The following is a contributed article by California Public Utility Commissioner Clifford Rechtschaffen (@CliffCPUC).
California is a remarkable state. We have built the world's fifth largest economy, and we are a leader among the states for job creation. But living here is expensive. Low-income households spend more than half their income on housing, and we have close to one in five people living in poverty, with income and wealth inequality only growing.
As public regulators, my fellow Commissioners and I at the California Public Utilities Commission (CPUC) have an obligation to keep utility services affordable. We know there are limits to what people can pay for essential services without suffering and being forced to make real sacrifices.
Low to moderate income Californians often bear a heavy burden when it comes to paying for basic utilities, including electricity, gas, water and communications, and they must juggle these costs with housing, food and medical care. Statewide costs for these utilities average roughly $300 a month, higher in certain areas of the state and during certain times of year.
These financial pressures are evident in the rate of disconnections for failure to pay energy bills, which has risen sharply over the past decade, affecting low-income residents at three times the rate of other customers. Disconnections can lead to health and safety problems, loss of housing and other impacts.
Bills likely to increase
We also know that utility bills are likely to increase.
Investments are needed to replace aging infrastructure, harden our grid and reduce the increasing risks of wildfires due to climate change. Electric utilities regulated by the CPUC, for example, have proposed spending $3.3 billion this year alone as part of their Wildfire Mitigation Plans.
Ratepayers will also contribute to a new statewide insurance fund that pays for damages from future wildfires. And we will need to spend considerable sums to decarbonize our grid, which will be made somewhat easier by sharp declines in costs over the past decade in clean energy resources such as solar photovoltaics (80%), wind (50%) and battery storage (74%).
All these investments are important, but they will also add to the financial burden of millions of Californians.
For too many Californians, these rising utility bills are the second highest financial obligation only to rent or mortgage. That is why the CPUC last year launched a proceeding to examine the affordability of utility bills, with a focus on different demographics, including location and income level.
Paying for essential utility services should not sacrifice the health, comfort or safety of a household. It should also not jeopardize a household's ability to pay for other essential needs.
Although the CPUC currently considers bill impacts in our individual decisions — such as General Rate Cases, when utilities present new cost requests to the CPUC — we do not assess the cumulative effects on consumers' ability to pay. We do not, for example, calculate the total set of expenses households face from multiple decisions across all the utilities we regulate, including customers at various income levels or who face differing energy and other burdens.
While we have bill assistance programs for the lowest income ratepayers, the programs are not comprehensive, and they only provide a limited discount on a customer's bill.
Most critically, these programs are not designed to ensure that the bills are affordable in the broader context of overall expenses.
One-size-fits-all not appropriate
Given California's geographic and economic diversity, a one-size-fits-all analysis will not cut it, since we know affordability takes on one meaning in more affluent parts of the state and quite another in economically disadvantaged communities.
In August, CPUC staff issued a proposal detailing how affordability of utility services should be defined and measured. The goal is to establish a framework to assess affordability across proceedings in the industries we regulate — electricity, natural gas, water and telecommunications. Once we establish this, we will be better equipped to assess how utility requests and CPUC decisions impact affordability from the consumer's perspective.
We can weigh our decisions against these guideposts and answer questions such as: Should a utility application be approved as requested or modified? Should a utility project be phased in over time? Should subsidies for certain customers be provided? How should costs be shared between customers and utility shareholders?
The first part of the staff proposal establishes what level of utility services are essential — the levels of service for energy, water and telecommunications that meet basic needs and are necessary for health, safety and full participation in society.
The second part sets forth three different metrics that together measure whether the cost of providing those services is affordable.
The first metric is the percentage of a household's income spent on essential utility services, after deducting housing expenditures. Staff proposes calculating this measure for households at the 20th and 50th percentile of income in a given geographic region.
The second measure is the number of hours a person needs to work to pay for basic utility services if they are paid minimum wage in California.This provides a rapid and easily understandable snapshot of the cost of utility bills.
The third measure identifies economically vulnerable populations by examining income and the percentage of income spent on housing by households in a given region.
These metrics each have strengths and weaknesses (i.e., hours at minimum wage is easy to understand but is insensitive to household budgets), but they are designed to complement each other, and together should give us a better understanding of which Californians may struggle to pay their utility bills.
The Commission held a public workshop on the proposal on Aug. 26, and will be accepting public comments on it through Sept. 26. We are looking for input both on the specific metrics proposed, and when and how they should be utilized in Commission decisions and program implementation.
The next step will be issuing a proposed decision sometime this fall.
By developing methodologies to comprehensively assess the financial impacts of CPUC proceedings on consumers throughout the state, we can do a better job developing strategies to protect ratepayers, especially those with high bills and lower incomes or who are particularly vulnerable.
I'm not aware of another state examining affordability of various utility services as comprehensively as we are in this proceeding. But we owe it to California ratepayers to keep at the task until we succeed.