View Mobile Site

Weaning off users subsidizing other power customers

Text Size: Small Large Medium
POSTED April 3, 2010 2:40 a.m.

There are a lot of reasons to criticize PG&E’s upper management.

The bizarre rate structure imposed on their customers is not one of them.

The California Public Utilities Commission – under pressure from the state legislature – years ago embraced a five-tier system with baseline rates aimed to meet several social engineering objectives. One was to encourage energy conservation and the other was to help the lower income with their power bills.

Like anything else that uses the free market system to essentially redistribute wealth, it eventually gets even more twisted and perverted as the years go by. So not only are ratepayers as taxpayers helping low-income through government entitlements – or safety net programs if you prefer – but they are also doing it every time they flip on a light switch.

Not passing judgment on whether it is a worthwhile endeavor, but it is in a different league than simply taxing utility services for the purpose of supporting income redistribution which is already done.

The baseline rate concept was established in 1993. It essentially lowered the power bill for those who could least afford it and also rewarded those who conserved electricity with lower rates. The rates that could be charged to the two lowest tiers was capped by the CPUC in 2001 and remained that way until last November when upward adjustments were allowed under legislation adopted by California lawmakers.

Essentially that meant higher use residential customers have been subsidizing lower residential customers to an increasing degree since 1993.

PG&E has filed an application with the CPUC for a June 1 rate adjustment that is basically revenue neutral for PG&E.  The proposal accomplishes the reduction by eliminating two of its five rate tiers.

A typical customer in Manteca, Lathrop, and Ripon who uses 650 kilowatts in a particular month now pays $79 for electricity. That will drop to $70 after June 1 if the CPUC concurs with the PG&E proposal. Residential customers that use 1,150 kilowatts in a particular month will see their electricity bill go from $270 to $250.

As things stand now, someone who doubles their monthly power use going from 650 to 1,150 kilowatts would see their actual bill go up 3.4 times. That’s because of the five tiers. Once residential customers reach the fifth tier in usage, they start paying 50 cents a kilowatt after that. The new rate structure would eliminate the top two tiers and drop the highest rate down to just under 30 cents per kilowatt hour.

The door was opened for such a move in November when Gov. Arnold Schwarzenegger signed legislation that gave PG&E and other private utilities regulated by the state the opportunity to file for an immediate 3 percent increase in the Tier 1 and Tier 2 rates that went into effect Jan. 1, 2010.

The bill authorized the CPUC to increase the rates charged residential customers for electricity usage up to 130 percent of the baseline quantities by the annual percentage change in the Consumer Price Index from the prior year plus 1 percent, but not less than 3 percent and not more than 5 percent per year.

It is highly doubtful that eliminating the two tiers and gradually increasing what baseline customers pay to reflect the actual cost of the services and power they are consuming will reduce energy conservation. Actually, in some ways, it may help prompting those who are low users for whatever reason and don’t want to pay a ton of money each month to be even thriftier with energy use.

As for the lowest income no longer paying for energy at 2001 levels – that were artificially reduced back then compared to the real market – and instead having the rate per kilowatt hour adjusted upward, why should other users be forced to subsidize them?

Yes, there are social objectives such as helping the less fortunate.

How would you feel, though, if you go into McDonalds and they have two menus – one for those making 130 percent more than a baseline income that reflects a higher price and one for someone making under that gets charged a lower price. The understanding, of course, is that your price is higher because you’re helping subsidize their Happy Meal.

You wouldn’t be a happy camper.

What the state did with the five-tier rate system was basically hide from unsuspecting consumers that the power the higher prices they were paying for power is essentially helping subsidize others who are also buying the same commodity.

Commenting is not available.

Commenting not available.

Please wait ...