Severin Borenstein, Meredith Fowlie, and James Sallee “Paying for Electricity in California: How Residential Rate Design Impacts Equity and Electrification” (September 2022) | WP-330Appendix | Blog Post

Residential customers of investor-owned utilities in California pay an effective electricity tax that averages $500-$800 per year and is borne disproportionately by low-income households. The expenses covered by increasing the price of each kilowatt-hour include climate change mitigation, wildfire adaptation, legacy infrastructure, and subsidies for new technology R&D, energy efficiency investments, low-income customers, and rooftop solar, among other fixed costs and policy expenses. Because electricity bills account for a larger share of income among lower-income households, we find this invisible electricity tax is more regressive than the state sales tax and far more regressive than the state income tax. We show that this tax will significantly impede electrification of vehicles and buildings by raising the cost of operating electric alternatives. We then discuss alternative funding mechanisms for the costs paid by this effective tax, including covering some programs through the state budget and developing an income-based monthly customer fixed charge on electric bills.