California’s electricity prices are growing so high that they threaten the state’s ability to convince enough people to ditch fossil fuel-powered cars and appliances, new research says.
The state’s electric rates are now two to three times what it costs to provide power, a paper released by the energy institute at UC Berkeley’s Haas School of Business and the nonprofit think tank Next 10 reported.
As much as 77% of what investor-owned electric companies recover through rates are related to fixed costs that don’t change based on consumption, the paper says. That includes generation, transmission and distribution costs but also subsidies for low-income households and public programs such as increasing energy efficiency, the authors concluded.
Low- and average-income residents are disproportionately burdened by the state’s high electric prices because they use only modestly less power than people with higher incomes. High-income households are also more likely to install solar panels on their roofs, reducing their utility bills, the paper said.
Severin Borenstein, a UC Berkeley energy economist who spearheaded the paper, said he’s concerned that California is saddling its electric rates with too many things that are divorced from the direct cost of powering homes and businesses. Investments to reduce wildfire risk are one example, as are bill subsidies and funding for various other public programs.
He said the state should look at paying for some of those extra programs and policies through income or sales taxes instead. Another option could be allowing California utilities to implement fixed charges that vary based on income, meaning wealthier households would pay a higher monthly fee.
Otherwise, the state could end up in a situation where electric rates are “vastly higher than the true cost of using electricity,” Borenstein said. “At the same time, we’re going to have rates that are going to be so high that it will be a huge discouragement to using electricity for things that we need people to adopt if we’re going to decarbonize the economy.”
California has some of the highest electric rates in the country, though the specifics vary by utility. Pacific Gas and Electric Co.’s residential electric rates are about about 80% higher than the national average, while San Diego Gas & Electric charges about double the national average and Southern California Edison’s are 45% higher, according to Borenstein’s paper.
Monthly bills for California customers have historically been relatively low thanks to the state’s temperate climate. Still, Mark Toney, executive director of The Utility Reform Network consumer group, agreed that Californians pay for too much through their electric rates.
“There are too many costs that have nothing to do with providing safe, reliable clean energy,” Toney said. “That’s really what ratepayers should be paying. We got no business paying for things like electric vehicles and home electrification — other sectors need to pay for that.”
Borenstein will present his findings Wednesday at a special California Public Utilities Commission hearing that will focus on electricity prices.
In advance of that hearing, the commission released its own paper projecting steady increases in electricity rates for the three major power companies over the next 10 years. The paper warned that upward pressure on rates could “trigger equity and affordability concerns for vulnerable customer populations” if not handled properly.