Setting the Record Straight on the Public Advocates Office’s Fixed Charge Proposal

Summary: The Public Advocates Office developed a “fixed charge” proposal to reduce electricity prices for residential customers of the major utilities that would change how utility bills are calculated. A Flagstaff Research study, often cited by opponents of the program, erroneously concludes that wealthy homeowners with large houses would primarily benefit from the proposal. The study is flawed because it relies on conjectural data and contains other significant analytical shortcomings. Based on our analysis of actual California household data, our proposal will benefit millions of low-income households and reduce rates for every customer by ensuring all households contribute a minimum amount for wildfire mitigation and other costs currently paid for through utility bills.

The fixed charge is a critical tool to reduce electricity rates

A fixed charge will reduce volumetric rates, so that all customers will pay less for the electricity they use. 

Nearly 2.5 million households are behind on their power bills. The latest statistics from utility filings are sobering: over 20% of customers served by the state’s largest regulated electric utilities are over a month late on their bills. That number climbs to 33% for low-income households.

The Public Advocates Office has a statutory mandate to advocate for affordable bills on behalf of everyday households and small businesses. We work every day to develop solutions to address the current affordability crisis facing electric customers.  Our fixed charge proposal, informed by over two years of research, would reduce volumetric rates for all (the per unit price of electricity) and provide additional discounts for low-income customers. Notably, it will also not increase utility profits or how much utilities can collect from customers overall. 

Estimated average volumetric residential electricity rates by utility with and without fixed charge

_{Source: Public Advocates Office analysis. Rates represent schedules PG&E (E-1), SCE (D), SDG&E (DR). Forecasted 2024 bars are for illustrative purposes based on the Public Advocates Office proposal. Actual fixed charge implementation will require more time.}

Opponents of a fixed charge often cite a study put forth by Flagstaff Research, which claims that our proposal would only serve to benefit wealthy homeowners. Not only is this false, but in fact, wealthier households will cover a larger share of “fixed” costs funded by utility bills such as wildfire mitigation costs and other costs that are unrelated to a household’s specific electricity usage. Our proposal would help to rectify the current inequity where significant subsidies are provided to customers with rooftop solar (usually higher-income earners), which allow them to avoid paying their fair share of costs that all customers should pay, such as for wildfire mitigation. 

Although the Flagstaff Research study was thoroughly refuted by the Natural Resources Defense Council and The Utility Reform Network in a filing before the California Public Utilities Commission (CPUC), the flawed study and its conclusions have nevertheless been shared and repeated in the legislature, townhalls, and other public forums. 

Here are a few things you should know about the Flagstaff study:

1. The Flagstaff Research study is a hypothetical exercise that does not reflect reality
   The study is largely based on hypothetical energy usage that is not rooted in actual data representing California households, or their respective incomes. 
   
   Flagstaff creates fictional stereotypes of households. It assumes that lower-income earners live in apartments and wealthy people live in large, single-family homes. The analysis does not consider the actual dominant factors that influence energy consumption, such as whether a household is located in a hot region (therefore using more air conditioning and electricity), is occupied by many people (therefore using more electricity for basic needs), or has rooftop solar (therefore drawing less grid power). Flagstaff’s omission of the number of households with rooftop solar as a study factor is a significant shortcoming because the 1.5 million households that have gone solar are historically more affluent than households that do not have solar. It also neglects the fact that rooftop solar is virtually inaccessible to many renters who cannot access rooftop solar without their landlord’s support.
   
   The study also ignores our proposal’s approximate 85% fixed charge discount for the over 3 million customers that already qualify for utility assistance programs. It’s no surprise then that Flagstaff Research analysis arrives at the conclusions it does.
   
   
2. The Flagstaff Research study does not reflect our most recent proposal
   The Public Advocates Office, along with other parties, updated its fixed charge proposal in October 2023, to be consistent with guidelines provided by the CPUC.  Instead of reviewing our most recently filed proposal, the Flagstaff study focuses on our previous proposal and outdated assumptions.  Therefore, its bill impact forecasts of our proposal are even further off the mark. Despite this, the outdated study continues to be circulated by the California Solar and Storage Association and other organizations that oppose a fixed charge. 
   
   Other organizations support the development of the fixed charge program, including environmental justice advocates (California Environmental Justice Alliance), the state chapters of large environmental organizations (Natural Resources Defense Council, Sierra Club), and ratepayer advocates (The Utility Reform Network).
   
   
3. The Flagstaff Research study proposes infeasible alternatives
   The Flagstaff Research study’s alternative to a fixed charge – highly differentiated time-of-use rates – would result in significant bill shocks for customers by increasing peak rates well-beyond what they are today. Consequently, it would harm customers that cannot flexibly adjust when they use electricity throughout the day or season. For example, customers would face 60% higher costs for turning on their air conditioners in the summer months. Moreover, the proposed alternative would exacerbate upward rate pressures on low-income customers. Conversely, a modest fixed charge in line with our proposal would result in less bill volatility and make it easier to plan for monthly bills. The figure below describes a summary of options proposed by different organizations.

Fixed charges are only one part of a broader solution to ensure affordable electric service

Our focus is on holding utilities accountable to principles that apply to every well-run business:

• Companies should be accountable to transparent budgets
• Programs that aren’t delivering should not be funded (by ratepayers)
• New proposals that do not demonstrate they are cost effective (and would require ratepayer funding) should be rejected out of hand

We also ensure that customer bills are calculated in a fair way. We support the fixed charge program because the current process inflates the cost households pay for electricity, thereby increasing the costs of air conditioning, refrigeration, and other basic needs. The cost of electricity is paramount for an affordable transition to electric cars, stoves, and other appliances.

Our advocacy includes but does not stop at the fixed charge, because California households should have affordable and clean power.