The utility price structure is hopelessly conflicted.


The recent cold weather in the Bay Area, which has been plagued by unusual snow storms this month, has contributed to the jump in PG&E bills. (file)

Last year, the California Legislature passed legislation requiring PG&E, Southern California Edison and San Diego Gas & Electric to change monthly utility bills for electricity. Today’s single “ready to serve” apartment rate will be a multi-tiered system based on household income.

The utilities have proposed charging $20 to $34 a month for households making less than $69,000 a year. Households making between $69,000 and $180,000 pay between $51 and $73 a month. Households with incomes above $180,000 pay between $85 and $128 a month.

At the same time, the “volumetric” amount of electricity per kilowatt-hour used is reduced for everyone. Low-income customers save up to 21 percent, according to Net-Net, PG&E and Southern California Edison.

Even by California standards, this new pricing structure is a hopeless conflict.

First, California already has a problem with the migration of high-income families. With a $32 billion budget deficit and reliance on high-income families for tax revenue, the state can’t afford another reason to leave these taxpayers.

Second, volume reductions are counterproductive to the goal of reducing greenhouse gas emissions and their contribution to global warming.

Here’s the deal.

The cost of electricity supply can be divided into two parts. One component is the fixed cost of building and maintaining power plants, transmission lines, electricity meters, etc.

The second component is the variable cost of producing and delivering each unit of electricity. This, for example, increases the price of fuel.

The revenue needed to offset these costs and generate a reasonable profit for the utility is a combination of “ready-to-use” fees and usage fees.

Higher rates encourage consumption. This furthers the public policy goal of reducing greenhouse gases and global warming. Higher usage fees also increase the incentive for homeowners to go solar.

The downside is that low usage results in less usage-based revenue. To cover costs, utilities must raise “ready-to-serve” charges or usage charges, or both. Because higher-income households are more likely to go solar and avoid usage fees altogether, lower-income households bear a disproportionate share of the additional usage fees.

Hence the proposal to increase ready-to-use fees and reduce usage fees for everyone. Of course, lower usage fees will inevitably lead to more usage, fewer solar changes, and more greenhouse gas emissions.

It makes more sense to restructure usage charges than to restructure ready-to-use charges. The lower “basic” rates for the first kilowatt-hours may be reduced and the number of initial kilowatt-hours may be expanded. Meanwhile, prices above the threshold may rise, especially overutilized prices.

Presumably, this would bring in more money from people with larger homes and higher incomes and lower costs for others. More use at the low end is offset by less use at the high end. As a bonus, this restructuring can be implemented without the invasion of privacy by sharing tax information with the electric utility company.

Jeffrey Scharf welcomes your comments. Contact him at


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