Middle-class utility hike lurks in climate bill

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The rub is that utilities don’t pay for such programs. The cost of any such subsidy, which the bill authorizes the Illinois Commerce Commission to develop, would mean even higher utility bills for those who don’t qualify, as well as for businesses.

Depending on where the income line is set for such subsidies, the costs could double the increases the bill already would impose to preserve financially ailing nuclear plants, develop new solar and wind projects, and fund social programs centered around clean energy production and electric-vehicle adoption.

The experience of California, which has offered subsidized rates for years, is illuminating. Electricity rates there are among the highest in the nation, and one contributing factor is the California Alternative Rates for Energy program, or CARE.

Depending on the utility, CARE adds between 1 and 2 cents per kilowatt-hour to residential bills, according to a Feb. 23 study on electricity rates by the Energy Institute at the Haas School of Business at the University of California, Berkeley. That enables a reduction of between 30 and 35 percent for about 30 percent of California households. California’s rates are double those here, so even subsidized utility bills are significantly higher than Illinois’.

An increase of 1.5 cents per kilowatt-hour on the average ComEd household bill would amount to more than a 10 percent increase. If the bill is passed and the ICC does something similar to California, electricity rate hikes could exceed 20 percent for households that don’t qualify for the lower rates.

The other option would be to force businesses to cover more of the cost—something the Pritzker administration already has agreed to do during the many weeks of deliberations over the bill. Ratepayer financing of more than $200 million a year for social-equity programs—originally proposed as a flat fee for all customers—was changed in May to a charge per kilowatt-hour, meaning that the average Illinois industrial company would pay well over $1,000 a month rather than a little over $3 just for that part of the bill, according to the Illinois Manufacturers’ Association.

The California study recommends, among other things, considering alternative ways to lower utility bills for the less fortunate. "When you pay for it through utility rates, that is massively more regressive than when you pay for it through virtually any tax," says Berkeley professor Severin Borenstein, one of the report’s three authors. In addition, adding those costs to middle-class electric bills impedes climate goals, since most environmental groups advocate shifting from fossil fuels to electricity for transportation and home heating. "The way we’re paying for it is going to undermine electrification," he says.

"It sounds like Illinois is on its way to (emulating) California, which isn’t a great idea," Borenstein says.

Pritzker spokeswoman Jordan Abudayyeh says in an email that studying other states’ low-income subsidies is part of the plan. "The goal is to make sure that the energy burden is equitably distributed for as much of the population as possible."

Exacerbating the potential problem here is that the energy bill offers the same tiered rate-setting for natural gas as it does for electricity. California’s CARE program covers gas, too, but gas bills are far more costly here due to the Midwestern winters. Nearly three in 10 households served by Peoples Gas, the utility for the city of Chicago, were delinquent on their gas bills as of early this year. The average Chicago household pays well over $1,000 a year to keep warm.

The bill requires the ICC to study how to reduce utility bills for low-income households, but it only authorizes action after the study is completed. Given rising rates and the difficulty low- income households have today in paying utility bills, the likelihood that Pritzker’s regulators would take no action on affordability seems slim.

Among the issues the ICC would study, according to Abudayyeh: "What is the policy benefit of lessening the energy burden on low-income customers? What percentage of the customer base will benefit? What is the impact on other customers? Does the subsidy result in others having unacceptable cost increases pushed onto them?"

"No new policies would be implemented until there are comprehensive answers to these questions, the commission can ensure consumers are protected, and the commission has reported to the General Assembly," Abudayyeh says. "But one thing is certain: The status quo does not work for consumers or our climate, so leaving the current system in place should not be the only option we consider."

How would they decide who gets help and who doesn’t? The measure offers little guidance. But other parts of the bill define "low-income" households deserving of special help. More than once, "low income" is defined as 80 percent or less of the median income for the area.

In ComEd’s service territory, that threshold would encompass roughly 1.5 million of the utility’s 3.7 million residential customers, a spokeswoman says. That standard would mean subsidies for more than 40 percent of ComEd households, well above the 30 percent that qualify for CARE in California.

If Illinois were to adopt California’s approach and subsidize households at 200 percent of the poverty level, that would benefit about 816,000 customers, or more than 22 percent, she says. (ComEd emphasizes that these are estimates, since it doesn’t have access to verified income data for all its customers.)

If the bill passes, the income cutoff for assistance will present unpleasant choices for regulators. Do they head off broader ratepayer revolt by developing a standard that’s too meager to be meaningful? Or do they take responsibility for meaningfully higher utility bills and hope the public finds the price acceptable to realize Pritzker’s green ambitions?

via Crain’s Chicago Business

July 2, 2021 at 03:57PM

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