A California-based think tank’s latest report calls for major changes in the way electricity prices are calculated.
The report, commissioned by the nonpartisan group Next 10, found that more than half of the cost of a kilowatt in California has nothing to do with the cost of generating the electricity.
The study, which examined the electricity bills of more than 11 million California households, also concluded that poor people carry a disproportionate share of the hidden cost burden. It was done by UC Berkeley’s Energy Institute.
“What we found was that a much higher proportion of income from low-income people is going to pay those costs than from wealthier people,” said Severin Borenstein, of the Energy Institute. “So this burden is falling disproportionately on poor people.”
California’s electricity rates are some of the highest in the nation, and San Diego Gas and Electric (SDG&E) is asking for rate hikes in its latest filing.
The cost of electricity to consumers is going up while, at the same time, the cost of generating electricity is going down, Borenstein said.
The report found that the cost of electricity charged by the state’s three investor-owned utilities included what it calls a hidden tax implemented as part of the rate structure of the California Public Utilities Commission (CPUC). That cost was more than half and sometimes two-thirds of the rate charged for a kilowatt of electricity.
“Most of these costs that we’ve added into electricity bills are things we generally think of as public goods,” Borenstein said. “Whether it's mitigating wildfire danger or subsidizing rooftop solar or subsidizing low-income bills, all of those things in other contexts we generally pay for in the state budget.”
Borenstein calls the hidden charges a regressive electricity tax, because customers are paying for all sorts of things under the guise of paying for power.
The report found that poor people pay a larger proportion of their income when they pay for power bills and that means that they carry a larger percentage of the load. And, if those electricity rates continue to go up, it could threaten the state’s ability to reach zero-emission climate-friendly goals, according to the report.
“Are people really going to buy electric vehicles? Are they going to put in heat pumps if the price of electricity continues to go up and up and up?” said Noel Perry, the founder of Next 10.
California has laid out several policy initiatives aimed at eliminating greenhouse gas emissions, including banning the sale of new cars with internal combustion engines by 2035 and banning the sale of gas-fired furnaces by 2030.
The Next 10 study calls on the state to reform the way it charges customers for electricity by making two important changes.
First, it suggests moving some of the hidden costs from the rate structure and having them be paid for out of the state budget. This would make things more equitable because the budget is financed primarily with more progressive income and sales taxes.
The second was to require utilities to develop an income-based monthly customer fixed charge that allocates the residual cost burden in a more progressive way.
That second change could be coming soon because the idea was passed as part of the new state budget.
“There is a paragraph in the budget bill that says the CPUC shall adopt income-based fixed charges,” Borenstein said. “What it doesn’t specify is how large those income-based fixed charges are going to be. But it does mean that the CPUC is instructed to create this entire approach.”
