The Three Amigos!

"We're from the electric utility, and we're here to help!"

¡Three Amigos! HBO Pictures, 1986

Il Buono, Il Cattivo, Il Brutto

In the 1986 comedy ¡Three Amigos!, a Mexican villager confuses a trio of silent film actors (played by Steve Martin, Chevy Chase, and Martin Short) for real-life vigilantes, imploring them to rescue her town from a bandit and his gang. Believing the invitation to be an acting gig, the Three Amigos show up, knowing nothing about gunslinging. Hilarity ensues. And as life so often imitates art, the picture emerging from California’s new dastardly electricity billing plan resembles this screwball plot: a convoluted entreaty, orchestrated by the legislature and Governor Gavin Newsom, has ensnared the state’s three biggest public utilities in an ongoing saga marked simultaneously by incompetency and collusion.

Last week, the California Public Utilities Commission (CPUC) authorized a billing structure that will completely upend the way that the state’s three Investor Owned Utilities (IOUs) collect residential electricity bills. The new plan implements a flat rate in addition to the traditional volumetric usage rate (charged on per-kWh basis). A monthly fixed rate of $24.15 will be standard for most households, except for those qualified to receive benefits under the California Alternate Rates for Energy (CARE) or the Family Electric Rate Assistance (FERA) programs (who will pay $6 and $12 per month, respectively). As compensation for the new flat fee, the utilities will reduce usage rates by $0.05 to $0.07 per kWh.

On average, the overall rates collected by Pacific Gas & Electric (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E) will remain roughly the same. The rationale behind the decision appears to be a method of controlling rates for high electricity users (typically single-family homes with multiple residents and all-electric appliances and/or EVs), and low and fixed income residents. For these customers, the Commission expects the drop in volumetric rates to more than make up for adding fixed rates. CPUC President Alice Reynolds claimed in a press release that the new utility billing method “makes it cheaper across the board for customers to charge an electric vehicle or run an electric heat pump, which will spur greater uptake of these technologies that are essential to transitioning us away from fossil fuels.” Reynolds also promised help for disadvantaged communities, stating that the plan enhances “affordability for low-income customers and those most impacted from climate change-driven heat events.”

The plan may sound good (to some) on paper, but to paraphrase Mark Twain, reports of its benefits have been greatly exaggerated. Largely swept under the rug by the CPUC’s PR campaign are the millions of residents who will likely see their bills increase from the proposed changes. These include small households (1-2 adults, often apartment renters), homes in temperate coastal communities with low HVAC needs, and other low energy users. The lack of graduated income tiers (other than those households eligible for welfare programs) also puts increased burdens on middle class earners, who will pay disproportionately higher bills as a percentage of income compared to their wealthier peers. The graphic below shows the estimated change in monthly bills based on customer income:

Winners and losers from California IOU fixed charge

Source: CalMatters

Customers with rooftop solar are also likely to lose out under the new schema, as the fixed charge will guarantee an unavoidable monthly fee, even if the home consumes net zero electricity from the grid. This change comes fresh on the heels of the new net metering structure (NEM 3.0), which already severely reduces the compensation rates for supplying electricity to the grid (I previously wrote about this here). Some critics suggest that the plan contradicts the state’s intended goals of incentivizing more home solar generation, as higher fixed costs and lower metering payments will ultimately result in longer payback periods for these expensive up-front investments. Indeed, NEM 3.0 has already cratered demand for new installations, sending solar contractors reeling.

Bait and Switch

So, who came up with this shenanigans? The tale of woe begins with AB 205, introduced by Assembly Member Phil Ting (D-19th District) in January 2021. The original language of the bill was so vague as to say nothing except that “it is the intent of the Legislature to enact statutory changes relating to the Budget Act of 2021.” As Green Leap Forward recently covered in a masterful in-depth expose, AB 205 essentially sneaked into law through a backdoor legislative process known as a budget trailer bill. Suffice to say the process works like this: the assembly votes to approve an empty Potemkin bill, which is only then negotiated in private by the governor and key legislative leaders. This is where amendments (the good, the bad, the pork) are added like airplane contrails to fill out the details and appease lobbyists and important voting blocs.

As reported by Susan Shelly of the Los Angeles Daily News, AB 205, when finally amended by the Senate in June 2022, clocked in at 21,627 words, with major alterations to the Government Code, the Public Resources Code, the Public Utilities Code, the Revenue and Taxation Code and the Water Code. Under the urgent pressure to pass the budget in time for the fiscal year deadline, the legislature hastily approved the bill, sending it to Governor Newsom for his signature. The law was then a done deal, with very little public oversight. And what in the new budget led the utilities down the primrose path to this mess we’re in now? Tucked into the amended Public Utilities Code was a requirement that the CPUC implement fixed electricity rates based on income by July 1, 2024.

As soon as the details of the plan began oozing out through official press releases and media coverage, the public began to sense something slimy about the way AB 205 came to be. Indeed, many voters contacted their representatives to express outrage over the lack of consent and proper public debate that is typically at least nominally provided when major changes to electricity rates are proposed by the IOUs. Met with a tsunami of backlash, legislature members began to backpedal their initial support (confirmed by voting records) for the controversial law.

In February of this year, Senator Brian Jones (R- 40th District) introduced SB 1326, proposing a repeal of AB 205’s flat rate mandate, and the restoration of the previous language of the Public Utilities Code. However, the bill died on the Senate floor when the 14 Democratic members of the Energy, Utilities, and Communications Committee abstained from voting, while the four Republican members voted in the affirmative. Another bill, AB 1999, also introduced in early 2024, was put forward by Assemblymember Jacqui Irwin (D- 42nd District) and a consortium of other Democrat legislature members (including Phil Ting and Senator Scott Wiener, well known for his progressive activism). This bill would keep the fixed rate, but cap it at $5/mo for CARE recipients and $10/mo for all other households. For now, AB 1999 is on ice, leading some to believe the effort is merely Kabuki theater.

A Fistful of Dollars

Considering that it was Mr. Ting who instigated the AB 205 budget trailer bill in the first place, it is more than a little suspicious that he would now be leading the charge to neuter it. Similarly, Ms. Irwin and Mr. Wiener both apparently approved of and voted in support of AB 205’s new mandates. Campaign finance records provide illuminating insight as to the potential motivations behind these actions. The Cal Access database shows that in the 2023-2024 election cycle, Jacqui Irwin’s election campaign received a total of $5,500 each from Sempra Energy (SDG&E’s parent company) and Southern California Edison. Phil Ting’s recent bid for Treasurer in 2026 received $15,200 from Sempra and $9,800 from SCE in 2023-2024.

While it is not unusual for large utilities to donate to local election races, these contributions ultimately influence recipient behaviors and decisions, whether consciously or not. One possible interpretation could be that the aforementioned assembly members may have introduced the rate caps as a compromise (for show only) between the needs to keep both their donors and constituents happy (while never intending to actually go through with ratifying the caps). At a deeper, more complex level, the role of campaign finance highlights the intertwining push and pull factors between the California executive, legislature and the utilities themselves. Rather than the legislature or Governor being the sole source of the new rate plan, utilities also likely pulled levers behind the scenes through access to lobbying and campaign donations, inducing assembly members to introduce new bills that covertly did their bidding, while remaining concealed from the public.

For a Few Dollars More

Other concerns with the plan are all too familiar to those used to California politics: a lack of continued program oversight and stewardship, and a question of baseline economic benefit. A letter from the California Senate Republican Caucus points to the potential of the CPUC, in cahoots with the IOUs, to abuse the law to implement ever higher monthly fees. Given the historic track record of the CPUC serving as a rubber stamp to approve rate hikes (already the second highest in the nation), the concern of the GOP Caucus is not without merit. AB 205, as it currently stands, does not impose any limits on rate increases. As the GOP’s letter succinctly states, '“if the $24.15 plan is approved, the next proposal may see the fixed charge hiked to $50, $100, or even higher!”

Similarly, some economists balk at the idea that the proposed changes will do anything to save energy or mitigate greenhouse gas (GHG) emissions. Ahmad Faruqui, an experienced researcher in electricity pricing analysis, argues that the plan will destroy incentive to save energy across the board — the exact opposite of the CPUC’s stated objective. Faruqui calls the fixed rate “a disaster waiting to happen,” explaining that it undermines California’s 50-year legacy of using price mechanisms as a method to curb home energy use and promote energy efficient equipment and behaviors. His reasoning is simple: creating a flat charge that remains the same regardless of energy consumption, while also reducing volumetric costs per kWh, will lead customers to become less vigilant about energy conservation.

Moreover, as those consumers who already use less energy will pay more under this plan, they are (unintentionally?) incentivized to use more in order to get their “money’s worth.” Faruqui further states that “there is no empirical evidence to demonstrate that [the flat rate] will make a material difference in adoption rates” of high efficiency electric appliances, especially considering that “these capital assets have long lives.” A very disappointing assessment, since these are the very products that the rate plan was designed to encourage, as Commissioner Reynolds claimed in her press release.

Il Tramonto

The drama unfolding around the CPUC’s rate plan has likely only just begun. Opposition groups may sue the Commission over what they perceive to be a violation of the CPUC’s constitutionally authorized jurisdictions, including limits on its ability to collect certain types of fees and a potential overreach in accessing customer income data to assign payment tiers. The mayhem is shaping up to be a first-rate comedy show. With friends like the Three IOUs, who needs the Three Amigos? Now, pass the popcorn.

Electrically yours,

K.T.