California is wrestling with electricity prices – here’s how to design a system that covers the cost of fixing the grid while keeping prices fair | Science & Technology News

In response to public outcry, California lawmakers recently introduced Assembly Bill 1999, which would replace the income-graduated fixed-charge requirement with fixed charges of $5 per month for low-income customers and up to $10 per month for others. In our view, this reaction goes too far in the other direction.

Capping fixed charges at such low levels would force utilities to hike their energy use rates to cover fixed costs – again, risking the death spiral scenario. Our research indicates that there is a range for the fixed charge that would cover a reasonable share of utilities’ fixed costs, but is not high enough to burden consumers.

Without utility cost data, we can’t pinpoint this range precisely. However, based on estimates of utilities’ costs, we believe the caps proposed in AB 1999 are too low and could end up unfairly burdening those the bill aims to protect.

In our research, based on a hypothetical case study, we found a sweet spot in which fixed charges cover about 40% of utilities’ fixed costs. Charges at this level provide maximum benefit to consumers, although they reduce energy producers’ profits.

Our findings are similar to an alternative proposal jointly presented by The Utility Reform Network, a nonprofit consumer advocacy organization, and the Natural Resources Defense Council, an environmental advocacy group. This plan suggests a two-part rate structure with an average fixed charge of about $36 per month. Low-income households would pay $5 per month, and those earning over $150,000 yearly would pay about $62.

We believe this proposal moves in the right direction by ensuring fair contributions to grid costs, while also encouraging efficient energy use and investment in clean energy infrastructure. It could act as a guide for other U.S. states searching for methods to balance utility fixed-cost recovery with fair pricing and continued growth of small-scale solar power.

This article is republished from The Conversation, a nonprofit, independent news organization bringing you facts and analysis to help you make sense of our complex world.

The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.