California will soon become the first state to determine residents’ electricity fees based on their income as part of a new effort to spur households toward full electrification and bring down the state’s soaring electricity costs for low-income Californians.
Electricity bills are made up of fixed costs as well as fees that vary based on the amount of electricity residents use. Last year, the state passed a law giving the California public utilities commission a 1 July 2024 deadline to determine a fixed charge for household electric bills based on people’s income.
The new income-based electricity bills could hit residents’ mailboxes as soon as 2025. Based on proposals currently under consideration, residents who make more than $180,000 a year could pay about $500 more annually on their electricity bills, while Californians who make less than $28,000 annually could save up to $300 a year. The law is part of the state’s answer of how to equitably transition away from carbon as an energy source.
But state officials are already facing backlash from higher-income residents who don’t want to see their bills increase. The proposals have so far received more than 250 public comments, with a large number opposing the law.
“Why should I pay for someone else’s bill when I paid thousands for solar?” one commenter wrote.
California currently has some of the highest electricity costs of any state, according to a report that suggested the income-based model. California’s electricity prices range from one and a half times to double the national average.
According to Severin Borenstein, one of the report’s co-authors and a professor at the University of California, Berkeley, electricity prices in the state are so high because utility companies are also paying for damages from wildfires and subsidies for rooftop solar panels, among other costs. They make up for these expenditures by raising the price for electricity use.
Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric, the state’s three largest utilities, said in a joint filing that the income-based charge was “urgently needed to support achievement of the state’s decarbonization goals”.
Borenstein similarly said that high costs for using electricity can discourage people from electrifying their homes. The income-based model will allow utility companies to lower the price they charge for using electricity because they will collect more money from fixed charges.
But the proposal has already come under fire, particularly from higher-income residents who would face heftier electricity bills under the new models. One commenter said they “vehemently oppose” the law.
Another wrote that they were scheduled to have solar panels installed on their home, but would cancel the installation due to the proposal.
But Borenstein said that people who power their homes with solar panels are only able to save money because of “massive subsidies” that drive up electricity prices for people on the grid.
“It’s not that this proposal is unfair,” Borenstein said. “It’s that the status quo is unfair.”
He continued: “Everybody can’t put in solar if we’re paying for all of these other costs through per-kilowatt-hour charges. That just gets you into a death spiral where prices go higher and higher. And we know who will be the last people that have solar. It will be poor people.”
In theory, the fixed charge model will spur electrification. The state will still invest in electric chargers and other subsidies and people will pay less for each kilowatt of electricity they use. But it is not yet clear whether Californians will invest in electrifying their homes if they feel their wallets tighten from new fixed charges. Residents might also guzzle up more electricity if it costs less to use.
The judge overseeing the commission’s proceeding will likely release a proposed decision early next year, said Terrie Prosper, a spokesperson for the commission. The draft decision will be available for public comment before the commissioners vote to approve or reject it.
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