek is rocking it,” he said.
Supporters counter that while higher income households do tend to use more energy, the relationship isn’t as consistent as one might think.
Of all the things that determine whether a house uses a lot of energy or a little, income isn’t 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.
“Once you start looking through the details, a generic assumption like that just doesn’t hold,” he said.
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’t affect commercial or industrial customers at all.
That’s 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. “Connecting the fixed charge with ‘this enables electrification’ just rings hollow,” said Plaisted.
The state utilities commission estimates that a typical household that goes fully electric—swapping out its gas-powered space and water heaters, its oven and its dryer with grid-powered alternatives—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’s electric prices are “still the highest in the country, save Hawaii, right?” he said. “So there’s still enough signal there.”
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’t likely to go away anytime soon.
“We are trying to balance conservation, efficiency, electrification and fairness,” said Chhabra. “And you can’t give the best thing for everything all at once.”