Monday, February 12, 2024

Income-based Fixed Charge for Electricity? There must be a better way

I support the efforts of lawmakers to put the income-based fixed charge proposal on hold.

I understand the objectives, but it seems to me that income-based fixed charges would have very high administrative costs and the potential for a lot of errors and privacy concerns.  There are other ways to administer a fixed charge, even a progressive one, if that is necessary and desirable.

There are lots of people living in households that are not economic units - roommates and extended family who are multiple taxpaying units with multiple income streams who are on the same electric meter.  There are also some housing units that are not separately metered within a building.  And income varies wildly from year to year and is hard to verify.

It seems you could accomplish most of the same objective in a much simpler way by having a fixed cost that varies by the size of the housing unit (square footage).  While not perfectly correlated with income, variation by size of the unit would still be progressive and much easier to administer.  Square footage is stable from year to year and the information is easy to obtain and verify without being personally intrusive.  

Finally, there is an issue of adding more "means tested" programs that phase-out in the same income bands.  Too many of these well-intentioned programs, usually developed independently, can create high the equivalent of high "marginal tax rates" and benefit "cliffs" for households that can create negative economic incentives and unfair surprises for households. 

Of course, there is a second issue about whether fixed costs make sense at all.  Having a fixed cost on a bill is better aligned with the true cost structure of a utility which includes fixed and variable costs, but recovering all the costs through rates encourage conservation and efficiency from customers.  The incentive for conservation may be secondary to the objective of getting people to switch fuel sources and electrify appliances and vehicles.  Fixed charges that would normally be bad environmentally, may make more sense in that context.