Dive Brief:

• Two administrative law judges (ALJs) at the California Public Utilities Commission (CPUC) have proposed changing the state’s four-tiered residential electric rate structure to a two tiered rate structure in which there is no more than a 20% difference between customers. Currently, higher use customers often pay twice the amount of lower use customers.
• The changes — part the AB 327 initiative, a bill that mandated rate reform — would be phased in over 4 years. Most customers would also face a minimum monthly bill of $10 and low-income customers would have a $5 or more monthly minimum beginning this summer. The commission would have the option to eventually turn the minimum bill into a fixed monthly charge.
• Finally, in what would be the biggest utility rate redesign since California’s 1999-2000 energy crisis, the proposal includes a shift to time-of-use rates by 2019. The new rates would only apply to the state's investor owned utilities.

Dive Insight:

California's investor owned utilities support the shift to a two-tier rate design because it addresses the cross subsidy created when higher volume electricity users in the top tier pay much more than lower volume users in the lower tier. The current rate structure was instituted after the California energy crisis to protect low-income customers, but utilities say it is unfairly charging higher volume customers more. 

Consumer advocates say they oppose the new rates because they shift costs to lower income customers, threatening their access to affordable electricity. Time-of-use rates, by making electricity more expensive during peak demand periods, could force vulnerable seniors to resist turning on air conditioning when it is most needed, they say.

Monthly minimum bills or fixed fees might make utility customers less inclined to be efficient in their electricity use because a significant portion of the bill would be unaffected by decreased consumption. Introduction of time-of-use rates would, on the other hand, incentivize more savings.

The new rates, which the CPUC may decide on by May 21, would not apply to municipal utilities like the Sacramento Municipal Utility District and the Los Angeles Department of Water and Power.