Californians Pay Hefty Fee for Electricity, and Rates are Likely to Keep Increasing

Read KQED’s coverage of the devastating Southern California fires here.

Californians pay nearly double the average residential electricity rates of people living elsewhere in the country, according to a state report out this week. And electricity rates in the state are growing rapidly, outpacing inflation and increasing faster than in other states.

The trends are likely to continue.

The report, written by the state’s nonpartisan Legislative Analyst’s Office, cited a variety of reasons for the high costs that the majority of Californians pay, but the leading one was the expense of wildfire, both to mitigate future risk as well as address damages from past fires.

The fires burning in Southern California presently could be the most expensive in U.S. history, although it is not clear what started them yet.

The high rates are mostly driven by the state’s largest investor-owned utilities: PG&E, Southern California Edison and San Diego Gas & Electric. Average rates charged by California’s publicly owned utilities are closer to national averages.

“It’s been very striking to Californians how much electricity rates have increased and how high they are in the state,” said lead author Helen Kerstein, a principal fiscal and policy analyst for the LAO. “This report is really intended to provide the basic information to folks in the Legislature, as well as the general public, to help understand what’s going on.”

Other costs come from state programs and policies to slash greenhouse gas pollution and what the report referred to as differences in utility operational structures and service territories. Large, investor-owned utilities have goals to make profits for shareholders, for example, whereas publicly owned utilities may have a board that is elected by customers and might, therefore, be more cost-conscious.

Investor-owned utilities also serve larger areas, with poles and wires zig-zagging across dense cities, climbing through suburbs and into forests across the state’s remote foothills and mountain communities. Covering such diverse terrain leads to higher costs overall. Smaller, publicly owned utilities tend to be in more concentrated, urban areas, which have lower fire risks and might be less costly for these reasons.

Some customers pay high prices to offset expenses for others on the same system, including cost-reduction programs for low-income earners and rooftop solar customers, according to the LAO.

Paying huge sums each month for electricity not only hurts the average consumer but squeezes low-income people who live in areas where they may need additional cooling or heating as climate change leads to striking swings in temperatures and worsening heat waves.

The major costs associated with electricity have impeded state efforts to promote electric cars and appliances to slash greenhouse gas emissions. Historically, high electricity rates encouraged conserving energy, Kerstein said.

“Now we understand that, yes, conservation is good, but also we need to get folks to electrify and move towards electricity rather than fossil-fuel powered cars and natural gas,” she said. “That means that addressing affordability in electricity is so critical for the state, and thinking about those issues is going to be increasingly important.”

While the report did not recommend ways lawmakers could address electricity costs, it highlighted the trade-offs of various policy solutions, “including balancing the desires to both mitigate and adapt to climate change as well as preserve affordability.”

And lawmakers are already jumping into the ring to tackle the hot-button issue. State Sen. Josh Becker, D-Menlo Park, who was recently appointed chair of the Senate Energy, Utilities and Communications Committee, declared his commitment to affordability in a statement earlier this week. And Bay Area Democrats told the San Jose Mercury News that they plan to take on electricity bills this session.

Andrew Campbell, executive director of the Energy Institute at UC Berkeley’s Haas School of Business, said one way to address rising consumer bills is to shift the costs of mitigating wildfires and climate change programs from utility bills to the state budget.

“Wildfire risk is not primarily a utility issue, and it relates to forest management and climate change and other things which are state problems, state challenges,” he said. “Some of those costs to address that could be moved from bills onto the state budget.”

Similarly, Campbell said that programs assisting low-income households and other environmental programs could be paid for through the state budget, which Gov. Gavin Newsom announced may see a slight surplus this year.

“Until this recent affordability crisis, the Legislature has looked at utility bills as an alternative way to pay for things that they want to happen,” Campbell said. “That’s something that’s not going to work going forward and probably needs to be reversed for some of the past decisions.”