California electricity providers are set to implement a new proposed pricing schematic that will scale with a household’s annual income. Executives and spokespeople for the utility companies claim the change will provide much needed economic relief, but gloss over the fact that the wealthy will subsidize the change.
Assembly Bill No. 205 passed by the state legislature and signed by Governor Gavin Newsome in June of 2022 forces the California Public Utilities Commission (CPUC) to amend its fee schedule to “require the fixed charge to be established on an income-graduated basis, as provided, with no fewer than 3 income thresholds so that low-income ratepayers in each baseline territory would realize a lower average monthly bill without making any changes in usage,” according to the text of the bill.
Reporting on the topic by CNET on June 9 states that the three largest utility providers in California,
- Pacific Gas & Electric (PCE)
- Southern California Edison (SCE)
- San Diego Gas & Electric (SDGE)
Which compose 3/4ths of the electricity service in the entire state, have jointly put forth a plan to the CPUC that would “support affordability and increased bill stability.”
In the plan, the fee schedule is broken down into the following brackets of household income:
- Under $28,000
- $28,000 to $69,000
- $69,000 to $180,000
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The schedule differs between each provider, but the most dramatic delta is found in SDGE customers, where the sub-$28,000 will be levied a $24 fee while the $180,000+ bracket will pay more than 5 times more: $128.
April 30 reporting by The Times of San Diego clarifies that the flat fee does not replace the current per kilowatt usage system. Instead, the flat fee is paid to reduce the usage fee, “Customers would pay a flat rate of $24 to 128 per month plus an average of 27 cents per kilowatt-hour of electricity used, compared to the current average of 47 cents per KWh.”
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In April, local news outlet KTLA5 quoted a spokesperson for SCE as stating on the changes that the law “was intended to lower the amount that residential customers pay…while increasing transparency with bills.”
“This will provide relief to millions of customers,” they added.
SDGE Vice President Scott Crider told KPBS in April that his company was “focused” on “comprehensive rate reform.”
Crider made it clear that the changes were for the purpose of shuffling the cost of supplying the energy grid from the lower income bracket to the higher income bracket when he stated, “This is really about taking our existing rates and really changing how electricity is priced for customers.”
“To make it simpler. To make it more predictable and to really create that saving for low-income customers,” he added.
Crider claimed that the changes “helps us lower the cost of electricity by about 42%” on the basis of the usage rate subsidy.
The executive continued, “The fact is, is that lower-and-middle income customers on average are going to save money.”
Crider acknowledged that high income customers are going to pay more in their bills, but were “going to see some very substantial savings” once they’re forced to “add those (electric vehicles), that electric water heater” in response to California state edicts that intend to phase out gasoline vehicles and even natural gas appliances under the carbon climate change narrative.
KPBS says the theory is that reduced electricity prices will drive consumers away from fossil fuel and entice them to voluntarily purchase electricity-consuming appliances and vehicles.
But in an April article published on the EnergyCentral website, economist Ahmad Faruqui notes that, using the average of the charges to the four tiers of PGE customers of $53, that the price is still higher than every single other utility in the country.
Faruqui compiled a chart of the 173 other investor-owned utilities in America charging fixed monthly fees and found that the lowest is $10 and the highest is $40.
The economist notes that it’s “unclear what impact this change in rate design will have on customer adoption of heat pumps and EVs,” because “there is no empirical evidence to demonstrate that it will make a material difference in adoption rates.”
“Just theoretical conjecture originating from academic economists,” Faruqui adds.
Moreover, Faruqui calculated that for customers who are currently paying $200 per month and less for electricity, the flat fee system change will actually increase their bill by as much as 140 percent as customers who are using more electricity are effectively subsidized by the flat fee charged to those who use very little electricity.
“In this category would be single individuals living in condominiums, empty nesters living in very efficient homes, and families living in efficient homes with solar panels,” he stated.
“In each of the three income brackets, higher use customers will gain more than lower use customers. Across the three income brackets, low use customers in the third income bracket will be hit the hardest,” Faruqui said.
“This is a disaster waiting to happen. Everyone I have spoken with is shocked and up in arms,” he added.
May 9 reporting by Canary Media stated, “Based on the public feedback submitted to the CPUC by everyday customers, it’s a wildly unpopular idea.”
Public Advocates Office Director, Matt Baker, told the outlet, “For the first time since the 1980s, we want people to use more electricity…Twenty years from now, we’re going to be using twice the amount of electricity we use now.”
Canary also quoted Public Advocates Office rate design expert Mike Campbell as acceding to the fact, “To be fair, someone might say, ‘You’re taking some money from some folks to do this.’”
“Yes, that would be happening,” Campbell was quoted as stating, while paraphrased as arguing that the loss outweighs the gain because “it’s a relatively small amount of money.”