California Moving to Setting Utility Bills Based On Ratepayers' Income
Electricity, natural gas, water, and garbage bills have traditionally been set based on charges for usage. But the Biden Administration as part of its effort to convert America from fossil fuels to sustainably generated electricity is planning to charge ratepayers based on their income.
Some electric utilities already charge customers monthly a combination of a fixed fee and usage-based charges, both on the same monthly bill. The so-called “customer charges” or “meter-reading charges” are set irrespective of energy usage. The fees provide the utility a revenue stability and offset the high-fixed overhead expense of operating an electric utility. Usage-based charges then cover the seasonal use variation.
Regulators name this pricing strategy as a two-part tariff in which the consumer must pay a fixed fee for the right to buy a product or service (energy in the case of electric utilities). The pricing model maximizes revenue for sellers according to their level of monopoly pricing power in their respective markets. California uses this systems for its electric utilities that operate as regulated monopolies.
A supermajority Democrat legislators in 2022 passed and the governor signed Assembly Bill 205 (AB 205), that ordered the California Public Utilities Commission to authorize a “fixed charge” on residential electric bills by July 2024. Customers of Pacific Gas and Electric Company, Southern California Edison, and San Diego Gas and Electric—would pay this charge regardless of their electricity usage. The basis of the fixed charge will be determined by each investor-owned-utility IOU utility, subject to California Public Utilities Commission regulatory approval.
The bill for the first time requires utilities to provide lower rates to their low-income customers. The move essentially represents a progressive wealth tax to transfer high-income customer income to low-income customers.
The California Public Utilities Commission has not yet approved any of several possible methodologies to implement AB 205. But a decision is expected by the summer of 2024.
