Four years ago, electric customers in Bakersfield and other parts of the Central Valley awoke to find shocking July electric bills -- bills that in many cases were hundreds of dollars more than they had come to expect. Although some blamed SmartMeters at the time, the real culprits were exceptionally hot weather, which forced residents to run air conditioners long into the evening, and exceptionally high electric rates promoted by various high-rate advocates. KernTax couldn't do anything about the weather, but we've been laser focused on PG&E's rate structure at the California Public Utilities Commission ever since.
KernTax joined the rate revolt in early 2010 by protesting in community meetings, before the CPUC, and to our legislators. KernTax's initial efforts led to an immediate reduction of the top tier rate of 49.8 cents per kilowatt-hour (the amount of energy that 10 100-watt bulbs consume in an hour) to 40 cents. The utility and KernTax have since managed to bring the top tier rate down to 35 cents, but that's still almost twice PG&E's average cost of 19.3 cents to serve residential customers.
PG&E is seeking further higher-tier rate reductions from the CPUC by overhauling its complex rate structure, but its hands are tied by a state Legislature that has piece-mealed a difficult set of rate criteria. Now it's up to our representatives in Sacramento to make further residential rate reform possible. For years, California's regulated utilities like PG&E had a simple two-tier structure for residential electric rates. One discounted price for a certain "baseline" quantity to keep it affordable, and a slightly higher price for all electricity beyond that level.
During the California energy crisis of 2001, the state Legislature created three new price tiers and capped the two existing rates to protect customers against soaring prices. However, this protection mechanism soon broke down as costs quickly grew over time. Regulated utilities like PG&E were forced by legislation to shift the costs for maintaining, modernizing and expanding to the three highest tiers. This continued unabated until 2009 when upper tier ratepayers revolted against electric bills that were in some cases greater than their mortgage payments.
What became exposed was that since the late 1990s these rates have moved to the point that 75 percent of PG&E's residential sales were subsidized by legislation that was over a decade old. So when PG&E filed a rate increase to cover rising costs, legislation only allowed the cost increase to be levied against 25 percent of its residential sales -- customers in the three highest tiers! That's why higher energy users in Bakersfield and other parts of PG&E's warm service areas now pay 2.6 times more for each additional kilowatt-hour of electricity than the lowest users -- even though the cost of serving them is the same. It's like charging $10.40 for a gallon to fill a car's gas tank in Kern County while folks in Monterey County pay only $4 -- because the location of residence requires a longer commute and thus more consumption.
Electricity customers who use more electricity should of course pay higher bills because their usage is higher -- but they shouldn't have to legislatively subsidize a greater amount of energy used by other low usage utility customers by paying higher rates. Today, about 1 million of PG&E's higher-usage customers pay an average of $500 a year each to subsidize rates for the rest of the utility's 4.7 million residential electric customers -- most of whom aren't poor.
In fact, half of PG&E's residential customers who pay high-tier rates have annual household incomes below $100,000. Ironically, many of PG&E's customers who enjoy rate subsidies have much higher incomes. Where's the justice in that? And, many residential customers don't have to be "energy hogs" to pay higher rates. Many older people and parents raising small children use more electricity in the summer for cooling simply because they stay home most of the day, while other customers leave home to work in temperature-controlled buildings -- like our legislators in Sacramento.
It's high time the Legislature helps us fix the unfair, non-cost based residential tier rate problem. Our representatives don't need to become rate experts to solve it. They just need to delegate the issue of rate equity to the public authorities who are the state's recognized experts -- the regulators at the CPUC.
Assemblyman Henry T. Perea, D-Fresno, has taken a critical step by introducing Assembly Bill 327 to restore the CPUC's historic authority to set fair and equitable rates for customers, while continuing to protect low-income customers and those with special needs. It passed the Assembly by an overwhelming margin and now is under consideration in the Senate. And, this legislation could not be more timely; PG&E is currently filing rate increases to cover the costs of expensive legislative mandates for utilities to provide 33 percent of their energy production from renewable sources like wind and solar, which will significantly raise PG&E's average cost for higher-usage residential customers. Without AB 327, Valley ratepayers charged for higher usage from cooling their homes can expect rates to soar 50 cents and higher.
Opponents of AB 327 like the residential roof-top solar industry and social advocates state that California's poor will no longer be able to afford electricity service if the state's rate structure is reformed. There is no basis for that claim. The California Alternate Rates for Energy program, or CARE, administered by the CPUC, will continue to provide discounted rates to low-income families that now account for 28 percent of PG&E's residential sales volume. In fact, Perea's bill specifically instructs the CPUC to ensure that low income consumers, and those with medical conditions, can continue to meet their "basic needs at an affordable cost," and to phase in any rate changes so they "do not unfairly burden low income customers."
Valley ratepayers have paid too much for energy for far too long. Perea's bill will reverse that trend by fixing or trimming the subsidy gap on 78 percent of PG&E's residential sales volume. If you support fair and equitable cost-based electric rates for all, tell your representatives in the state Legislature to support AB 327.
Michael Turnipseed of Bakersfield is executive director of KernTax.