California wants to make electricity more affordable for poor people by charging rich more
How much you pay for electricity in California could depend on your income if the California Public Utilities Commission approves plans by the state’s three major utilities to do just that.
Pacific Gas & Electric, San Diego Gas & Electric and Southern California Edison each proposed in April to implement a fixed charge to pay for the transformation of the state's electricity infrastructure whose amount would vary by customers’ income. Meanwhile, the rate for each kilowatt hour of electricity, or usage fee, would decline for everyone, the utilities said.
The plans are in response to a new state law (AB 205) requiring utilities to adopt a fixed price – based on household income – to help fund the wires, poles, meters, and customer service that will drive the state's transition to renewable energy.
The lowest income users would pay the smallest fixed charge while the highest earners would pay the largest to cover the upgrade, maintenance and transitioning of the electric grid as California moves toward net zero carbon pollution by 2045. The California Independent System Operator said $9.3 billion is needed over the next decade to support the state’s shift to renewable energy and plug-in cars.
What’s the breakdown of what people would pay on the income-based fixed charge?
Each utility has its own rates, but here’s what each says about its plan:
San Diego Gas & Electric says income limits will vary by the number of people in households but, basically, those with an annual household income of:
◾ Less than $28,000* would pay a $24 fixed charge
◾ $28,000 to about $69,000* would pay $34
◾ $69,000 to $180,000 would pay $73
◾ $180,000 or more would pay $128
* Lower income-qualified customers enrolled in discount programs will continue to receive discounts.
"All these fees are tacked on before using a single kilowatt hour, meaning median-income San Diegans will pay $876 a year in electricity rates, regardless of whether they use any electricity,” said San Diego County Supervisor Jim Desmond in April. “Also...San Diegans will still get charged these monthly rates if they have residential solar.”
Pacific Gas & Electric said the monthly fixed charge for its low-income customers could be as low as $15, and no greater than $30; moderate-income customers would pay about $51; and the highest fixed charge, for customers in the top 25% of earners, would be about $92. Assuming electricity uses stays the same, the utility company estimates its lowest-income customers would receive a 21% bill reduction; other lower-income customers would receive an 8% cut; moderate-income customers would receive a reduction of 6%; and high-income customers would see bills increase by 24%.
“It’s taking the utility system and applying a progressive tax system to it,” said Mark Wolfe, director of the National Energy Assistance Directors Association, which provides grants to states to help low-income families pay their utility bills. “It’s a real shift in thinking.”
Southern California Edison said its lower-income customers would see a monthly charge as low as $15 but no greater than $20; and the highest fixed charge, for customers in the top 19% of earners, would be $85.
How will utilities know how much people earn?
Ultimately, the California Public Utilities Commission determines which entity and what methods will be used to determine individual household income. However, the utilities are recommending an agreed-upon third party under state agency supervision or a state agency to manage the data.
When would these plans take effect?
The utilities commission will issue a final decision on the plans. That’s expected by July 2024. After that, utilities will get additional time for implementation.
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Are there any concerns?
Lots, Wolfe said, including:
◾ Utilities have never collected income data, and customers do not want utilities to have their income information. If they use a third party to verify incomes, “it’s another level of bureaucracy,” Wolfe said.
◾ Difficulty getting people to sign on and reveal income information. “Something like this would require 100% compliance, and how do we know low-income people will sign up,” Wolfe said, noting only about half the people eligible for Special Supplemental Nutrition Program for Women, Infants, and Children, or WIC, enroll. “You’ll have to educate them to sign up. And what if they don’t? Will they be automatically charged the highest amount?”
◾ High fixed prices for upper-income families could possibly discourage green investments because recapturing the cost of your investment in solar will take much longer.
◾ Electric prices in California are among the highest in the nation, with residents paying in March an average of 27.15 cents per kilowatt hour compared with the nation’s average of 15.85 cents, according to the Energy Information Administration. “And the cost to move to net zero as well as upgrade the state’s grid will be very high and shifting the cost to higher income families could be divisive,” Wolfe said.
◾ “The possibilities of...gaming are endless,” he said.
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Is there a better way to make electricity affordable for low-income people?
Possibly, improving the existing system of offering discounts or capping costs for low-income households.
Eligible low-income customers enrolled in the California Alternate Rates for Energy program receive a 30% to 35% discount on their electric bill and a 20% discount on their natural gas bill. Families of at least three whose household income slightly exceeds the energy program allowances will qualify to receive a monthly Family Electric Rate Assistance Program of 18% on their electricity bills.
The federally funded Low Income Home Energy Assistance Program provides low-income households assistance for home energy bills, energy crises, weatherization, and minor energy-related home repairs.
In Wisconsin, WEC Energy Group and consumer advocates will soon begin working to create a payment plan for low-income households that would cap utility costs at no more than 6% of household income for qualifying families. This follows the footsteps of Percentage-of-income payment plans in states like Minnesota, Illinois and Ohio.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
This article originally appeared on USA TODAY: California wants electricity bills based on income. How would it work?
