San Diego Gas & Electric is joining California’s other utilities in proposing a “flat rate” pricing structure for electricity, but it’s so far getting a thumbs down from Republican legislators.
“Crazy” is how state Sen. Brian Dahle of Bieber describes the utility industry’s proposal, which will have to pass muster with the California Public Utilities Commission.
SDG&E’s own plan calls for four flat-rate tiers based on household income to cover the fixed cost of transformers, transmission lines, billing and customer service. Customers would pay a flat rate of $24 to 128 per month plus an average of 27 cents per kilowatt-hour of electricity used, compared to the current average of 47 cents per KWh.
The idea of flat rates for a portion of a household’s utility bill is driven by the state Legislature’s concerns about California’s tumultuous energy market and an anticipated major increase in electricity demand because of electric vehicles. The state’s three investor-owned utilities say the plan will make electric bills more affordable, especially for low- and middle-income customers. But not everyone agrees.
Dahle and other Republican state senators characterize the utility’s flat rate idea as a ploy to rip off California consumers. Dahle, who is a member of the Senate’s Energy, Utilities and Communications Committee, argues that “it will make electricity even more expensive and living in California less affordable.”
Consumer advocate Edward Lopez, executive director of the Utility Consumers’ Action Network, said flat rate pricing will be difficult to implement and is unlikely to benefit most customers.
“In theory, while it might be able to reduce utility costs for middle- and lower-income households, the devil will be in the details when it comes to the SDG&E proposals,” he said.
The idea of flat rate pricing is not new, but the Legislature’s passage last year of an energy omnibus bill, Assembly Bill 205, pushed the concept to the center of California energy politics.
The bill is a part of legislation signed by Gov. Gavin Newsom last June. Proponents argued that fixed pricing will help customers avoid brutal expenses during climate emergencies, such as when a heat wave requires extensive use of air conditioning.
Supporters point to the need for change because of the dynamics of climate change, the shift from fossil fuel energy to green energy, and increased usage due to electric cars and unexpected disasters like wildfires.
SDG&E is joined by Southern California Edison and Pacific Gas & Electric in proposing a flat rate system. The utilities say customers will see the same flat price each month, based on annual income, along with reduced charges that vary with actual household energy consumption.
If approved by the Public Utilities Commission, the utilities say it would raise overall rates for the wealthy but lower them for moderate- and low-income customers.
SDG&E estimates that the average low-income customer could save as much as $300 a year under the new rate plan.
Not so fast, says Senate Minority Leader Brian Jones of San Diego. “The utility companies’ ‘fixed-charge’ proposal is nothing but a shameful attempt to exploit and rip off residential customers,” he said.
Senate Republicans are telling the Public Utilities Commission to “scrutinize” and then “reject” the utilities companies’ “plan to squeeze Californians even more.”
The reason behind the high utility rates paid by San Diegans and other Californians, according to researchers at UC Berkeley’s Energy Institute at Haas, is that consumers don’t just pay for the cost to deliver electricity but for all the “incidentals” like EV charging stations, subsidies for rooftop solar, energy efficiency programs, wildfire mitigation and more.
The institute said research shows that rates currently “are two or more times higher than the actual incremental cost of providing electricity” but flat-rate pricing could be more “financially sustainable and equitable.”
Several states have implemented a fixed price program “which resulted in residential customer rate savings, increased bill predictability and greater rate transparency,” according to the trade group Predictable Power, which receives funding from SDG&E.
But Lopez said not everyone will benefit. “It is hard to believe it will lead to significant bill relief for all. It may help some utility classes but not others,” he said.
And he warned that it could lead to “unreasonable, unjust outcomes — especially for those consumers who already have made personal investments to lower their energy bills.”
While the Legislature told the Public Utilities Commission to create a flat-rate system, it offered no guidance, so the commission had asked for proposals.
It’s a complicated game changer with numerous hurdles, for example, how do the utilities determine their customers’ income? SDG&E says it doesn’t want to have anything to do with collecting this information.
The Public Utilities Commission needs to come up with answers by the deadline of July 1, 2024.