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Bills based on income

What Income-Based Electric Bills in California Means for You

Jen Johnson
November 16, 2023

A new law in California could mean that soon your electric bill will be based not only on your power usage, but your income. The plan is getting a lot of attention not only because California would be the first state to put income-based electric charges in place, but because people think it could have longer-term impacts on clean energy choices homeowners make.

Here’s what you need to know about the law, how it could affect your energy bill, and what supporters and opponents believe could happen if it goes into effect.

How Your Electric Bill Works Now

If you live in California, your electric bill is currently set up like this: You get charged based on how much energy you use, plus a fixed fee that goes towards maintaining the grid. In some areas, the amount you pay per hour changes based on what time of day it is, with higher charges at “peak” times when more people are using electricity and lower charges at times with less demand, such as during the night when many people are asleep.

That money goes toward generating electricity and maintaining the grid. But right now, the grid maintenance fee in California is relatively small and doesn’t actually cover all the maintenance costs.

Grid maintenance includes things like expanding transmission lines, energy-efficiency measures, bill assistance programs for low-income residents, and wildfire prevention. This last one is a leading cause of skyrocketing costs: utilities are undergoing major projects to bury power lines or harden them so that they don’t spark and lead to a fire.

Here’s a breakdown of how utility costs are spent:

While the cost of maintaining the grid has grown, the grid maintenance fee remains relatively low. Instead, the hourly electric rate is increased year over year to pay for the difference.

Why Consider a Fixed-Income Charge?

Californians have some of the highest electricity rates in the country, and rates continue to climb faster than overall inflation. In the last 10 years, residential electric rates have gone up by as much as 105%.

That means electricity costs are higher, while wages may not be increasing on pace with those price hikes. When that’s the case, it means more burden for cost increases falls on lower-income families.

The idea to shift to income-based charges came from researchers at the Energy Institute at UC Berkeley. The intention of this plan is not to increase revenue for utility companies – in fact, they would collect the same total amount. The idea behind this shift is similar to income tax brackets: those with more means pay a higher percentage towards major infrastructure, and those who have less means pay less.

In last year’s energy law, California Assembly Bill 205, lawmakers adopted the idea and directed state utility regulators to come up with a plan for charging customers income-based fees by July 2024.

The Pros and Cons of Income-Based Electric Charges

As soon as this direction came out, various interest groups – from the investor-owned utilities themselves to advocacy groups to solar trade associations – got together to develop various proposals for these plans. The California Public Utilities Commission (CPUC) also collected public feedback from utility customers to learn what consumers think.

While a specific plan hasn’t yet been adopted, there are several arguments for and against adopting income-based electric charges across interest groups and public feedback. Here’s what groups are saying:

The case for income-based electric charges

  • Lower electric bills for those who need it most
  • Wealthier Californians would pay a larger share for maintaining and electrifying the grid
  • Income-based fixed charges would mean lower hourly energy rates, making it more affordable for consumers to use clean electric power to charge EV cars, instead of greenhouse gas fuels

The case against income-based electric charges

  • Fixed charges may discourage energy conservation and efficiency due to lower cost per hour of electricity used
  • Higher rates could discourage people from investing in the additional cost of solar panels and batteries to make homes more energy-efficient
  • Could encourage people to defect from the grid altogether, to avoid paying fees

What Income-Based Rates Could Mean for Your Electric Bill

What does this mean for you? Well, that depends on what you make and which proposal is ultimately adopted. Each proposed plan would make total costs cheaper for families with lower income, and (potentially) higher for those making more.

The differences between the plans are the income brackets used to determine what the fees should be, how high the fees are for each bracket, and whether or not fees apply to customers who are at or below the federal poverty level.

The main groups with rate proposals are the investor-owned utility companies (PG&E, SCE, and SDG&E), the Sierra Club, the California Public Utility Commission’s Public Advocates Office, and the Solar Energy Industries Association (SEIA).

The utility companies, which have the highest proposed fixed rates, estimate that most customers would save between $89-$300 on their electric bills. Those in the highest income bracket, currently set at those earning more than $180,000, would see their bill climb by 24%.

How the Fixed-Rate Proposals Compare

Here’s a quick breakdown of each plan:

  • Joint Utility Plan (PG&E, SCE, and SDG&E): These plans have the highest fixed charges at an average of $50-$73, and everyone is charged – even those who fall under the federal poverty line. In exchange, a lower per-kilowatt-hour rate would be applied for the energy consumed by customers.
  • Sierra Club: Sierra Club’s proposal has an average charge of $28-$36 per customer. Their plan does not include energy distribution as a fixed cost, because that is something that is associated with energy use and not infrastructure. This plan doesn’t charge fixed costs to households below the federal poverty line. To make up the difference in costs, higher earners would pay a steeper fixed charge than under the Joint Utility Plan.
  • CPUC’s Public Advocate’s Office: This plan attempts to split the difference, with lower fixed charges for low-income earners and limits on how high the charge can get for higher earners, capping out at $41.88. Costs would be kept low for all consumers by using the California Climate Credit from the state’s cap-and-trade program.
  • The Natural Resources Defense Council and The Utility Reform Network (TURN): This plan proposes fixed charges ranging from $5 per month for low-income households, to $62 per month for those earning more than $150,000.
  • Solar Energy Industries Association (SEIA): The proposal from SEIA includes the lowest fixed charges across the board, at just $5-$13 per month. The plan essentially opposes fixed rates, and encourages the state to continue generating the bulk of funds from electricity use.  

What’s Next

So, when will you see changes in your electric bill? According to the law, the California Public Utilities Commission has to make a decision by July 2024, so a decision will need to come in before that point.

Until then, keep an eye on the news to see which plan is adopted, and sign up to save on your energy bills by becoming an OhmConnect member today!

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