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The burden of continually rising utility bills will derail California’s decarbonization work if left unaddressed, regulators, economists and ratepayer advocates warn. The rising costs are bearing down on struggling customers who’ve been hit hard by pandemic-driven job losses and sheltering at home.

Higher bills undermine California’s equity policy goals and jeopardize the state’s clean energy work, Ed Randolph, California Public Utilities Commission Deputy Executive Director, said during a Feb. 24 joint agency workshop on rising rates. That includes work to advance transportation electrification and all electric homes. “Energy could become increasing unaffordability in parts of the state,” Randolph said.

Assemblymember Chris Holden, Assembly Utilities & Energy Committee Chair, said the state must ensure its energy system is clean, safe, and affordable. The idea that the grid will be either reliable or clean is a false choice, he said.

Holden called for creating a western-wide grid to lower utility bills and help decarbonize the system. Two years ago, he introduced legislation to create a regional grid but was unsuccessful. Opponents feared it would slow in-state renewable development and jobs.

While much of the focus at the Wednesday daylong hearing was on the impacts of rates continuing to escalate over this decade, Mike Campbell with the Public Advocates Office stressed that we are now in the midst of a rate crisis.

Since 2013, private utility bills have exceeded the annual inflation rate of 1.9%. Over the last seven years, San Diego Gas & Electric’s rates increased 48%, Pacific Gas & Electric 38% and Southern California Edison 6%. That is according to the CPUC’s White Paper, Utility Costs and Affordability of the Grid of the Future.

Source: CPUC White Paper

“Disadvantaged communities are the canaries in the coal mine regarding affordability,” Jennifer Dowdell, The Utility Reform Network senior policy analyst, said.

She and others pointed out that low-income customers of color are the least likely to have solar rooftops or other behind-the-meter distributed systems that lower energy consumption from the grid. In addition, these communities are the most likely to continue to use natural gas for air and water heating, and cooking.

To reduce the burden of rising rates, Dowdell called for the state to take over the transmission system, including because its borrowing costs would be much lower. Transmission is a big cost driver, along with distribution and generation. She also urged that private utilities not be allowed to own behind-the-meter batteries and other systems.

Regressive ratemaking

Folding all of utilities' rising cost into rates is considered a very regressive way to cover them. Customers struggling to pay their bills bear a disproportionate burden.

“It is the most regressive tax imaginable,” Severin Borenstein, UC Berkeley Professor of Business Administration and Public Policy, said. And it discourages decarbonization and electrification.

Borenstein, who is also a California Independent System Operator board member, pointed out that what utilities charge for energy is “way above its costs.” Much of the rate increases, 2/3rds, are for fixed charges. He suggested instead of raising rates to impose a tax to cover private utilities growing costs, from transmission to wildfire reduction work. That tax, he said, should be higher on those with more income to help protect low-income customers. The latter lack rooftop solar and other technologies to reduce their energy use, resulting in them bearing a great share of the fixed costs because charges are based on the amount of power consumed from the grid.

Mark Toney, TURN executive director, agreed. Allocating fixed utility charges based on income will help resolve the severe rate and income disparities. He also suggested generating revenue to cover rates by adding a point of sales charge on gasoline powered cars and requiring existing homes being sold to be electrified, with a fee included in the cost of the home.

Other proposed strategies pitched for lowering electricity rates and protecting low-income customers is to tap into the state general fund money to cover rising costs.

Having utilities use ratepayer-backed bonds to cover their rising costs, as they are doing for wildfire capital costs and loss of income from the pandemic, is not seen as a solution.

It is being used “where it makes sense,” said the CPUC’s Randolph. He noted, however, that bond securitization reduced Edison’s rate by 3% in 2020.

Rates hikes far exceed the inflation rate

Over the next decade, the annual rate increase of the three utilities is an overall 4.5%, well above the1.9% annual inflation rate. Average annual bundled rates at PG&E are expected to rise 5.3%, 0.8% at SCE and 6.8% at SDG&E, according to the CPUC’s White Paper.

The utilities’ costs of capital, which includes transmission and distribution investments and low-income subsidies, continues to rise. On top of that, the private utilities reap more than 10% on their returns on their investments in their wires, poles, and pipes. PG&E's return on equity is 10.25%, SCE's is 10.3%, SDG&E's is 10.02%, and SoCal Gas 10.2%.

These returns exceed the national average, Paul Phillips, CPUC Energy Division Rates Supervisor, noted. He said the double-digit returns are attributed to perceived risks of operations.

Source: CPUC White Paper

Transmission revenue requirements have risen a total 38% percent from 2016 to 2021 across the three private utilities, from $3.14 billion to a forecast $4.34 billion in 2021, according to the CPUC analysis. PG&E’s high voltage revenue requirement increased over 66% during that time. SDG&E’s by nearly 45%. PG&E's transmission costs are considerably higher because, unlike the other utilities, its counts transmission down to 69kV. For SCE and SDG&E, the revenue requirement applies to 115 kV and higher.

Wildfire work will soon cause utility bills to rise even more. These costs have not yet been fully folded into utility bills. Wildfire mitigation costs over this decade are expected to soar; with PG&E’s costs estimated to reach $23.7 billion, SCE’s $17.2 billion and SDG&E’s $4 billion.

The CPUC paper noted that electric vehicles save customer money because of the savings in fuel costs compared to gas fueled cars.

Michael Wara, Climate and Energy Policy Program director, Woods Institute for the Environment at Stanford University, objected to not allowing electric vehicles to provide backup power, including during safety shutoffs.

Cars with the capability to consume and send power back to the grid is extremely limited, according CPUC member Cliff Rechtschaffen. He added that car manufacturers will not provide warranties for bidirectional power.