The California Public Utilities Commission Changes the Way Utility Bills are Structured to Address Affordability, Enable Decarbonization

In response to the rising financial burden of electricity costs on low-income households, California lawmakers enacted Assembly Bill 205 in 2022, mandating a restructuring of the state's electricity pricing to improve affordability and equity, while simultaneously facilitating widespread electrification of buildings and transportation.

What Is the Fixed Charge?

This legislation paved the way for regulators at the California Public Utilities Commission (CPUC) to update the billing structure for electricity customers, authorizing the three large electric Investor-Owned Utilities (IOUs) to shift some of the fixed costs of maintaining the electric grid from usage-based rates to a separate, fixed amount on customer bills. The restructuring does not change the total costs that utilities can recover from customers. The new fixed charge was approved at the CPUC’s May 9th, 2024, Business Meeting, impacting residential customers in all climate zones. Afterward, the CPUC posted a news article and fact sheet summarizing it.

When Does it Become Effective and How Much Is It?

The fixed charge will go into effect sometime in the last quarter of 2025 for customers in Southern California Edison (SCE) and San Diego Gas and Electric (SDG&E) service areas. Customers in the Pacific Gas and Electric (PG&E) service territory will transition to the new rate structure in the first quarter of 2026. Many customers within these service areas will be charged $24.15 each month, while low-income customers will be eligible for a discounted fixed charge of $6 or $12.08 each month. The fixed charges will be offset through a reduction in rates for all residential customers with an approximate decrease of $0.05 per kilowatt-hour for PG&E and SCE customers and approximately $0.07 per kilowatt-hour for SDG&E customers. The fixed charge does not change utility revenue as the usage-based rate reduction is proportional to the size of the charge across all customers in aggregate (e.g., the fixed charge is revenue neutral for utilities). Fixed charges include the cost of infrastructure that connects all customers to the grid, such as wires and transformers that send power to and from a home. These costs do not vary based on a customer’s energy consumption.

While the decision does not require customers to provide household income, customers enrolled in the California Alternate Rates for Energy (CARE) and Family Electric Rate Assistance (FERA) programs provide income information when they enroll. Customers enrolled in these programs qualify for the specific discounted fixed charge for which they are eligible.

Impact on Reach Code Development

The implementation of a separate fixed charge on electricity bills aims to distribute the fixed costs of providing electrical service more fairly among all residential customers. In addition to addressing affordability concerns, this billing structure is designed to support the adoption of electric vehicles (EVs) and the transition from gas-powered to electric appliances, through the reduced volumetric (i.e., electric usage) charges. Without this restructuring, customers might be discouraged from electrifying, as those who are in all-electric buildings would pay a higher proportion of grid costs. With the reduced volumetric rate associated with the fixed charge, converting to electric end uses may become more financially appealing, in alignment with the State’s greenhouse gas (GHG) reduction goals.

For jurisdictions pursuing reach codes and other electrification initiatives, this decision is expected to have a positive effect on building decarbonization, a key solution to reducing GHG emissions in the built environment.

The impact of the fixed charge on a residential customer’s total bill will vary depending on their location and their eligibility for a reduced fixed charge. Customers in coastal areas who use a low amount of electricity may experience modest electricity bill increases, whereas those in inland service areas with average electricity usage may experience electricity bill decreases. However, customers who qualify for CARE and FERA programs will generally experience bill reductions across all geographic areas.

Converting appliances from gas to electricity may result in significant monthly savings for customers in both inland and coastal climates due to the fixed charge and the accompanying reduced volumetric rate. Additionally, customers currently utilizing EVs or acquiring them may realize additional monthly savings. For example, SCE customers may experience average savings of around $11-12 for home electrification and approximately $16 for transportation electrification according to the CPUC[1]. This adds up to an overall monthly savings of approximately $28 for inland customers and $29 for coastal customers, highlighting the potential financial benefits to customers from electrification efforts across different geographic regions.

The Local Energy Codes team will examine the impact of new tariffs that emerge as a result of this process, when the tariffs are finalized.

[1] https://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M531/K686/531686019.PDF