Cap & Trade will socialize your power bill

May 22, 2012

By Wayne Lusvardi

The mere mention of the words Cap and Trade in California and people just tune out because it sounds too complicated to understand.   While it is complicated, it is nevertheless understandable.

What we’re learning about the California’s Cap and Trade program is that it is ending up as a giant government program to socialize the extraordinarily high rates that will be added to your electricity, natural gas and water bills from shifting to 33 percent green power in California by 2020.

Plans are in the works to include some form of rebate in your water and power bills for the higher cost of green power.  But it will be politically determined who gets larger or smaller rebates.  According to a report by the think tank Next 10, low-income and low-volume energy users are insulated by law against any energy increases in their utility bills due to the high cost of Green Power.  So it will be the middle class that ends up bearing the higher costs for green power for lower-income communities.

By socialized electricity rates is not meant the placing of power companies under government ownership or control.   What is meant is the spreading of higher energy costs from rebates by a formula to be politically determined.  Assembly Bill 32, the Global Warming Solutions Act of 2006, did not nationalize or socialize the means of producing electric power.  But it will be socializing or spreading the higher cost of green power to the middle class.

Usurping Supermajority Democracy for Taxes?

But this raises an issue: Who brought to the voters a bill or ballot proposition to socialize electricity rates resulting from expensive green power?   Answer: No elected legislator has publicly stated that the intent of Cap and Trade was to socialize power rates.  But that is the apparent end result.

For any “tax, charge, levy, or tax allocation,” didn’t Proposition 26, passed in 2010,  require a two-thirds vote of the electorate?

The problem is that AB 32 was passed not by the people, but by a majority vote of the state legislature and signed by the governor in 2006.

AB 32 authorized the California Air Resources Board to adopt rules for what is called a Cap and Trade program at a later date.  Cap and Trade is a program that requires industrial and utilities to buy pollution credits in an auction.  The proceeds of that auction would be collected by CARB.

The Strategic Growth Council, authorized under AB 732, in 2008 would reallocate the proceeds of the Cap and Trade auctions to reduce high utility bills and fund anti-pollution projects.  The Strategic Growth Council was originally funded by $500,000 from Prop. 84 — the Water Bond Act of 2006.

CARB adopted the Cap and Trade portion of AB 32 on Dec. 17, 2010.

Usurping Democracy?

Law	Date   Adopted	What   Law Does	How   Passed
AB   32: Global Warming Solutions Act	2006	Authorizes   shift to 33% green power and Cap and Trade emissions trading	Majority   vote of state legislature & signed by governor
AB 732: Amend Public Resources   Code relating to environment and making appropriations therefor.	Sept.   30, 2008	Authorizes   the Strategic Growth Council to coordinate air quality programs & award   financial assistance to meet goals of AB 32.    Used funds from Water Bond Act of 2006 to set up Strategic Growth   Council.	Passed   in State Assembly by 60% vote 45 to 30; passed in State Senate by 57% vote 23   to 14.  Approved by Governor   Schwarzenegger Sept. 30, 2008
Prop.   26: Supermajority to Pass New Taxes and Fees	Nov.   10, 2010	Requires   two-thirds supermajority vote in legislature for any new “taxes, levies,   charges, or revenue allocations”	52.5%   of voters
Cap   & Trade Portion of AB 32 adopted by California Air Resources Board (CARB)	Dec.   17, 2010	Rules   for setting up an auction for trading pollution allowances	Vote   of unelected members of CARB board of directors
AB 2404: Local Emissions Reduction   Fund	Pending   in committee in State Assembly	Requires   revenues collected from pollution allowances to be deposited with CARB for   further appropriation by Legislature.	Only   majority vote required

But Prop. 26, limiting any new “taxes, charges, levies or tax allocations,” passed by a vote of 52.5 percent on Nov. 10, 2010.

So there has been no vote about either Green Power or Cap and Trade.

But does Prop. 26 restrict CARB and the Strategic Growth Council from collecting pollution taxes under the guise of an auction and then redistributing the proceeds to reduce the high cost of Green Power?

To answer this question, we contacted reputable legal experts. An agency which “implements” a fee under an existing law passed in 2006 does not probably require a supermajority vote under Prop 26.

Cap & Trade Energy Rebates Could Backfire

However, this may not mean that any piece of subsequent legislation adopted by the Legislature can go beyond the intent of AB 32 and Cap and Trade.  There are several bills in the legislature queuing up to tap Cap and Trade proceeds to fund “schools, hospitals, affordable housing,” etc.  Gov. Brown has also proposed tapping Cap and Trade funds to finance the California High-Speed Rail. Neither of these is likely to be considered a legal use of Cap and Trade funds at this time.

But what is being considered a legal use of the $6.25 to $12.5 billion per year in Cap and Trade taxes is energy rebates to “customers” and funding for a stimulus program of home energy efficiency projects. Ratepayers would get rebates to reduce the shock of high Green Power costs; or they would get home insulation grants or loans.

The California Energy Commission estimates 40 percent of the state’s housing stock already is energy efficient due to Title 24 Building Energy Efficiency regulations adopted in 1978 under AB 758.  The 60 percent of older housing, commercial and industrial building stock built prior to 1978 would be the likely target for Cap and Trade building energy improvement projects.

Assembly Bill 1103, authored by Assemblywomen Lori Saldana, D-San Diego, and passed in 2007, would require owners and operators of non-residential buildings to disclose a building’s energy performance ratings to any prospective buyers, tenants, or even lenders financing any building sale.  AB 1103 would assign “benchmark” energy ratings to buildings and would encourage building owners to “upload” their rating to the U.S. Environmental Protection Agency’s Energy Star Portfolio Manager each year.  Electric and gas utility companies would be required to upload all energy consumption data on each building into the same database.  There is no exemption provided in this bill for historical properties, churches or “as-is” real estate transactions.

The California Public Utilities Commission has been requiring regulated public utilities to offer home and commercial energy efficiency rebate programs since the oil embargo and resulting energy crisis of the mid-1970’s.   California’s Statewide Multi-family Housing Energy Efficiency Rebate Program completed retrofits on 330,437 apartment units alone from 2005 to 2006 at a cost of about $50 million.

According to the U.S. Census, there are 4,199,785 apartment units in California.  Almost 8 percent of those were retrofitted with energy efficiency improvements from just 2004 to 2006.  How California could suck up $6.25 to $12.5 billion per year in more building energy improvements, as recommended by the University of California, Berkeley and Next-10, is questionable.

Of the 18 spending options for Cap and Trade proceeds recommended by the think tank Next 10, five of them involve building energy efficiency improvements.  As already stated, these have been undertaken by public utilities for decades and would be redundant to their ongoing programs.

Offsetting general gund expenditures is probably legally excluded at this time.

The State Legislative Office has already recommended against using Cap and Trade taxes to fund high-speed rail.

Establishing a green bank could lead to a repeat of another bubble like the mortgage sub-prime loan program.

If energy bill rebates are implemented ratepayers may believe that energy costs are lower and use more energy.  Or ratepayers may believe that if they use more energy that they will receive more rebate.  Thus, Cap and Trade could backfire.

Sending monthly rebates to energy customers separately might raise public perception problems of why utility rates were raised in the first place and then absurdly rebated back to them.

In short, California evidently doesn’t yet know what to do with huge amount of taxes that will be collected from industries and utilities under Cap and Trade.  As with all complex public policies, there is still a large amount of uncertainty as to the outcome of California’s Cap and Trade program.  And the unintended negative consequences that could arise from such a program are a growing concern.