Monday, January 27, 2014

Ms. Sawant's Socialism, Seattle City Light, and a Market Socialist Alternative

Seattle City Light is the child of Socialist, Populist, and Progressive movements that coalesced around “public power” more than 100 years ago. And what a marvelous creation City Light has turned out to be, providing Seattle with the cheapest electricity of any major U.S. city.
But even a municipally-owned utility must occasionally raise its electric rates. Facing a revenue shortfall, City Light Superintendent Jorge Currasco pleaded his case for a temporary rate surcharge before the new Chair of the City Council’s Energy Committee, Kshama Sawant. Publicola, a local, web-based, news source, reported the encounter as follows:
“At the first meeting of the city council's energy committee this morning, the new energy chair, council member Kshama Sawant, made it clear that this whole socialism thing is no joke . . . Sawant objected to the potential [electric rate] surcharge on the grounds that it would be ‘unacceptable at a time when working people are already struggling.’" "‘The council has an obligation to make sure this doesn't happen’” (my emphasis).
Ms. Sawant didn’t actually advocate “no rate increase whatsoever.”  According to the Seattle Times, the Socialist Councilmember said, “If there are any rate increases to come, they should fall on big corporations that can afford it and not on working families.”

This is just the sort of policy question where the socioeconomic categories of Socialist orthodoxy can become a distraction. It’s true that City Light divides its customers into classes, but they're not the classes of Das Kapital. Rather, there’s a residential class, several commercial classes based on their volume of energy consumption, and a special rate for low-income customers.

To be sure, this classification system could be changed so that it corresponded more closely to Ms. Sawant’s favored categories. City Light could establish a “large corporation class” that would pay the highest electric rate, a “business class” that would pay a somewhat lower rate, and then, say, three “residential classes” based on household income. Leaving aside the legal and administrative difficulties involved, what effects would such a classification scheme have? 

Before we attempt an answer, let us take sides with Ms. Sawant's implicit premise that electric rate-setting is not merely a technical matter. In the first place, 
City Light’s allocation of costs is, in fact, a zero-sum game, a kind of “class struggle” to invoke a familiar, if exaggerated, metaphor. Lower rates for business mean higher rates for residential customers and vice versa. More importantly, City Light’s allocation of costs determines how the "surplus value" created by the utility’s investment in low-cost hydropower is divided among its customers. Why not distribute this bounty in a way that primarily benefits “working families”?
Here's the problem: City Light's customers aren't passive pieces on a chess board that can be moved around at will. The City can enact laws and regulations, but that's not the end of the matter. If the electric rates for small business customers were cut in half, these customers would consume more energy, which isn't good for the planet. And if Boeing's electric rates were doubled, they could either invest in more energy efficient technologies or move their operations to Tacoma, which offers very attractive power rates to large industrial customers. Although Tacoma’s working families could benefit from such a shift, it’s hard to imagine how Seattle’s working class would come out ahead.
Generally speaking, the allocation of utility costs is not the best means of addressing inequalities of wealth and income. Electric rates have a significant impact on energy consumption, and they should reflect the social cost of this consumption, including the externalities associated with Greenhouse Gas emissions. If the social cost of electricity is 10 cents/kWh, then all customers should pay a (marginal) rate of 10 cents/kWh. If some customers pay only 5 cents/kWh, while others pay 15 cents/kWh, overall investment in energy-saving technologies won't be efficient.
To address such problems, the Polish economist and Socialist, Oskar Lange developed a model of “market socialism,” which combines public ownership with market-like pricing in order to advance both equality and efficiency. In Lange’s scheme, prices (including electric rates) would be set to promote efficiency, while the distribution of income would be dealt with separately. Lange favored a “social dividend” whereby the "surplus value" created by publicly owned enterprises would be distributed to the public in the form of annual dividend payments.
It's worth mentioning that Seattle City Light resembles a "market socialist enterprise" in some respects. Although the "surplus value" created by the utility’s hydroelectric investments isn't paid out in dividends, it is returned to the public in the form of low-cost energy. And City Light has made an effort to design electric rates to promote efficiency, taking account of the costs associated with climate change.

Yet the utility's present rate structure is by no means optimal. Currently, most of City Light's residential customers pay marginal electric rates roughly equal to the social cost of energy. This is accomplished through an "inverted rate" where a first "block" of electricity is priced very low, but additional consumption is priced at a much higher rate. By contrast, commercial customers are charged a more or less "flat rate," which is significantly less than the social cost of energy. 


If the City Council cares about efficiency, the Earth, and the future generations who will inhabit it, then the Council ought to consider restructuring City Light's rates along Langean lines.

Luckily, there's a good model that's already been put into practice by British Columbia’s hydroelectric utility.  B.C. Hydro has developed, implemented, and refined special "commercial conservation rates" that promote the efficient use of electricity in ways that benefit all of B.C. Hydro’s customers, especially in the long run (see here and here). Why doesn’t Seattle City Light have such a rate structure? Perhaps the Market Socialist impulse is greater in B.C. than in Seattle, but that could change if Ms. Sawant is so inclined.

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