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 who 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.
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