Your Income Bracket May Increase Your Electric Bill
R & D Tax Credit


As a California resident, you’ve probably noticed your energy bills have steadily crept up over the past decade. This is partly due to a general rise in the cost of living, further exacerbated by more recent inflation factors.

The California State Government has also played a role in rising energy costs, as they’ve tacked on various tariffs to help fund environmental initiatives. Changes in regulation also have the potential to impact energy costs, as is evidenced by Assembly Bill 205, which arrived in 2021.

Dubbed The Jobs and Economic Improvement Through Environmental Leadership Act of 2021,  AB 205 includes new regulations that open the door to revamping California residents’ electric bills.

Case in point, a plan recently submitted by California’s three largest power companies — Southern California Edison, Pacific Gas & Electric, and San Diego Gas & Electric — would lower overall usage rate costs, but some customers would see increased base charges.

Fixed Charges

Your electric bill covers two elements, energy usage, and fixed costs.

Usage refers to the kilowatts per hour of energy you consume. Fixed costs include building and maintaining the electric grid, providing customer support, energy efficiency programs, and so on.

Under AB 205, the State requires utilities to be more transparent in billing, specifically defining how fixed charges are apportioned.

The aforementioned utility company’s plan is to formally divide consumer bills into two parts, usage rates and fixed costs. Additionally, the utility companies would lower usage rates from the current 36 cents per kilowatt hour to 24 cents per kilowatt hour while also graduating fixed costs based on the individual consumer’s annual income bracket.

Income Brackets For Energy Bill Fixed Costs

On the rate reduction side of this proposal, approximately 1.2 million lower-income customers would see their energy costs fall by 16%-21%. But base charges covering fixed costs would rise for higher-earning consumers.

The proposed rate restructuring changes are based on the following income scale:

Above $180,000: $85/month
$69,000 – $180,000: $51/month
$28,000 – $69,000: $20/month
Less than $28,000: $15/month

Where Does The Proposal Currently Stand?

The State is still sorting out several essential details. Plus, the California Public Utilities Commission must first approve the plan, with a final decision required by mid-2024. And if approved, the fixed-rate bills wouldn’t take effect until 2025 at the earliest.

A key consideration in enacting this proposal is deciding how the State will determine customers’ income, which regulators say will fall to a state agency or a third-party vendor.

It’s also worth noting the Los Angeles Department of Water and Power (LADWP), the utility serving California’s most populous municipality, is not a party to this proposal.

So, half of LA County’s residents are likely not subject to this fixed-rate plan. Unless, of course, LADWP rolls out a similar program, which is a strong possibility in the near future.

Questions About Tax Planning?

The 2022 tax filing season may be in the review mirror, but the year’s already nearly half over. Which means it’s time to start thinking about tax planning for your 2023 taxes.

If you have questions about strategies for deductions, donations, investments, or asset sales — Get in touch for a FREE consultation!


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