(Mis)Judging Energy Hogs – Energy Institute Blog - Energy Institute at Haas

(Mis)Judging Energy Hogs - Energy Institute Blog

(Mis)Judging Energy Hogs

Household electricity consumption is a poor indicator of responsible usage.

California’s path to lower volumetric (per kilowatt-hour) electricity prices and significant monthly fixed charges (that increase with income) has triggered some important policy discussions: What is the true marginal cost of supplying electricity? What are the alternative mechanisms for funding climate mitigation and adaptation? What’s the appropriate role of utility rates in addressing income inequality? What impact do electricity price structures have on vehicle and home electrification? But it has also revived a problematic narrative about residential electricity usage: that households consuming large quantities of electricity are less prudent or ethical in their energy use, typically characterized as “energy hogs”.

This argument has been around for decades. Twenty years ago, it was made in support of increasing-block pricing by the then-president of the CPUC. But there seems to have been little or no analysis to actually back up this viewpoint, and compelling grounds for skepticism. There are many obvious reasons one household would consume more than another that few people would suggest are wasteful or imprudent – such as more people living in the house.

Should we really expect the same electricity usage? ( Source,

Thus, when the current debate about fixed and volumetric charges started being presented as an issue of moral character – with one leading opponent of the proposed reform saying it would “reward the energy hogs and penalize the energy misers” and an NGO filing testimony claiming “high fixed charges [result] in the ratepayers with the least efficient consumption patterns realizing the greatest amount of savings” – I dug into some data to figure out how fair those characterizations actually are. In a new Energy Institute working paper, I present analysis that sheds some light on how much we can infer from household electricity consumption.

The first part of the paper, which I’ll discuss today, analyzes the extent to which “benign” factors drive that consumption. I’ll be back next week to talk about the second part of the paper, which looks at the role of household electricity consumption in economy-wide energy use and climate impact.

What makes a hog a hog?

In a way, it’s understandable that those concerned with energy use would zero in on household-level electricity (and, to a lesser extent, natural gas). It’s the one component of consumption that a single entity – the distribution utility – knows (almost) completely, unlike gasoline, air travel, or all the energy embodied in the goods and services we buy. But that precision is misleading when it is used to judge whether one customer is more or less prudent or responsible in their energy use.

Piggybacking on earlier work with Meredith Fowlie and Jim Sallee – which we’ve discussed in this blog a few times – I use data from California’s Residential Appliance Saturation Survey (RASS) to examine the electricity consumption of about 32,000 households of the three large California investor-owned utilities, Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric. I start by looking at each IOU’s “energy hogs”, defined as the 20% of households with the largest net consumption (that is, after netting out rooftop solar generation if the household has solar), because that is what virtually all households are actually billed for. Each one percentile of those households is represented by a dot in the percentile line below. For brevity, I just present the results for PG&E here, because they are the middle case in most of the analysis, but the results are similar for SCE (slightly smaller) and SDG&E (slightly larger). By this definition, the “hog” households are all bunched at the top 20 percentiles of household net consumption.

—

Who’s a good hog?

But households have different numbers of occupants, so let’s convert the usage of each household to per capita consumption using the information in the RASS and then ask where those households originally characterized as hogs now fall among the distribution of all households. The lowest one percentile of the “hogs” on average is now at the 32nd percentile of all households, the second lowest one percentile is on average at the 41st percentile, and so forth. The “hogs” start to look a lot more like other households.

—

Prosumption isn’t Consumption

Now if we are talking about prudent usage, whether or not a household is also a producer of electricity because they have rooftop solar, isn’t really relevant. Electricity from a customer’s rooftop solar system is part of the grid generation mix, just like electricity another customer buys from a solar farm. So I next look at where those same households fall when the metric is gross per capita consumption, that is, adding back in an estimate of the rooftop solar production that their bill netted out. This effectively separates out the production side of what some call “prosumer” households in order to just focus on consumption for this discussion of hoggy-ness. With these two adjustments, more than half of the original “hogs” are now outside of the top 20% of consumers.

—

Hot hogs

Of course, with air conditioning being a major contributor to electricity consumption, we’d expect that living in a hotter climate would drive up usage even if those households are just as prudent as their halo-wearing brethren on the coast. So, I then examine where these “hogs” lie in the distribution when we also control for the average differential in usage across climate zones.

The distribution of “hogs” moves even further to the left and about one-tenth of them are now all the way down in the bottom 20%. In fact, the distribution of households originally characterized as “hogs” doesn’t look that different from the distribution of consumption among all households.

—

In some further analysis, I also control for demographics — children and seniors in the house, whether the home is only used seasonally, and whether an occupant works from home — and appliance fuel choices — electric heat, hot water, stove and vehicle. These all drive consumption, but have a smaller impact on where the so-called hogs lie in the distribution.

Hogs (and Angels) are a lot like the rest of us

The takeaway from this analysis is that the usage of the top 20% isn’t actually that different from other households after adjusting for three factors that few people would argue constitute hoggyness. The parallel analysis of “energy angels”, those in the bottom 20% of net household consumption, shows they also look much more like the rest of the population after these adjustments.

How much like? For a simple numerical measure, I look at the how the ratio of consumption by higher versus lower users changes with these adjustments. The average net household consumption of PG&E households in the top half of users is 212% higher than the average of those in the bottom half. But after these three corrections, it is only 54% higher. In other words, about three-quarters of the difference between the heavier-use half of households and the lighter-use half is due to the higher users having more household occupants, fewer solar panels, and living in a hotter climate. An even larger share of the difference between energy “hogs” (top 20%) and “angels” (bottom 20%) disappears when one adjusts for these three factors.

The changing face of hoggyness

Finally, I explore how these adjustments affect the demographics of households labeled energy hogs and angels. Perhaps not surprisingly, I find that the common narrative of imprudent energy hogs and socially-responsible energy angels over-represents wealthy and white households among the “angels” and underrepresents them among the “hogs”, because it fails to adjust for differences in number of occupants, rooftop solar and climate. At the same time, it greatly under-represents Latinx families among the energy “angels”.

When it comes to electricity rate design, regulators need to confront thorny factual and policy questions. It would be great if we could stop clouding those important issues with facile judgments of responsible “energy angels” and wasteful “energy hogs”.

Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.

Suggested citation: Borenstein, Severin. “(Mis)Judging Energy Hogs” Energy Institute Blog, UC Berkeley, August 21, 2023, https://energyathaas.wordpress.com/2023/08/21/misjudging-energy-hogs/

Categories

Severin Borenstein View All

Severin Borenstein is Professor of the Graduate School in the Economic Analysis and Policy Group at the Haas School of Business and Faculty Director of the Energy Institute at Haas. He received his A.B. from U.C. Berkeley and Ph.D. in Economics from M.I.T. His research focuses on the economics of renewable energy, economic policies for reducing greenhouse gases, and alternative models of retail electricity pricing. Borenstein is also a research associate of the National Bureau of Economic Research in Cambridge, MA. He served on the Board of Governors of the California Power Exchange from 1997 to 2003. During 1999-2000, he was a member of the California Attorney General's Gasoline Price Task Force. In 2012-13, he served on the Emissions Market Assessment Committee, which advised the California Air Resources Board on the operation of California’s Cap and Trade market for greenhouse gases. In 2014, he was appointed to the California Energy Commission’s Petroleum Market Advisory Committee, which he chaired from 2015 until the Committee was dissolved in 2017. From 2015-2020, he served on the Advisory Council of the Bay Area Air Quality Management District. Since 2019, he has been a member of the Governing Board of the California Independent System Operator.