Southern California Edison, Pacific Gas & Electric, and San Diego Gas & Electric have asked the California Public Utilities Commission for approval to charge customers a flat rate based on household income. The flat fees would be in addition to charges based on consumption, which, for San Diego Gas & Electric, now amount to 47 cents per kilowatt hour, the highest rate in California. Under the flat-fee plan, those charges would fall to 27 cents per kilowatt hour, in addition to the income-based flat fee. If the change gets approved, California will become the first state to use household income to determine residential utility bills. Evidently, someone in these utility companies has been reading Karl Marx: “From each according to his ability, to each according to his needs.”
According to the Times of San Diego, SDG&E’s flat-fee schedule for households of four would be: $24 per month for households earning less than $28,000 a year; $34 per month for households earning $28,000 to $69,000 annually; $73 per month for households earning $69,000 to $180,000 a year; and $128 per month for households making more than $180,000 a year. The PG&E flat fees are lower. At the same income levels and household size, the fees are $15 a month, $30 a month, $51 a month, and $92 a month.
The utilities’ proposal is a follow-up to last year’s Assembly Bill 205, which, according to the Senate floor analysis, “requires the fixed charge to be established on an income-graduated basis with no fewer than three income thresholds,” but doesn’t give specifics. So maybe the Marx fan was in Sacramento, not in the offices of the state’s power providers?
By lowering the cost of electricity and charging extra fees based on income, the utilities say that low-income customers, and maybe even middle-income customers, will get a break on their bills. Those with greater incomes will subsidize them. It’s a thinly disguised welfare program. But that’s okay: the rich have so much money they won’t be bothered by paying more. “Of those who have a bill increase, many would have a relatively small bill impact,” says PG&E.
The proposal also creates an administrative headache: Who decides where families fall in the income classifications? The answer, of course, is more bureaucracy. The sorting out will likely fall to a “qualified, independent state agency or third party” that will “be responsible for verifying customers’ total household incomes,” according to PG&E.
Prices are vital signals to a functioning economy, and public policy should take care not to skew them. They “convey underlying realities about relative scarcities and relative costs of production,” says economist Thomas Sowell. Furthermore, prices are “the key to widespread prosperity,” notes Hoover Institution policy fellow Daniel Heil. When government interferes with prices, it distorts the information they convey, which tends “to make us poorer,” says Heil.
If policymakers were ever motivated to make California’s steep electricity prices more affordable, they can easily find guidebooks that would help lead them in the right direction. In his report “Zapped: How California’s Punishing Energy Agenda Hurts the Working Class,” my colleague at the Pacific Research Institute, senior fellow Wayne Winegarden, shows how overregulation, steep taxes, and other government meddling in the power market cause California electricity prices to be 56 percent higher than the U.S average. “Repealing the policies that are inflating California’s electricity prices,” he says, “will meaningfully reduce costs and generate significant budgetary relief for many families.” And isn’t that, after all, one of the objectives of AB 205?
Winegarden has also outlined the benefits of competitive electricity markets, not just in California but in any region where utilities are government-protected monopolies. These regulated, anti-competitive arrangements lack the adequate incentives that produce the “efficiency improvements that enhance service and reduce costs.”
These two reports, not more Marx, should be required reading in Sacramento.
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