Is PG&E moving to more efficient electricity pricing?

The San Francisco Chronicle reports today that PG&E has proposed to change its five-tier electricity rate structure in order to "make it simpler and more equitable." The move follows outcry from Bakersfield, Calif., where residents typically pay high rates in the fifth and most costly tier of the electricity rate schedule because of high energy demand in the summer. The average rate in hot, hot, Bakersfield during the summer is $413. PG&E is proposing to reduce the rate schedule to three tiers and impose a $3 connection fee on all customers. The new schedule would reduce top tier rates and increase the base rate. It would thus erode a decades-long policy in California of incenting energy conservation by subsidizing a basic level of energy consumption with penalties on high levels of consumption. The average resident of Bakersfield will see summer electricity bills decline $65 (!!!) if the new rates are approved by the California Public Utility Commission (CPUC). A Bay Area resident will see the monthly bill climb $3.45. The average PG&E customer will face a $10 higher bill.

I find the equity argument here to be a bit bogus. Theory suggests weather and climate attributes are captalized into housing prices. Thus, residents in cool San Francisco have already paid for the priviledge of low energy bills with the relatively more costly purchase price of their homes. The new rate structure, however, can be applauded on efficiency grounds as it seems like a move toward the two-part tariffs that L.S. Friedman advocates in Richard Gilbert's Regulatory Choices: A Perspective on Regulatory Choices. Efficiency is served by an electricity price equal to marginal cost and the imposition of a connection fee to recover total costs when average cost is above marginal cost. The use of the $3 fee and the reduction in price distortions at low and high consumption tiers would seem to be a step in the right directon.