Should Electric Bills be Progressive?

Investment Analysis Clubs Macro Economic Trends and Risks
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I assume in the name of fairness.

“This proposal aims to help lower bills for those who need it most and improves billing transparency and predictability for all customers,” said Marlene Santos, PG&E’s chief customer officer.

The changes would affect only those customers who receive electricity services from PG&E and its sibling power companies.

Here’s how the fixed charges would work in the PG&E service territory. The numbers are based on a four-person household:

Households earning less than $28,000 a year would pay a fixed charge of $15 a month on their electric bills.
Households with annual income from $28,000 to $69,000 would pay $30 a month.
Households earning from $69,000 to $180,000 would pay $51 a month.
Those with incomes above $180,000 would pay $92 a month.

“These are not new charges, but a restructuring of the components of providing and delivering power,” PG&E stated in a post in the Currents section of the utility’s website.

The monthly bills of the future would have two components: the fixed charge based on household income levels and the electricity charge at a reduced rate that would fluctuate based on monthly energy consumption.

PG&E says many customers would ultimately pay less for electricity — although the distinct possibility remains that an unknown and potentially significant number of more affluent customers might wind up with even higher electric bills.

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This idea is as dumb as a box of rocks.

Instead of basing it on income (what about wealth?!?) - which I assume would be a mess since they appear to be relying on some third party to verify income since no one in the right mind that would pay more would very it themselves - they should just charge a flat fee based on usage tiers.

If your income is above XX becomes "if your last 12 month average usage is XX you would pay $92 a month.

You get to the same problem (and might actually encourage conservation based on usage instead of income) and you don’t penalize someone simply because they have high(er) income.

And what about the person that is brand new to PG&E? How are they going to determine their rate - especially if they moved from out of state where income verification may be more difficult (and costly).

sigh dumb.

PS: Just learned that 3 Xs in a row are blocked but 2 Xs are not. What is XX not X rated enough? :upside_down_face:

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And if you get laid off, how long will it take PG&E to verify your new income bracket?

DB2

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Is it?

I’d guess that lower income households are more likely to be slow payers or have noncollectable bills. Higher income households would be less likely to have those issues. So if you can speed up payment and reduce the number of noncollectable bills - while still having the same revenues - by billing lower income customers less and higher income customers more, you generate more profits for shareholders.

More profits is a good thing, right?

–Peter

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I don’t know if this pricing plan based on income is a good idea. My first reaction is to be skeptical of these sort of schemes.

However, it should be recognized that higher income people often do not pay their share when it comes to maintaining the power grid infrastructure. Those wealthier people can often reduce their bills through net-metering from solar panels. Lower and middle income people, who either can’t afford solar, or are not allowed to install solar (because those people rent, for instance), pay a disproportionately higher share. The burden of keeping the grid operational falls on lower income people. But the solar panel owners still need to be hooked up to the grid to keep the lights on when the sun doesn’t shine as much.

This is explained in the link below…

A few excerpts:
One reason is that California’s size and geography inflate the “fixed” costs of operating its electric system, which include maintenance, generation, transmission, and distribution as well as public programs like CARE and wildfire mitigation, according to the study…

…These are legitimate expenses, Fowlie said. However, because lower-income residents use only moderately less electricity than higher income households, they end up with a disproportionate share of the burden, according to the study. And while the bills of Californians continue to decrease as they adopt cost-efficient alternatives like the state’s Net Energy Metering solar program, costs will keep rising for a shrinking customer base composed mostly of low- and middle-income renters who still use electricity as their main energy source.

“When households adopt solar, they’re not paying their fair share,” Fowlie said. While solar users generate power that decreases their bills, they still rely on the state’s electric grid for much of their power consumption — without paying for its fixed costs like others do. At the same time, the state has set high goals toward decreasing reliance on fossil fuel, including by encouraging residents to switch to renewable energy like solar, which often bears a high cost of entry due to costly equipment and installation.

“As this continues it’s going to make electricity even more unaffordable,” said F. Noel Perry, founder of Next 10, which funds nonpartisan research on the economy and environment.

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I have previously pointed out here that Californians pay some of the highest prices for electricity in the nation. According to the EIA’s latest monthly report, the residential price is 26.45 cents per kilowatt-hour. Customers in Oregon pay 12.04 cents/kwh. The price is 12.62 cents in Arizona. Here in San Diego, I pay 39 cents/kwh on average. Prices have skyrocketed in the last few years. Something needs to change. Is this new plan based on income a good idea? Probably not, but to repeat, something needs to change.

Average cost of electricity in the US for each state:

  • Pete
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However, California has always been large and with the same geography. Their rates used to similar to the rest of the nation. No longer.

DB2

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I think it is a good idea. The alternative is to charge by the usage. Usage begins to wear out the plant. But people who have lesser means using electricity are finding the cost unbearable in CT.

No one fully reliant on electric in CT is paying anything nearly as low as $92 per month for delivery.

The reason CA is expensive is the fires. The cost has hit home over the last few years. The other reason were the droughts. The water behind the damns had gone down.

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There is more to this than just rich people installing solar and not supporting the grid. If you drive around the Silicon Valley area you’ll see lots of houses with solar. But you’ll see many more panels (hundreds) on nearly every school (public and private), business parking lots, hospitals and even churches. How are these customers going to pay for their grid connections? What about the converted farm lands that have solar? Are they owned by the businesses or leased to a utility? There are hundreds(?) of these multi-acre installations in the central valley.

Mike

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I’m blessed with a municipally-owned electric utility company where I live. About once a year, we get a bill credit of somewhere between a half month’s or full month’s billing if the utility is operating more efficently than planned.

Electricity gets cheaper and more reliable once you remove the $30 MM/yr utility company CEO between homeowner and the power pole.

intercst

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The “just rich” part is mostly nonsense (of course homeowners versus non-homeowners tend to be richer, but for the most part, it isn’t “rich homeowners” doing the installing, it’s a wide swath of all homeowners). The solar companies have been selling, vigorously selling, solar systems to anyone who can qualify for financing. They do this thing with your monthly electric bill, and amortize the loan over a log period to make the monthly payment (on the loan for solar equipment) look very attractive compared to your electric bill. Then they lead you to assume that your electric bill will drop to near zero, so “it’s a wash” and then after the loan ends “you get free electricity”. Meanwhile in reality that isn’t always the case, though sometimes it’s the case … I toured a few homes in So Cal where they proudly posted a year’s worth of near zero electric bills in the kitchen for potential purchasers of the home to see. Of course, if the fixed portion of the electric bill goes up, that instantly drops the value of the solar installation while the loan payments still remain until the end of the loan term.

Other issues right now is that with higher interest rates, solar is becoming more expensive to finance, and people often move before the loan ends and I think it has to paid back at that point.

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But, intercst, private industry does things better and cheaper than governments. Privatize, privatize, privatize!!

At least that’s what I’m told all the time from certain corners.

–Peter

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I got the same thing from PG&E for about the last 3 or 4 years even though they were bankrupt.
I have solar so my bill is $0 plus $10 connect fee, but I still get the refund of about $50.

Mike

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I think that’s exactly right. There are enormous logistical obstacles to implementing this. Even assuming that there exists somewhere verifiable information about how much every Californian household earns, that information isn’t going to be collected or updated monthly. It just…it doesn’t seem feasible to do this.

Which was kind of my first thought - that this doesn’t seem like a serious proposal. It seems almost more calculated to show the state government how unworkable their law asking utilities to bill this way really is. The utilities basically say, “We certainly can do what you ask, all you need to do is have a magic agency do this almost impossible thing using information it doesn’t have and can’t possibly collect.” Then the legislature gets annoyed…but what can they do?

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For quite a while, my family qualified for reduced rates from our utilities (gas and electric). We qualified, not on income, but because our adopted and disabled son was on medicaid. That was not terribly hard for the utilities to police - just had to provide proof of medicaid enrollment annually.

To be feasible, this proposal would likely need to follow a similar plan - annual checking of eligibility rather than monthly. So provide a copy of the first couple of pages of your tax return initially to show eligibility, then do that again each year.

–Peter

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That’s an idea but no go on the utilities getting tax return copies. What might work is a process whereby the state treasury department would respond that John Smith of A street with last 4 SSN 1234 had income within a specific tier last year.

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Why?

I suppose if you don’t want to provide the returns, you don’t have to. But you won’t get the lower rates.

–Peter

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In theory, sure. But that’s going to get awfully sticky on the ground if literally every customer of the major California utilities is going to be in this new system, not just the small fraction of folks who qualify for reduced rates like your family did.

There’s the non-trivial chunk of low-income people who don’t file tax returns - most married households that would qualify for the lowest fixed utility rate will have income below the levels required to file a return, and a large portion of them won’t. There’s the non-trivial chunk of people whose income changes from year to year - which will result in people being hit with fixed charges they can’t actually afford (the highest is a thousand dollars per year), with others getting lower rates they shouldn’t qualify for. To say nothing of the many folks who (correctly) view it as problematic to send their tax returns to these companies upon pain of a thousand dollar surcharge on their electric bill.

It’s plausible to do something like this roughly - but to do it accurately without causing a lot of problems for a lot of low-income households requires information and agency abilities that probably don’t exist today.

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For years. Michigan car owners were required to pay an exorbitantly priced, infinite, medical insurance, as part of their mandatory car insurance coverage. After a couple attempts by the previous Gov, the current Gov spearheaded through a reform that gives people the option of only a half-million of medical, or opt out entirely, if they can prove they have infinite medical coverage. Medicare qualifies as infinite medical coverage. Every year, my car insurance company requires I send them a copy of my proof of qualifying health insurance, to opt out, otherwise, they default me to the infinite medical coverage.

So, to solve the problem in Cali, everyone defaults to the highest rate, unless they choose to prove they qualify for a lower rate.

Steve

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Wouldn’t people soon learn how easy it would be to (fraudulently) game the system. Just run a tax program and give it fake numbers and print it out? There would have to be a way to at least have the utility do a random audit against the state tax returns. If you are going to do this why go to all that trouble and just get all that info from the state to start with. Not all the tax return, just a tier of income for the utility purposes. Lots of people will be against that.
There is also the issue of what tax return goes to what utility customer since a home could be owned by one person and lived in by another, such as renting.

Mike

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Renters typically pay utilities (gas/elect/cable/cell/etc). So, unless it is an unusual situation (where the renter does NOT pay utilities), whoever lives at the address is the one who has to provide the income info.

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