Liam Denning of Bloomberg reports that California must overhaul how it pays for the mounting costs of its efforts to address climate change. Denning writes:
California is incredible, but making it livable, what with its droughts, floods, fault-lines and wildfires, has never been cheap. Climate change only adds to the cost, as anyone paying spiraling utility bills there knows. Those same bills will thwart California’s green, progressive aspirations. Making them digestible means going back to the basics of what a bill pays for.
Meredith Fowlie, a professor at University of California, Berkeley, just published an important cost-benefit analysis of PG&E Corp.’s massive project to bury 10,000 miles of powerlines in northern California. You may recall the utility went bankrupt in 2019, swamped by liabilities arising from several deadly wildfires attributed to its overhead wires. The wildfires aren’t letting up and PG&E’s undergrounding project has contributed to a roughly $380, or 16.5%, increase in average bills this year. Fowlie finds diminishing returns for each incremental mile of wire buried, in the form of rising implied costs per avoided ignition, suggesting other strategies may be more cost effective.
Deciding that is up to the state, which regulates PG&E’s spending plans. Just as importantly, it is up to the state how any such costs get shared.
Hiding them in utility bills is not the way to go. That might seem counterintuitive, since part of your bill compensates the utility for building and maintaining wires and other bits of the grid (the other part pays for the electricity carried on that grid). But say your motive for burying powerlines is about more than just reliable supply: Avoiding cities being razed, or multiple fatalities, or choking orange skies over the Golden Gate. Those might be powerline-adjacent, but they are really societal goods quite separate from the provision of energy.[…]
Encouraging electrification with smarter pricing would counter this, making it easier to bear the costs of maintaining the grid overall. Regulators recently took a step toward this by approving a big increase in California’s fixed monthly charges, due to kick in late next year. This creates space to reduce variable charges, sending a signal to encourage electrification
Welcome as that is, it’s a tentative first step for a state that styles itself an innovator. The downside of fixed charges is that they are regressive unless they step up and down with incomes. While legislators reduced the charge for households already receiving assistance with bills, they balked at a more sophisticated set of income bands. Maybe next time.
The bigger prize, however, would be to shift costs with broader societal benefits, particularly those aimed at protecting all Californians against climate change, away from bills to progressive taxation. The funding for efforts to cut emissions shouldn’t be dependent in any way on whether someone forgets to turn off their bathroom light. We don’t charge parents a per-kid levy for public schools. No politician likes to utter the word “tax,” of course. Yet California’s electricity rates are so high they already constitute a tax; one that discourages the very things the state needs, hits those least able to afford it hardest — and no longer goes unnoticed.
Read more here.
Also, read California’s Electric Problem Should Be a Lesson for Everyone & California’s Solar Incentives Shift Costs to Non-Solar Households
