Electricity Affordability in Context

Abstract

Recent residential electricity price increases in California have caused some to suggest the state is experiencing an electricity affordability crisis. Although the typical household in California and across the country spends less than three percent of its income on electricity, California's soaring electricity rates can impose substantial burdens on some of the state's lowestincome households. Why have retail electricity prices rapidly risen in California over the past decade while remaining relatively stable in others? What are the potential downsides of overly fixating on electricity affordability concerns in the context of energy policymaking? And what principles should guide policymakers in California and beyond as they confront electricity affordability challenges in the energy transition? This Article highlights the structural and contextual drivers of California's growing electricity affordability problems and applies basic microeconomics concepts to analyze them and identify appropriate strategies for addressing them. Among other things, policymakers should resist the temptation to use retail electricity rate structures to redistribute wealth among ratepayers as a means of improving energy affordability. They should also ensure that electricity affordability policies preserve customers' incentives to conserve power and to invest in energy efficiency improvements. And policymakers should resist calls to promote electricity affordability through reforms that discourage distributed solar energy development. California's recent electricity price spikes are not harbingers of a looming nationwide energy affordability crisis, and electricity affordability objectives need not hinder the country's important decarbonization efforts. With thoughtful and innovative planning, energy policymakers can continue to advance progress toward an age when all Americans have electricity service that is both affordable and environmentally sustainable.

Keywords: Electricity, Affordability, Energy, Policy, California, Sustainability