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Susan Shelley: Flaws of California’s income-based utility bill plan continue to be exposed

On the website of the California Public Utilities Commission is a February 2022 presentation from UC Berkeley and the Energy Institute at Haas titled, “Ensuring Affordability for California’s Electricity Customers.”

Even the academics have noticed that we have a problem.

“California’s residential electricity prices are too high,” the first slide in the presentation states flatly. The report’s authors used “detailed billing data,” plus a “new approach to estimating household-level income,” and they analyzed “an income-based fixed charge that is designed to improve efficiency and address mounting concerns about affordability/equity.”

If that sounds familiar, it’s because this is now the law in California. Last June, as part of a hurried “budget trailer bill” that tore through the Legislature and was signed by the governor in less than a week, investor-owned utilities in California were required to separate the cost of electricity itself from other costs that previously have been recovered through the electricity rates.

These other costs — for things such as infrastructure, climate investments, wildfire-related expenses, customer service, pensions and post-retirement benefits — will be recovered in an income-based fixed charge that all customers connected to the grid will have to pay, regardless of how much electricity they use.

In compliance with the rapidly enacted Assembly Bill 205, Pacific Gas & Electric, San Diego Gas & Electric and Southern California Edison submitted a proposal laying out their proposed fixed charges by income tiers, along with a reduction in the electricity rates charged for usage.

Surprisingly, the Berkeley presentation acknowledges that implementing this proposal could turn out to be a train wreck. The authors don’t call it a train wreck, of course. Their phrase is “key challenges.”

One challenge cited is the “incentive” customers will have to misrepresent their income. Another is the “large paperwork burden/privacy concerns” if the utilities require documentation. (The utilities have already told the CPUC they want someone else to verify income.) The study’s authors considered the possibility of using “neighborhood characteristics” instead of income to determine fixed charges, but that has problems, too. “Census data reveal large income variation within the smallest units” measured by the Census Bureau, they found, and further, there is a possibility that “landlords/current owners would gain much of the benefit, not tenants.”

In urgent italics, the authors wrote, “Reminder: Using state revenue to recover costs avoids all these implementation challenges and can easily create a progressive rate.”

Easy for them to say. The Legislature would need a two-thirds vote in each house to raise “state revenue” (also known as “taxes”).

The Legislature and the governor chose the income-based fixed-charge solution. But what problem, exactly, is it solving?

In the view of some, it’s a problem that not everybody is paying their “fair share” of the cost of “infrastructure,” as it is defined. People who have installed solar panels, for example, have been paying a low fixed charge and not using much electricity from the grid. So the new rate structure “solves” that problem by forcing solar-generating customers to pay the income-based fixed charge, as much as $128 per month in SDG&E territory, $92 per month in PG&E’s service area, and $85 per month for Southern California Edison customers.

Similarly, people who have opted out of these utilities and buy their electricity from CCAs, Community Choice Aggregators, will pay the new income-based fixed charges just as if they were buying their electricity from the investor-owned utility. Community Choice Aggregation was enacted in 2002 with the passage of Assembly Bill 117, which required “all electrical corporations” to “cooperate fully” with these electricity-procurement programs run by cities and counties. The utility still handles the distribution of electricity to customers, along with metering, billing and customer service.

Now the utilities will be able to pass along more of their costs to CCA customers in the income-based fixed charge, while the utility lowers its own usage rates.

Another problem the new rate structure purports to solve is that high rates for electricity are a disincentive for consumers to electrify their transportation and homes. So the idea is to lower the price of each kilowatt hour used by a customer, supposedly increasing the attractiveness of using only “clean electricity” to run cars, stoves, water heaters and heating systems.

However, another part of the rate structure, costlier price tiers for higher usage and time-of-use pricing, undercut this strategy completely. Southern California Edison confirmed to our editorial board that the usage tiers and time-of-use pricing will continue under the new rate structure, though at reduced rates.

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Customers will certainly be aware that if they buy electric vehicles and replace their gas appliances with electric ones, that could land them in the highest-usage price tier every month. And if they cook dinner, use hot water and charge their cars between 4:00 p.m. and 9:00 p.m., when people typically get home from work, their bills could skyrocket.

The upshot of this entire exercise is that doing more of what is supposedly “the right thing” brings steep financial penalties. Working hard and earning a good salary gets you the highest charge. Solar customers and people who chose CCAs believing they brought environmental benefits will be forced to pay higher fixed charges for being connected to the grid. Drivers who buy electric cars, and homeowners or landlords who replace their gas appliances with electric, all will be paying a higher fixed charge for electricity. And while rates will be lower for usage, total bills can only be lower if the customer uses the same amount of electricity as before the conversion. Customers who use more could pay much more.

The CPUC will consider the utilities’ proposal next year and the new rate structure will be implemented in 2025.

By then the price of Tesla Powerwall home batteries may have come down enough to allow millions of Californians to install solar panels and disconnect from the grid entirely. There’s more than one way to escape from California.

Write Susan@SusanShelley.com and follow her on Twitter @Susan_Shelley

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