Fixed charge and minimum bill

Fixed Charge? Minimum Bill? What's the Story?

Even though the California energy landscape and technologies have undergone dramatic changes, our state’s electricity rate structure has not evolved to keep up with today’s challenges and future goals.  As the Golden State forges ahead with ambitious climate action and clean energy goals, California’s outdated rate structure is causing cost shifts between different groups of customers.

That’s why SDG&E has proposed some changes to electric rates. You may have heard or seen stories in the news recently about our proposal to implement a residential fixed charge and adjust the minimum bill amount.  

The unfortunate reality is that some customers pay far less than others to use the power grid. But at the same time, SDG&E needs to collect a fixed amount of money per year to operate the grid for everyone’s benefit. The result is that many customers end up paying more than they should to make up for those that pay very little to use the grid. For example, let’s say there are 10 houses on a street and half of them have solar panels and the other half does not. The power grid serves all 10 houses but the houses without solar are paying a far greater amount for the power poles, wires and other grid services than the solar houses.

This imbalance is due to old rate structures that allow solar and other low energy-use households to bypass most grid costs. The costs are not lost, they are paid for by other households, creating an unequal subsidy.

SDG&E’s fixed charge and minimum bill proposal attempts to fix the unequal subsidy and lower rates for all customers.

We’ve developed the following FAQs to answer the most commonly asked questions about our minimum bill and fixed charge proposal:

What is the gist of your rate redesign proposal?
Earlier this year, to provide customers with more consistent monthly electric bills, SDG&E asked the California Public Utilities Commission (CPUC) to consider three concepts:

  1. Lower electricity rates by about *25% through the implementation of a $10 fixed charge for all residential customers.
     
  2. Increase the minimum monthly bill amount from $10 to $38.
     
  3. Explore an alternative higher fixed charge of $72 for up to 2,000 customers.

If approved, these changes could be implemented in the spring of 2021.

* Tier 1 rate for electric usage would be reduced by about $.05/kWh. Bill reductions would vary based on plan type (e.g. Time-of-Use vs. non Time-of-Use plans). The rate reduction assumes the $10 fixed charge and $38 minimum bill concepts are approved.

What is a fixed charge and why is SDG&E proposing one?
There are basic costs that SDG&E incurs every day to serve any given customer, regardless how much power a customer uses. These costs include operating and maintaining the power grid (poles, wires, meters, etc.) and providing customer service, such as billing, payment processing and responding to customer calls. These costs are fixed, meaning they don’t vary by how much electricity you use (or don’t use) at any given time. 

A fixed charge is a monthly charge intended to capture SDG&E’s basic costs to provide electric service to a customer. It is quite common for electric utilities, water, cell phone, cable/internet, and digital music/streaming services to have some type of fixed charge, service fee, etc., along with a volumetric rate.

The Vallecitos Water District in North San Diego County charges customers a $35 per month “Ready to Serve” fee, regardless of how much water the customer uses. It also charges a per gallon, or volumetric rate, which in addition to the service fee, makes up the monthly bill amount.

SDG&E currently has volumetric billing with fixed costs embedded in electricity rates. The problem with this structure is that a customer who uses very low amounts of power, and thus will have a very low bill amount, avoids paying a fair share of fixed costs such as power poles, meter, customer billing. This cost shift can burden higher usage customers, such as inland customers who must use more electricity to air condition their homes.  To address this problem, SDG&E proposed a $10 fixed charge for all residential customers. 

Having a fixed charge means that fixed costs can be removed from volumetric billing, which results in a lower per unit cost for electricity and less bill volatility. 

Are there SDG&E customers who currently pay a fixed charge?
Unless you are on SDG&E’s Electric Vehicle (EV-TOU-5) plan, which has a $16 monthly basic service fee, your current monthly electric bill does not include a fixed charge line item.

Is it legal for SDG&E to implement a $10 fixed charge?
The $10 fixed charge is consistent with California Assembly Bill 327, which was signed into law in 2013. The law established an arbitrary maximum level of $10 per customer to ensure that an electric utility could recover a portion of the costs to serve each customer, regardless of their electricity use.

SDG&E’s $10 fixed charge proposal is pending approval by the California Public Utilities Commission.

Are fixed charges a new concept?
Fixed charges are nothing new. More than 170 electric utilities nationwide have a fixed charge on their bills. The Sacramento Municipal Utility District currently has a $20.30 monthly fixed charge. The Vallecitos Water District in North San Diego County charges customers a $35 per month “Ready to Serve” fee.

What is a minimum bill?
A minimum bill is simply the lowest bill amount SDG&E would bill a customer. The current minimum is approximately $10 per month. SDG&E has proposed to increase the minimum bill to $38 per month because that is the minimum cost to serve customers who use low amounts of power (i.e., vacation home owners and Net Energy Metering customers who have solar rooftop systems or other self-generation sources).

Will I be impacted by the $38 minimum bill?
If your electric bill is above $38 per month, you will not be impacted by the proposed minimum bill increase. However, you would receive lower electricity rates if SDG&E’s fixed charge proposal is approved.

Is SDG&E trying to punish people for going solar?
No. In fact, many SDG&E employees have solar systems on their homes.

It’s important to remember that unless a home is entirely self-sufficient (solar + backup energy storage with islanding capabilities, etc.), that home still needs to be connected to SDG&E’s electric grid for power at night or when the solar system is not generating power or enough power. For example, a refrigerator running through the night is being powered by the power grid, not solar panels. Because solar customers tend to consume very little electricity from the grid and given that fixed costs are embedded in per-unit electricity rates, these customers (just like any other low usage customer) avoid paying for their fair share of fixed costs such as power poles, meter and customer billing.  

Solar customers will continue to realize significant benefits from their systems after a fixed charge is implemented.

What’s the difference between a minimum bill and a fixed charge and will I pay both?
The minimum bill is intended to recover the cost to serve customers who use very low amounts of power. If a customer’s calculated bill based on rates does not meet or exceed the minimum bill amount, a customer will be charged the minimum bill.  

The fixed charge is an actual line item on your bill meant to cover a portion of the fixed costs required to provide you with electricity services. The other portion of costs would be recovered through the per-unit usage rate.

The $10 fixed charge is not included in the $38 minimum bill. The $38 minimum bill is made up of all the fixed costs to serve a low usage customer.

If you pay more than $38, the minimum bill charge does not apply to you; you will be billed solely on the electric rates (fixed charge and volumetric billing).  Your bill will include a $10 fixed charge line item.

Will my bill go up if you add a fixed charge?
Not necessarily. Our proposals would result in lower electricity rates as SDG&E’s costs to provide safe and reliable services are removed from volumetric pricing. Overall, we estimate that more than 60 percent of our customers would save about $5 per month if both the increased minimum bill and $10 fixed charge are implemented in 2021.

What is the alternative higher fixed charge of $72?
SDG&E proposed to establish an optional rate with a higher fixed charge of $72 as a pilot project that would be geared toward customers who tend to have high bills as a result of high electricity use. The optional rate with a higher fixed charge may not be the right option for all of SDG&E’s residential customers, but it is an important option for those who struggle with high volumetric rates and bill volatility.

The pilot would be limited to a maximum of 2,000 customers. The $72 optional fixed charge would capture a large amount of the fixed costs necessary to serve these customers.

Will SDG&E make more money as a result of these proposals?

No.

The rate redesign concepts are not intended to generate a profit for SDG&E; rather these proposals are aimed at rebalancing cost responsibility between SDG&E’s customers so one group isn’t forced to subsidize another group. Our goal is to create fair and equitable rates for all customers. Some customers are currently paying less than their fare share to access the power grid. SDG&E’s proposals would address some of the costs imbalances and create lower rates for all residential customers.

When would these proposals go into effect?
If approved by the CPUC, the $10 fixed charge, increased minimum bill and potentially higher fixed charge would go into effect in 2021.

What if I’m receiving CARE/FERA discounts?
Under our proposals, CARE/FERA customers would receive a 50% discount on the $38 minimum bill and a $5 fixed charge. The same would be true for customers on a Medical Baseline plan.

Do these proposals have any impact on the natural gas portion of my energy bill?
No. These proposals are only for the electric portion of your monthly energy bill.

What else is SDG&E doing to lower bills and create more consistency for customers?
We remain committed to helping our customers and will make every effort possible to create fair, transparent and reasonable energy rates. We have taken the following actions:

  • Requested that the High Usage Charge be eliminated from rate structures, but that request was denied by the CPUC earlier this year.
  • Requested that seasonal pricing fluctuations be eliminated, which would alleviate summer bill spikes. The CPUC is considering this proposal and may make a decision before summer 2020.
  • Achieved a reduction in the price difference between tier 1 and tier 2 electric rates for residential customers. This has resulted in more stable bill amounts throughout the year for many customers. Similar reductions are expected in 2020.
  • Expanded pricing plan choices for all residential customers, including new Time-of-Use plans and plans built for Electric Vehicle owners that help incentivize car charging when energy prices are lowest.

I would like more background information on how rates are made. Can you provide an overview?
We recognize electricity rates can be confusing. As with any regulated entity or utility, there will be fees, charges, etc. that are applied to your bill. While going through your bill can be daunting, our goal is to create more transparency and simplify the bill to make it easier to understand.

With that in mind, let’s go over some important facts about how SDG&E’s energy rates are established.

  • SDG&E’s energy rates are actively regulated and overseen by the CPUC through public proceedings.
     
  • SDG&E cannot by law profit from the sale of electricity. SDG&E earns revenue on the infrastructure (distribution and transmission system) that is necessary to deliver the power to your home or business.
     
  • The electric rate, aka price per kilowatt hour (kWh), generally includes five cost categories – distribution, transmission, electricity, public purpose programs and other state-mandated programs. If you are on a Time-of-Use pricing plan, $/kWh will vary by time of day.
    • For example, for every $1 that a typical customer pays to SDG&E:
      • 44 cents is for the transmission and distribution infrastructure  
      • 45 cents is for commodity (the actual electrons)
      • 11 cents for other rate components such as public purpose programs (low-income bill assistance, efficiency incentives), state-mandated programs.
         
  • Your bill amount is calculated volumetrically meaning the more electricity you use the higher your bill will be. Volumetric billing promotes energy conservation but can lead to volatility and unpredictable bill amounts if energy usages change month-to-month. Volumetric billing without fixed charges can also lead to some customers avoiding fixed costs, which are then shifted to other customers.
  • SDG&E has about 45% clean energy, zero coal contracts and operates one of the safest and most reliable power grids in America. These factors can contribute to higher electricity rates than other energy companies.
  • To learn more about your bill you can visit your MyAccount portal, which includes some basic information about your personal bill.