| California utilities are investing heavily to keep power lines from sparking devastating wildfires that can turn blue skies orange and burn holes in pocketbooks. Source: russaquarius/iStock/Getty Images Plus via Getty Images. |
Soaring electricity rates in California are putting millions of households in a pinch, fueling concerns that a mounting energy affordability crisis could undermine the Golden State's ambitious efforts to transition the largest US state economy off fossil fuels and keep climate change in check.
"I don't think it's going to be easy," said Justin Ong, chief policy adviser at the California Public Utilities Commission's Public Advocates Office. "A lot of the investments that are baked into our electricity goals are like a mortgage; they're spread out over decades."
As California strives to simultaneously decarbonize, expand and refortify its power system, retail electricity prices have roughly doubled over the past decade for the state's 39 million residents. Fears of unabated breakneck inflation are forcing difficult — and sometimes controversial — decisions on how to minimize the impact of planned multibillion-dollar annual utility expenditures to prevent power lines from igniting disastrous wildfires, as well as generational investments in transmission and distribution grid upgrades to accommodate vast new volumes of renewable energy resources, electric vehicles and gasless homes.
In addition, ratepayers without rooftop solar face an estimated $6.8 billion in costs in 2024 alone to effectively subsidize some 1.5 million solar-powered customers of California's big three investor-owned electric utilities, the Public Advocates Office said in a Feb. 8 analysis.
Addressing perceived inequities in that cost shift was one of the primary reasons the PUC in December 2022 decided to slash payments for solar generation under the state's net energy metering program. The solar industry and some independent analysts have criticized the framing of the rooftop solar cross-subsidy conversation, arguing that cost shifts are an implicit feature of rate design and that net metering is being unfairly singled out.
The far-reaching policy reform is still being litigated as the rooftop solar industry reels from the transition to a new tariff structure that took effect in April 2023, compounded by high interest rates that have slowed consumer spending. The PUC is also looking to blunt the blow of rising rates on those who can least afford higher utility bills by creating an income-graduated fixed charge for residential customers. Ratepayers of PG&E Corp. operating arm Pacific Gas and Electric Co. (PG&E), Edison International affiliate Southern California Edison Co. (SCE), and Sempra subsidiary San Diego Gas & Electric Co. (SDG&E) would all be affected by the sweeping regulation.
"It is something that we think will make rates lower and more equitable," Ong said in an interview. "So many of the drivers of recent rate increases are totally unrelated to how much a person consumes on a monthly basis."
A contingent of Democratic state lawmakers, however, is seeking to torpedo the proceeding. Introduced Jan. 30, Assembly Bill 1999 would revoke authorization for regulators to proceed with the reform just as the PUC marches toward a legislatively mandated July 1 deadline to establish such charges for default residential rates, with at least three income thresholds. Another bill, Assembly Bill 2619, introduced Feb. 14, would repeal the PUC's net metering reform.
'Constituents are pissed off'
Many of the very same lawmakers who support AB 1999, including at least 20 so far, just two years ago tasked the PUC with creating the income-graduated fixed charge as part of a broader energy law, AB 205. But now they have grave misgivings. Such a charge would be a nightmare to implement, heap unacceptable costs onto struggling middle-income Californians, discourage energy conservation and pad the profits of greedy utilities, they warned.
"It's time to put some reasoning back into how we charge for electricity in California," Assemblymember Jacqui Irwin, who represents northwestern portions of Greater Los Angeles, said during a Jan. 30 media briefing.
"My constituents are pissed off," added Assemblymember Marc Berman, who represents parts of Silicon Valley. "Their rates keep going up. The requests from the [investor-owned utilities] for rate increases keep going up. Their days without power keep going up. The PUC rubber-stamping what the [utilities] ask for keeps going up. But accountability keeps going down."
 Assemblymember Jacqui Irwin, center, and other lawmakers want to bar California regulators from setting income-based electric fees. |
Lawmakers plan to hold oversight hearings this session on the causes of California's runaway electric rate inflation, according to Irwin.
"We don't want to continue to have this be a fight between one group and another," Irwin said. "We need to look at the overall ecosystem and see why these costs are so high."
Electric rates surged 63% in the San Diego area, 44% in the San Francisco area and 39% in the Los Angeles area between 2020 and 2023, far outpacing the still-steep 24% rise in US cities on average, according to data from the US Bureau of Labor Statistics.
Over the past decade, residential customers of PG&E have seen the state's fastest-rising average rates, surging 127% to approximately 40 cents per kWh, the Public Advocates Office reported in January. Average monthly electric bills for PG&E customers in San Jose, Calif., that hovered around $120 in 2021 have since spiked to over $200, according to the report.
Customers of SCE saw rates jump 91% from 2021 to the start of 2024, while those served by SDG&E absorbed a 72% increase.
Amid such spikes, more than 2.4 million customers of the three utilities have accumulated utility bill debts totaling $1.8 billion, according to utility filings tracked by the CPUC's Public Advocates Office, with about one in five customers in arrears.
Part of 'broader affordability crisis'
Most agree the current trajectory of retail electric rate inflation is concerning. But the divisions over how to stop it are deep.
Proposals in the PUC's proceeding on an income-graduated fixed charge differ in significant ways, such as how much relief to give low-income ratepayers at the expense of their wealthier counterparts, and where to draw the lines.
Utilities have proposed charges of $51 to $73 per month for customers not receiving discounted rates and not considered low income. Proposals from the Public Advocates Office and other ratepayer groups have fixed fees at half that level and less.
Despite different views of how to restructure rates to become more fair to all income classes, stakeholders active in the proceeding say it should continue rather than be shut down by lawmakers.
"Sierra Club remains supportive of the CPUC authorizing an equitable and progressive income-graduated fixed charge that will ensure lower bills for low-income customers while also reducing the volumetric rate in order to improve the economics of electrification," Rose Monahan, an attorney for the environmental group, said in an email.
"I understand the concern of lawmakers to the extent that [they] are specifically concerned about the utilities' proposal," Theo Caretto, an attorney for the California Environmental Justice Alliance, said in an interview. "However, from our view, it feels as though the [legislative] action that's being taken is not looking out for the interest of the Californians most burdened by utility debt, by high bills. It's not really a productive way to move forward rate reform."
Nevertheless, the proceeding "doesn't address the broader affordability crisis, the extremely high revenue requirements that California electrical utilities have," Carletto said. "And that too does need to be addressed."
| A rooftop solar array perched above San Francisco. Rooftop solar, wildfire mitigation and grid investments are driving up retail electric rates in the state, ratepayer advocates say. |
'With any transition there is friction'
The battle over basing electric rates partially on income echoes a yearslong fight over California's decades-old rooftop solar program, highlighting an ongoing tug-of-war over how to achieve an equitable energy transition.
Under California's net metering program, payments for excess solar generation sent back to the grid will cost non-solar-powered customers twice as much in 2024 as in 2021, the Public Advocates Office said in its analysis. That is mainly driven by a surge in applications prior to the phase-out of "unsustainably lucrative program compensation terms," as well as higher payments to customers now grandfathered under those terms because overall electric rates continue to rise, the analysis said.
More than 15% of average household electricity bills for those who do not have solar arrays "will go to subsidizing the program" in 2024, according to the Public Advocates Office. By comparison, a May 2023 PUC report to Gov. Gavin Newsom and state lawmakers put wildfire mitigation costs at 17.9% of utility bills for PG&E customers who do not receive discounted rates.
That report, which provides a snapshot of rate pressures in 2022, estimated the share of wildfire costs at 10% of bills for nondiscounted households of SCE and at 8.7% for customers of SDG&E. Those shares appear likely to continue climbing, considering the three utilities plan to collectively ramp up their wildfire spending to $9.2 billion per year by 2025 from $6.2 billion in 2020.
The Public Advocates Office said it backed the rooftop solar reform to reduce the cost burden for customers without solar and to promote pairings with battery storage. While some larger solar installers have adapted by selling more batteries, the industry has seen a sharp drop in demand for small-scale systems related to both net metering reform and high interest rates, accompanied by restructurings, layoffs and closures.
"I understand the challenges from an interest rate perspective and a decrease in [net metering] export rates ... but we still see rising electricity rates providing a pretty healthy economic incentive to install solar," Ong said.
Badri Kothandaraman, president and CEO of solar technology developer Enphase Energy Inc., believes that utility rate inflation will help solar in California bounce back in 2024 as customers lean on battery-coupled systems to avoid higher retail electricity prices at times of peak demand in the early evening, especially as interest rates begin to come down and the industry adapts to a new battery-focused business model.
"The more [utilities] raise pricing, at some point interest rates will no longer be a deterrent to solar and storage," Kothandaraman said in a recent interview. "As always with any transition, there is friction."