California utilities seek higher fixed monthly fees

Staff Writer

May 7, 2024 11:23 AM PT

With little debate two years ago, state lawmakers passed a complex energy bill that enabled a sweeping change in how most Californians are billed for electricity.

The legislation was what Pacific Gas & Electric had asked for from the state public utilities commission three months before: a transformation of electric rates so that households would pay a fixed charge each month in exchange for lower rates for each kilowatt hour they used.

Gov. Gavin Newsom submitted the bill as part of a massive 2022 budget revision. In four days, it was passed out of an Assembly committee hearing without discussion, approved by the full Assembly and Senate and signed by Newsom.

The state’s three largest investor-owned power companies that pushed for the change say it will encourage Californians to ditch cars and appliances that run on planet-warming fossil fuels and replace them with vehicles, stoves and heaters that operate on electricity from solar panels and wind turbines. They also say the new monthly fee will allow them to more evenly allocate fixed costs among customers.

But opponents say the legislation was a financial gift to PG&E, Southern California Edison and San Diego Gas & Electric, and will cause millions of Californians who live in small homes or apartments that use little electricity to pay more, while residents in large homes that use a lot of electricity will save money.

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

Now, as governor-appointed members of the California Public Utilities Commission prepare to approve a $24 monthly charge at a May 9 meeting, some lawmakers who voted for the original legislation are trying to reverse it. A coalition of more than 250 environmental and community groups are also protesting the law, claiming that its approval smacks of an all too cozy relationship between utility companies, regulators and think tank researchers.

Opponents complain that the new law eliminates a $10 cap on fixed charges that had been in place since 2013, and that there is now nothing to prevent the utilities from raising it higher.

“There is a trend nationwide of utilities trying to move more of the payments they extract from ratepayers into fixed fees because they get that money no matter what,” Cook said. “This is easy money.”

Terrie Prosper, the CPUC’s director of strategic communications, said in a statement that the new rate structure “makes going electric more affordable for everyone, regardless of income, geography, or the size of their home.”

Someone who powers all their home appliances and their vehicle with electricity would save an average of $28 to $44 a month compared with the current billing structure, the commission estimates. (The law does not apply to the Los Angeles Department of Water and Power or other municipal utilities.)

Prosper said customers would still be encouraged to conserve electricity in the evening hours when the grid is most stressed because the rate per kilowatt hour would be higher. This is similar to how current rates vary by the time of day, she said.

“The flat-rate design will not increase utility revenues,” Prosper said. “The flat rate is not a new fee — it simply reallocates how electricity costs are paid for on bills.”

Alex Stack, a spokesperson for Newsom, said that before the bill’s passage, the idea of the fixed fees had been repeatedly discussed at public meetings and budget hearings “as a potential solution for managing rising electric bills.”

Stack did not answer a question of whether Newsom proposed the bill at the utilities’ request.

And Prosper did not explain why the Newsom administration had introduced the fixed-fee language in a bill just days before the governor had to sign the budget and related legislation.

California already has the nation’s second-highest electricity rates. Only Hawaii’s are higher.

Michael Backstrom, Edison’s vice president of regulatory affairs, said the new fixed charge would ensure “everyone using the grid is paying for its operation and upkeep.”

“There is no additional cost being collected,” he said. “There’s no change to utility profits.”

PG&E and SDGE executives did not respond to several phone calls and emails seeking comment.

The inspiration for the new law came from a 2021 paper written by professors at UC Berkeley’s Energy Institute at Haas, which is partly funded by utility companies.

The paper detailed how costs for building renewable energy plants, burying power lines to reduce the risk of wildfire ignitions and compensating fire victims have pushed electric rates so high that they were discouraging Californians from buying electric cars and replacing their gas appliances.

The paper also said the rising number of homes with solar panels meant that fewer households were paying for these fast-rising expenses that go into calculating the rate per kilowatt hour charged by utilities.

The professors proposed that the rate per kilowatt hour be reduced while a new fixed charge be added to bills.

Fixed fees are considered to be regressive, since they are harder for lower-income people to pay than the wealthy. For this reason, the professors proposed a fixed charge that was progressive and rose according to income.

Since 2018, UC Berkeley’s Energy Institute at Haas has received $205,000 from PG&E, $160,000 from Edison and $50,000 from SDGE, according to the institute.

The Solar Rights Alliance — a nonprofit that advocates on behalf of homeowners and businesses that use solar power — said the institute’s work of advising the government while receiving money from the utilities “suggests a serious conflict of interest.”

Severin Borenstein, an economics professor who was the lead author, said no organization is allowed to give more than 2% of the institute’s budget. And he said the electric companies had no influence on the 2021 paper.

“We are not doing the bidding of any of these people,” he said.

The utility companies liked the paper’s recommendations. In a March 2022 filing, PG&E argued for “swift adoption” of a fixed charge similar to what the professors had proposed. The company said legislation was needed “to either raise or ideally eliminate” the $10 cap.

Two months later, on May 13, 2022, Newsom released a 175-page revision to his proposed budget. In a paragraph on Page 63, he said he was proposing legislation “to adjust electricity rates to predetermined fixed charges.” That change, he said, would “enhance widespread electrification efforts.”

The state’s legislative tracking system shows the proposed language to do that first appeared on June 26, 2022. That’s when a measure, Assembly Bill 205, was amended to add pages of proposed energy legislation. Part of the bill allowed the state to buy power from the aging Diablo Canyon nuclear plant and to approve solar and wind farms over the objections of local governments.

It also contained language that eliminated the $10 cap and ordered the utilities commission to establish a fixed charge on an “income-graduated basis.”

AB 205 was what is known in Sacramento as a trailer bill to the state budget. The trailer bills are meant to enact law changes required by the governor’s proposed budget. But politicians have sometimes misused them to get complicated or controversial legislation passed with little public notice.

Lawmakers’ use of the trailer bills surged after voters passed Proposition 25, pushed through by Democrats and public employee unions in 2010, which said the budget and any related legislation would need just a majority vote, rather than two-thirds. Democrats now dominate the state’s Legislature.

When AB 205 was introduced, a Democratic lawmaker called it “a crappy trailer bill that was dumped on us on late Sunday night.”

The next day, AB 205 and 28 other trailer bills addressing diverse issues, including cannabis regulation and reproductive rights, were presented at a hearing of the Assembly Budget Committee.

According to a transcript, the committee’s leaders limited public discussion to one hour. The fixed electric charge was not mentioned.

“Unfortunately, having this one hearing for one hour, mere hours after budget bills materialized is certainly not adequate,” said Assemblymember Vince Fong, a Bakersfield Republican, at the hearing.

The full Assembly and Senate passed the bill two days later. Newsom signed it the next day.

Last year, the three electric companies said that in accordance with AB 205 they were proposing fees as high as $128 a month for households with incomes over $180,000. Those earning $69,000 to $180,000 would pay a fixed monthly fee of as much as $73. Those making less than $69,000 would pay $15 to $34, depending on which company supplied their power.

The three companies said they would seek to increase the fixed charge if there was a “revenue imbalance” of 10%. Such an imbalance might occur if estimates of how much they would collect in fixed charges did not cover what they were losing in the lowered rates per kilowatt hour.

The companies’ proposal outraged some legislators.

A letter to the commission from 18 Democratic members of Congress pointed out that the average electricity consumption of each California resident had stayed nearly flat since the 1970s because of energy efficiency efforts.

“Imposing a high fixed charge may undercut these decades of progress by forcing people to pay their utility company before they even turn on the light switch,” the California representatives wrote.

In January, Assemblymember Jacqui Irwin, Democrat from Thousand Oaks, proposed AB 1999 to reverse much of what Newsom’s bill had done.

With criticism growing in late March, the commission said it was proposing a more modest monthly fixed charge of $24.15. Lower-income people would pay either $6 or $12 a month based on their circumstances.

But the commission’s proposal did not stop the complaints from households across the state or the coalition opposed to the new rate structure.

In an analysis conducted for the coalition, Josh Plaisted of Flagstaff Research estimated that households using more than 6,000 kilowatt hours a year would save more as they increased their electricity use. For example, a 2,500-square-foot home with a swimming pool might save more than $300 a year, he said.

“I think this is a surprise to most people,” Plaisted said. “You have low energy users subsidizing current high energy usage.”

The opposition was angered even more when Speaker Robert Rivas (D-Hollister) and other Assembly leaders stopped debate on Irwin’s bill late last month with a procedural move that shelved it for the legislative session.

Cynthia Moreno, the speaker’s press secretary, disputed claims that the Assembly leaders had killed the bill.

“We are continuing work on the issue this year, including possible amendments to ensure any changes in the fixed charge are revenue neutral for utilities and not a means to increase their profits,” she said.

Moreno said that Rivas appreciated the “legislative scrutiny of the PUC and the governor’s plan, and that oversight will continue.”