California Public Utilities Commission Proposes to Implement Fixed Income-Based Electricity Charges to Pay for Infrastructure and Operational Costs

May 2024

California Land Use Law & Policy Reporter, Volume 33, Number 8

In July 2022, the California Legislature passed Assembly Bill 205 (AB 205), which, among other things, directed the California Public Utilities Commission (CPUC) to authorize utility companies to change the way customers are billed for the costs of providing electrical transmission and distribution service and the costs of utility operations, including wildfire mitigation measures (Fixed Costs).

Under the current billing framework, California investor-owned public utilities recoup nearly all of the costs of providing electricity service through the volumetric (cost per unit) portion of each residential customer’s bill that is tied to usage rates – i.e., bills are based on how much electricity the customer uses. According to the Legislature, this volumetric billing scheme has led to a situation in which rates must rise to recover sufficient revenue to support Fixed Costs, which in turn can cause year-to-year rate increase volatility. This is especially true considering that electricity sales may decline due to greater adoption of distributed energy resources (e.g., rooftop solar), whereas a utility’s Fixed Costs are likely to continue to climb. Because only a portion of a utility’s operating costs vary based on electricity consumption, whereas Fixed Costs do not, AB 205 declared that this disparity can contribute to inequities among customers. To address these issues, AB 205 directed the CPUC to establish reasonable fixed charges based on income for residential customer in order to: (1) stabilize rates; (2) equitably allocate and recover costs among customers; and (3) reduce the cost of electricity so as to encourage customers to adopt electric vehicles and replace gas appliances with electric appliances, as these will become less expensive to charge.

Subscribers to the California Land Use Law & Policy Reporter or the Environmental, Energy, and Climate Change Law & Policy Reporter can read the full legislative update here.