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Why are our electric rates are so insane, and what can we do about it?

March 2, 2025

The choices we’ve made have led to the pickle we’re in.

Our electric bills in California are the highest in the nation, save for poor Hawaii. Rates have doubled over the past decade. They’re about twice the national average and continue to rise, outpacing inflation. Southern California Edison, San Diego Gas & Electric and Pacific Gas & Electric rake in big profits — even as they seek rate hikes.

All this has sparked white-hot fury as officials scramble to divine how to fix things. But first it starts with blame: Whose fault is this?

Source: California Public Utilities Commission

Auditors lay some of it at the feet of weak watchdogs who just don’t — or can’t — bite (we’re talking about you, California Public Utilities Commission, and you, Public Advocate — the PUC branch that’s supposed to represent the little guy).

Meanwhile, the PUC and the investor-owned utilities say that hardening the grid against devastating wildfires has been terrifically expensive, as have forward-thinking programs such as goosing green energy adoption (particularly, subsidies to rooftop solar owners that subsequently penalize non-solar owners) and reducing bills for low-income Californians (the cost of which falls on the backs of ratepayers, rather than the state’s general fund, where most welfare programs live).

"Revenue requirement" is regulator-speak for how much money each utility is allowed to collect each year from its customers. This chart breaks down what the money is for. (California Public Utilities Commission) — “Revenue requirement” is regulator-speak for how much money each utility is allowed to collect each year from its customers. This chart breaks down what the money pays for. (California Public Utilities Commission)

And consumer groups seethe over the “excessive profits” these investor-owned utilities are guaranteed by the very regulators overseeing them. Edison reported income of $1.6 billion for last year; SDG&E, $891 million; PG&E, $2.4 billion.

“It’s time for regulators and lawmakers to take decisive action to reduce these excessive profits and ensure that utilities are held accountable for their role in this affordability crisis,” said Lee Trotman, spokesperson for The Utility Reform Network, in a prepared statement. “Families should not have to choose between paying their electricity bills and other basic needs.”

Today, for-profit utility rates in California are 67% higher than those of public utilities, said Consumer Watchdog in a statement. For all the sometimes-conflicting explanations, there’s one thing everyone agrees on: Something has to give.

Investor-owned utilities like SDG&E, PG&E and Edison tend to have higher rates than municipal systems (UC Berkeley Energy Institute at Haas)

Profit

Surprise, folks: Electric companies don’t make money selling electricity. That’s essentially a pass-through cost.

Rather, they’re granted a (too?)-generous return on their capital investments (such as the aforementioned and terrifically expensive hardening of the system against wildfires). The PUC allows Edison, SDG&E and PG&E a 10%-plus return on these capital investments, which provides a perverse incentive for them to pursue the most expensive options rather than the least expensive options, critics charge. And ratepayers foot the bills for it.

So on Thursday, Feb. 27, California’s Little Hoover Commission began a series of hearings examining the systemic bugs and how to fix them, which we’ll be following for the next couple months.

A man wearing a protective face mask walks along a trail at Ayala Park near towering electric power transmission lines in Chino on Friday, Jan. 5, 2024. (Photo by Watchara Phomicinda, The Press-Enterprise/SCNG) — Electric power transmission lines in Chino (Photo by Watchara Phomicinda, The Press-Enterprise/SCNG)

“This sharp increase in electricity rates is not mainly due to the cost of energy, infrastructure, or higher energy use,” Little Hoover said in its backgrounder for the hearings. “Instead, California’s rising electricity rates are primarily due to the added costs of ‘ratepayer-funded programs’ …. These programs, which substantially increase consumers’ monthly bills, go beyond the basic costs of generating and delivering electricity and aim to achieve other goals, including supporting renewable energy adoption, improving energy efficiency, promoting electrification, enhancing energy reliability, providing energy subsidies to low-income households and reducing wildfire risks.”

These programs comprise a stunning third of what the utilities collect from customers. They also advance social equity and clean energy goals.

“This has led to an urgent policy dilemma: Should the state continue to use electricity rates as a lever to pursue goals that many Californians would regard as positive, or, given increasing concerns about the affordability of life in our state, should policymakers instead emphasize lowering electricity costs?” the Commission asked

Some of the many solar panels at the Joint Forces Training Base Energy Resilience Project in Los Alamitos on Friday, August 11, 2023. The project's microgrid consisting of 100 acres of solar panels, will provide power for the Joint Forces Training Base missions for a minimum of two weeks during electrical grid outages. (Photo by Mark Rightmire, Orange County Register/SCNG) — Solar panels at the Joint Forces Training Base Energy Resilience Project in Los Alamitos (Photo by Mark Rightmire, Orange County Register/SCNG)

Good questions. Little Hoover seeks to answer them in the hearings: Are green energy and affordable energy compatible? Should everyone pay the same rate for electricity, regardless of income? Should subsidies for low-income people come from the state’s general fund rather than from other ratepayers? Is there sufficient oversight of electricity rates and programs from the regulators?

The state auditor politely, but damningly, addressed the last question back in 2023. The answer was “no.”

The PUC and Public Advocate lack robust processes to verify utilities’ cost claims and rate increase justifications, the auditor said. They fail to adequately review accounts that track billions in utility spending. They don’t clearly communicate the reasons for rate hikes to customers. And utilities sometimes exceed their authorized rates of return, revealing inefficiencies in cost forecasting and a need for greater scrutiny of utility spending.

Villain: Solar?

The CPUC understands affordability is an issue and says it works hard to keep rates reasonable. In a recent report to the governor, it summed up things this way:

“Inequitable rate structures and the need for unprecedented climate impact related investments have created a perfect storm driving electricity rate increases,” it said. “In addition to creating financial hardship, continued rate inflation will put stress on meeting the state’s climate goals. Electrifying the transportation, building and industrial sectors are critical decarbonization strategies that become increasingly difficult with every increase in electricity rates.”

Why are rates so high? Let’s start with the one sure to cause the most fury: rooftop solar.

Rooftop solar owners export excess energy to the grid during the day. The three investor-owned utilities pay rooftop solar owners three to four times as much for that power as they pay for renewables sourced from elsewhere. That results in a huge cost — between $4 billion and $8.5 billion, depending on who you ask (and zero if you ask the rooftop solar industry, which says the value of the infrastructure that hasn’t had to be built because of rooftop solar has saved more than what’s spent).

NEM is “Net Energy Metering,” the term given to how rooftop solar owners are credited for exporting power to the grid. That costs non-solar customers between $19 and $36 a month. (California Public Utilities Commission)

The vast majority of industrial, commercial and residential customers in California don’t have solar panels, but end up paying for the 15% of folks who do, experts and officials said.

That cost shift comprises a startling 21% to 27% of residential bills, the PUC said, and generally flows from less-wealthy households (that don’t own homes and can’t have rooftop solar systems) to more wealthy households (that do own homes and can afford rooftop solar systems).

You may recall that the CPUC tried mightily to scale back this cost shift, but it was political poison that died at the governor’s own urging. It did manage some change: New solar system owners will get less generous payments for their solar energy, but those older systems will continue to be subsidized to the tune of some $8 billion a year for many years to come.

“The cost shift is going to continue to rise. You have to ask yourself, is it fair?” Matthew Freedman, attorney with TURN, told the Commission. “Is it fair to pass on significant costs to all customers, when those with solar tend to be wealthier?”

Other cost drivers include programs mandated by the state telling utilities to offer programs to help customers be efficient and save money. Those cost some $2 billion to $2.5 billion a year, but only half is spent on programs proven to be cost-effective, the Little Hoover report said.

Then there are subsidies for low-income customers. That shifts about $1.75 billion to other customers — mostly industrial and commercial, not residential, customers. If you bemoan the residential rates that are about double the national average, consider that rates for industry and business here are almost three times higher than the national average.

Throw in long-term contracts for renewable energy that were locked in years ago, when that energy was more expensive, and you’re talking many billions of dollars a year.

The big picture is important here, Severin Borenstein, faculty director at UC Berkeley’s Haas Energy Institute, told the Little Hoover Commission. Total revenue for the three utility companies was $60 billion in 2024. A nip here and tuck there aren’t going to make a dent.

“The only way we’re going to crank down on the cost side is by better regulations and better funding of the regulator,” said Borenstein.

What, exactly?

Reduce operating expenses, lower capital costs, phase out programs and revise subsidies and rate structures, the Public Advocate, PUC and other experts said.

Legislators can change how big, expensive infrastructure projects are financed, said TURN’s Freedman. While the return rate for the utilities is about 10%, that’s an after-tax number, so they’re actually collecting about 14%, he said.

Public financing, meanwhile, can be had at an interest rate of some 4% to 5%, potentially reducing those costs by up to half, Freedman told the Commission. Savings up to $3 billion a year are possible, he said, and studies are underway in the Legislature to explore this approach.

Also: lowering the guaranteed rate of return for the utilities; tying rate increases to inflation; exploring other funding sources for wildfire mitigation, such as federal funding; and scaling back subsidies, which will not please rooftop solar owners.

That might mean shortening the length of time that older rooftop systems are guaranteed high credits (currently 20 years); establishing a “grid benefits charge” for solar customers, who use the grid to import and export energy but don’t pay a full share of system costs; and funding solar subsidies from some public pocket rather than from the pockets of other electricity customers; and bill reductions for low-income folks could move to the state’s general fund as well.

Decoupling grid upkeep costs from electricity rates is important to fairness: After a wildly contentious proposal to tie grid upkeep charges to income, the CPUC adopted a flat $24 monthly charge for most households, and a $12 charge for low-income customers. That’ll reduce the cost of power some 15% to 20%, but most customers’ bills are expected to be about the same. That’ll kick in in another year or so.

Many people are behind on their electric bills (The Utility Reform Network) — Many people are behind on their electric bills. CARE is the low-income program. (The Utility Reform Network)

But whatever the CPUC decides to do, it must exercise much greater scrutiny than it’s exercising now, the experts said.

“I don’t blame the CPUC for this — it’s massively understaffed and undercompensated,” said Berkeley’s Borenstein. “When they get into these rate of return things, the utilities bring in world-class experts and they’re outgunned and outmanned…. The CPUC could be a much more high-functioning organization if it were better funded.”

Big risk

The utilities say they’re committed to building a safe, reliable, sustainable and climate-resilient energy system at the lowest possible cost for customers. They point out that, when it comes to their rate of return on infrastructure projects, they often come in well below the 10%-plus the CPUC allows.

In 2022, Edison’s return on equity was authorized at 10.3%, and its actual was 7.77%, said spokesman Jeff Monford. In 2023, it was authorized at 10.05%, and its actual was 4.63%.

The investor-owned utilities go to the capital markets to finance energy system investments rather than asking customers to provide upfront funding for the work, they said. The risk involved, especially with the wildfires as of late, is considerable. Could public financing do better? A reasonable return on investment is important to ensure the companies can continue to attract the capital needed to make these investments, and they said CPUC determines the return on equity through an open, transparent and public process.

They’re all working to stabilize customer bills, they said. At PG&E, combined residential gas and electric are essentially flat compared to the same time last year. “We continue to look for ways to reduce customer costs, including reducing our own operating and capital costs, and increasing efficiency of our work, which saved more than $1 billion last year,” a statement from the company said.

Power transmission lines in Orange on Friday, February 19, 2021. (Photo by Mark Rightmire, Orange County Register/SCNG) — Power transmission lines in Orange. (Photo by Mark Rightmire, Orange County Register/SCNG)

Edison’s Monford said the company understands that rising costs are a hardship, and it works to keep bills manageable. Demand for electricity is growing faster than it has in decades, though, while threats like extreme weather and cyber-attacks are becoming more frequent, significant and costly. Edison is investing in new technology to make the grid stronger and to clean up the energy supply, and it expects rate hikes to return to the more usual 2% to 3% over the next few years, back to pre-2020 levels, he said.

Hearings and studies at myriad levels of state government are in the works, and everyone seems to know that changes are afoot.

“This is one of the most controversial and contested subject areas we’ve had in a while,” said Pedro Nava, Commission chair. “It’s like talking to people who have different kinds of faith, different kinds of religion.”

When opening that electric bill, I certainly pray.

Why are our electric rates are so insane, and what can we do about it? Orange County Register

News Details

Why are our electric rates are so insane, and what can we do about it?

Profit

Villain: Solar?

What, exactly?

Big risk

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