Big problems for California’s income-based utility rates

Commentary by Jon Coupal

In a recent column I referred to SBX1-2, a dangerous legislative proposal to define “excessive profits,” as setting a new speed record in California’s headlong rush toward Soviet-style central planning. Well, let’s add one more bad bill to the state’s perpetual march toward a collectivist state. Fortunately, this one may not be legal for long.

Like SBX1-2, Assembly Bill No. 205 from last year, bypassed many of the normal procedures for enacting legislation. It did this because it was a so-called “budget trailer bill.” While the “budget bill” is constitutionally mandated to be enacted by June 15, it only passes by that date for one reason—so the legislators can continue to receive their paychecks. Moreover, after the enactment of the budget, there are so-called “junior budget bills” amending the fake June 15th budget as well as last-minute “budget trailer bills” directing the spending of billions in ways that the budget bill itself did not direct.

AB 205, the “energy trailer bill,” received scant public attention and no meaningful public hearings were held. But its impacts are profound, and not in a good way.

Following the new law’s mandates, California’s big utility companies have announced a radical change in the way they will charge customers for service. Soon, residential electricity charges will depend in part on the ratepayer’s income. Specifically, electricity bills will have two components: a fixed infrastructure charge that varies with income, and an electricity use charge, which would vary based on consumption. Next year, the CPUC will determine what charges are imposed, and on whom.

Not surprisingly, the announcement from Southern California Edison, San Diego Gas & Electric and Pacific Gas & Electric has resulted in a huge negative reaction from taxpayers and the media – for good reason. Trying to shoehorn an income component into utility rates converts “ratepayers” into “taxpayers,” and Californians have had their fill of high taxes.

The difference between a tax and a fee is more than semantics. Taxes are imposed for generalized government services like education, public safety, transportation, and even for a reasonable safety net for the less fortunate. But a “fee” or “charge” has always correlated to the receipt of a specific service. Californians readily understand the difference and have wholly embraced “cost of service” principles by approving several amendments to the California Constitution.

For example, immediately after Proposition 13 passed in 1978, voters approved the Gann Spending Limit (1979) to limit the growth of government spending to increases in population and inflation. The Gann definition of “proceeds of taxes,” subject to the spending cap, includes user fees except when those fees “exceed the costs reasonably borne by that entity in providing the regulation, product, or service.”

Likewise, in 2010 California voters specifically approved language to clarify the difference between taxes and legitimate user fees. Proposition 26 provides that a tax does not include certain fees as long as the charge “does not exceed the reasonable costs to the State of conferring the benefit or granting the privilege to the payor.”

The income-based utility rates are not scheduled to be in effect until 2025, so ratepayers, taxpayers and voters will have an opportunity to correct this mistake though political means.

But even if politicians do nothing to stop this tax increase, backers of income-based utility rates have another problem. A coalition of taxpayer and business organizations have already qualified the Taxpayer Protection and Government Accountability Act (TPA) for the 2024 ballot. Among its many provisions is not only further clarification of what a “tax” is but also a provision that requires any tax to be approved by a legislative body rather than some administrative agency or other authority not directly accountable to voters. That includes the PUC. If the income-based utility rates are deemed to be taxes – an incontrovertible fact – then the tax would have to be approved by the California legislature. Moreover, since the TPA requires any statewide tax increase (this one authorized by AB 205) to be approved by the statewide electorate as well as a two-thirds vote of both houses, voters, one way or another, will have the final say.

In short, this battle on behalf of California’s beleaguered taxpayers and ratepayers is not over. Not by a long shot.

Jon Coupal is president of the Howard Jarvis Taxpayers Association.