Most of the time, people who use more electricity pay more for it. Under a new law, customers of California’s three biggest private utilities will be charged a fixed fee based on their incomes, not just on how much power they use.
The main reason for this plan is to help low-income customers who are getting hit hard by rising energy prices as California moves away from fossil fuels and toward wind and solar power.
In California, the average cost of energy for homes is now $0.27 per kilowatt-hour (kWh). The usual price per kWh in the U.S. is about $0.16. The three biggest private utilities in the state are asking the California Public Utilities Commission to add Income Graduated Fixed Charges (IGFCs) to all of their home rate schedules.
The goal is to pay for all of the fixed costs, such as connecting users to their grids, sending out bills, and reading meters.
Also, they want the fixed fee to cover “the costs of wildfire prevention and vegetation management, reliability improvements, safety, and risk management distribution costs, ongoing distribution operations and maintenance, many regulatory balancing accounts, and various programs and policy mandates through its distribution rates.”
Families with four people fall into one of four income groups: (1) less than $28,000, (2) $28,000 to $69,000, (3) $69,000 to $180,000, and (4) $180,000 or more. Lower-income families already get 30–35% and 18% off their energy rates through the CARE and FERA programs, which are abbreviations for the names of the programs.
The tweet below verifies the news:
California’s ill-advised income-based electric power plan amounts to another tax on the state’s dwindling number of rich residents. https://t.co/tVjjf1e7JB
— reason (@reason) June 13, 2023
So, let’s use the suggested rates for San Diego Gas & Electric to do some rough math. First, the average electric cost for people who don’t have CARE is $156 per month, which is $1,872 per year. Under the new plan, the price of a kWh of energy would go from $0.47 to $0.27, which is a cut of about 42%.
This would mean that people in the lowest income group would spend $1,085 less on electricity each year. By adding $288 in set fees, their bill drops to $1,373, which is almost $500 less than before.
Now, let’s say that people with better incomes use 50 percent more electricity, so their average bill is $234 per month or $2,808 per year.
If they took advantage of the 42 percent rate cut, the amount they pay for the power they use would go down to $1,629 per year. But their set fee of $128 per month adds up to $1,536 per year. This means that the total bill for the year will be $3,165, or $30 more per month.
In fact, if a high-income residential customer’s electric bill is $400 per month or $4800 per year, the fixed fee plan ends up lowering their power bills. Because the rates have gone down, the cost of their energy use has gone down to $2,784. When the $1,536 fixed fee is added, the new bill comes to $4,320 per year. This is a savings of almost $500 per year for a high-income user.
Still, the utilities think that most of the cost of the new fixed rates would be paid for by the 19% of California families that make more than $180,000 per year.
The power firms say that lowering the price per kWh will make people more likely to add more electricity to their homes and switch to electric cars. This would help solve the problem of climate change, which is caused by the increase of greenhouse gases in the atmosphere that comes from burning fossil fuels like natural gas.
But the way rates are set up now, prices go up as customers use more energy. This strongly encourages residents to use less electricity. In fact, California is 50th out of 51 U.S. states in the amount of energy used by homes.
The lower flat rate per kWh in the new plan will make customers less likely to save energy, which will make it harder for the state government to reach its goal of reducing greenhouse gas emissions. Also, the state’s already shaky power grid will be stressed even more by the growing need for energy, which could lead to more brownouts and blackouts.
Also, the value of the money that millions of Californians have already put into making their homes more energy efficient will go down. For example, think about a customer with a high income who has put in better insulation, bought energy-efficient appliances, or even put in a solar energy system and cut his monthly power bill to $50. His energy costs are now $600 a year.
Because his rates went down by 42%, he now charges $348 per year, but the total set fee is still $1,536. That makes his bill more than triple, to $1,884 a year.
One more thing to think about is how power companies would know how much money their customers make. The energy companies want this information from the state government. But getting such information from one place to another and keeping it safe would be a bureaucratic nightmare and raise serious privacy issues.
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As a last point, California’s high tax rates are forcing many people with high incomes to leave the state. This new plan to set fixed energy rates based on income will add fuel to the fire since it is mostly just another tax on high-income earners who are already fed up.
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