Should CA Solar Owners Be Worried About Income Based Electricity Bills?

Update Feb. 1, 2024: A group of state lawmakers are introducing legislation to roll back Assembly Bill 205, which mandated income-based utility rates in California. This effort is ongoing. Check back for updates.

In April 2023, California’s three investor-owned utilities (IOUs) — PG&E, SDG&E, and SCE — captured national headlines by proposing income-graduated fixed charges between $85-128 per month for the state’s highest earners.

The prospect of $128 per month in electricity charges that can’t be offset by home solar has left many current and prospective solar owners on edge. However, there are plenty of reasons to believe the fixed charges proposed by the IOUs are many times higher than what the California Public Utilities Commission (CPUC) will approve — or may not happen at all.

In this article, we’ll explore:

• What are income-graduated fixed charges?
• Why the CPUC is unlikely to approve $85-125 charges
• What level of fixed charges IOU customers can expect
• The timetable for implementing income-graduated fixed charges

Let’s get started with a quick overview of income-graduated charges and how they impact solar owners.

What are income-graduated fixed charges?

Since this is the first policy of its kind, it’s worth taking a second to break down what income-graduated fixed charges in your electricity bill mean.

• Fixed charges refer to flat, monthly electricity charges that can’t be offset by solar or any other means
• Income-graduated means that the fixed charges vary based on household income, with higher-income households having higher charges

For example, under the IOU proposal, SCE customers with a household income below $28,000 would have a $15 fixed charge while customers with a household income above $180,000 would have an $85 fixed charge.

The passing of Assembly Bill 205 in 2022 mandates the CPUC to authorize at least three tiers of income-graduated fixed charges for all California IOU customers, regardless of whether they have solar panels. But exactly how these charges will be structured has yet to be determined.

Why would California have a power bill based on income?

Proponents of income-graduated fixed charges argue that higher fixed charges will reduce electricity rates to make home electrification upgrades more affordable and beneficial for low-income households. Income-graduated charges would also reduce the electricity burden of low-income households who spend a far greater percentage of their income on electricity than high-income households.

Meanwhile, opponents argue that millions of households in the highest income bracket will have higher electricity bills despite using less electricity, and will therefore be punished for adopting energy efficiency practices, including home solar.

The main concern for existing and future solar owners is that they will be unable to offset fixed charges with their excess solar production, thus reducing the monthly bill savings of their system.

Related reading: How Much Is The Average Electric Bill in California?

Ask for a dollar, expect a dime

According to the California Solar and Storage Association (CALSSA), nobody in or around the California solar industry expects the CPUC to adopt the $85-128 monthly fixed charges proposed by the IOUs — including the IOUs themselves.

For context, 173 investor-owned utilities across the US currently offer fixed electricity charges – none of which are based on income, according to economist Ahmad Faruqui. The median charge is $10 per month and the highest is $40 per month.

The IOUs’ proposal may be following a historic trend whereby utilities propose much larger figures with the expectation of getting much less than requested, as indicated by a July 2023 memo from CALSSA:

“It is our assessment that the CPUC will not approve fixed charges of that magnitude and that the utilities don’t expect to get approval for the amount they are requesting. It is a typical strategy for the utilities to propose far more than they expect to get approval for.”

Before income-graduated charges, the IOUs’ earliest NEM 3.0 proposal featured a $60 monthly fee for solar owners (better known as a “solar tax”) that had little chance of making the final policy. As expected, the solar tax was not accepted by the CPUC, but simply proposing this new fee was enough to grab headlines and sow seeds of doubt in the value of home solar.

What level of income-graduated fixed charges should Californians expect?

While the IOUs made headlines by proposing fixed charges between $85 and $128 for high-income households, the policy experts at CALSSA are expecting the CPUC to adopt top-end charges in the ballpark of $15 per month and, in the worst-case scenario, up to $35 per month.

The primary reason to expect lower charge amounts is pretty simple: Stakeholders strongly dislike income-graduated fixed charges.

• Utility customers hate income-graduated charges because it may require sharing personal income data with their utilities and eat into solar savings;
• Republican state legislatures oppose them because the charges were “jammed through the legislative process in three days with no real deliberation, discussion, or debate on policy committees” and act as a “regressive tax“, according to a letter sent by the state’s Republican caucus;
• And the CPUC is in a precarious position because it is mandated to authorize unpopular fixed charges despite having no good solutions for verifying household income.

In fact, on June 19, the CPUC indicated it intends to start with low charges and proceed slowly. Administrative Law Judge Stephanie Wang ruled:

“A gradual approach will allow the Commission to gain experience from the first version of (income-graduated fixed charges) and conduct research and solicit stakeholder input before providing design guidance for the next version of (income-graduated fixed charges).”

The policy experts at CALSSA interpret this ruling as a sign that the CPUC wants to dip its toe into income-graduated charges instead of diving in head first.

When will California’s income-graduated fixed charges take effect?

Update: A group of state lawmakers is trying to repeal AB 205 and get rid of income-based charges before they ever take place. This effort was announced on January 30, 2024 and is ongoing. Check back for future updates.

Also tucked in the CPUC’s June 19, 2023 ruling is a timeline for adopting and implementing fixed charges. The CPUC intends to do the following:

• Adopt a proposal in April 2024
• Implement it no earlier than the end of 2026
• Allow several years to study it before potentially adjusting the charges

CALSSA takes this means a maximum charge of $15-20 starting in late 2026 that could gradually be increased around 2030.

While any fixed utility charge is a thorn in the side for solar owners, a $15-20 dollar would make a minimal impact on monthly bill savings. A $35 monthly charge would be more substantial and, although it is a possibility, CALSSA is working to make sure it does not happen in the first iteration of the policy.

If you are considering investing in home solar — or already have — it’s worth paying attention to the income-graduated fixed charges, as they will impact your overall savings. But don’t miss the forest for the trees! The $15-20 charges expected to be implemented by late 2026 at the earliest leave more than enough room to see a healthy return on investment for California solar owners.