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California energy transition confronts cost crunch

With millions of Californians unable to pay their electric and gas bills, racking up roughly $1.15 billion in debt to utilities in 2020, the state must resolve how to fulfill its ambitious climate policies, including the ultimate goal of creating a carbon-free economy before midcentury, while simultaneously fortifying its power system against extreme weather events — all at affordable prices to customers.

Two new reports highlight the risks California's rising electricity prices place on its clean energy transition, ahead of a Feb. 24 meeting at which top officials at the California Public Utilities Commission, California Energy Commission and California ISO, and lawmakers who chair energy committees in the state Assembly and Senate, will discuss possible solutions.

"What Californians pay is much higher than the true marginal cost of using electricity," said University of California-Berkeley professor Meredith Fowlie, who co-authored a study released Feb. 23 concluding that California electric customers fork out two to three times the actual cost of providing electricity, in a statement. "This puts an unnecessary cost burden on low- and middle-income households as we transition to using clean electricity."

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Average residential prices per kWh in San Diego Gas & Electric Co.'s service territory are roughly double the U.S. average, while Pacific Gas and Electric Co.'s rates are about 80% above the nationwide average and Southern California Edison Co.'s residential prices are approximately 45% higher, according to the report, which was produced by advocacy group Next 10 and the Energy Institute at U.C. Berkeley's Haas School of Business.

Rates at San Diego Gas & Electric, a Sempra Energy subsidiary, have jumped 48% since 2013, while customers of PG&E, the operating arm of PG&E Corp., are paying 37% more per kWh, the CPUC said in another recent report. Rates at Edison International's Southern California Edison are up 6% since 2013.

Those rate hikes do not reflect the utilities' proposed multibillion-dollar outlays for wildfire safety in the next several years. And they have helped leave nearly 9 million customers of the three large electric utilities and Southern California Gas Co. unable to pay their bills amid ongoing hardship related to the pandemic, according to the CPUC.

In search of 'equitable alternatives'

The U.C. Berkeley report attributed California's high prices to substantial fixed costs for generation and grid investments that are passed on to customers, as well as subsidies for rooftop solar and increasing costs for wildfire mitigation. As wealthier residents install rooftop solar systems, thereby reducing their electricity bills, lower- and middle-income households bear a bigger burden for covering those fixed costs, the report said, calling for "more equitable alternatives."

"We're proposing solutions that would recover system costs through sales or income taxes, or an income-based fixed charge, which would pay for long-term capital costs while ensuring all those who use the system — and specifically, wealthier households — contribute equitably," said U.C. Berkeley professor Severin Borenstein, a report coauthor who is also on the board of governors of the California ISO, the state's primary wholesale grid operator.

While Californians' total energy bills (as opposed to their per-kWh charges) tend to be lower than those in most of the country, largely thanks to energy efficiency, the state has been losing ground in that metric, too, as utilities pump capital into transmission and distribution grids, the CPUC said.

"If handled incorrectly, California's policy goals could result in rate and bill increases that would make other policy goals more difficult to achieve and could result in overall energy bills becoming unaffordable for some Californians," said the CPUC authors.