California’s hated electric bills will soon be based on our income. Will it work? | Opinion

The concept of an electricity bill based on your tax bracket is entirely foreign to the American consumer experience. It might smack of an invasion of privacy. Big Brother even. So of course, California is going to implement one for those who get their electricity from investor-owned utilities such as PG&E and Southern California Edison.

A year ago, this idea surfaced in a budget trailer bill with little public discussion. It was hastily approved by the California Legislature. Signed by Gov. Gavin Newsom, the legislation puts California on a pioneering path to be the first state to factor wealth into this unpopular monthly bill.

Implementation of this groundbreaking plan is still at least a year away as it will be debated before the Public Utilities Commission until the PUC must adopt something by July 1, 2024. The PUC regulates the investor-owned utilities such as PG&E. (Sacramento Municipal Utility District customers and other Californians who get their electricity via public power agencies, will not be subject to income-based electric bills).

Opinion

The aim is to make electricity bills more equitable for Californians and because of this, the idea deserves a chance. But the man behind it all was unaware that the Legislature and Newsom would turn his proposal into a groundbreaking state law.

“I was shocked,” said Severin Borenstein, the originator of this taxation idea and the faculty director at the Energy Institute of the Haas School of Business at the University of California, Berkeley. “We were not consulted.”

Borenstein argues persuasively that a typical Californian’s electricity bill today is already a form of taxation.

It is not commonly understood that middle- and lower-income Californians are being disproportionately taxed for broader societal investments that the utilities are responsible for, such as hardening the grid against wildfires, underwriting energy efficiency programs and incentivizing solar panels on residential rooftops.

How does this happen? Solar panels on residential rooftops — now on about 1.3 million residences statewide — are a significant investment. The subsidies offered through the utilities have made them much more affordable. Yet only those who can afford to buy a home can benefit. So the benefits go disproportionately to wealthier Californians. These homes are given credit on their bills for the excess power they produced and sent to the grid. Meanwhile, middle- and lower-income people who often can’t afford to buy a home are getting their power from the electric grid and paying more on their bills to maintain it.

“This dynamic is a cost shift of grid maintenance responsibility from the wealthy to the poor,” wrote state Sen. Steven Bradford, a Democrat from Gardena, in 2022.

Borenstein agrees: “That tax is more regressive than the sales tax and about as regressive as the gas tax,” he wrote on his blog recently for the Energy Institute at Haas. “Dumping these shared costs on those least able to pay seems pretty unfair to me.”

Instead of an income-based electricity bill, Borenstein argues that it would be better if the state budget absorbed the costs to fortify the California electricity grid, protect watersheds and improve efficiencies.

But California is mired in a budget deficit and billions in unmet needs. The Capitol is clearly disinterested in using the state budget process to pay for these big infrastructure projects.

Instead, it has set in motion what is arguably the largest utility bill overhaul in state history. It will impact every residential customer served by PG&E, Southern California Edison and San Diego Gas & Electric (SDG&E). And it may create a template for other states to consider.

What Californians could experience could be called the Great Fixed Charge Debate.

It has long been a custom in California for either the Legislature or the Public Utilities Commission (PUC) to add costs onto the investor-owned utilities that end up being inequitably shared in the monthly bill, which makes the bill essentially a tax. A public power agency such as SMUD could not do the same thing.

Why? Public utilities are governed by state laws such as Proposition 26, passed by California voters in 2010. Costs and benefits by law must be equitably distributed in a SMUD bill. The same does not hold true for PG&E and the other investor-owned utilities. That is because they were carefully written out of the initiative.

The Legislature apparently was taking notice.

Last year, it passed a bill tied to the budget that directs the PUC to establish this fixed charge on every residential bill of every investor-owned utility “on an income-graduated basis.”

In theory, a utility like PG&E could send to the Franchise Tax Board its massive list of residential addresses. The tax board could then inform PG&E of the tax bracket of each address based on the latest filing (the actual reported income down to the penny isn’t needed). The utility then could use that tax/income information to calculate how big or small the fixed charge should be in future bills.

Is California ready for this?

“Politically, are we ready for it? I don’t know,” said Borenstein. “It very much depends on how it is explained to people.”

The bigger the fixed charge that the PUC ultimately approves, the bigger the change from the status quo. If utilities recover more of their climate change costs through this new fixed charge, they would not have to charge so much for the electricity they deliver. The objective here is not an overall rate increase.

Investor-owned utilities filed their proposal with the PUC. The highest-bracket income earners would pay a $92 monthly fixed charge in PG&E territory, $85 inside Southern California Edison and $128 inside SDG&E.

The filing represents the first salvo in a months-long process before the PUC.

There is a broad public understanding that sales taxes are a disproportionately larger burden on lower-income Californians because so much of their money goes to buying basic goods. Less clear to many people is how today’s way of charging for electricity is one of the most regressive taxes in California. This inequity will only get worse unless something drastic is done about it.

Taking a step back, for Californians this is part reform, part mindset adjustment.

If Borenstein had gotten his wish and these climate change investments were in the state budget, higher-income Californians undoubtedly would be paying a larger share thanks to their higher payments to the Franchise Tax Board. There is no pocketbook difference if the same income tax is paid for the very same investments inside an electricity bill.

The only question is who within the California income spectrum will pay it.

Look for a big fight over the amount of this income-based rate charge. Utilities want ratepayers of financial means to have a sizable charge on their bills each month. Solar roof advocates want a much smaller charge in order to keep the monthly bills down for participating homeowners.

I am with the utilities on this one. The bigger this fixed charge, the lower the unit price of electricity can become. Good things as a result would happen. It would help California adapt to climate change. It would financially motivate the shift to electric cars powered by a clean grid.

The coming political storm over rate reform, however, feels as unsettling as a rolling blackout.