CalMatters is a nonprofit, nonpartisan newsroom committed to explaining California policy and politics.
California’s electric bills — already some of the highest in the nation — are rising, but regulators are debating a new plan to charge customers based on their income level.
Typically what you pay for electricity depends on how much you use. But the state’s three largest electric utilities — Southern California Edison Company, Pacific Gas and Electric Company and San Diego Gas & Electric Company — have proposed a plan to charge customers not just for how much energy they use, but also based on their household income. Their proposal is one of several state regulators received designed to accommodate a new law to make energy less costly for California’s lowest-income customers.
Some state Republican lawmakers are warning the changes could produce unintended results, such as weakening incentives to conserve electricity or raising costs for customers using solar energy.
But the utility companies say the measure would reduce electricity bills for the lowest income customers. Those residents would save about $300 per year, utilities estimate.
California households earning more than $180,000 a year would end up paying an average of $500 more a year on their electricity bills, according to the proposal from utility companies.
The California Public Utilities Commission’s deadline for deciding on the suggested changes is July 1, 2024. The proposals come at a time when many moderate and low-income families are being priced out of California by rising housing costs.
Who wants to change the fee structure?
Lawmakers passed and Gov. Gavin Newsom signed a comprehensive energy bill last summer that mandates restructuring electricity pricing.
The Legislature passed the measure in a “trailer-bill” process that limited deliberation. Included in the 21,000-word law are a few sentences requiring the public utilities commission to establish a “fixed monthly fee” based on each customer’s household income.
A similar idea was first proposed in 2021 by researchers at UC Berkeley and the nonprofit thinktank Next 10. Their main recommendation was to split utility costs into two buckets. Fixed charges, which everyone has to pay just to be connected to the energy grid, would be based on income levels. Variable charges would depend on how much electricity you use.
Utilities say that part of customers’ bills still will be based on usage, but the other portion will reduce costs for lower- and middle-income customers, who “pay a greater percentage of their income towards their electricity bill relative to higher income customers,” the utilities argued in a recent filing.
They said the current billing system is unjust, regressive and fails to recognize differences in energy usage among households.
“When we were putting together the reform proposal, front and center in our mind were customers who live paycheck to paycheck, who struggle to pay for essentials such as energy, housing and food,” Caroline Winn, CEO of San Diego Gas & Electric in a statement.
The utilities say in their proposal that the changes likely would not reduce or increase their revenues.
James Sallee, an associate professor at UC Berkeley, said the utilities’ prior system of billing customers mostly by measuring their electric use to pay for what are essentially fixed costs for power is inefficient and regressive.
The proposed changes “will shift the burden, on average, to a more progressive system that recovers more from higher income households and less from lower income households,” he said.
What would the proposed fixed-charge fees pay for?
Revenues from the fixed charges would help cover utilities’ costs to provide customer service, including meters, poles, wildfire preparedness, operations and maintenance, according to the Public Utilities Commission, which regulates private utilities.
The fixed charge would not be the only portion of a customer’s bill. Customers would still be able to lower the portion of their energy bills that is based on usage by doing such things as investing in solar panels or strategically running appliances during non-peak times.
Why is this proposal controversial?
Supporters say it will help lower costs for low-income customers, but critics counter it is unfair to those who have been trying to conserve energy.
Some state Senate Republicans say the proposed utility billing changes would make living in California less affordable and could discourage energy conservation. If energy bills are based on someone’s income and not on how much electricity they use, customers would little incentive to turn off the air conditioner during peak hours, they argue.
Del Mar resident Rosanna Alvarado Martin said she and her husband are both budget and environmentally conscious, so they recently signed contracts to install solar panels on both their Del Mar and University City residential properties.
Now Martin worries her electricity bills will go up no matter how much energy she saves with solar.
“This was really a kick in the gut. The whole thing is just really frustrating,” she said. “We’re looking to retire soon. So we’re looking to have some control over what our expenses are going to be in retirement, and this solar, to me, was one way we could do that.”
On the other hand, Leah Jacobson, a sociology grad student at UCLA, said she’s in favor of the proposed changes because they might bring stability to her monthly bills. A few times her bill has shot up to more than $400 a month, she said.
“There have been a couple times in the last year where our bill has jumped up a couple hundred dollars and we haven’t been able to figure out why,” Jacobson said.
“Thankfully, we were in a position where the amount is usually affordable when it doesn’t jump up like that. But I would hate to think about people who are not using their air conditioning or fans during the summer because they can’t afford it. That’s no way to live.”
Another major issue: data collection. To implement the changes, the state will have to categorize approximately 14 million households into income brackets, and a third-party administrator probably will have to verify their incomes, state and utilities officials say.
Because California’s Employment Development Department and the state’s long-time debit card contractor Bank of America have been plagued by cases of fraud, some critics worry the state won’t be able to keep people’s financial information confidential.
“The proposed fixed charges, without clarity on how Californians’ income will be verified, are not only questionable but also raise concerns about data privacy,” Senate Minority Leader Brian Jones, a Republican from El Cajon, told CalMatters. The utilities “are not set up to do income verification, nor should they be, as this is a major privacy concern.”
So far Democrats, who passed the bill with the fee-structure changes, have not spoken in a unified way about the proposed changes.
Why are California energy rates so high in the first place?
California’s average retail electricity price is nearly double the national average.
While the state has been at the tip of the spear of the green energy movement with early adoption of wind and solar, it lags behind other states in replacing aging and failing power lines, according to a 2022 audit report to the California Legislature.
And because the state is so spread out geographically, it costs more to build and connect its infrastructure for energy generation, maintenance, distribution and wildfire mitigation. Those costs don’t vary by how much electricity customers use, but they are driven up by climate change as California becomes hotter and drier.
Nevertheless, all three utility companies showed gross profit gains last year. PG&E reported a 3% bump to $16.8 billion in gross profits, which subtract the costs of production from revenues. Similarly, Edison’s $10.9 billion in gross profits was 15% better than the prior year, and SDG&E parent Sempra’s profit, at $9.9 billion, was a 3% improvement. Once all other expenses are accounted for, including such things as lawsuits, depreciation and taxes, both PG&E’s and Edison’s net incomes shrank for 2021.
As more Californians replace their gas-powered vehicles with electric ones, consumption of electricity is expected to increase. Under new state regulations, 35% of new 2026 car models must be zero-emissions, ramping up to 100% in 2035. State officials say the 12.5 million electric vehicles expected on California’s roads in 2035 will not strain the grid.
Are there other proposals?
Among several alternatives, one comes from the Utility Reform Network (TURN), a nonprofit consumer advocacy organization headquartered in San Francisco.
Its proposal, filed with the regulatory agency, also calls for an income-based fixed charge, but at fixed fees much lower than what the utilities want.
The group says the utilities already profit enough from customer fees.
“The (utility commission) has to work out all those details and the devil is in the details,” said TURN’s Executive Director Mark Toney.
The public will have a chance to weigh in on the proposals by submitting comments online or attending a commission meeting.
Though the state set a 2024 deadline for the commission to establish fixed monthly fees based on customers’ incomes, an administrative judge in the proceedings wrote in a recent filing that the earliest the change could be implemented is the end of 2026.