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Partisan Political Posturing Preventing Practical Energy Rate Policy

by Michael Higham, published

Partisan Political Posturing Preventing Practical Energy Rate Policy

The summer prompts Californians to pay attention to energy usage and pricing. This summer, it's more important than ever to pay attention because a change in the energy rate structure is a real possibility through AB327.

This bill comes at a time when small business, families, and seniors are worried about a potential big spike in their energy bill. The idea is to make rates fairer by making energy rates more equitable, but political consequences may get in the way of practical policy.

Private utility companies do not have the authority to set rates; that power is held by the California Public Utilities Commission (CPUC), subject to authorization from the California Legislature.

In 2001, the California Legislature mandated a cap on low-use energy consumers. Because this law has not been updated in the last 12 years, save a minor adjustment in 2009, those consumers are now paying less than the actual amount it cost to deliver energy to their homes. As a consequence, the burden of increased energy costs is placed on those who use more, but not necessarily those who can afford it.

In other words, the rate structure is not based on income and some residents pay exponentially higher amounts for the same energy. For example, families or seniors in older, less energy-efficient homes or who live in hotter, inland areas of the state are likely to be in the upper tiers.

Further, seniors who spend an inordinate amount of time at home and small business who use electricity all day are paying much higher rates than others. On the other hand, those who can afford newer, energy-efficient homes or don't need to use their appliances all day are the beneficiaries of the subsidies paid by those in the upper tiers.

The following will help illustrate what this means. It is the current rate structure for San Diego Gas & Electric (SDG&E) customers:

Credit: SDG&E

Partisan Political Posturing Preventing Practical Energy Rate Policy

It probably isn't "fair" for a tier 3 customer to pay almost twice as much as a tier 2 customer, especially if the tier 3 customer is the average family that doesn't generate twice the income of a tier 2 customer. But, it's difficult to find a politician willing to take on the political consequences of pushing for practical legislation.

Tier 1 and 2 customers are locked in as far as energy rates are concerned. So, when energy becomes more expensive, rates can only be legally increased on tier 3 and 4 consumers to make up for the higher cost.

(For more on the reason the current energy rate structure exists, read previous coverage: Why Your Electric Bill is Getting More Expensive)

A reasonable discussion is likely to lead to a conclusion that says energy rates should be made fairer and restructured from the current system. AB 327 would seem like practical legislation that should pass. However, practicality and politics do not always mix.

In this case, over 65 percent of ratepayers, or California voters, are being subsidized. Naturally, in today's competitive oriented -- as opposed to solution oriented -- political dialogue, a push for practicality is sure to result in an opposition appealing to the emotions of those who have long enjoyed living off the subsidies of the others.

If AB 327 were passed, tier 1 and 2 customers would see a slight rate increase compared to the spike that will be imposed on those in the upper tiers without such legislation. That small increase is enough firing power for political opposition to create a backlash. Even though the low tier increases would be relatively manageable, it could be an effective talking point in a political campaign; especially, when a majority of voters are in the affected class.

In recognition of this reality, a petition is currently being pushed in order to create support for this change in the energy rate structure through AB327, a bill authored by Assemblymember Henry Perea (D-Fresno). The petition can be found at Fix My Energy Bill.

Perea stated in the Assembly analysis of the bill:

"[L]aws meant to protect residential rate users are now preventing the CPUC from governing the rate structure and making necessary changes for the thousands of middle to low income families struggling to pay high energy costs."

AB 327 passed the Assembly floor 66-4 with 8 legislators abstaining. The bill also passed the Senate Energy, Utilities, and Communications Committee unanimously and now sits in the Appropriations Committee.

(Assembly Bill 327 can be read and downloaded here.)

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