Prince James Story |
Released on September 28th, the study Paying for Electricity in California: How Residential Rate Design Impacts Equity and Electrification, was authored by researchers at UC Berkeley’s Energy Institute at the Haas School of Business and commissioned by Next 10, a nonpartisan research nonprofit organization.
The report gathers data from 11 million California residents serviced by the state’s three large investor-owned utilities (IOUs) – Pacific Gas and Electric (PG&E), Southern California Edison (SCE), and San Diego Gas and Electric (SDG&E), between 2016-2019.
“The time has come for the state legislature, the governor, and the public utilities commission to take an urgent look at reforming how California allocates electricity system and related costs. Working together, the utilities and the state government can eliminate a growing disincentive to clean power conversion, and lift an economic burden that falls heavily on those least able to pay,” F. Noel Perry, Founder of Next 10, said in a press release.
First, the researchers asked the question, what is the social marginal cost of electricity in California? When a kilowatt-hour(kWh) of electricity is produced in California, what are its impacts and costs? They determined it would be around 8-10 cents per kilowatt.
By comparison, In California the average cost is 30 cents/kWh according to Energysage.com, which is 61% higher than the national average.
The report refers to the gap between the retail electricity price and the social marginal cost as the effective “electricity tax.”
Some of the added cost to your electric bill is paying for other programs like climate change mitigation, wildfire adaptation, legacy infrastructure, subsidies for new technology research and development, energy efficiency investments, low-income customers, and rooftop solar, among other fixed costs and policy expenses.
The report found that wealthier households pay more on average, but lower-income households pay more as a percentage of their annual income.
“When you look at the cost as a share of household income, like how much of my annual income is going to pay these costs, low-income customers in my utility area, PG&E, are paying more than three percent of annual income,” said Meredith Fowlie, Agricultural & Resource Economics professor at UC Berkeley. “That’s more than three times the share of the income for wealthier households.”
Net metering is a contributing factor to the problem, which also disproportionately affects low-income households. The report states, “In SDG&E, where rooftop solar in 2019 already provided over 20 percent of residential electricity under net metering, thus offsetting a majority of the cross-subsidy created by the California Alternative Rates for Energy (CARE) program.”
California’s goal by 2035 is that 100% of its new cars and small trucks will be Zero Emission Vehicles; at the current rates, the cost of charging your electric vehicle will be about $600 per year more than what it would be if prices were set at SMC.
Electricity Tax
Under the current “electricity tax,” the cost of managing an electric vehicle will be an extra $600 annually. For households thinking about going to electric heating instead of natural gas, your taxes will raise your bill by around $600 annually.
Riverside residents should pay particular attention to this because city leaders are exploring a code change that would eliminate fossil fuel construction in new buildings and regulate all new buildings that are three stories or less to be completely electric starting in January 2023.
The report’s authors suggested some alternative methods to lowering the marginal price of electricity. These include moving costs onto the general state budget and instituting income-based fixed charges.
“As we assess the future of electricity in California and the critical role utilities and their customers will be expected to play in making our state safer and more sustainable, it’s clear we need to apply equitable options that already exist to cover electric utilities’ rising costs,” Perry said. “The recommendations of this study would boost electrification and allow California consumers at every income level to participate in the energy transition.”