Opinion: What’s wrong with basing electricity fees on household incomes

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I coauthored this article in the Los Angeles Daily News with Ahmad Faruqui and Andy Van Horn. We critique the proposed income-graduated fixed charge (IGFC) being considered at the California Public Utilities Commission.

7 thoughts on “Opinion: What’s wrong with basing electricity fees on household incomes”

  3. karlhopkins70

    The California solar rate structure is an overlay to the underlying rates. This was quite sensible when very few households had rooftop solar. Now that there are plenty of people with solar what might a residential solar only rate plan look like?

    Obviously, the solar customers would sell their excess power to those without.

    The first problem is that this plan would likely not have any customers, as most legacy solar customers are under contract with different rates. Ignore that problem for the moment.

    Perhaps this would not work without storage at each participating solar household. Then the group could act as a giant VPP.

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    1. Richard McCann Post author

      First, the legacy solar customers are entitled to keep their existing tariff agreements just at the grid scale solar and wind generators who are getting paid two, three and four times the current cost of solar and wind for 30 years are contractually entitled to their agreements. This latter group is the source of at least a third of the excessive rates that customers pay–no one is clambering to abrogate those agreements. There are many energy efficiency investments that similarly don’t look attractive in current market conditions. But what we forget is that it is those past investments that have beneficially created the current conditions. Costs would be much higher without these. A correct accounting, that I’ve posted here about, shows that any “excessive” costs for other ratepayers are quite small. So we need to leave legacy rooftop alone.

      So we need to look at the appropriate rates going forward. They should be TOU-based just as NEM 2.0 was. They need to reflect the full avoided costs, which include the transmission built at costs in excess of 3.5 cents/kWh, and the avoided distribution costs because local power generation is distributed locally. They need to include full generation avoided costs, not using the CAISO market prices as a poor proxy. They need to include the hdege value of avoided market volatility. And just as with energy efficiency, customers (including virtual and aggregated accounts) must be given ownership over the energy they generate for their own use. All of that adds up to compensation amounting to at least 15 cents/kWh in California.

      And you’re right that storage being added to home panels should be an important strategy. However, that may be “driving down the street” in new EVs. By 2030 there may be significant number of V2X models that provide cheap or free storage.

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      1. karlhopkins70

        I don’t want to break anyone’s legacy contract. Don’t we need something better than sweeping mistakes under the rug? Somehow there needs to be some assurance that costs will be reasonable going forward (unless that’s not true).

        Perhaps excess legacy NEM costs could be moved to a line item on our bills titled “Excess legacy NEM 1.0 costs – programs expire by 12/2029” and “Excess legacy NEM 2.0 costs – programs expire by 12/2044”. Non solar customers would see these drop over time and at least feel better about the situation.

        I don’t have solar at my home. It’s unclear to me that NEM 3.0 makes solar (even with storage) a viable choice today. Especially when comparing a large cash pre-payment of utility costs against other investments with a good track record. With rental property there is not an obvious path to recovering my investment costs across my tenants meters.

        Can we put new (or NEM 1.0 expiring) solar customers on a seperate rate plan that gives them first access to benefits that you describe? Or are we just stuck with overlay contracts because the benefits must be explicitly defined in order to make these solar installations eligible for financing?

        A good rate plan would also incentivize the homeowner to produce from dawn to dusk for self-consumption or selling power to the grid in the morning.

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    2. Richard McCann

      I might have read too much into your initial post and my first paragraph didn’t really address your point. My second paragraph describes what a tariff for new rooftop solar customers should look like going forward. This would be much more attractive than what the CPUC came up with for single-meter customers. (The multi meter “solution” is going to kill that segment of the market, it’s so poorly thought out and contrary to the evidence.)

      As for NEM 1.0 and 2.0, we have lots of excess legacy costs in the utility systems. There’s a line item for only one of those–nuclear power + older renewables contracts. And this was added to bundled customers’ bills only in 2022 after a long struggle.

      But first off, it’s not clear whether there are significant legacy costs for these earlier tariffs. The propaganda spread by the utilities, which has been going for at least a decade, miscalculates what’s been saved because reduced metered loads means reduced shareholder income from invested assets. I did a corrected calculation accounting for avoided resources that shows most of the purported “cost shift” disappears. Plus the energy efficient programs the CPUC promotes show significant “cost shift” too using the same myopic methodology.

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