Determined to fulfill his pledge to require Los Angeles to derive 20 percent of its electricity from renewable sources by end of the year, Mayor Antonio Villaraigosa is moving ahead with plans to impose a stiff carbon surcharge on monthly utility bills. The mayor’s goal is to push the city’s Department of Water and Power (DWP) away from coal and toward wind and solar energy.
Rates Rise Up to 28.4 Percent
Under the plan unveiled March 15, households that get their power from DWP could see their electricity bills increase by 8.8 percent to 28.4 percent, depending on where they live and how much energy they use. The plan will be phased in over the next year.
The plan divides Los Angeles households into three categories. Smaller, or Tier 1, users would see their electricity rates rise by an average of 8.8 percent. Tier 2 customers, who use more power, would experience a rate increase of between 16.8 percent and 18.9 percent.
The households that use the most power would be hardest hit, with their power bills rising by 24.4 percent to 28.4 percent.
More Price Hikes Coming
For Los Angeles ratepayers this is but the first in a projected series of price increases designed to facilitate increased use of wind and solar power. The mayor has announced further rate hikes are in the offing so the city can reach its goal of 40 percent reliance on renewable energy by 2020.
The carbon tax on DWP’s customers with a carbon tax comes at an awkward time for Los Angeles officials. The city is facing a $484 million budget deficit, and thousands of city employees could be laid off. Unemployment is at 12.5 percent, with no sign of an economic turnaround in sight. The circumstances make it a bad time to call for additional sacrifices for the sake of renewable energy.
If the city’s economy weren’t bad enough, nagging questions remain about the ability of renewable energy to meet Los Angeles’s power needs. Although the city is blessed with 300 sunny days a year, solar power has never been cost-competitive with conventional energy sources, despite generous subsidies from U.S. taxpayers.
According to the U.S. Energy Information Administration, solar power receives more than $24 in subsidies per megawatt hour of electricity produced, versus less than 50 cents per megawatt hour for coal. Wind power likewise benefits from generous subsidies, receiving more than $23 per megawatt hour.
Electricity consumers without Los Angeles’s easy access to Southwestern deserts pay an even higher premium for solar power. As President Obama acknowledged in a 2008 interview with the San Francisco Chronicle, “I’m capping greenhouse gases, coal power plants, natural gas, you name it—whatever the plants were, whatever the industry was, they would have to retrofit their operations. That will cost money. They will pass that money on to consumers under my plan of a cap-and-trade system. Electricity rates would necessarily skyrocket.”
Dan Simmons, director for state policy at the Institute for Energy Research, pointed out even media allies of environmental activist groups are troubled by the price hikes associated with wind and solar power.
“When the Los Angeles Times’ editorial board calls an environmental proposal ‘disconcerting,’ it should be time to reconsider,” Simmons said. “Study after study in Spain, Denmark, and Germany shows that subsidies for renewables such as solar and wind cost jobs and harm the economy. It is irresponsible for policymakers such as Mayor Villaraigosa to intentionally harm the economy by increasing the price of energy and making life even more burdensome during these difficult times.”
Bonner R. Cohen, Ph.D. ([email protected]), is a senior fellow with the National Center for Public Policy Research in Washington, DC.