Renting Households Will Be Hardest-Hit by Electric Rate Change
The California Public Utilities Commission has approved a change in electricity rates that will hit hardest the smallest households that pay the power bill directly to investor-owned utilities like Southern California Edison. New for electricity bills in 2025 is a higher fixed charge of $24.15 monthly that will fund improvements to the power grid and the costs of mitigating damage from wildfires. Offsetting the higher charge is a modest decrease in electricity usage rates. The goal is to encourage consumers to buy electric appliances and vehicles but the cost of the policy change will be borne disproportionately by smaller households.
Our power bill is comprised of two primary components: the fixed charge which provides the utility with: 1) a dependable revenue stream that covers administration and investments in power generation and transmission; and 2) the volumetric rate which prices electricity by the kilowatt-hours consumed. Add those components together plus taxes and fees and that is your power bill total.
The California Public Utilities Commission (CPUC) recently approved for investor-owned utilities an increase in that fixed charge which residential customers pay. That charge now rises to a whopping $24.15 monthly. On an annual basis that totals nearly $300 even before a single watt of electricity is consumed.
Then there is the volumetric rate. The new rate structure modestly reduces the volumetric rate which is based on metered consumption. That rate will decrease by about 10% which for a SoCal Edison customer means a savings of five cents per every kilowatt-hour consumed.
Why the Change?
The legislature passed bill AB 205 in 2022 to modify section 739.9 of the Public Utilities Code to mandate that investor-owned utilities (but not any municipally-owned utility) to “adopt new, or expand existing, fixed charges for the purpose of collecting a reasonable portion of the fixed costs of providing electrical service to residential customers.”
The intent behind the legislation is to encourage the transition from fossil-fuel cars and appliances to those powered by electricity. The higher fixed charge allows for a reduction in the cost of consumption. The lower cost of power is the incentive to get people to buy electric vehicles and to install heat pumps and electric ranges.
The key question: Who should pay for the cost of transitioning California to a fossil-free future? Who should pay for upgrades to the electric grid to meet the demand for power for the new appliances? Should it fall on those who consume the least electricity today or those who today consume the most power?
Who Pays for California’s ‘Clean Energy and Carbon-free Future’?
The CPUC decided that a new rate structure should put that cost on the lower-demand electricity customers through a large fixed charge added to the bill. That is called ‘regressive’ by critics because a household that uses less electricity will pay a disproportionately large share of the cost in the state’s clean-energy transition.
For example a smaller household, like two occupants living in a 1-bedroom apartment, will pay a disproportionately larger part of the transition cost than will a larger household in expansive quarters that consumes more energy. Moreover our smaller households tend to be modest-income characterized by single earners and seniors who live on a fixed income. These are precisely the customers least able to pay for the transition.
Who Benefits?
The new rate structure rewards larger energy-consumptive households because they will pay a lower volumetric rate for the energy that they use. So the households that contribute disproportionately to the climate problem get a break. These households are also better able to pay the cost of the clean-energy transition.
These households can also avail themselves of public subsidies that cover up to $7,500 of the cost of a qualifying electric vehicle. Under the new rate structure they now get a price break on the cost of charging it.
Are you a winner or a loser under the new rate structure? Whether you shoulder the cost or you benefit depends on the ‘break even’ point: whether you use enough power to realize enough rate savings to cover the high fixed charge.
Take for example this hypothetical: a residential customer’s metered electricity exceeds $241.50 monthly, on average, in addition to the fixed charge. A 10% volumetric rate discount would produce a savings of $24.15 which would exactly cover the $24.15 monthly fixed charge.
Customers that spend more on metered electricity will see a net savings. In fact the magnitude of the benefit will scale-up with the higher electricity consumption.
But an electricity customer that consumes less power, say a household of one or two people living in a 1-bedroom apartment, will not save enough though their new 10% rate discount to cover that new $24.15 fixed charge. That household’s bill will rise.
The Energy Institute at the Haas School of Business has analyzed the CPU rate structure change data to find that households with fewer occupants will see the greatest increase in their monthly bill. This chart shows how the cost of the clean-energy transition skews toward the smaller households.
The Institute also finds that the net benefit under the new rate structure increases with household income. The quartile of households with the highest income will save far more on the volumetric rate reduction relative to the cost of the $24.15 fixed charge. They higher the household income the more likely they are to reap higher rewards.
The losers under the new rate structure are smaller households that will take it on the chin. They could rightly chafe at the prospect of a higher electricity bill while their single-family neighbors get a break.
The Very Limited Low-Income Break
The new rate structure includes a break that will benefit low-income households but only if they fall into one of two categories: 1) those that participate in the California Alternate Rates for Energy discount program (they will pay a reduced fixed charge of $6 per month); and 2) 80% of area median income households who also live in “affordable housing complexes.” We don’t know what that means exactly. These consumers will pay a reduced $12 per month fixed charge.
The truth is that most lower-income households will not be in those categories and will not benefit. Most smaller renting households in Beverly Hills likely wouldn’t qualify. Those households won’t get the lower fixed charge or get much of a benefit from the lower volumetric rate. But they will get slammed by the fixed charge.
The Big Winner? SoCal Edison!
The big winners under the CPUC new rate structure are the investor-owned utilities (like SoCal Edison) that lobbied for the change. They crave a large, dependable revenue stream to fund upgrades to the grid and to mitigate the costs of future wildfires. And their investors win too because the fixed charge helps to shield them from the cost associated with wildfire risk. The ratepayers have them covered.
The utilities and their investors win twice because the new policy has baked-in the incentive to consumer more power through the lower volumetric rate. A cost-break on each kilowatt-hour of electricity will stoke additional demand. That is as the legislature intended. It will provide a financial incentive to buy an electric vehicle and to install heat pumps and other appliances that will demand more power.
If the CPUC rate structure change is a win-win for utilities like SoCal Edison, it is also a win for Gavin Newsom. The governor championed the change, calling it a “win for the climate” and a step toward a “carbon-free future.” We will see. Regardless he won his battle despite the critics because his deck was stacked: the governor appoints the CPUC members.
Critics Punch Back
The regressive new rate structure approved by CPUC is receiving plenty of criticism from consumer groups who decry the regressive nature of the change. That is not a tough argument to make; it is plain on its face.
The CPUC response has been a defensive crouch. The regulator has gone out of its way to rail against an academic study that highlights the regressive impact of the change while the CPUC PR office has been busy arguing that power producers won’t reap a windfall. They call the change to the rate structure “revenue-neutral.”
Our own provider, SoCal Edison, likes to highlight the low-income price break. “SCE believes an income-based fixed charge will provide benefits to millions of customers, particularly those most in need of energy bill relief.” The reality is that only relatively few households will actually realize that price break.
The fixed charge, after all, does not scale with household income; if a consumer is not in one of those two categories they lose out. The legislature could have indexed the charge to household income or tied the break to public assistance (a proxy for low-income). It didn’t do that. SoCal Edison knows full well that the customers least in need of relief are the ones getting the break.
Shared-Meter Customers
What about shared-meter customers? Renting households that pay the landlord directly for some part of the power bill are not directly affected by the CPUC change because the fixed charge is spread over a number of households.
However shared-meter customers have their own problem: they can be unlawfully billed by the landlord. We have seen inflated charges passed-through to tenants because the landlord improperly divided the bill, or failed to provide the bill, as the law requires, or did not follow the state statute that allows meter-sharing.
If you suspect improper billing, please double-check your utility cost against the landlord’s bill. Ensure that the landlord followed the requirements of the state statute as explained in this excerpt on shared-meters from the 2022 California Tenants Guide.
Epilogue
The legislature has stepped into the fray with a new bill AB 1999 that would rescind the CPUC’s approval of the rate structure change. Given the governor’s strong support for the clean-energy incentive, and thus his likely inclination to veto any rollback, we expect most of us to be paying higher power bills to fund our state’s transition to a “carbon-free future.”
In the meantime those of us taking it on the chin can do well to follow SoCal Edison’s helpful energy-efficiency tips!
- Close drapes and blinds but minimize lighting use where possible;
- Use electric fans instead of air conditioning;
- Limit the opening and reopening the refrigerator;
- Turn off unused appliances and equipment; and,
- Hang-dry the clothes.
Good to know! For more about the CPUC action read the regulator’s fact sheet: Decision Cuts Price of Electricity Under New Billing Structure.