The electrical pricing scheme may work as income redistribution social policy, but it fails the test of reducing energy consumption.
What’s behind California’s shift to paying for electricity based on income? In a few words, it’s the consequence of California’s futile fight against climate change.
California’s quixotic pursuit to save the planet by reducing greenhouse emissions has had three broad and irrefutable consequences. It has made energy more expensive; costlier energy has accelerated the deindustrialization of the state; and, the best irony of all, the offshored manufacturing has increased greenhouse gas emissions by pushing production to dirty, coal-fired China, with goods then shipped back to California for consumption.
The latest twist in California’s arrogant tale of energy virtue signaling is playing out with a major restructuring in how Californians are charged for their electricity. For decades, consumers paid for electricity — as well as other utilities such as water and natural gas — with a tiered system that charged more for resources used above a baseline amount. For electricity, the baseline was determined by three things: the consumer’s use of electricity, the region, and the season.
This system meant consumers who used a lot of electricity would pay far more for each kilowatt hour of that additional electricity than they would for their baseline allocation.
This tended to hit lower-income consumers who ran their air conditioning too much, though the Golden State also has a separate program to reduce costs for low-income residents known as California Alternate Rates for Energy (CARE).
But with California’s electric prices pushing from where they’ve traditionally been — about sixth-highest among the contiguous 48 states, behind New York and New England — to the second-highest in the nation after Hawaii last year, costs on the working poor were rising too much. To paraphrase a colorful politician, “The electric bill is too damn high.”
Thus, the California legislature last year passed Assembly Bill 205, which mandated an end to the tiered system of electric rates and instituted in its place a system where each would pay according to his ability to help those in need. (Of course, it sounds better in the original German, “Jeder nach seinen Fähigkeiten, jedem nach seinen Bedürfnissen.”) The bill goes into effect no later than July 1, 2024, with the stated aim that “low-income ratepayers in each baseline territory would realize a lower average monthly bill without making any changes in usage.”
One unintended consequence of ditching the old baseline allocation scheme is all ratepayers, regardless of income, will now have far less incentive to conserve electricity, since each additional unit of electricity used will be priced the same, with overall prices reduced.
Higher Income Will Pay More
In preparation for the rollout of the new electric charges, California’s big, regulated utilities have proposed their new rate plans to the California Public Utilities Commission (CPUC). Depending on the provider, ratepayers would pay a fixed fee based on three household income tiers, plus charges for electricity use. Household income would be validated by a third party, likely the agency that collects the state income tax, the California Franchise Tax Board. The three proposed household income tiers and their fixed rates are: $28,000 to $69,000 — $20 to $34 a month, depending on the provider; $69,000 to $180,000 — $51 to $73 a month; and more than $180,000 — $85 to $128 a month.
Median household income in California in the years 2017-2021 was $84,097, meaning that an average California family could, under the proposed rate structure, pay a flat fee of $876 per year for their electricity while charges for kilowatt hours used would decline by 33-42 percent depending on the provider. The net effect would be an increase of about $90 a year for the average household and up to $750 more annually for higher-income households. Ironically, households living in homes with rooftop solar would see some of the highest increases in electrical costs under the new rate structure. Lower-income households are expected to see savings of up to $300 per year.
Increasing Fees Rather Than Taxes
One big advantage to California policymakers of heavily regulating public utilities is the ability to use these energy and water corporations as de facto arms of the welfare state.
California’s Constitution requires a two-thirds majority to increase taxes, but a simple majority to increase fees. The CPUC’s total control over California’s utilities means state lawmakers can direct the CPUC to change its rate structures to take more from those earning more and give to those earning less — all without a penny flowing into or out of the state treasury — something that’s particularly attractive today in a state that went from an almost $100 billion surplus last year to an expected $30 billion deficit this year.
And in that, the CPUC commissioners, appointed by Gov. Gavin Newsom, are willing accomplices in the class struggle for fair electricity bills and energy justice. Of the five commissioners, four are attorneys, with backgrounds in “environmental justice,” air quality, low-income assistance, and climate change — electricity generation, not so much. Though the CPUC’s mission is to ensure “that consumers have safe, reliable utility service at reasonable rates, protecting against fraud, and promoting the health of California’s economy,” it’s clear now that all that really matters is figuring out how to shield low-income voters from the costly consequences of California’s green energy crusade.
Moreover, while the electrical pricing scheme may work as income redistribution social policy, it fails the test of reducing energy consumption — laying bare the fact that California policymakers care more about control than they do the climate.