California’s electricity rates are the second highest in the country, behind only Hawaii. The state’s residential and commercial rates – charged to homeowners, most businesses, schools, and hospitals – are about twice the national average. Industrial rates charged for manufacturing, construction, and agriculture are more than two-and-a-half times the U.S. mark.
Why? There are several reasons: wildfire damage is expensive to prevent and repair, the state’s system for setting rates is overly complicated, guaranteed fixed returns for utilities add cost, and as more people generate their own power through rooftop solar panels, the fixed costs of running the grid are spread over fewer customers.
The high prices have consequences. One in five households is behind on their energy bill in California, and industries that consume large amounts of electricity are wary about doing business here. Affordability is now the number one policy concern of residents, potentially undercutting confidence in the value of our clean energy goals.
The Little Hoover Commission – an independent watchdog agency on which we serve – spent months examining the reasons for California's high electricity bills and searching for solutions. We held four public hearings at which we heard testimony from utilities, consumer advocates, academic experts and others. We looked to other states and even other countries for lessons that might be adopted here. We combed through hundreds of research papers, public records and other documents.
At the conclusion of our study, we released a report, The High Cost of Electricity in California, with 10 recommendations to ease the burden. We believe our proposals would bring down costs for all, but we worked hard to ensure that our ideas also reflect a concern for fairness. High electricity bills don’t fall equally on all; they’re a greater challenge for those who are less fortunate economically or who live in portions of the state where summertime temperatures make air conditioning a near necessity.
So one of our key recommendations is tailored to address that issue. California ratepayers get a small credit on their utility bill from the state’s climate programs. Instead of giving everyone the same amount at the same time, we should direct that money to low-income families and people living in the hottest parts of the state. Furthermore, the credits should be focused during the summer months when the heat – and the bills – hit the hardest. Using our resources to help the most vulnerable families where and when they need it will make a real difference. This is about equity.
But electricity has become so expensive that even middle-income families are struggling. We should raise the income limits on assistance programs so more households qualify for relief.
Next, in addition to helping families who are struggling, the state needs to put its regulatory house in order. The complicated process by which the state considers the utilities’ request for rate increases should be streamlined and condensed. The State Auditor should assess whether the California Public Utilities Commission has the expertise needed to regulate such a vast and complicated system.
Last, the state needs to address the proliferation of rooftop solar panels. In recent years, many Californians have invested heavily in rooftop solar to save money and support clean energy. That’s good for the environment, but it also means those households pay less into the shared costs of running the grid, shifting the burden onto fewer customers and driving bills up. California should revise these incentives in a way that allows homeowners to recover their investment but is still fair to households paying the full cost of keeping the grid running.
The good news is we don’t have to sacrifice our values to save our pocketbooks. Our Commission has identified clear, actionable solutions that will reduce costs while ensuring equity for all while staying true to our commitment to fight climate change and protect the environment. Adopting these recommendations will deliver real relief, strengthen public trust, and ensure that every dollar on a customer’s bill is justified. Californians deserve no less.
Pedro Nava is chair of the Little Hoover Commission. Anthony Cannella is vice-chair of the Commission, and he and Commissioner José Atilio Hernández served on the subcommittee overseeing the Commission’s work on electricity prices.