Dive Brief:
- The California Public Utilities Commission on Thursday unanimously approved a new income-graduated fixed charge for the state’s investor-owned electric utilities. The move significantly changes the structure of customer bills, with an aim to encourage electrification and take strain off low-income customers struggling with high energy prices.
- The new billing structure was mandated by Assembly Bill 205, passed by California lawmakers in 2022. The fixed charge will begin showing up on San Diego Gas & Electric and Southern California Edison bills in late 2025, and for Pacific Gas & Electric customers in early 2026. Regulators expect the change to reduce residential electricity rates by 5 to 7 cents/kWh.
- The change has been controversial, with opponents of the fixed charge calling it a “tax” that will further enrich power companies. Regulators on Thursday pushed back on that narrative. “This change simply reallocates how existing costs are divvied up in bills — it does not introduce new costs or fees,” CPUC President Alice Reynolds said at the commission’s open meeting.
Dive Insight:
The monthly fixed charges are intended to redistribute costs associated with running the electric grid “in a more equitable manner,” Reynolds said. But opponents say they will hurt low-income customers and those using less electricity.
The new charge will be $24.15/month, though low-income customers and those living in deed-restricted affordable housing are eligible for discounted flat rates of $6/month or $12/month.
“Because the new utility tax disincentives energy conservation and could discourage users of gas appliances to switch to electric ones, California’s fight against climate change is also a loser in the CPUC’s vote,” Bill Allayaud, vice president of California government affairs for the Environmental Working Group, said in a statement.
But CPUC commissioners disagreed with that idea, pointing to lower rates as an incentive for electrification.
“The idea that this fixed charge proposal will undermine the motivation to conserve is, quite frankly, laughable,” Commissioner John Reynolds said ahead of the vote. “Electric rates are perhaps the most important barrier to wider electrification. … As an example, if it costs the same amount of money to charge a Chevy Bolt as it does to fill up a Toyota Corolla, people lose the incentive to [adopt electric vehicles].”
The fixed charge will go to maintaining and modernizing the grid, and hardening infrastructure against growing wildfire risks, regulators said.
“By recovering these fixed costs through a fixed charge, we can reduce the price paid for using electricity, reducing this critical barrier to electrification,” Reynolds said.
The state’s three largest utilities supported the charge through the Predictable Power Coalition, a group they formed “to advance rate reform.”
PG&E, SDG&E and SCE originally proposed average fixed charges of $53, $74 and $49/month, respectively.
By adopting the fixed charge, “the CPUC took a critical step in the right direction towards modernizing the way we are charged for electricity, thereby reducing costs to the state’s most vulnerable families,” PPC spokesperson Cynthia Martinez said in a statement.
The Solar Energy Industries Association warned about future changes to the new charges, which the group had urged regulators to reject.
“While the final charges are lower than what investor-owned utilities wanted, these are still new costs coming out of the pockets of California families that are already struggling with the high cost of living in the state,” SEIA’s California State Affairs Director Stephanie Doyle said in a statement. “Any future changes to the fixed charges must thoroughly consider the impact to rooftop solar and storage adoption and electrification measures.”
“It’s clear that there are better ways to reduce California’s extremely high utility rates and encourage electrification, and SEIA will continue to push for those policies going forward,” Doyle said.
The CPUC decision requires changes to the fixed charge to be addressed outside of a general rate case, Commissioner Darcie Houck noted. “There needs to be careful scrutiny and guardrails placed on any proposed adjustments to a fixed charge in the future,” she said.
Houck also said she was encouraged by language in the CPUC’s decision that “suggests that the next phase of the proceeding will consider applying rate discounts selectively, to off-peak usage, resulting in a greater discount to customers.”
There was debate in the proceeding over whether the income-graduated fixed charge should be applied to reduce volumetric rates equally across all hours of the day, or if greater discounts should be applied to peak hours. Ultimately, the commission determined the issue required more study.
“We expect energy usage to increase as we move forward with our building and transportation electrification goals. It’s critical that customers be able to afford electricity,” Houck said. “And we all need to be clear that a flat rate is not a silver bullet for our affordability concerns, which I think is reflected in this decision.”
The new rate structure will create bill savings “for most, but not all, low-income customers,” according to the Sierra Club.
The CPUC’s decision “is a modest step towards making equitable electrification a reality,” Rose Monahan, a staff attorney for the group, said in a statement. “While making rates slightly more progressive and making electrification economics slightly more favorable, it leaves significant affordability and electrification gains on the table by employing a conservative approach.”
Sierra Club wants regulators to eliminate the fixed charge for low-income households, exempt customers who go all-electric and institute income tiers for wealthier customers.
“More tiering would allow for greater reductions in volumetric rates to create actual, rather than negligible, impacts on electrification,” Monahan said.
