What’s a Fair Electricity Bill?
Concerns about an income-graduated fixed charge, legislators’ and my own.
Your hot water heater is dying. Should you replace it with one that burns natural gas, or a heat pump that runs on electricity? To figure that out, you need to know the cost of each type of hot water heater, how quickly each could be installed, how well each will provide for your family’s hot water needs and – because you are on board with California’s climate goals – the GHG emissions from using each. But, since you aren’t a top 1%er, you also want to know how much each would cost to operate.
And well you should. For most California households, the price of the kilowatt-hours (kWhs) to run a heat pump hot water heater is so high that operating costs put electricity at a significant cost disadvantage, even though it is far more environmentally friendly. So, with a guilty conscience, you put in a gas unit, and save a boatload of money on your utility bills.
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As other EI bloggers and I have discussed previously, the problem is that the electricity price you face – if you are a customer of one of California’s large investor-owned utilities – is many times higher than the actual cost of generating and delivering those kWhs. That’s because we are paying for gargantuan – and rising – fixed costs by increasing the volumetric (per kWh) price of electricity.
Many of these expenditures may be good social policy, but they have no direct link to a customer’s consumption volume: compensating victims of past wildfires, technologies and other investments to prevent future wildfires, incentivizing rooftop solar, providing reduced rates for low income customers, supporting R&D on new low carbon technologies, installing EV charging stations, subsidizing energy efficiency upgrades, and the list goes on. As a result, the price of electricity is now far above social marginal cost (SMC), which is the actual cost imposed on all of society from providing an extra kWh, including the costs from greenhouse gas emissions and other pollution. That induces people to choose natural gas hot water heaters, furnaces, and clothes dryers, as well as gasoline-powered cars, over electric alternatives that are actually less costly to society.
The legislature acts to lower the cost of choosing electric
Last year, the California legislature passed Assembly Bill 205, a sweeping budget bill that, among other things, requires the California Public Utilities Commission (CPUC) to create an income-graduated fixed charge (IGFC) for residential customers of regulated electricity utilities. The IGFC is to be offset by reductions in the volumetric price. The idea was that reducing the volumetric price would encourage electric over natural gas appliances, and EVs over gasoline vehicles. At the same time it would pay for some of those fixed costs through a fee that is larger for wealthier households, rather than the current approach that disproportionately hits low and middle income families.
The bill specified that the new rate structure shall be adopted by July 1, 2024, an incredibly short timeline by regulatory standards. In order to meet the deadline, the CPUC committed to address the mandate as part of an ongoing rulemaking, and since then has been doing studies and accepting comments from all comers (click here and search on Proceeding R2207005) in order to have the information they need to meet the legislature’s demand.
Second thoughts about the Income-graduated Fixed Charge
Then a few weeks ago, 22 members of the California Assembly, all of whom voted for AB 205, sent a letter to the CPUC saying, in effect, we’re not sure this IGFC is such a great idea and you need to slow down the process so that it can be thoroughly vetted. That was echoed soon after in an opinion piece from two state legislators on a Silicon Valley news site. Of course, there are many reasons legislators might vote for such an omnibus bill even if they disagreed with one particular piece of it, though it is less clear why they would wait more than a year to speak out against the IGFC if they found it so problematic.
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My own view is that the IGFC is an imperfect approach to reforming California electricity rates. But it is a major improvement over the pure-volumetric approach we are using to collect those revenues today, the great majority of which pay for fixed costs. There is a better solution – which I’ll get back to, but the legislature seems unwilling to pursue.
First, I want to address some of the arguments made by the legislators. (I will paraphrase their arguments for brevity and clarity, but feel free to click through on the links above to read the originals.)
Lowering the price per kilowatt-hour will discourage conservation. Energy efficiency and conservation to reduce environmental damage can be very beneficial, but just like a powerful medicine, too much can be a problem. Our high prices of electricity undermine incentives to get off fossil fuels and reduce emissions by switching to electricity from natural gas and gasoline, such as by installing a heat pump or buying an electric vehicle. That is tying one arm behind the state’s back when it comes to decarbonization.
Those punishingly high prices also discourage valuable and appropriate use of electricity, such as when a low-income family wants to air condition their house to a healthy temperature. And, by the way, as we move to an incredibly clean California grid, what is the point of conserving electricity any more than conserving milk, shoes, medicines or any other valuable goods?
The price of electricity should reflect all the costs it imposes – including environmental damage – but California’s price has gone way beyond that. Our own study based on 2019 data found that residential consumers paid 2 to 3 times the cost of producing each kWh. With the skyrocketing rates since then – largely to pay for past wildfire damage and future grid hardening – the gap is now much greater.
This is a rate increase disguised as a rate redesign. Bills are going up, but not because of IGFCs. Rather, because we are choosing to pay for all sorts of climate costs by sticking them in electricity bills. That is a separate decision from whether those revenues are collected through fixed or volumetric charges. All of the proposals that the CPUC is considering are designed to collect the same amount of revenue as the all-volumetric approach, just getting some of it through a fixed charge. This is not a rate increase.
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Nonetheless, some people (my constituents) are going to see higher bills. That’s correct. This redesign is aimed at collecting the same amount of revenue. If some people pay less, that means other people will pay more. Overall, this redesign will lower average bills of people who are low and middle income. On average, it will raise the bills of people who are wealthier. The argument that this is unfair is based on the presumption that the current system is fair, a system that has been shown to result in low-income households paying for a disproportionate share of those fixed costs and public policies. I would respectfully disagree.
This hurts more efficient households who have invested in reducing their electricity usage. True, to a small extent, but the research that I discussed a few months ago shows that about 3/4 or more of the difference between low and high consuming household is explained by three factors unrelated to how efficiently they use power: the number of people in the household, the climate in which it is located, and whether they have installed rooftop solar.
This is geographically inequitable, because the cost of living is much higher in some locations than others, so an income that is adequate in one area is a squeeze in another area. Perhaps, but our state income, sales, and gasoline taxes are the same in expensive Silicon Valley as in lower-cost Butte County. Differentiating this tax based on local cost-of-living would make it the outlier. If legislators really want to pursue that concept, there are a host of other taxes and fees to which they should apply it.
“Hold on. Did Severin just call the IGFC a tax?” Why yes I did. It is an income tax, albeit a fairly clumsy one.
Why do we need another income tax? We don’t.
We just need a way to pay for all of these climate expenses and other public policies so that they don’t fall crushingly on low and middle income families and so that it is affordable to run a heat pump or drive an EV. A much better solution – which would accomplish both of these goals while avoiding the administrative overhead of an IGFC – would be to move those climate and policy costs onto the state budget. That would address both the problem with residential prices and the same issue with commercial and industrial electricity prices, which discourage electrification in those sectors and undermine competitiveness.
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State coffers pay for all sorts of climate change (and earthquake and other disaster) preparation and response. But when it gets to regulated utilities, legislators find it much easier to tell the utilities to “pay for it”, which really means to stick it in utility bills and have customers pay for it in a far more regressive manner. The state budget also funds other programs to help the needy with medical care, food security, and housing. But when it comes to energy bills, the legislature again tells utility customers to “pay for it”.
That’s why my first choice for improving California electricity rates is to stop using them to fund climate change mitigation and adaptation, and a host of other state public policies. Instead, cover those added costs through state revenue sources – mostly income taxes, which are far more progressive than utility bills, but partially sales taxes. Sales taxes are regressive, but not nearly as regressive as paying for policies through volumetric electricity prices.
That would be a significant call on the state budget, which some state politicians say is not feasible. It is disappointing that some think it is feasible to continue collecting that money through utility bills that are far more regressive and that undermine our fight against climate change. If legislators are now going to attack IGFCs, it’s time for them to stop shying away from a real solution: paying for climate and social policies through the budget they control.
I have gone all in on Bluesky @severinborenstein. There seem to be quite a few energy/environmental economists and other climate researchers. Hope to see you there.
Keep up with Energy Institute blogs, research, and events on X @energyathaas
Suggested citation: Borenstein, Severin. “What’s a Fair Electricity Bill?” Energy Institute Blog, UC Berkeley, November 13, 2023, https://energyathaas.wordpress.com/2023/11/13/whats-a-fair-electricity-bill/
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Severin Borenstein View All
Severin Borenstein is Professor of the Graduate School in the Economic Analysis and Policy Group at the Haas School of Business and Faculty Director of the Energy Institute at Haas. He received his A.B. from U.C. Berkeley and Ph.D. in Economics from M.I.T. His research focuses on the economics of renewable energy, economic policies for reducing greenhouse gases, and alternative models of retail electricity pricing. Borenstein is also a research associate of the National Bureau of Economic Research in Cambridge, MA. He served on the Board of Governors of the California Power Exchange from 1997 to 2003. During 1999-2000, he was a member of the California Attorney General's Gasoline Price Task Force. In 2012-13, he served on the Emissions Market Assessment Committee, which advised the California Air Resources Board on the operation of California’s Cap and Trade market for greenhouse gases. In 2014, he was appointed to the California Energy Commission’s Petroleum Market Advisory Committee, which he chaired from 2015 until the Committee was dissolved in 2017. From 2015-2020, he served on the Advisory Council of the Bay Area Air Quality Management District. Since 2019, he has been a member of the Governing Board of the California Independent System Operator.
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Manipulating energy prices for social reasons is nutty. I live in the Midwest and the last thing I want to see is “California rules” imposed on the other 49 states. You are already raising the price of bacon for the rest of us.
I wholeheartedly agree. I will let Senator Becker and Assemblyman Berman know that.
the bulk of our ‘green’ concepts play on the edges. Hardly anyone ever talks of reducing use. I realise this is an economics forum, yet the discussion should include conservation options.
I have no gas service and my electric utility is a municipality-owned nonprofit (Silicon Valley Power), which charges 58% less than PG&E for residential service. I wouldn’t be happy about “mov[ing] those climate and policy costs onto the state budget” if my tax dollars will be used to subsidize PG&E’s shareholder dividends. Only about 40% of what PG&E ratepayers pay for new infrastructure (e.g., fireproofing distribution lines) goes to the actual work; the rest goes to dividends.
If the state is going to be using taxpayer money to bail out the IOUs, it should do so as an investor, not as a charity. All new capital investments by the IOUs should be paid for by low-interest state bonds, not by private investment or state taxes. The state doesn’t need to make 8% return on its investment, but it should, if possible, at least break even. If the state pays for stranded assets resulting from IOUs’ bad investment decisions, then investors must also take a commensurate loss. As for stranded assets resulting from state policies to accelerate decarbonization, those costs would be incurred by all energy users, not only the IOUs, and state support should not be limited to subsidizing the IOUs.
Any policy to encourage a transition from gas to electricity consumption should equally well encourage a transition from fossil-fuel-powered electricity to zero-carbon electricity, including residential solar. The most straightforward way to do that is with a carbon tax, using the revenue exclusively to subsidize renewable energy. There is no need for a one-size-fits-all “economy-wide” tax; the policy could be adapted specifically to a sector such as residential home energy use and can be revenue-neutral within that sector. The canonical illustration of this type of policy is Sweden’s “Refunded Emission Payment” program for stationary-source NOx emissions regulation in the 1990s.
First, I agree that trying to collect revenues to fund many programs not related to direct electricity service through rates is problematic. The Legislature needs to confront that issue directly. A carbon tax, as you have also advocated for, would go a long ways towards solving that problem.
However, there’s several problematic statements here. First, the Legislature did not REQUIRE an IGFC. It told the CPUC to CONSIDER a fixed charge, and if it was appropriate, then it should be income based. Very different direction, and those legislators writing the letter to the CPUC expected the latter, not the former. They were surprised by the CPUC’s direct step to the final conclusion without any real input on the first question.
Which goes to the second point–there has been no real opportunity for public input. Yes, vested long-time intervenors will be able to submit comments, but the CPUC has expressly said “no” to public participation hearings around the state so common citizens can have their input and to evidentiary hearings on what level of fixed costs are justified. The CPUC has just accepted the utilities’ claims with no review.
Third, low income consumers, because they are predominantly renters, have no real ability to decide to electrify their homes no matter what rate incentives are out there. It’s going to take a much more comprehensive program focused on rental housing. The IGFC does nothing to solve this problem.
Fourth, Dallas Burtraw and authors just published a paper arguing that maintaining policy credibility is much more important than getting prices “right” to achieve net zero emission targets. (See https://www.nature.com/articles/s41558-023-01798-y) That means if consumers made investments based on a pricing regime that are distorted, it is much more important to main credibility that those and future consumers will have their investments protected, not undermined, by regulatory policy.
Finally, it’s not clear what definition of “fairness” is being used here. There’s been no discussion or debate about what we should be doing to make our economic system more equitable. Given that the IGFC will penalize low-use low income consumers, how is it fair that Beyonce and Jay-Z will will see their electric bill fall by a third in their new $200 million Malibu mansion. The full incidence of this proposal has not be adequately analyzed.
There is a better solution, in two parts. First, yes, impose a fixed charge, but base it on the truly fixed costs of the final service line, meter and billing–about $10-$15 per month–and then give a two tiered discount to CARE and FERA customers. This fits the requirements of the law. Then second, offer an additional baseline allowance, much like the current all-electric baseline, for each electric appliance, HVAC and EV converted to electricity. Establishing the baselines can easily be derived from CEC or utility line extension data. Then price that allowance at the marginal cost of electricity. (What that is can be developed from existing utility applications.) That would be a direct incentive for electrification, not a roundabout way that creates 90% policy leakage.
Great points. Tough decisions need to be made by Sacramento and the CPUC to ease the utility burden on ratepayers for social programs related to energy.
Rich:
You make some good points in your response, but several others warrant rebuttal.
First, you contend that “there has been no real opportunity for public input” and that the CPUC “has just accepted the utilities’ claims with no review.” Yet you also note that “vested long-time intervenors will be able to submit comments.” Aren’t those public-interest intervenors scrutinizing the IOUs’ proposals?
Secondly, you highlight the challenge in electrifying rental units and note that “The IGFC does nothing to solve this problem.” Nevertheless, that doesn’t mean that the IGFC can’t serve as a useful tool in the proverbial toolbox. In a similar vein, you maintain “There’s been no discussion or debate about what we should be doing to make our economic system more equitable.” Is that rather far afield from the potential utility of the IGFC? It’s certainly beyond the purview of the CPUC.
You also declare that “the IGFC will penalize low-use low income consumers.” Perhaps, but you don’t present clear evidence that this will be case, and your comment suggests that low-income consumers will be hurt accross the board (and indirectly subsidize reduced IOU bills for the likes of Jay Z and Beyonce.)
Finally, I have not read the paper by Burtraw, et al., (and don’t have a subscription to Nature.com;-), but the abstract states that policies should “strike a suitable balance between building commitment and attaining cost efficiency.” That suggests that prices are still important. Moreover, wouldn’t getting the prices right be a key part of building and maintaining credibility in climate policy?
Kurt
Some responses:
– There have been no direct testimony or hearings on what constitutes “fixed costs” so the usual suspects haven’t had input those assumptions. But more importantly, there have been no public participation hearings for the general public. TURN doesn’t represent all residential ratepayers.
– No, I don’t see how the IGFC fits into the toolbox of electrification. It’s totally irrelevant if we instead give electrification baseline allowances for specific appliances and EVs.
– I absolutely agree that that discussing what makes the economic system more equitable is beyond the purview of the CPUC. So why is that discussion happening here? The Legislature did not specify the parameters of an IGFC so the CPUC has absolutely no guidance on this matter. This is being debated in the wrong venue.
– Pointing out that I haven’t presented evidence on the impacts on low income renters highlights how there has not been a full public hearing process on this. That sort of evidence would be submitted, but the CPUC has refused to provide a venue on that. And my statement is no more broad than asserting that the majority of ratepayers will see reduced bills. (BTW, Ahmad Faruqui has done the calculations showing this disparate impact.)
– Your right that there needs to be a balancing between commitment and containing costs. Unfortunately, the IGFC throws commitment completely out the window. And I’ve offered a counter proposal on getting the prices right in a manner that actually targets the investments that we want to occur.
Rich:
I think you and I have had at least one exchange in an earlier blog post on the definition of “fixed cost.” I’m sure there will always be differences of opinion on that. But you may be right: The IGFC proposal may warrant more scrutiny in terms of who benefits and who does not — to the extent that can be further ascertained at this point. You maintain that it will “penalize” low-income customers. while at least one other commenter on this post contends that they will be penalized because their income is north of $88k. Somebody will definitely benefit from the IGFC, and it would be good to have a better understanding of that. (And I’m sure that Ahmad can — and may well have already — submitted his calculations to the CPUC.)
The remainder of my comment here will focus on your comment/question: “I absolutely agree that discussing what makes the economic system more equitable is beyond the purview of the CPUC. So why is that discussion happening here?”
That’s a good question. But I would point out that CA has about the most progressive income tax of any state, and that includes a relatively high (the highest or second highest) maximum rate on very high-income earners. It’s not clear to me how much more room there is for the legislature to “make the economic system more equitable” in taxation. Moreover, a key reason we’re having this discussion at the CPUC is that the legislature required the Commission to add numerous non-energy charges to IOU customer bills.
Like Severin and others, I’m in favor of having these IOU customer costs addressed in the state budget. But as a grizzled veteran of many state budget battles, the chances of that, as John Burton liked to say, are “slim to none, and slim just left town.” There simply are too many demands already for too few budget dollars, and the large deficit that the governor and legislature will have to grapple with in the next budget debate will once again, all too familiarly, highlight that.
Public welfare advocates will come to legislators’ offices (and the governor’s office) and, for example, bring a few foster kids with them who will look you in the eye as you glumly and uneasily lean back in your chair and try to explain the harsh realities of the budget deficit for the foster program. Multiply this experience by at least a dozen or more other legitimate pleas from social program funding advocates, and pretty soon you’re feeling like the grinch looking for an opportunity for a redemptive act. But more often than not, you can’t find one.
Good luck introducing new multi-billion dollar general fund expenditures into that mix.
Here’s a calculation I made last year in a filing before the CPUC. (It’s a bit dated but relevant). It was written the context of supporting an electrification-specific baseline allowance proposal. First the cost shift from solar can’t be higher than 5%. The mathematical limit is 12% assuming no contribution whatsoever from NEM customers and that ignores the avoided costs and the average monthly bill of $55. Of the remaining excess, only 10% is from income support and policy programs. The remainder is from mismanagement that has created stranded assets, not mandate costs:
How can we account for the fact that California’s utility rates are 60% to 100% or more above the current direct costs of serving customers as measure by marginal costs? We can illustrate this using SCE’s own numbers. SCE’s total bundled marginal costs are 10.50 cents per kWh for the system and 13.64 cents per kWh for residential customers. These represent the direct costs of service for new load. In comparison, SCE’s average system rate is 17.62 cents per kWh or 68% higher than the bundled marginal cost, and the average residential rate of 22.44 cents per kWh is 65% higher.
These cost differentials come from four sources.
• First, 10% goes towards various public purpose programs that fund a variety of state-initiated policies such as energy efficiency and research. These are the non-bypassable charges (NBCs) identified further below (and would be included in the decarbonization rate).
• Next, another 10% comes from costs created two decades ago in the wake of the restructuring debacle. The state has now decreed that this revenue stream will instead be used to pay for the damages that utilities have caused with wildfires. Regardless these are legacy costs incurred long before electrification was even considered. Charging electrification loads for these costs would have these new loads subsidizing a responsibility created and incurred by existing customers.
• Another 15% is from higher distribution costs, some of which have been created by SCE over-forecasting load growth over the last 15 years; loads have remained stagnant since 2006 meaning that SCE should not have incurred substantial new distribution investments if the utility had been prudently managed. These distribution assets are serving existing loads and again it is the responsibility of those existing loads.
• And finally, 33% is excessive generation costs caused by SCE paying too much for purchased power agreements signed a decade ago. These are the costs included in the PCIA. These generation resources were acquired to meet the 33% renewable portfolio standard (RPS) through 2020 based on those load forecasts and electrification is above and beyond those requirements.
Richard – Have you accounted for the spillover effects of giving Beyonce and Jay Z cheaper electricity? They have recording studios at their home. They have all the incentive to rehearse more, add more layers to their songs. Their songs will now be even better! Have you factored in the social benefit of improved morale?
Thanks for the Dallas Burtraw citation/reference.
Trust, and who might lie more often, was a discussed here recently- Jeffrey Sachs W/John Mearsheimer – Global Crises – YouTube
I trust that NOPEC will honor the contract we entered into with them last night to provide us generation at 6.5 cents/kWh (24-month term). Our transformer is perched on a pre 1960 power pole that is feed by a substation less than a mile away. There are lots of transmission lines in the area. The Perry nuclear plant is close by and its juice/output flows our way. As long as First Energy’s distribution and transmission charges stay the same for the next year our costs for keeping things running here in Ohio will be 14.2 cents a kWh.
Really good analysis and suggestions Severin. What I had experienced is that the inadvertent outcome of financing government policies over the past two decades through utility rates is that the investor-owned utilities (IOUs) have overlooked routine maintenance to preserve rate flexibility for addressing emerging climate-related expenses. About 10 years ago a former president of the California Public Utilities Commission (CPUC) consistently asserted that rate increases were in line with inflation, suggesting no cause for worry about extra costs. However, the postponement of regular maintenance has now manifested in the form of increased expenses to address the impacts of wildfires. And deferred maintenance costs are always higher than doing it right the first time.
Here is a question that everyone must ask themselves, “Is the climate emergency an existential threat”? The most optimist answer I have found is, “No, not if we do something to prevent it.” Here is something everyone can and must do. consider the societal cost before the financial cost.
But then, we can do nothing and the whole argument will be rendered moot
I installed both on-grid and off-grid solar for backup. My utility bill dropped from $320.00 per month to $10.00 per month as planned. Now they are proposing a Fee of $130.00 up from the $10.00 per month I now Pay with NEM-2.0. With NEM 3.0 the Fee would basically make all “on-grid” rooftop solar a waste of money with the ONLY alternative to go completely OFF-GRID to skip the $130.00 per month Fee imposed for being grid connected. Solar companies that do leases or new rooftop sales would go out of business is everyone stopped buying or leasing solar that makes over $100,000.00 per year and those are the people who now buy solar for their roofs.
It was the tiered PG&E rates that gave the incentive to early solar customers in the first place for larger homes Giving special discounted rates to the poor.
No privately owned monopoly company, that is not affiliated with the government, should have the right to “force” you to use their product and charge you based on your income. If the company is a publicly owned utility, like “Alameda Count Water”, where the directors are directly accountable to the voters, then fees are imposed based on the size of the water line going to the house, not about the total income of the Houshold. California Utilities need to look at that fee structure based on the Electrical or Gas service lines going to affluent homes rather than the income of that household. IE. 100-amp service, the size required as a minimum size, should be the low fee or basic fee size. A 200-amp service, the size for larger homes with “money”, could pay a higher rate and the 400-amp “mansions” could pay still higher because the need more local infrastructure to handle the capacity.
Congratulations on this well-reasoned approach to reducing California’s dramatically higher and increasing electricity rates.
“On average, it will raise the bills of people who are wealthier.”
Not so fast. This is not a “wealth-based” fixed charge, it is an “income-based” fixed charge. These are different.
If I live in a house that is owned by an LLC formed by a wealthy person to own that house, it is either the LLC or me who is the utility customer. The LLC probably has only one asset, the house, and has one stream of income (me). It then pays for taxes, utility bills, mortgage, and maintenance, and books depreciation, likely “losing money” at the end of the year, but (because depreciation is non-cash) flowing some cash (tax-free) to the wealthy owner of the LLC. Because the “customer” has negative income, this house will pay the lowest tier of the “income graduated fixed charge.”
Because my name is not on the utility bill, it really does not matter if I am wealthy or living paycheck to paycheck. And it does not matter if that paycheck is large or small.
The point is that the owner of the house can game the IGFC simply by holding it in a single-asset LLC.
Or, it could be a larger corporate owner of rental homes, a family trust or estate, or any number of other common real estate holding companies that owns the house or apartment.
The IGFC can be gamed, and will be gamed. “Wealthy people” often do not have much income. In my retirement, I’m able to manage my taxable income pretty well. I may not be as wealthy as some, but I have a very comfortable retirement. But, by using investment strategies that generate tax losses for some of my holdings, and holding the rest in SEP and Roth-IRA, I have low “income” as defined by the California system. So despite being “wealthy” and “having plenty of money” I would be able to game this system.
Far better to:
a) Base electricity rates on cost, like the California consumer-owned utilities do; those rates are plenty attractive to a heat pump water heater;
b) Fix the loopholes in the tax code, so that “wealthy” people pay more taxes;
c) Collect more money through an income tax, and use that money for income redistribution and perhaps to pay for California’s massive low-income discount and other non-power supply costs now in the IOU rates; and, perhaps
d) Shift ownership of PG&E, SDG&E, and SCE to the cities they serve and to the CCAs that now supply power to most California utility customers, removing the profit component of the electricity bill entirely; California’s consumer-owned utilities have cost-based reasonable rates that are working just fine for electrification. SMUD, Palo Alto, and other municipal utilities are moving ahead with electrification very effectively. That’s another topic for another comment.
I urge readers to read my paper on why this IGFC probably cannot be successfully implemented on Energy Central. https://energycentral.com/c/pip/california-%E2%80%9Cincome-graduated-fixed-charge%E2%80%9D-proposal-probably-impossible-implement
Well Jim, you absolutely hit this one out of the ballpark. Affluent people do have the ability to minimize taxable income (including you and me). Almost half my retirement funds are inn Roth IRAs.
I have argued for sizing the fixed charge based on the maximum annual demand of the customer or on the amp size of the connection. It’s simple to administer and roughly charges wealthy customers more than other customers so it is progressive as well as being cost -based.
What I think is beyond rational argument is that the volumetric rates should only reflect the respective social marginal costs of delivering energy to the customer. All other costs should be recovered in the fixed charge.