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California Regulators Approve Adding Fixed Charge of Up to $24 to Utility Bills

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California’s new proposal would vary by income. Low-income households would pay $6 or $12, while middle-class and high-income households would pay $24. (Citizen of the Planet/Universal Images Group via Getty Images)

Updated 5 p.m. Thursday

Starting late next year, most California residents will see a new fixed charge of up to $24.15 on their monthly electric bill.

That’s after the California Public Utilities Commission voted unanimously on Thursday in favor of a controversial proposal that will lower the amount consumers are charged per kilowatt hour while adding the fixed charge.

The new charge will vary by income, with some lower-income households paying $6 or $12. But most middle- and high-income households will pay the full amount.

In exchange for the new charge, the price of electricity will drop by between 5 cents and 7 cents per kilowatt hour. One kilowatt hour is how much power it takes to use a 1,000-watt appliance — a coffee maker or vacuum cleaner, for instance — for one hour.

CPUC President Alice Reynolds said the new rate structure will incentivize people to use more clean energy and help pay for modernizing the grid.

“We’re marching towards the future we want to see; we want this load growth,” she said. “One where we can replace gas-guzzling cars on our roads with EVs that run on clean electricity and emit less pollutants.”

California now gets most of its energy from things like solar panels and wind turbines as opposed to burning coal and other fossil fuels that produce greenhouse gasses and contribute to climate change. As a result, California’s leaders have been asking residents to use more electricity than ever before.

“We’re at a time now when our climate goals are not met by necessarily using less electricity. We need to start using more electricity overall,” Reynolds said.

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In 2022, California accounted for 37% of the nation’s light-duty electric vehicles, according to the U.S. Energy Information Administration. The state has also pushed policies to encourage people to electrify their homes, like installing electric heat pumps and stoves.

For people who use a lot of energy each month, the proposal approved on Thursday will likely lower their monthly bills. People who own electric cars and have electrified their homes will save an average of between $28 and $44 per month, according to the commission. That’s because the savings they get from the price drop on electricity will be more than the amount they pay for the new fixed charge.

It will also benefit people who live in areas of the state that get really hot. People in Fresno — where temperatures can often exceed 100 degrees Fahrenheit — would save about $33 running their air conditioners during the summer, according to the commission.

However, the move to add the fixed charge, which most utilities in the U.S. already do, has been steeped in controversy, with some critics arguing it will ultimately increase monthly utility bills for middle-income families, and for households that don’t use as much energy.

This includes people who live in smaller apartments, have solar panels on their roofs or who live in cooler areas and don’t use air conditioning as much. For them, the decrease in the price of electricity would not be enough to offset the amount of the new monthly charge.

“It’s clear that there are better ways to reduce California’s extremely high utility rates and encourage electrification,” said Stephanie Doyle, California state affairs director for the Solar Energy Industries Association.

Environmental groups are also torn over the change, with some saying it will help more people convert to clean energy and others saying it won’t make much difference.

Using more electricity has strained the state’s supply. In the summer of 2020, demand for electricity was so high that the officials had to order rolling blackouts to make sure the state didn’t run out of energy.

State officials have urged people to conserve energy during peak hours, between 4 p.m. and 9 p.m., when energy from solar is less abundant. Opponents worry this proposal, by lowering the price for electricity, will discourage people from doing that.

“If you wanted to design a policy instrument that would send the signal that conservation doesn’t count, this would be it,” said Ken Cook, president of the Environmental Working Group.

Commissioner John Reynolds noted utility companies are already allowed to increase their rates during peak hours to incentivize energy conservation.

“The idea that this fixed charge proposal will undermine the motivation to conserve is, quite frankly, laughable,” he said. “It’s a simplistic way to view this decision, and we all know that our energy situation and rate design are anything but simple.”

California has the nation’s second-highest utilities rate after Hawaii. The national average fixed rate for electric bills is about $11 per month — the new standard rate for California is more than double that. Currently, California operates under a pay-as-you-go model, with improvements to the power grid wrapped into the overall usage rate.

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Loretta Lynch, former president of the CPUC, said on KQED’s Forum that a fixed rate would hurt coastal dwellers in apartments and small houses who don’t use a lot of air conditioning.

“That means virtually all low-income customers in San Francisco and Oakland, and maybe even farther than that — those people are going to pay more,” she said.

However, Cynthia Martinez, spokesperson for the Predictable Power Coalition, which includes California’s three biggest utility companies, argued that a flat rate would lower costs for families struggling to pay their bills.

“For people who live in hotter climates, who really have no choice but to run their air conditioning more often, they’re paying higher costs that go toward grid upkeep,” Martinez said. Separating electricity usage costs from the cost to maintain the grid, she added, is more equitable and “will provide fairness.”

The fixed-rate plan has vexed Democrats at the state Capitol, who have been caught between wanting to promote energy conservation and help low-income customers. When a proposal to roll back the fixed-rate plan came up in the Senate Energy, Utilities and Communications Committee last month, all 14 Democrats on the panel abstained from voting — preventing the proposal from advancing.

Questions remain over incentive to electrify

Right now, in California, if you use a lot of electricity, you pay more. If you live an energy-efficient lifestyle, you pay less. Sylvie Ashford, an energy analyst for The Utility Reform Network, or TURN, said that won’t change.

The group supports the new fixed rate, which Ashford said will incentivize people to convert to clean energy.

“Consumers report one of the biggest barriers to buying electric vehicles and electric heat pumps to be the high and rising cost of electricity,” Ashford said. “When it becomes 8% to 10% cheaper on each kilowatt hour, your operating costs on your electric vehicle or your electric heat pump become that much more competitive with polluting gas alternatives.”

Ashford said that while fixed rates are a good first step, the state must do more to address California’s skyrocketing electricity fees, like keeping utility revenue requirements and shareholder profits in check.

Nihal Shrinath, an attorney with the Sierra Club, said policies designed to make more people go electric need to be paired with an electricity rate reduction.

“It’s naive to assume that customers are so attuned to rates that a 10% reduction will all of a sudden convince a bunch of folks to electrify,” Shrinath said.

The Sierra Club described the proposal as a “mixed bag.” They would like to see the CPUC introduce a moderate-income tier and cut rates for the lowest earners to $0. As it stands now, Shrinath said the policy would charge the same $24 rate to a family making $63,000 annually and an individual who brings in millions.

A coalition of more than 240 environmental and renter organizations have fought the proposal. They worry that since there is no proposed cap on the fixed rate, nothing would prevent utilities from hiking up the price in the future.

Lynch said PG&E rates have steadily risen over the past 20 years, then shot up in the last five. At the same time, the utility company has multiple pending rate increases. She said their statement that rates will go down “sounds a little like hopes and prayers.”

The CPUC has said that this plan will not increase profits for PG&E and other utilities but will cover their rising costs, including wildfire mitigation and putting power lines underground.

A bill amended in the state Legislature on Wednesday would limit any increase in the new fixed charge to not more than the increase in inflation. It would also cap the amount of the fixed charge to a maximum of $10 beginning in 2028.

“We must do more to rein in the ever-growing cost of living in our state, not find new ways to add to it,” Republicans in the California Senate wrote in a letter urging the commission to reject the fixed charge.

The proposal is much lower than what the state’s investor-owned utility companies had asked for, which was a charge between $53 and $71 per month.

This story includes reporting from the Associated Press’ Adam Beam.

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