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California approves controversial electricity rate change. What’s coming to your bill?

As Californians gear up to turn on their air conditioning this summer, the state’s utility regulator approved a hotly contested change to residential electricity rates. In a unanimous vote Thursday, the agency authorized a flat fee of up to $24.15 and cuts to electricity costs by 5-7 cents per kilowatt-hour.

The change stands to impact 11 million customers of investor-owned utilities in the state by next year. Regulators called it a key step to slashing carbon emissions that cause climate change from homes, arguing a “fixed charge” will help stabilize utility revenue and curb rising costs.

“The transition to all electric homes, cars and trucks is truly transformative. It means that we can ratchet down our use of petroleum and natural gas. It also means that our electricity rate design needs to evolve to meet this moment in time,” said California Public Utilities Commission president Alice Busching Reynolds.

Reynolds added that the change does not add any costs or fees, but rather changes the way existing costs are divvied up. The flat rate, she said “will simply now cover some of the infrastructure costs to serve you.”

Under the new rule, low-income customers are eligible for discounted flat rates of $6 if they are already enrolled in the state’s CARE program and $12 if they already benefit from the FERA program.

The CPUC’s proposal stirred major controversy in recent months, reviving a battle between allies of investor-owned utilities and proponents of rooftop solar. At the heart of the conflict is who will supply California homes with clean electricity and at what cost.

Critics have been arguing that this measure will lead to higher bills for working and middle class customers while discouraging energy conservation, and it will not meaningfully encourage customers to adopt electric vehicles and heat pumps.

“The CPUC’s proposal is exactly what Californians should be worried about, a big utility tax that is twice the national average and totally uncapped,” said Bill Allayaud, director of government affairs for the Environmental Working Group, in a statement.

Many utilities across the U.S. include a fixed charge in customers’ monthly electricity bills, at about $11 a month on average. But protesters outside the CPUC vehemently opposed the commission’s vote and marched to the legislature Thursday, calling on lawmakers to pass a cap on the fixed charge.

“Simply put, this is a blank check to profitable utilities that gives them a guaranteed revenue stream for the costly projects that drive expensive electricity rates,” Allayaud said. “Consumers by contrast will now have two ways for their bills to go up.”

Californians, including customers of Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric, already pay the second-highest electricity rates in the nation after Hawaii. PG&E customers saw new rate hikes this year, with the average household paying an additional $34.50.

In the state legislature, Democratic lawmakers have found themselves caught between calls to prioritize energy conservation from fixed charge opponents and promises of more equitable energy prices from the measure’s supporters.

When a proposal to roll back the fixed rate plan was discussed in a committee hearing last month, all 14 lawmakers abstained from voting — shelving the controversial measure.

But lawmakers have themselves to thank, having directed the CPUC to study and consider authorizing a fixed charge on electricity bills when Gov. Gavin Newsom stuck last-minute language favored by utilities into a budget trailer bill in 2022.

Those origins led to widespread criticism that the CPUC and utilities themselves were able to influence the policymaking process to their benefit without enough public input.

Yet many environmental groups, such as the Natural Resources Defense Council, support the electricity rate redesign as a first change of many needed to fix the state’s growing electricity cost crisis.

Several called for an even higher fixed rate coupled with steeper cuts to per kilowatt-hour prices, and the possibility of tying fixed charges to Californians’ household income.

“Electricity should be cheaper than fossil fuels and electric bills for our lowest income customers should continue to be affordable. This decision is a good first step in that direction,” said Mohit Chhabra, senior analyst at NRDC, in a press briefing.

Much of the opposition to the CPUC’s rule came from companies and advocates connected to California’s rooftop solar industry.

Solar advocates say the change is certain to hurt the pocket book of rooftop solar customers. That industry is still smarting from the CPUC’s decision last year to slash returns on what had long been a lucrative investment for California homeowners.

“This proposal will drastically change the value proposition for customers and for our business,” said Erin Weber Kiel, government affairs manager for major rooftop solar company Sunnova. “We have not seen a fixed charge get proposed anywhere near this high nationally.”