Progressive Income-Based Fixed Charges

Progressive income-based fixed charges reduce the fixed charges on utility bills for lower-income customers.

Table Of Contents
  1. Why This Matters
  2. Policy Solution
  3. Model Policy Features
  4. Potential Limitations & Pitfalls
  5. Complementary Policies
  6. Examples
  7. Resources
COMMUNITY BENEFITAffordability
KEYWORDSUtility Bills, Utility Rates
REGIONState
AFFORDABILITY STRATEGYHousehold Protections
OVERSIGHTUtility Commission
POLICY MECHANISMLegislation, Regulation

Why This Matters

About a quarter of U.S. households face high energy cost burdens, paying more than 6% of their income towards energy bills.1 Utility bills are typically split into two components: volumetric rates that are proportional to the amount of electricity or gas consumed; and fixed charges that typically incorporate factors such as fixed grid maintenance costs and public benefit charges to support programs such as bill assistance and energy efficiency. The allocation of cost recovery between volumetric and fixed rates varies from utility to utility, and each presents potential benefits or challenges from an equity and affordability perspective. Volumetric rates are meant to encourage conservation behaviors and adoption of energy efficiency, but can leave renters and low-income households who have limited control over the efficiency of their appliances—as well as people living in areas with high heating and cooling demands—with high and unaffordable bills. Moreover, the costs of supplying electricity have shifted in recent years such that less of the total delivery cost is based on the actual amount of energy generated and consumed, and more of the cost is related to transmission and distribution infrastructure (for a variety of reasons, ranging from upgrading under-maintained infrastructure to grid hardening in the face of climate impacts),2 so volumetric charges alone do not accurately reflect the cost of service. However, fixed charges can be considered regressive: that is, lower-income households must pay a much larger proportion of their income to support fixed charges compared to wealthier households. Increasing fixed charges therefore raises significant affordability concerns for low- and moderate-income households.

Policy Solution

Progressive income-based fixed charges, which provide lower fixed charges for households with lower incomes, help reduce the regressive nature of fixed charges. These are typically coupled with discounted volumetric rates for low-income households. The adoption of progressive income-based fixed charges may be particularly valuable in places with high fixed charges or when new ratemaking decisions shift some cost recovery from volumetric to fixed rates.

Model Policy Features

Key policy components of income-graduated fixed charges include:

  • Provision of multiple levels of fixed charges based on income tiers, such as for households earning less than 200% of the Federal Poverty Level (FPL), earning 200-300% FPL, etc.
  • Coupled with discounted volumetric rates for electricity and/or gas for income-eligible households (e.g. under 200% of the Federal Poverty Level).
  • Automatic enrollment for households participating in low-income utility rate programs and automatic eligibility for low-income households receiving other benefits.
  • Enabling households to self-attest income if not automatically enrolled.
  • Requiring minimal paperwork for enrollment and recertification.
  • Assessment of the distribution of fixed charges to ensure they minimize bill impacts, in particular for moderate-income households who may be above the threshold for eligibility for the lowest tier of fixed charges but for whom high fixed charges may be unaffordable
  • Including provisions for regular data reporting and public transparency (e.g., public-facing data dashboards, program evaluation, audits to ensure meaningful benefits reach intended populations and do not cause unexpected cost shifts).

Potential Limitations & Pitfalls

  • It can be challenging to determine, and regularly update, household income levels across a broad range of incomes, making it easier to design progressive income-based fixed charges that only discount charges for households already receiving discounted rates and other forms of public assistance—with increased fixed charges for everyone else. As a result, moderate-income households just above the eligibility threshold may see their fixed charges and total bills increase, exacerbating energy affordability challenges.
  • Similarly, if eligibility for tiered fixed rates is tied to discounted volumetric rates or other bill assistance, the lower fixed rates will only be effective if enrollment in these other programs is high and reaches most eligible households. 
  • Fixed charges do not incentivize lower consumption and energy efficiency adoption (unlike volumetric rates)—although shifting costs from volumetric to fixed charges can reduce the costs of electrification—so any accompanying shift of rate recovery from volumetric to fixed charges may raise concerns about disincentivizing demand reduction.

Complementary Policies

Policies that can support effective implementation of progressive income-based fixed charges include:

Examples

1. California Base Services Charge – AB205: Energy (2022), CPUC Demand Flexibility Rulemaking (R.) 22-07-005

Details:

  • As part of a much larger energy bill, AB205 (2022) required the introduction of an income-graduated fixed charge in California with a minimum of three income tiers.
  • The California Public Utilities Commission approved a three-tier monthly fixed charge in 2024, with lower charges for households already on low-income rates, as follows: $6 for households enrolled in California Alternate Rates for Energy (CARE) (eligible households earn less than 200% of the Federal Poverty Level); $12.08 for households enrolled in Family Electric Rate Assistance (FERA) (eligible households earn less than 250% of the Federal Poverty Level); and $24.15 for everyone else. This replaced a prior cap on fixed charges of $10/month.3
  • Because eligibility is based on existing CARE/FERA enrollment, it requires no additional income verification.
  • The introduction of the “base services charge” was accompanied by an overall shift in costs from volumetric usage rates to fixed rates; the total amount that utilities were permitted to collect, however, did not change.4
  • Estimated bill impacts—which included the effect of both the new income-graduated fixed charges and a reduction in volumetric rates (cents/kilowatt-hour)—range widely and depend significantly on the climate of each region. Bill savings for low-income households in moderate climate zones are expected to be minimal, but higher in hot areas; bills increase the most for non-CARE/FERA households in moderate climate zones, where average energy demand is low.5

LIMITATIONS:

  • It was determined to be too difficult to gauge income levels for households not already eligible for discounted rates, resulting in the same fixed charge ($24.15) for both moderate- and high-income households, rather than differentiated rates.
  • Utilities initially proposed very high fixed charges for all customer classes as part of an overall shift of cost recovery from volumetric rates to fixed charges. Their proposals ranged from $20–34 a month for the lowest-income households, $51–$73 for moderate-income households, and up to $85–128 a month for households making over $180,000 a year.6
  • These proposed high fixed charges raised significant flags regarding energy affordability: even legislators who voted for the original bill were concerned that utility proposals would increase utility bills for those who could not afford it, particularly for moderate-income households with low energy use in high-cost-of-living areas who did not meet the discounted rate eligibility threshold.7 
  • Because the new income-graduated fixed charge was used, in part, to offset the impact of an overall shift of some cost recovery from volumetric to fixed charges, it is hard to determine the full impacts of an income-graduated fixed charge independent of this other significant change to the rate structure. However, in some regions, the average estimated bill savings for CARE/FERA households were less than $1/month.8
  • CARE has successfully enrolled the vast majority of eligible households,9 but FERA lags far behind,10 suggesting that many households earning between 200-200% FPL who are eligible for lower fixed charges may instead be charged the maximum amount.

Resources

Written: November 2025

  1. Drehobl, A., L. Ross, and R. Ayala. (2020). How High Are Household Energy Burdens? Washington, DC: American Council for an Energy-Efficient Economy. ↩︎
  2.  Forrester, S., Satchwell, A., Barbose, G., Cappers, E., Miller, C., and Alberg, A. (2025). Retail Electricity Price and Cost Trends: 2024 Update. Lawrence Berkeley National Laboratory. ↩︎
  3. Energy Division. (2025). Base Services Charge (formerly Income-Graduated Fixed Charge) R.22-07-005, Track A. California Public Utilities Commission Docket: 16-OIR-06, September 19, 2025. ↩︎
  4. Energy Division. (2024). CPUC Decision Cuts Price of Electricity Under New Billing Structure and Accelerates California’s Clean Energy Transition. Energy Division Fact Sheet, California Public Utilities Commission, Proceeding R.22-07-005. ↩︎
  5. Energy Division. (2025). Base Services Charge (formerly Income-Graduated Fixed Charge) R.22-07-005, Track A. California Public Utilities Commission Docket: 16-OIR-06, September 19, 2025. ↩︎
  6.  Walters, D. (2024). California’s income-based utility charge saga began with misuse of the state budget process. CalMatters. ↩︎
  7. Becker, J. and Berman, M. (2023). Opinion: The income-based electricity bill provision is a mistake that will raise your rates. Let’s not shy away from real solutions. The Almanac. ↩︎
  8. Energy Division. (2025). Base Services Charge (formerly Income-Graduated Fixed Charge) R.22-07-005, Track A. California Public Utilities Commission Docket: 16-OIR-06, September 19, 2025. ↩︎
  9.  LIHEAP Clearinghouse. (2016). State PBF/USF History, Legislation, Implementation: California. ↩︎
  10. Evergreen Economics. (2025). FERA Study An Assessment of Achievable Enrollment and Program Efforts. ↩︎