In summary

California’s electricity rates are high because of years of expensive decisions. New demand for environmentally beneficial electricity should not be saddled with those legacy costs.

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By Steven J. Moss, Special to CalMatters

Steven J. Moss is a consultant to the Local Government Sustainable Energy Coalition and a partner at M.Cubed, a public policy consulting firm.

California faces a conundrum: We want to radically reduce greenhouse gas emissions by replacing fossil fuels with renewable electricity. Yet the state’s electricity prices are among the country’s highest — and still rising.

To persuade the millions of households necessary to make a difference to switch to electricity, it needs to be cost-competitive with diesel, gasoline and natural gas. This can be accomplished by offering a discounted electric rate to customers who trade their natural gas-, fossil methane- or propane-powered water and space heating, ventilation and air conditioning and other appliances for electric models. 

Ditto for Californians who retire their gasoline- or diesel-powered automobile in favor of an electric vehicle.

Discounted rates to incentivize behavior are a well-used policy tool. The Local Government Sustainable Energy Coalition wants the California Public Utilities Commission to adopt such an approach as part of proceedings on how best to finance and pay for our fossil-free future. 

California previously adopted rate discounts to incentivize beneficial choices. Here are two examples:

To improve air quality in the Central Valley, the Pacific Gas and Electric Company offered discounted electric rates for eight years to encourage farmers to replace polluting diesel motors with electric ones, prompting the retirement of 2,000 diesel engines. 

To keep businesses from leaving the state and incentivize new business creation or expansion, the state’s three major investor-owned utilities — Pacific Gas and Electric, Southern California Edison and San Diego Gas & Electric — offer a rate discount of 12% (up to 30% in certain economic development zones).

A decarbonization tariff similarly could be structured. Beyond encouraging customers to go electric, such a rate would help deliver revenues to a struggling power system.

Southern California Edison, for example, could offer a 33% discount to residential customers who switch. Business rates could drop 22%, to 7.02 cents per kilowatt hour.

Under a decarbonization tariff, customers would pay their fair share for electricity while reducing greenhouse gas emissions. Similar to the economic development rate, the discount would be calculated based on what it costs to meet the additional demand created by fuel-switching, with no cost-shifting to other ratepayers.

California’s electricity rates are high, in part, because they reflect years of expensive decisions related to wildfire costs, infrastructure investment and other factors. Today, Pacific Gas and Electric customers pay roughly 80% more per kilowatt-hour than the national average; Southern California Electric charges 45% more; San Diego Gas & Electric’s clients shell out double the coast-to-coast norm. Even low-income Californians, whose electric rates are subsidized, pay more than the typical American.

New electric demand was not considered when previous investments were made in generation, transmission and distribution systems. New demand for environmentally beneficial electricity use, therefore, should not be saddled with legacy costs.

The amount of electricity eligible for the decarbonization rate would be determined by how much the new use displaces fossil fuels. The power necessary to supply this new demand would be secured through long-term contracts, which would meet California’s renewable portfolio standard and clean power requirements.

For electric vehicles, the discount could be linked with average annual vehicle miles traveled, as identified by the California Air Resources Board.

For building heating and cooling, the discount rate should be tied to the portion of  demand in homes and businesses that move to electric heating, ventilation and air conditioning. 

Other proposals being discussed by policymakers include directly buying out natural gas appliances and replacing them with electric models, paid for through taxes or higher electricity rates, and extending loans through utility billing systems to help families finance fuel-switching. Some amount of taxpayer funding is needed to achieve our emission-reduction goals, but increasing taxes or rates would generally be counterproductive and can’t be fully relied on to get us where we need to go. 

By offering a discounted decarbonization rate, we’d be valuing our future.   

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