An innocuous clause in Assembly Bill 205 has unleashed a fury among Californians that no assemblymember could have imagined:
(e) (1) For the purposes of this section and Section 739.1, the commission may authorize fixed charges for any rate schedule applicable to a residential customer account. The fixed charge shall be established on an income-graduated basis with no fewer than three income thresholds so that a low-income ratepayer in each baseline territory would realize a lower average monthly bill without making any changes in usage. The commission shall, no later than July 1, 2024, authorize a fixed charge for default residential rates.
As Richard McCann pointed out recently, the language of the bill clearly says that “The CPUC may impose a fixed charge. IF that charge is imposed, then it shall be income graduated.”
AB 205 does not mandate the CPUC to proceed with the development of income-graduated fixed charges (IGFC). But that’s how many parties in the CPUC’s proceeding have chosen to interpret it. That’s not surprising since the clause is largely of their making.
It’s worth noting that this clause was inserted at the last minute in a “trailer bill.” It was neither debated nor discussed, let alone justified by facts or any kind of empirical evidence. Nine proposals have been submitted to the CPUC on how to implement the IGFC.
The stated intent: make electrification affordable by subsidizing electricity for low income customers. But is that necessary? California already subsidizes low income customers by giving them a 35% discount on their electric bills. The total subsidy is probably the highest in the US. California also has a progressive state income tax code. Furthermore, the IGFC subsidy to low income customers won’t be large enough to make electrification affordable. Heat pumps and electric vehicles (EVs) are expensive, and low priority investments to low income customers who often rent their homes, and many don’t own cars.
In a two-part series on KPBS of San Diego, which can be found here and here, Erik Anderson cites some unusual assertions by IGFC proponents:
- “Without IGFC, electrification will become unaffordable.” It’s been unaffordable for decades. That’s why there are hardly any heat pumps in the state. The only reason we have so many EVs is because gasoline is even more expensive than electricity. To make electrification affordable, let’s lower rates, not indulge in a shell game between fixed and variable charges.
- “There is a cost basis for IGFC.” No. The fixed charges that have been proposed by the various parties in the proceeding vary so widely that it’s hard to buy the argument. It’s like watching the theater of the absurd. The IGFC violates the fundamental tenets of rate design.
- “Solar customers will still be better off than if they had not installed solar.” That’s the wrong point of reference. They will be much worse off with the IGFC than without the IGFC. They invested tens of thousands of dollars ($15-25K), to lower their monthly bills from, say, $200 to $50. With a $92 a month fixed charge, they will lose half of that savings. The payback on their investment will stretch from 6-7 years 13-14 years. How would they be better off? Even millions of non-solar customers—singles, couples, small families, frugal households, and energy efficient households—would be worse-off. Why would any low user of electricity who’s a middle income individual want to invest in electrification under these circumstances?
- “This is not a rate increase.” Yes, it is for the millions of middle income customers mentioned above.
- “The ability to electrify really depends on the per unit price of electricity.” No. If you raise the customer’s total bill, they will have no interest in further increasing their bill via electrification. By the way, try saying “pre unit price of electricity” to a customer and see if they even understand that term. The problem with most of these proposals is that they are being made by people who have spent more time talking to each other in an echo chamber, and very little time talking to real customers.
In the ultimate irony, the CPUC is debating the merits of the IGFC proposals in a proceedings focused on load flexibility. Fixed charges and dynamic pricing are the antithesis of each other.
Bernadette Del Chiaro put it well: “I think it’s really important that the commission gain public trust on this one.”
But, as Erik Anderson notes, “[P]ublic participation is not high on the agenda of the administrative law judge handling the case. The legal officer has already rejected formal requests for a public hearing and for additional evidence before a proposed ruling is finalized. That ruling is expected to arrive in the Spring with a final decision, mandated by the legislature, coming by next July.”
It's pretty obvious why the commission is bypassing public opinion. It knows that the public hates IGFC. So, copying a page from the imperialists of old, the CPUC wants to impose its will on the people. It must know that once you sow the wind, you will reap the whirlwind.
The income-graduation provision alone, as Jim Lazar and others have argued, is going to stop the IGFC train in its tracks.
Even if that hurdle clears, there will be issues related to IT and billing. And, then, ultimately, will come the pushback from the public, as millions suddenly see their electric bills rising, doubling and even tripling.
Such a cataclysmic denouement can be avoided if the CPUC would impose fixed charges were more in line with those elsewhere in the US, and rolled out gradually. Even a fixed charge of $20 a month would be a huge change from the $0 a month that applies today. In the US, the median across 173 utilities is $11 a month.
If it still wants to know whether high fixed charges accompanied by significantly lower energy charges move the needle on electrification, it should test that hypothesis in a voluntary pilot by offering such rates to the 5-8% of customers who are shopping for a heat pump or an EV and see if the magic works.
The last thing the Golden State needs to do is to mandate a poorly thought-out idea on 32 million residents.
[1] The author is an energy economist with more than four decades of experience in designing electric rates. He has worked on all six continents on rate design and related issues, such as energy efficiency, demand response, electrification and distributed energy resources. He has taught economics at the University of Karachi, the University of California at Davis, and San Jose State and given guest lecturers at several other universities. He is the author or co-author of more than 150 articles, papers and newspaper articles and the co-editor of four books on energy policy. He can be reached at [email protected].