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California energy companies hammer out implementation details for AB 205

Assembly Bill 205, effective starting next year, will require the California Public Utilities Commission to make energy rates a function of the customer's income.
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Posted at 9:04 PM, Jun 22, 2023

BAKERSFIELD, Calif — California utilities currently charge for electricity solely by the amount a customer uses as measured in kilowatt-hours. However, that's going to change next year when Assembly Bill 205 requires the California Public Utilities Commission to implement a new income-based fixed rate when charging for utilities.

Energy economist Ahmad Faruqui says AB 205 is one of a few proposals.

"There are several proposals that have been filed. One is by the joint utilities, which is PG&E, SCE, and San Diego Gas and Electric combined," said Faruqui.

The joint utilities' proposal breaks down fixed prices into 4 different income brackets. The companies claim everyone except those in the wealthiest bracket will save money on their electric bills.

However, opponents of the companies' idea say the fixed charges in this plan are too high.

"Charges by the investor-owned utilities are without precedent. They are so high that we haven't seen anything like this elsewhere in the country," said Faruqui.

The goal of these proposals is to promote the use of electricity for more tasks as opposed to natural gas in a process energy officials call "electrification." In addition to this, they seek to lower what residents pay per kilowatt hour.

Currently, the amount utility companies are charging per kilowatt hour is higher than it costs to actually supply the energy, with the extra money going to fixed infrastructure costs like grid maintenance.

Faculty Director of the Energy Institute at Haas (UC Berkeley) Severin Borenstein says that right now, the cost to provide energy and the price consumers pay for it are disconnected.

"I think we should stop paying for those costs volumetrically, based on how much electricity we can consume. Because when we do it that way, it sends a price signal to consumers that doesn't at all reflect the actual costs of providing electricity," said Borenstein

Borenstein believes that in order to promote electrification of households and vehicles, people should be paying a per kilowatt-hour price that more accurately reflects the cost of supplying that energy.

"What this does is lower the price of each kilowatt-hour you consume so when you are making the comparison of 'Should I drive a car that's electric or one that's gasoline,' or 'Should I heat my house with an electric heat pump or natural gas furnace,' this is going to make it less expensive to adopt the electric heat pump and the electric vehicle," said Borenstein.

However, Faruqui says that there is no evidence to show that people will make the switch to electricity, and those with the means to buy a heat pump or electric car will see higher rates.

"I personally think it is a misguided philosophy here. If you really want to promote heat pumps, you have to lower the price of a heat pump," said Faruqui.