California Utilities’ Fixed Rate Proposal Raises the Blood Pressure of the Microgrid Industry

A proposal from California utilities to implement flat residential rates based on income has drawn the ire of microgrid supporters who say the plan will harm microgrids and distributed energy resources (DER) and cement in place unreasonable utility rates designed to pay for future – and sometimes unneeded – infrastructure upgrades.

The microgrid supporters argue that rather than planning for expensive upgrades, utilities should use less costly microgrids to satisfy the demand from electric vehicles (EV) and other electrification efforts.

"Why is it that people have to pay for infrastructure upgrades which are not always needed? Microgrids could bring the costs down for everyone,” said Michael Stadler, chief technology officer and co-founder of Xendee, a microgrid design platform company. “This [proposal] will raise the heartbeat and blood pressure of a lot of people.”

Utility argument

Now before the California Public Utilities Commission (CPUC) (Case R.22-07-005), the proposal establishes an income-based fixed charge. The idea emerged as an outgrowth of California AB 205, which aimed to lower bills for low-income residential customers, improve bill transparency and continue to make investments to operate, maintain and improve the grid while supporting California’s decarbonization goals, said Mike Gazda, a spokesman for Pacific Gas & Electric (PG&E), one of three investor-owned utilities that put forward the plan.

“This proposal will help meet California’s ambitious climate and energy policies by lowering per-kWh electric rates for all customers, while also stabilizing investments in the electric grid needed to electrify our state’s vehicle fleet and our homes and appliances,” Gazda said.

By lowering the per-kWh electric rate for all customers, it will make it easier for customers, especially low- and middle-income families, to transition to cleaner cars and homes, he argued.

Under the proposal, fixed expenses such as maintaining the electric system infrastructure are pulled out of the current per-kWh rate system. Those costs are then spread among customers using an income-based fixed rate, said Ron Gales, a spokesman for Southern California Edison (SCE).

The plan also incorporates a per-kWh charge for energy, he said.

So for example, SCE customers would see the fixed delivery rate vary as follows based on household income:

At the same time, the average kWh rate for all residential customers would drop from 36 cents to 24 cents.

Wrong way to help low-income customers?

Opponents of the utilities’ plan argue that helping low-income utility customers pay their bills should be done through taxes – not rate policy. They also say that the proposal won’t lower bills but will instead increase them over time, in part by making it less financially attractive for customers to install microgrids and DERs, which can save on energy costs.

Because the utilities’ fixed rates don’t vary with energy consumption, the rates sever the relationship between customers’ energy usage and energy costs. That will dilute or wipe out existing price signals that incentivize residential customers to conserve energy with DERs and microgrids, said Jennifer Tanner, leader of the Indivisible California Green Team, the environmental and clean energy advocacy arm of Indivisible CA: State Strong, a political activist organization.

“This proposal represents a direct attack on energy efficiency, on-site solar and storage, microgrids and other local clean energy solutions that customers and communities are benefiting from and help the state in meeting its goals today,” said Tanner.

Allie Detrio, chief strategist at Reimagine Power, which aims to accelerate deployment of microgrids, said that all DER and microgrid providers should oppose the proposal because it’s counter to California state climate and energy goals.

And Dave Rosenfeld, executive director of Solar Rights Alliance, argued that “high” fixed charges wipe out any savings a customer might gain from reducing energy use. In addition, the proposal will lock ratepayers into expensive utility bills with no way out, remove consumer control and choice, invade people’s privacy and enrich utility profits, he said.

Across the US, the average fixed charge is about $10. The least expensive fixed rate proposed under the California utilities’ plan would more than double that, said Rosenfeld.

“The fixed charge proposals proposed by the utilities and the CPUC Advocate and other apologists for the broken monopoly utility model are the ultimate utility profit grab,” Rosenfeld said.

Under the utilities’ proposal, whether residential customers consume 100 kWh or 10,000 kWh, the distribution expenses – the fixed rate – will be the same, said Stadler.

“If you have a PV system and/or a battery and consume less from the utility, you still have to pay the flat rates. The flat rate will discourage DER installations,” Stadler said.

How microgrids can help

DERs and microgrids can help solve one challenge the utilities are facing – the cost of meeting demand from electrification, he said.

“Microgrids can help. Truly optimizing a microgrid based on how you purchase and sell electricity will reduce bottlenecks. Microgrids can be less expensive than system upgrades if managed correctly,” he said.

Instead of incentivizing the use of microgrids and DERs, utilities are trying to keep intact a broken system, said Tanner.

NRDC electrification plan

While microgrid supporters railed against fixed rates, the Natural Resources Defense Council (NRDC), along with The Utility Reform Network, submitted to the CPUC a proposal that aims to reduce energy costs to low-income homeowners while promoting electrification. 

The NRDC filing called for an average fixed charge of $37 per month that would be income graduated in three tiers, with low-income customers paying a $5/month fixed charge.

The fixed charge would reduce the price of electric consumption, or the volumetric rate, by 20% to 25%, the NRDC said in a blog post.

The NRDC proposal also called for utilities to update their existing electrification rates, including PG&E’s E-ELEC and San Diego Gas & Electric’s (SDG&E) TOU-ELEC.

Under SCE’s current pro-electrification rate, (TOU-D-PRIME), a high-income coastal customer can now save only $30 in annual operating costs when they electrify their space and water heating. Under the NRDC proposal, the savings would nearly quintuple to $142 each year.

For EVs, under SDG&E's pro-electrification rate, high-income customers would pay $93 more each year when they switch from a gasoline to an electric car. But that would decrease under the NRDC’s plan. “With the proposed rate reform, those customers would save nearly $300 each year,” said the blog post. The NRDC proposal also includes incentives for energy efficiency and conservation.

Defeating high costs

For all the stakeholders, high utility costs are seen as a challenge to overcome.

The opponents of the utilities’ proposal say the goal should be cutting costs, not implementing fixed rates to pay for inflated costs.

“If the California politicians want to control utility bills, they should look in the mirror and stop approving inflated utility spending plans, instead of passing the buck onto the backs of California ratepayers,” said Rosenfeld.

Or as Tanner put it, “All Californians are suffering from unaffordable energy costs, continued blackouts and wildfires, and a legacy monopoly energy system that no longer serves the public interest or California’s climate goals.”

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