On May 9, 2024, the CPUC unanimously voted to approve a flat fee of $24.15 for the 11 million customers of the three large investor-owned utilities (PG&E, SCE and SDG&E) who are not on the CARE or FERA programs that provide substantial bill discounts for low-income customers. For FERA customers, the flat fee was set at half of the full amount, at $12 a month. For CARE customers, the flat fee was set at $6, a quarter of the full amount.
Currently, two of the three IOUs have a fixed charge of zero dollars and the third one has a fixed charge of just under a dollar, yielding a median value of zero dollars.
Nationwide, across 173 IOUs the median is $12. The highest fixed charge today is $37.41 for a utility in the state of Mississippi and the second highest fixed charge today is $23.39 for a utility in Wyoming. Both utilities are much smaller than the three large IOUs in California, with each serving less than 250,000 customers.
The CPUC’s flat fee, if implemented, will become the second highest in the country. California’s IOUs will jump from having the lowest fixed charges in the country to having the second highest. This jump clearly violates the time honored Bonbright principle of gradualism.
The CPUC established the $24.15 flat fee without any supporting evidence. It did not reference a cost-of-service study in a clear violation of the Bonbright principles. Instead, it simply lifted them from SMUD’s rate sheet.
Four points are worth nothing about this “cut and paste” methodology. First, SMUD is a municipal utility serving some 500,000 electric customers in the state’s capital, while PG&E serves 5 million customers in northern California and in a large portion of the central valley. Second, SMUD’s fixed charge was established gradually, not in a single jump from zero dollars to $24. Third, there is nothing in common between the cost structure of a municipal utility such as SMUD and that of the three investor-owned utilities. Four, PG&E’s average rate for residential customers is 2.6 times higher than SMUD’s rate.
If the CPUC was going to copy SMUD’s rates, it should have copied both the fixed charge and the energy charge.
Even then, there is something “good” about the $24.15 flat fee. It is much smaller than what the IOUs had proposed in their original filings in April 2023. PG&E, for example, had proposed $92 for the upper tier. The IGFC concept originated in 2021 in a Next10 paper. It had several income tiers, and the upper tier was priced at 185. The other good element is that no income verification will be required, since all customers not on CARE and FERA will have the same flat fee.
But there is also something “bad” about it. First, the CPUC has set no cap on the flat fee. Given the rapid rate at which PG&E’s rates have been rising during the past few years, the flat fee is likely to rise, and rise fast. Second, the CPUC has said it may create more income tiers in the future, which will open the Pandora’s Box of income verification.
And then there is the “ugly” part. The flat fee was approved by the CPUC without entertaining any public comments or without holding any evidentiary hearings. Thus, no cross-examinations were conducted of the various experts who had submitted testimony. The CPUC took the testimonies at face value and did not do due diligence to test their integrity and accuracy.
What is likely to happen next is anybody’s guess. AB 1999 has been revised and will be presented to the utilities and energy committee of the state assembly for discussion. If it makes it to the assembly, it’s likely to pass since most Republicans and several Democrats are likely to vote for it. Then it will go to the Senate. If it passes, it will land on the Governor’s desk.
Simultaneously, or sequentially, a class action lawsuit could be filed against the CPUC, objecting to the way the flat fee was approved. Also, what cannot be ruled out is a proposition on the ballot to overturn the flat fee. The flat fee has united Californians -- Democrats and Republicans alike -- in a manner not seen in years.
One thing is clear. The IGFC proceeding at the CPUC has generated more public anger than any other rate design proceeding in history. The CPUC’s unanimous approval of an immensely unpopular rate design has just made things worse.
For background on the evolution of the IGFC, please see the attached presentation.
Selected commentaries on the flat fee
https://www.sfchronicle.com/opinion/editorials/article/pge-fixed-bill-california-19436421.php