A Free-Market Energy Blog

Electricity Progressive Income Tax: California’s Answer to High Rates?

By Kennedy Maize -- April 26, 2023

“These too-high electricity prices are slowing progress on electrification and straining the pocketbooks of lower-income households.” (- Meredith Fowlie, University of California at Berkeley)

California electric customers could be seeing a radical new approach to electricity rates by 2025, if state regulators adopt a plan by the state’s three large investor-owned utilities. Pacific Gas and Electric (PG&E), Southern California Edison (SCE), and San Diego Gas and Electric (SDG&E) have jointly filed a plan to comply with a state law enacted last June (Assembly Bill 205), that would combine a fixed, monthly recurring bill based on household income, not on how much electricity the household uses, along with a more conventional consumption-based charge.

The utilities will lower their consumption rates, making up the losses through the income-taxation mechanism.

Under Assembly Bill 205, the three investor-owned utilities must reduce their sky-high retail electric rates, using an income-related fixed charge mechanism. Meredith Fowlie at the University of California at Berkeley’s Energy Institute at Hass commented in a blog, “The impetus for electricity rate reform? California’s retail electricity prices are high and rising.”

Under the plan the utilities have submitted to the California Public Utilities Commission (CPUC):

  • Households with annual income from $28,000 – $69,000 would pay $20 a month in Southern California Edison territory, $34 a month in SDG&E territory, and $30 a month in PG&E territory.
  • Households earning $69,000 – $180,000 would pay $51 a month in Edison and PG&E territories, and $73 a month in SDG&E territory.
  • Those with incomes above $180,000 would pay $85 a month in Edison territory, $128 a month in SDG&E territory and $92 a month in PG&E territory.

According to SCE, household income verification would “be managed by a qualified, independent state agency or third party; the utilities would not manage nor have direct access to such data.”

Some customers would be paying less overall, some more. SCE says, “Under the proposal, SCE’s approximately 1.2 million lower-income customers would received an average 16%-21% bill reduction, and about half of SCE’s customers would see lower bills, assuming no change in electricity usage. Rates for each unit of electricity consumer (kilowatt-hours) would decrease by about 33% for all residential customers.”

Haas’s Fowlie says:

We’ve argued here and here that these prices are too high because we’re effectively taxing grid electricity consumption to pay for costs that don’t vary with usage (e.g. rising costs of wildfire risk mitigation, compensating wildfire victims, infrastructure costs, public purpose programs). These too-high electricity prices are slowing progress on electrification and straining the pocketbooks of lower-income households.

She adds:

Revenues not recovered in a per-kWh charge will be collected in a fixed monthly charge that increases with household income. By how much should electricity prices be reduced? How should income-graduated fixed charges be set?

Answering those questions will be up to the CPUC, and the commission’s inquiry is likely to be lengthy. SDG&E notes, “State law requires the CPUC to adopt a new electric rate structure no later than July 1, 2024.”

Fowlie notes:

Under this kind of reform, there will be winners and losers. Most low-income households will ‘win’ reductions in their electricity bills. Households like mine — higher-income households with rooftop solar—are the biggest losers. No one likes to pay more, so some rooftop solar advocates -among others- are pushing back.

Using her own circumstances as illustration:

In California, we use retail electricity prices to raise revenues to cover a long list of non-incremental expenses I described earlier. This means that only a fraction of the savings I see on my bill are savings that my solar panels are actually generating for the world. A significant fraction of my cost ‘savings’ are just cost-shifted onto someone else’s bill since these costs still need to be paid. These proposed changes will reduce my solar PV ‘savings’ and increase my monthly electricity bills.

SDG&E CEO Caroline Winn said, “We have listened to and heard from our customers that fundamental change is needed to provide bill relief,” SDG&E CEO Caroline Winn said. “When we were putting together the reform proposal, front and center in our mind were customers who live paycheck to paycheck, who struggle to pay for essentials such as, energy, housing and food.”

Winn says that SDG&E’s KWh component of the customer’s bill would go down by 42%. The press release notes, “In San Diego County, nearly 85% of customers have their electricity purchased by local governments known as community choice aggregators or other entities – not SDG&E.”

The CPUC staff is likely to go over the utilities’ filing with a magnifying glass, asking fundamental questions, legal and administrative. Who will verify the incomes of millions of utility customers? How will they do it? How will they be compensated? Stay tuned….


  1. Ed Reid  

    Don’t try to solve the problem, just shift its impact, since the problem is not solvable.

    “From each according to his ability to each according to his need.” Not a new concept.

    Utility commissions have typically shifted a large portion of fixed costs to the variable portion of the bill to keep monthly service charges low for low income customers. Shifting more of the fixed costs to the fixed portion of the rate makes accounting sense but is not politically palatable. Putting it to the rich is politically palatable, especially in “blue” states.


  2. John W. Garrett  

    California leads the nation in “stupid.”


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