Podcast: Improving Consumer Relief in the Climate Change Bill

July 30, 2009

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The House passed its Climate Change bill at the end of June. Since then, there’s been a lot of talk about the increased cost to consumers. While higher energy prices are meant to change the behavior of consumers, but it’s also important to address the impact these higher prices would have on low and middle income households. I’m Janet Hodur and today we’re joined by the Center’s chief economist, Chad Stone.

1. Chad, can you tell me if this bill lessens the impact for these households?

A: Yes, the government gives money to utility companies to hold down increases in their customers’ bills. In addition, because the cost increases include more than just higher utility bills, the poorest 20 percent of the population gets direct relief from the government in the form of a monthly energy refund.

2. How exactly does the relief provided through utilities work?

A: The legislation instructs utilities to use the money they receive for the “benefit” of all their customers which include not just residential households, but also commercial and industrial business customers. One way utilities can deliver this “benefit” is to give their customers rebates on their bills.

3. According to your analysis, a sizable amount of this utility-based relief ends up as “corporate welfare” that benefits businesses and their owners and shareholders rather than as real consumer relief. How is that possible?

A: Less than 40 percent of the relief coming through utility companies goes to residential customers, with the other 60-plus percent going to businesses. According to CBO, the Congressional Budget Office, the relief going to businesses is much more likely to end up in their bottom lines than it is to be passed on to their customers.

4. Aren’t there systems in place to prevent this?

A: Utilities are regulated by state public utility commissions, and if those commissions are doing their jobs – and frankly the quality of public utility regulation varies a lot from state to state – but if they are doing their jobs, residential customers should see the benefits. But the utilities’ business customers are not regulated, and they can do what they want with the relief they receive from the utilities.

5. So if businesses put the funds toward their bottom line, who benefits?

A: Business profits ultimately go to owners and shareholders, who tend to be high-income individuals. CBO found that more than 60 percent of the money the legislation provides to businesses would end up benefiting the highest-income 20 percent of the population.

6. So we know there’s direct relief for low-income households. We now see there is also benefit to high-income consumers. What about middle-income households?

A: Middle-income households would have a smaller percentage of their costs offset than would households at the top and the bottom of the income scale -- though it is worth noting that, according to Congressional Budget Office, the dollar amount of the costs not covered by the relief provisions in the legislation would be modest.

7. What should the Senate do differently as they consider their version of the climate bill?

A: One thing the Senate should NOT change is the direct relief to low-income consumers, because the House bill is well-designed in that regard. The Senate could strengthen relief for moderate- and middle-income households using tax refunds or tax credits. A good way to pay for that additional direct consumer relief would be to scale back the relief provided to business through utility companies.

8. Where can listeners go for more information?

A: CenteronBudget.org is the Center’s website.

Thanks for joining us, Chad.

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