Can California’s new fixed rates really help the energy transition?

Skyrocketing electric bills are threatening California’s climate, electrification, and energy equity goals. Last week, state regulators approved a major policy shift meant to address this problem — but left the core driver of the bill increases untouched.

In a unanimous decision, the California Public Utilities Commission on Thursday authorized Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric to add monthly fixed charges to their customers’ electric bills, while reducing how much they’re charged for every kilowatt-hour of electricity they use.

The top charge of $24.15 per month is among the highest such utility fixed monthly charges in the country. Lower-income customers will pay smaller fixed monthly charges of $6 per month or $12 per month. At the same time, ​“volumetric” utility charges will drop by an average of 5 to 7 cents per kilowatt-hour.

Speaking before Thursday’s vote, CPUC President Alice Reynolds described the change, set to be implemented in 2026 by PG&E and in 2025 by the state’s other two major utilities, as ​“a very incremental but important step” toward making it ​“more attractive for customers to electrify.”

“We’re at a time now when our climate goals are not met by necessarily using less electricity. We need to start using more electricity overall,” she said.

Whether the new rate regime will help or hurt millions of customers trying to afford the electric vehicles and heat pumps needed to move the state away from fossil fuels — or benefit lower-income residents facing crushing electric bills to cool their homes during summer heat waves — is a hotly contested issue, however.

Opponents of the fixed charge say it will punish energy-frugal customers and the large number of Californians who’ve invested in energy efficiency or rooftop solar, while failing to lower per-kilowatt-hour rates enough to encourage electrification. They cite a study by independent analysis firm Flagstaff Research that finds that a majority of customers will pay more under the new structure.

“The losers in the vote are households that use less energy, who typically live in smaller homes and apartments and have lower incomes, as the new tax represents a larger percent of their monthly bill,” said Bill Allayaud, director of California government affairs for the Environmental Working Group, a member of a coalition of environmental justice groups and other organizations that oppose the fixed charge.

Supporters say the shift will relieve energy burdens for lower-income households in hotter parts of the state and pave the way for future reforms to more fairly distribute utility costs and support the state’s electrification goals. They say the Flagstaff Research study is flawed, and that analysis from the Natural Resources Defense Council, an environmental nonprofit, and The Utility Reform Network, a nonprofit utility consumer advocacy group, finds the fixed charges will benefit lower-income customers.

“This proposal is a step in the right direction that will make the way we pay for electricity more fair and will bring relief to those people suffering the most,” Sylvie Ashford, energy and climate policy analyst with The Utility Reform Network, said during a Thursday press conference. On average, customers in more temperate climates will pay about $3 more per month, while customers in hotter parts of the state with higher air-conditioning bills will save $3 to $4 per month, she said.

But groups on both sides of the bitter debate over fixed charges agree that the new rate design doesn’t get at the fundamental problem California faces: Utilities are charging customers too much overall.

They say these costs — used to run operations and finance multi-billion dollar infrastructure needs — are far too high, and rising far too quickly, to be sustainable. The new charges do nothing to change this reality and simply spread the costs around in a new way.

“A lot more needs to be done to stop the rate increases by keeping utility revenues and shareholder profits in check,” Ashford said.

Can fixed rates actually fix rate problems? 

That problem is particularly acute for PG&E, the state’s biggest utility, which serves about 16 million people in northern and central California. In November, the CPUC approved a PG&E residential customer rate hike of around 13 percent, or about $32.50 per month, which went into effect in January. And in March, the CPUC approved a further rate hike that will add an average of $5 to $6 per month to PG&E customers’ bills starting this spring.

PG&E has argued that it is still struggling to stabilize its finances in the wake of its 2019 bankruptcy triggered by the tens of billions of dollars of liabilities it incurred after its poorly maintained power lines sparked the state’s deadliest wildfire to date in November 2018. The utility is spending billions of dollars to bury and harden its grid to forestall future wildfires.

Loretta Lynch, an attorney and energy policy expert who served as CPUC president from 2000 to 2002, strongly disagrees with the premise that fixed charges will make rising utility rates fairer. In an interview with Canary Media last week, she warned that the CPUC’s decision ​“is a seismic change in how California is going to go about paying for utility costs” with ​“extraordinary complications and challenges that I don’t think this decision on Thursday has thought out at all.”

Lynch agreed with TURN’s Ashford that the underlying problem of ballooning utility costs remains unaddressed by the CPUC’s Thursday decision. In an April op-ed, she wrote that the CPUC failed to follow its legal obligation to subject PG&E’s recent rate hikes to much greater scrutiny before approving them.

“You have an overflowing bucket of unjust and unreasonable costs” at PG&E ​“that the PUC will do nothing about,” she said.

Backers of the fixed charge acknowledge the challenge of rising rates. ​“We’re unfortunately in a rates crisis in California, and when you’re in a crisis you have to do an ​‘all of the above’” approach to solving the problem, Michael Campbell, assistant deputy director of energy at the CPUC’s Public Advocates Office, which is tasked with protecting consumers, said during Thursday’s press conference.

Campbell cited his office’s examination of utility wildfire mitigation investments, a key driver of rising utility costs in California. ​“We have serious concerns about how utilities are moving forward with that,” he said.

Mohit Chhabra, a senior scientist at the Natural Resources Defense Council, said that NRDC and other groups that support fixed charges have been calling on regulators to consider reducing utilities’ return on equity — the amount of money they’re permitted to recover from customers on capital investments. NRDC and other groups have also called for California lawmakers to shift some costs of wildfire mitigation and distributed solar programs from utility ratepayers to the state’s budget.

But these steps, though valuable, will take time to impact utility rates in a way that will significantly lower them, he said. ​“None of them have the near-term impact of fixed charges.”

Backers of the new plan say these near-term reductions in per-kilowatt-hour fees will improve the economics of charging EVs at home and switching from fossil-gas appliances to more efficient electric alternatives. CPUC President Reynolds pointed to analysis cited by the CPUC indicating that the new fixed charges will allow customers powering their homes and vehicles with electricity to save an average of $28 to $44 per month compared with existing billing structures.

But fixed-charge opponents warn that the rate hikes instituted to pay for rising utility costs will far outweigh any positive impacts of lower per-kilowatt-hour charges.

“Those who save some money will soon discover that their savings have been wiped out by the next rate increase,” said Ahmad Faruqui, an energy economist and utility-rate expert who’s been an outspoken critic of the income-based fixed-charge proposal. The savings, he said, will prove to be chimerical. ​“The flat fee will do nothing to accelerate electrification, the stated intent. The savings will be too small to make a dent in the big roadblock that stands in the way.”