Wednesday, March 17, 2010

Week 7: Persevering Perversity

I was sitting at Martha and Brother’s coffee in the Inner Richmond today prior to my tutoring session with Billy, flipping through the day’s headlines, when an article in the SF chronicle happened to catch my eye. Apparently, PG&E is implementing a rate change in July 2010 that is going to increase the cost of electricity for almost everybody, while decreasing costs for a select (read: gluttonous) few.
Heat waves in the Central Valley often push homeowners there into the fifth tier of usage as they crank their air conditioners to stay cool. Under PG&E's proposal, Bakersfield customers landing in the top tier would see their monthly bills drop more than $65, from $413.54 to $347.95, according to the company.

Bakersfield residents have been complaining that the huge disparity in rates unfairly penalizes them while benefiting residents of cooler climes, such as the Bay Area. Earlier this month, the Kern County Board of Supervisors decided to ask voters in November whether the county should dump PG&E and find another electricity provider.

Michael Turnipseed, executive director of the Kern County Taxpayers Association, said PG&E's proposed changes would help. His organization had proposed cutting the number of tiers from five to two, and lowering the highest rate to 22.4 cents per kilowatt hour.

"We can't afford it," Turnipseed said of the current rate structure. "The transfer of wealth is phenomenal. That's money that could be spent in the local economy, the grocery store, the movie, the dress store."
I worked in the utilities industry over the last 2 years, so I know a thing or two about how a utility company operates; enough at least, to get more than just a bit angry when I first read this article. Enough at least, to recognize that this “huge disparity in rates” Bakersfield residents claim to be unfairly penalizing them in favor of the Bay Area—in fact does exactly the opposite. That’s right. This “phenomenal” transfer of wealth flows out of the Bay Area and into Bakersfield, and not, as Turnipseed would have you believe, in reverse. Those of us living in cooler climes and who use relatively less electricity are forced to pay higher rates than necessary in order to subsidize the pigs feeding at the Bakersfield trough. To understand why, we need to understand how electricity is generated, how electricity is consumed, and how electricity is priced. 

Electricity, as we all know, doesn’t grow on trees. It takes precious resources, inefficient unionized labor, and layers upon layers of bureaucracy to run a generating plant. Imagine PG&E has one giant generating plant with enough “baseline” capacity to serve all of Northern California on an average day. Since this plant is always on, it has been optimized to run cleanly, efficiently, and at minimal cost. 

PG&E also has a smaller, but more expensive “peaker” plant that can be quickly brought online during those hot summer afternoons (hours of peak demand, or simply—peak demand) when demand exceeds baseline capacity, and then just as quickly turned off. Think of this peaker plant like a consultant: it’s expensive and dirty, but it’s always there when you need it and leaves without a fuss. 

Figure 1: During hours of peak demand, PG&E is forced to rely on more expensive sources of electricity, such as a peaker plant. PG&E’s Peak Day Pricing program relies on new smartmeter/smartgrid technology that will enable PG&E to charge customers the true market rate of electricity based on whether they are peak or non-peak users. This will ensure that the cost of peak demand electricity is shouldered primarily by the customers who use it, and not shifted onto customers who don’t.

If we all shared the same baseline plant, and never had to rely on peakers, then there would be no question as to how the costs should be distributed. It would be like going dutch: everybody pays for exactly what they order. Now imagine trying to go dutch at a Thai restaurant after a long night of drinking with friends: we all know exactly what we ate, but we’re far too drunk to remember what it cost each of us individually. The bill would help, if only it weren’t written in Thai. 

In the latter situation, we don’t have enough information to go dutch, and so we are forced to split the bill evenly between everybody. Now, as long as everybody’s dishes cost more or less the same, splitting the bill would more or less approximate going dutch—the most equitable cost distribution. Splitting the bill becomes less and less equitable the larger the deviation between each person’s meal. If there is a clandestine alcoholic at the table, surreptitiously running up the bill ordering expensive cocktails while everybody else just drinks water, splitting the bill effectively devolves into a massive transfer of wealth: the water drinkers subsidize the alcoholic’s drinking habit. 

The situation at the Thai restaurant is a good analogy for what is happening today across PG&E’s sprawling, meteorologically diverse customer base. When peak demand forces PG&E to fire up the peaker—as often happens during those hot summer months when Bakersfield residents all turn on their air conditioning units— PG&E doesn't have the information it needs to shift the burden of generating peak-electricity onto just the peak-users (i.e. PG&E doesn’t know who ordered all the cocktails). The problem stems from outdated metering devices (un-smartmeters) that do an excellent job of measuring how much electricity a customer uses, but can’t tell whether that electricity was peak (relatively expensive) or non-peak (relatively cheap). As such, the company has no choice but to force their customers to “split the bill”, creating an average rate for electricity that forces everybody to share the burden. 

In essence, we all share equally in the costs of peak-energy, but Bakersfield residents, who consume disproportionately more peak-energy, also benefit disproportionately, since they continue to pay the same average (in fact, below average, if you factor in their inflated baseline electricity quotas) price. The more Bakersfield consumes, the more they benefit, creating a perverse incentive to build bigger homes that use more and more electricity. And all this reckless consumption is subsidized by residents of cooler climes, like—you guessed it—the Bay Area. 

So we now see that Bakersfield residents are like the alcoholics at the table, benefiting from a “phenomenal” transfer of wealth that sustains what would otherwise be an unsustainable pattern of consumption. Under normal circumstances, I wouldn’t be this raging demon angry. After all, I am a dirty liberal (so it goes). People from Bakersfield, I am sure, contribute greatly to Northern California’s socioeconomic well-being. If I have to pay a little more for my electricity, so that people can live and work comfortably in Bakersfield, then by all means, transfer my wealth. 

No, under normal circumstances, I wouldn’t be this angry. After all, I’m sure it’s what Jesus would have done. Except, to hear Mr. Turnipseed and his lords of Bakersfield complain about their subsidized lifestyles, for them to point their fingers at those in the Bay Area who provide them their subsidies, and then for PG&E to validate their sense of self-entitlement and agree to provide them with even greater subsidies come July 2010—it was like my whole world flip-turned upside down! Nothing made sense! The acrid stench of ingratitude, the thick cloud of ignorance—it was all so oppressive—I needed to get out. 

I felt like Barney Frank at that infamous Massachusetts town hall, compelled, no—impelled—to ask a young, radical, “obama is hitler” activist: “What planet do you come from?”

“PG&E’s average residential customer would pay $10.73 more each month, for a total of $88.13,” and “Bakersfield customers landing in the top tier would see their monthly bills drop more than $65.” What planet do these people come from? Am I missing something here? Please help me to see the light! Flame away if you must!

To add fuel to the flame, consider the perversity of baseline usage quotas. Each PG&E customer is assigned a baseline usage quota such that all electricity sold up to this quota amount is priced at a very low, very affordable baseline rate. This rate is the same for all customers, which would seem to imply that we all pay the same amount for what we use. Except that we don’t. While the baseline rate may be same for a resident of the Bay Area versus a resident of Bakersfield, the baseline quotas, unfortunately, (or fortunately, for Bakersfield) are not. Bakersfield residents enjoy a baseline quota that is almost twice as high! This means, in effect, that Bakersfield residents get to enjoy twice the amount of cheap energy that Bay Area residents do. 

Residents of Bakersfield: read that last line again, carefully.

Figure 2: Chart is based on electric rate schedules and baseline usage quotas published in PG&E’s Electric Schedule E-1 for Residential Services, which was approved by the CPUC on 3/1/2010. To truly understand the “phenomenal” transfer of wealth taking place, one needs to take into consideration the cost to PG&E of serving the Bay Area versus Bakersfield. Bakersfield consumes disproportionately more peak energy than the Bay Area, which means they cost PG&E more to service. Taking this into consideration, we see that Bakersfield ends up paying less than the Bay Area for more expensive electricity! 

An unfiltered comment is worth a thousand words, so here is a link to a great comment, posted by a consumer on an “advocacy” website: 
“I am requesting that our "Baseline Usage" amount be increased to reflect our current square footage and be retroactive back to 2001 when we added 1,100 square feet. And our electric bill needs to be adjusted accordingly. And should reflect any retroactive overpayments we have made since 2001. We will see what happens....”
Did you get that? He argues, in effect, that because he has built a larger house, and because that larger house requires more electricity, he is entitled to a larger baseline quota. He feels that he is entitled to more cheap electricity because he has built himself a bigger house! A fellow commenter follows with this enlightened response: 
“Welcome to the new economy. Basically the CPUC sets the base line number regardless of how big your house is, if you want more you will pay more…sorry, this is not my oppion just my observations of the current energy movement."
Wow—“if you want more you will pay more”—what a revolutionary concept! Amidst what is ostensibly a burst of cognition (but still not enough to compel him to go back and rethink his prior comment) the fellow commenter adds:
“I mean you will pay more per kWh.”
Yes. You will pay more per kWh, but never enough to ever truly cover the cost that your 50% larger house and its 50% increase in energy consumption imposes on the rest of us, who choose to live in smaller homes, who choose to use less electricity, but have no choice when it comes to paying higher rates to subsidize electricity we don’t even use. All the gains from this transaction are credited to the privacy of your individual household; and all the costs are debited from the collective households of everybody else. 

Figure 3: Calculations are based on electric rate schedules and baseline usage quotas published in PG&E’s Electric Schedule E-1 for Residential Services, which was approved by the CPUC on 3/1/2010.Note that while the electricity rates are same for each tier, the quota amounts allotted to each tier are more than twice as much for Bakersfield as for San Francisco. Bakersfield enjoys more than twice the quota of cheap energy as San Francisco.  

Like I said at the beginning, normally, I wouldn’t mind this “phenomenal” transfer of wealth, since it’s what Jesus would have done. But when the welfare queen, who consumes a disproportionately large amount of government services, yet carries a disproportionately small burden of taxation, begins to complain about how high his taxes are—I get pretty upset. 

1 comment:

  1. The only solution, Earl, is for everyone to be alcoholic at the table.

    I propose the Bay Area stop their energy saving lifestyle and go full force with the AC at 6PM. I think it's time to have a snow ball fight indoors during our dinners.

    It's really the only way.