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Editor’s note: Another take on the late February hearing to control soaring rates to protect equity and clean energy .

California will not let its skyrocketing electricity rates threaten reliability or its policy goals, California Public Utilities Commission President Marybel Batjer told stakeholders during a Feb. 24 full commission hearing.

The costs of California’s policy mandates are driving rates up faster than inflation and straining the budgets of customers made more vulnerable by the recession, stakeholders and CPUC Staff agreed during the day-long session . Additionally, the costs of Net Energy Metering and other distributed energy resources incentives are taxing the budgets of vulnerable customers, making new approaches to affordability urgent.

Protecting ratepayers “will require aggressive actions,” CPUC Staff’s “ Evaluation of Electric Costs, Rates and Equity Issues ” reported.

Utilities proposed ways to cut wildfire costs and raise revenues outside rates. Stakeholders proposed ways to financially support distributed energy resources and electric vehicle growth.

Breakthrough rate designs could ease the burden of rising costs on low and moderate income customers.

Staff report

Residential energy costs and rates began rising faster than inflation in 2013 and bills continue to grow annually, staff reported. By 2030, residential rates for PG&E will be 40% higher than if they had risen at the rate of inflation from 2013. SCE rates would be 20% higher and SDG&E rates would be 70% higher.

Distributed energy and EVs can reduce customers’ utility bills but up-front costs are a barrier to low income customer participation, staff found.

The middle class may soon need help because “rates are growing so much faster than wages,” Jennifer Dowdell, a senior energy expert with The Utility Reform Network, warned.

Wildfire mitigation costs, transmission development costs, rising transmission use charges, and the state’s increasingly ambitious emissions reduction goals drive up rates.

Another growing factor is the cost of the state-mandated Net Energy Metering 2.0 program compensating customers for electricity their distributed resources send to utilities. Net metered generation exceeded the private utilities’ residential electricity consumption in 2019, recent research showed .

An independent evaluation of the NEM 2.0 program from 2017 to 2019 found the costs of this policy far exceeded its benefits, according to staff.

It is time for NEM to evolve and include incentives for battery storage to more effectively provide grid services, agreed Solar Energy Industries Association Senior Director and Counsel Rick Umoff.

Investments increase rates, but also provide net benefits to the California economy , noted Inclusive Economics CEO and NextGen Policy Advisor Betony Jones.

A shift to home electrification would add to the total utility 2030 revenue requirement, leading to an 8.5% increase in 2030 electricity sales. That in turn would lower average rates significantly, staff estimated. And EV ownership will dramatically lower driver costs.

Rate design solutions

Two breakthrough rate designs offer changes for the fixed charge and the volumetric per kWh charge in the standard utility bill.

The Regulatory Assistance Project Advanced Residential Rate Design uses time varying rates to cover costs not met by fixed charges, Project Associate Mark LeBel said. Its fixed “bidirectional distribution network charge” is a unique per kWh charge on imports and exports that combines with the volumetric time varying rates options to assure utility revenue requirements are met.

It is only necessary in places like California and Hawaii with very high penetrations of distributed energy resources , LeBel stressed. “It can be part of a package of solution strategies.”

But today’s practice of adding charges for public policies in the volumetric part of utility rates driving bills up is “regressive,” said U.C. Berkeley Professor of Business Administration and Public Policy and Faculty Director of the Energy Institute at Haas Severin Borenstein.

Because of overloading the volumetric rate with costs for California’s mandates, rates do not reflect the “ social marginal cost ” of a unit of electricity. That is the cost of generation, transmission, distribution and greenhouse gas emissions plus the still under-priced societal impacts of pollution.

A more progressive rate would recover the fixed costs of policy mandates from an income-based fixed charge that would be very low for struggling customers and higher, like income taxes, for others, he told the CPUC hearing .

California’s tax authority and utilities can work together to verify customers’ income information and protect privacy, Borenstein said.

An income-based fixed charge “gives people who can most easily afford to avoid the charge by defecting from the grid the biggest incentive to do that,” LeBel said.

Recent research showed a high volumetric charge could increase grid defections, Borenstein acknowledged. “But this is a fixed charge increase. Along with a reduced volumetric charge, it is “less reason to defect than the $0.40/kWh volumetric charge forecast for California. This is the best alternative.”

Alternatives to rate redesigns

PG&E is developing ways to reduce costs and generate alternative revenues , said PG&E Vice President of Regulatory and External Affairs Robert Kenney.

Customer-funded self-insurance could lower wildfire mitigation tab by reducing the cost of the state-mandated $1 billion in wildfire insurance, said SCE Senior Vice President of Strategy and Regulatory Affairs Carla Peterman. Over a multi-year period, savings “could be hundreds of millions of dollars.”

SDG&E’s is investing in new wildfire mitigation technologies to improve its ability to reduce the need for future wildfire costs, said Scott Crider, the utility’s chief customer officer.

Only political resistance to increased public spending prevent the much simpler approach of a program for electricity like those California provides to help low income citizens with food and healthcare, Borenstein said.

TURN’s Dowdell and other stakeholders said the political barriers to leveraging public revenue for public programs can be overcome.

“Many of the costs are to achieve societal benefits, and traditional utility rate making is one of the most expensive” ways to obtain those benefits, Dowdell said. A better concept may be California ownership of assets like large scale, long duration storage, new transmission, and EV charging infrastructure needed to achieve state goals.

Tax revenues could come from California’s general fund or the state and municipalities could use their bonding authority for specific infrastructure projects, she added.

It is difficult to identify the right cost reductions, said CPUC Deputy Executive Director for Energy and Climate Policy Edward Randolph. Investments will raise rates and may have unintended consequences but can avoid outages, meet policy goals and save money over time.