The High Cost of Electricity in California

The High Cost of Electricity in California Report #290 | October 2025 Milton Marks Commission on California State Government Organization and Economy www.lhc.ca.gov LITTLE HOOVER COMMISSION Dedicated to Promoting Economy Pedro Nava and Efficiency in California State Chair Government Anthony Cannella* Vice Chair The Little Hoover Commission, formally known as the Milton Marks “Little Hoover” Commission on California State Government Dion Aroner Organization and Economy, is an independent state oversight agency. David Beier Senator Christopher Cabaldon By statute, the Commission is a bipartisan board composed of five public members appointed by the governor, four public Assemblymember Phillip Chen members appointed by the Legislature, two senators and Gil Garcetti two assemblymembers. José Atilio Hernández* In creating the Commission in 1962, the Legislature declared Jason Johnson its purpose: Gayle Miller Senator Roger Niello ...to secure assistance for the Governor and itself in promoting economy, efficiency and improved services in the Assemblymember Liz Ortega transaction of the public business in the various departments, Janna Sidley agencies and instrumentalities of the executive branch of *Served on study subcommittee the state government, and in making the operation of all state departments, agencies and instrumentalities, and all expenditures of public funds, more directly responsive COMMISSION STAFF to the wishes of the people as expressed by their elected Ethan Rarick representatives... Executive Director The Commission fulfills this charge by listening to the public, Tamar Foster consulting with the experts and conferring with the wise. In the Deputy Executive Director course of its investigations, the Commission typically empanels advisory committees, conducts public hearings and visits Krystal Beckham government operations in action. Daniel Harris-McCoy Shara McAlister Its conclusions are submitted to the Governor and the Legislature for their consideration. Recommendations often take the form Gibran Maciel of legislation, which the Commission supports through the legislative process. Contacting the Commission All correspondence should be addressed to the Commission Office: Little Hoover Commission 925 L Street, Suite 805, Sacramento, CA 95814 (916) 445-2125 | littlehoover@lhc.ca.gov This report is available from the Commission’s website at www.lhc.ca.gov. Letter from the Chair October 17, 2025 The Honorable Gavin Newsom Governor of California The Honorable Mike McGuire The Honorable Brian Jones President pro Tempore of the Senate Senate Minority Leader and members of the Senate The Honorable Robert Rivas The Honorable Heath Flora Speaker of the Assembly Assembly Minority Leader and members of the Assembly DEAR GOVERNOR AND MEMBERS OF THE LEGISLATURE: California’s electricity rates are among the highest in the nation and contribute to the broader crisis of affordability facing state residents. Approximately one in five households is behind on their energy bill. Affordability has become the state’s top policy concern, and most residents are currently unwilling to pay higher electricity costs to combat climate change. Policymakers have responded with new legislative and executive measures to reduce electricity bills. The Little Hoover Commission has sought to complement these efforts, holding four hearings in 2025 to examine the drivers of rising energy rates and explore strategies to reduce them without compromising California’s carbon reduction commitments, energy subsidies for low-income residents, or its wildfire mitigation efforts. Drawing on testimony from experts in academia, consumer advocates, home solar advocates, environmental and environmental justice groups, utilities, and state agencies, these hearings explored how California can address high electricity costs through both specific policy actions and improvements to state regulatory processes. This report offers a set of recommendations, including revisions to electricity rate design—such as adjusting the fixed charge structure—and exploring how the state might shift certain costs to non-ratepayer funding sources. It also recommends changes to regulatory proceedings and improvements in access to energy-related programs. There are no simple fixes to the problem of high electricity costs. However, the Commission has been impressed by the commitment and creativity of the many Californians working toward solutions. We believe this report reflects some of the best thinking available, and we respectfully submit it while standing ready to assist as the state works to tackle this shared challenge. Sincerely, Pedro Nava, Chair Little Hoover Commission Table of Contents EXECUTIVE SUMMARY .......................................................................1 INTRODUCTION .................................................................................3 Why are Electricity Rates so High? ................................................................4 Cost Driver 1: Wildfire ....................................................................................7 Cost Driver 2: Power for Profit .......................................................................8 Cost Driver 3: Rate Design ............................................................................. 9 Charting a Path Forward ............................................................................... 9 RATE REDESIGN FOR CALIFORNIA’S ENERGY FUTURE ...............11 Recommendation 1: Lower Rates by Raising the Fixed Charge ..............11 Recommendation 2: Develop a Strategy for Identifying Funding Sources. ...........................................................................................14 REGULATORY REFORM: KEEPING POWER IN CHECK .................15 The General Rate Case ..................................................................................15 Recommendation 3: Mandate Timely Completion of the General Rate Case ................................................................................................................15 Recommendation 4: Ensure Fair Cost of Capital Assessment .................17 Recommendation 5: Coordinate and Streamline Cost Proceedings. ......18 Recommendation 6: Evaluate CPUC Staffing ............................................19 SIDEBAR: Why Aren’t IOUs as Cheap as Municipal Utilities? ....................20 EQUITY AND ACCESS ......................................................................22 Recommendation 7: Balance Fairness and Reform in Net Energy Metering .........................................................................................................22 Recommendation 8: Make the California Climate Credit More Effective ................................................................................................25 Recommendation 9: Increase Low-Middle Income Support ....................27 Recommendation 10: Simplify Access to Energy Grants. .........................28 SIDEBAR: Data Centers and Electricity Policy ............................................30 SIDEBAR: The Cost of Fighting Climate Change ........................................33 APPENDIX A: CA ENERGY AGENCIES ......................................................34 APPENDIX B: TYPES OF ENERGY PROVIDERS ............................................35 APPENDIX C: HOW TO MOVE COSTS OFF CUSTOMER BILLS ................36 ENDNOTES ............................................................................................................37 EXECUTIVE SUMMARY With the exception of Hawai’i, California’s electricity completion of General Rate Cases, integrating cost- rates are the highest in the country. The state’s related proceedings such as wildfire mitigation residential and commercial rates—charged to and cost of capital into the General Rate Case, and homeowners, most businesses, schools, and involving the State Treasurer’s Office to ensure fairer hospitals—are about twice the national average. determinations of utility profit levels. The report Industrial rates charged for manufacturing, also calls for an audit of California Public Utilities construction, and agriculture are more than two-and- Commission staffing to assess whether the agency a-half times the U.S. average. has enough capacity to provide rigorous oversight. EQUITY AND ACCESS California’s high electricity rates are driven by a mix The report recommends redirecting California of wildfire-related costs, problematic rate design Climate Credits to low-income and hot climate zone resulting in expensive cost shifts, utility profits on households during months when bills are highest, capital investments, and declining consumption that allowing rooftop solar investors to recover their costs spreads fixed costs across fewer kilowatt-hours. before any Net Energy Metering benefits are reduced, This affordability crisis has had several consequences. and expanding support for low-middle income One in five households are behind on their energy households. Simplifying access to clean energy bills. Industries that consume large amounts of innovation grants will further reduce barriers for electricity are wary about doing business in the state. academics and entrepreneurs involved in pioneering And confidence in the value of California’s clean research in this field. energy goals has been undermined. Affordability is With Governor Newsom’s 2024 executive now the number one policy concern of residents. order directing agencies to identify cost-saving The aim of this report’s recommendations is to help opportunities, there is now an urgent need for clear reduce the burden of high electricity prices while guidance. This report seeks to provide some of that preserving California’s climate commitments and guidance, with the overarching goal of slowing rising equity goals. The report identifies ways to mitigate electricity rates and ensuring that California can rising costs, improve fairness in rate design, and continue to lead on climate and clean energy while strengthen oversight. protecting vulnerable residents. RATE REDESIGN Recommendations One major recommendation is to increase California’s newly adopted income-graduated fixed charge with 1. Increase the income-graduated fixed charge to the goal of lowering per-kilowatt-hour rates, ease reduce rates and spread costs more equitably. burdens in hot climate zones, and spread costs more equitably. The report also urges the Legislature to 2. Require a feasibility study and criteria-based require a structured feasibility study for moving framework for shifting some costs to non-ratepayer certain costs from ratepayer bills to the General funding sources. Fund, Greenhouse Gas Reduction Fund, or federal 3. Mandate timely completion of General Rate Cases grants. before the test year begins. REGULATORY REFORM 4. Task the State Treasurer’s Office with providing California must reform regulatory processes to independent analysis for Cost of Capital proceedings. control energy costs. This includes mandating timely THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 1 5. Integrate cost-related proceedings (e.g., wildfire, cost of capital) into the General Rate Case and streamline filings. 6. Direct the State Auditor to evaluate California Public Utilities Commission staffing levels and expertise. 7. Balance fairness for home solar investors with the need to reduce the Net Energy Metering cost shift by capping program duration and benefits. 8. Redirect California Climate Credits to CARE/FERA and hot climate zone customers during summer months. 9. Expand support for low-middle income households above the CARE threshold. 10. Simplify and accelerate clean energy grant processes. 2 | LITTLE HOOVER COMMISSION INTRODUCTION With the exception of Hawai’i, California’s electricity This chart indicates that, from 2014 to 2025, Pacific rates are the highest in the country. 1 The state’s Gas & Electric’s average retail electricity rate rose residential and commercial rates—charged to 63 percent after controlling for inflation. Southern California Edison rose 32 percent and San Diego Gas & homeowners, most businesses, schools, and Electric rose 38 percent. hospitals—are about twice the national average. Industrial rates charged for manufacturing, Despite high rates, California’s monthly electricity construction, and agriculture are more than two-and- bills are close to the national average because a-half times the U.S. average (Table 1).2 households use relatively little energy, helped by the state’s mild climate and strong incentives for energy Because customers of publicly-owned utilities efficiency.5 But many residents live in hot climate generally pay less, rates paid by customers of zones, do not have home solar systems or efficient California’s investor-owned utilities are higher still homes and appliances, and do not qualify for energy and have risen sharply over the past decade. And, bill assistance. As a result, the “average” bill masks while energy costs nationwide have largely tracked the hardship many Californians face in affording with inflation, real electricity prices in California have electricity, especially when combined with the state’s significantly outpaced it, creating year-over-year already high cost of living. financial pressure for consumers.3 This is clearly As of May 2025, 2.3 million investor-owned utility shown in a chart from a recent report by the Public customers—over 20 percent of the households they Advocates Office comparing rate increases for the serve—had unpaid energy bills, owing an average of state’s three major investor-owned utilities relative to $788.6 And rising numbers of power shutoffs have inflation (Chart 1).4 prompted action by lawmakers.7 This reflects a broader crisis of affordability. Table 1: Average Price of Electricity by Sector (2014-2024) Source: U.S. Energy Information Administration THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 3 Chart 1: Residential Electricity Rate Trends Compared to Inflation (2014-2025) Source: Public Advocates Office A recent statewide survey reports that one in five Policymakers have taken notice, especially in light of Californians “had difficulty paying rent or their the 2021 inflation crisis and the 2024 election, with mortgage…or [had] been unable to pay a monthly the number of electricity-related bills introduced in bill.”8 Moreover, the summer electric bills of the California Legislature rising sharply over the past Californians living in the state’s hottest climate zones two sessions.12 And, in October 2024, Governor Gavin are more than double those of customers in cooler Newsom issued an executive order directing the climate zones. This is a problem of equity because California Public Utilities Commission (CPUC) and the counties in hot regions like the Central Valley have California Energy Commission to identify cost-saving lower median household incomes than in California’s opportunities within the ratepayer-funded electricity temperate coastal areas.9 programs they oversee.13 The order also instructed the CPUC to “modify or sunset any underperforming Energy affordability is shaping voter priorities. 37 or underutilized programs.” Additionally, it asked the percent of residents named “cost of living, economy, California Air Resources Board to explore ways to [and] inflation” as the most pressing issue in the better support low-income Californians through the state. Housing costs/availability was runner-up at a California Climate Credit, and the Office of Energy distant 15 percent.10 Rising electricity rates, on top Infrastructure Safety to seek strategies for reducing of California’s already high cost of living, appear to wildfire-related costs. The CPUC was also tasked with be eroding public support for policies designed to pursuing federal funding opportunities wherever combat climate change and advance environmental possible. Several of the solutions provided will be justice as well. Almost 60 percent of residents have discussed in this report. said they are unwilling to pay more for renewable electricity. And a growing number of Californians believe that “actions to reduce climate change” will WHY ARE ELECTRICITY RATES SO HIGH? have a negative impact on the job market.11 Electricity rates in California are high because a variety of costs are packed into customers’ bills, and 4 | LITTLE HOOVER COMMISSION some of these costs are very high and rising quickly. Electricity consumption has declined slightly since More specifically, rates have been driven upward by a peaking in 2008, even as the state’s population grew mix of wildfire-related costs, problematic rate design by 7 percent. But the amount the California Public resulting in expensive cost shifts, utility profits on Utilities Commission authorized utilities to collect capital investments, and declining consumption that from customers—called the revenue requirement— spreads fixed costs across fewer kilowatt-hours. At began rising at a moderate pace between 2012 and the same time, smaller add-ons such as low-income 2017, and much more sharply starting in 2019.15 subsidies and green energy programs increase bills Because overall electricity consumption did not only slightly.14 increase to match these higher costs, rates had to be raised to make up the difference. These trends are depicted in Charts 2, 3, and 4. Chart 2: Energy Consumption in GWh (1990-2024) Source: California Energy Commission Chart 3: IOU Revenue Requirement (2009-2023) Source: California Public Utilities Commission THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 5 Chart 4: Average Electricity Rates (2006-2024) Source: California Public Utilities Commission In 2019, the bundled system average rate for all three To explain the dramatic post-2019 rate increases large investor-owned utilities was 19.8 cents per kWh. described above, the components of the revenue In 2023, it was 30.8 cents per kWh, an increase of 55 requirement can be analyzed to determine the percent—outpacing the 38 percent increase in the specific types of electricity costs that have risen total revenue requirement during this same period. over time.17 As Chart 5 shows, from 2016 to now, Moreover, the revenue requirement for 2025 is several cost categories have remained flat. These projected to be between five and nine percent higher include costs relating to generation (fuel, power than 2024 according to the CPUC, meaning bills will plant operating and capital expenses, and power continue to rise barring a significant change in rates procurement from third parties), transmission (long- policy.16 distance, high-voltage poles, wires, and substations), and public purpose programs that support low- income subsidies and clean/efficient energy programs.18 Chart 5: Annual Combined Revenue Requirement (2016-2024) Source: California Public Utilities Commission 6 | LITTLE HOOVER COMMISSION It is also noteworthy that public purpose programs Fire—the deadliest in state history with 85 deaths represent only a small fraction of the total revenue and nearly 19,000 structures destroyed—were requirement. Policymakers looking for opportunities ignited by sparks from power lines.21 to contain these costs must carefully assess the This has imposed a serious financial burden on tradeoffs involved in shifting, reducing, or eliminating California’s investor-owned utilities and, by extension, them.19 For example, only about 3 percent of a their customers, in the form of legal settlements, customer’s bill is used to support the CARE/FERA low- rising insurance premiums, and infrastructure income subsidy programs. Clean energy programs upgrades designed to avoid igniting wildfires. Faced cost even less. Cutting these programs would thus with $30 billion in wildfire-related liabilities, PG&E have a minimal impact on overall bills but would filed for Chapter 11 bankruptcy in 2019.22 More harm vulnerable Californians and impede the state’s recently, Los Angeles County, Pasadena, Sierra energy transition goals. Madre, as well as individual residents filed lawsuits against Southern California Edison, alleging that its “Public purpose programs failure to properly maintain its grid infrastructure represent only a small caused the 2025 Eaton Fire. fraction of the total revenue According to California law and, specifically, the requirement. Policymakers doctrine of inverse condemnation, a utility can be sued for damages if its equipment causes a looking for opportunities to wildfire even if the utility was not negligent, say, in contain these costs must maintaining or upgrading its equipment.23 To be clear, the Commission has not taken a position on carefully assess the tradeoffs inverse condemnation and whether changes should involved in shifting, reducing, or be made to the law. Nor has it fully examined the eliminating them.” degree to which inverse condemnation has had an impact on California rates. Such an inquiry would require an extensive study, including hearings, testimony, and comparisons between California law COST DRIVER 1: WILDFIRE and that of other states—a study the Commission While generation, transmission, and public purpose has not undertaken at this time. program costs have remained relatively stable, distribution costs have surged, more than doubling In any case, wildfire liability costs are significant between 2019 and 2024. Distribution costs refer to and recent fires could potentially deplete the state’s operating and capital expenses tied to the lower- Wildfire Fund, a multi-billion dollar account meant voltage grid, including poles, wires, and substations. to stabilize utilities facing sudden wildfire-related And the most significant factor behind this growth financial burdens.24 To protect communities and has been wildfire-related costs. reduce their exposure to financial liability, California utilities have undertaken extensive—and costly— Climate change, aging infrastructure, and the growing wildfire mitigation efforts. population of residents in the “wildland-urban interface” have led to an increased frequency of For example, PG&E has outlined four main strategies catastrophic wildfires in California. Indeed, all of the underlying its efforts: undergrounding power lines, state’s 20 most destructive wildfires occurred after “hardening” the grid by strengthening poles and 1990.20 Several of these, including the 2018 Camp insulating wires; using Enhanced Powerline Safety THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 7 Settings to automatically shut off power when fire COST DRIVER 2: POWER FOR PROFIT threats are detected; and engaging in vegetation Utility profits and interest on loans also increase management to reduce the likelihood of power lines customer bills. While customers cover day-to-day touching branches and starting fires.25 grid operating expenses on an “at cost” basis, utilities make a profit on longer-term capital expenditures. The CPUC’s 2024 SB 695 Report outlines costs to Shareholders and lenders provide financing for ratepayers associated with mitigation efforts by the things like infrastructure upgrades and expansions, three large IOUs: approximately $27 billion from and these costs are recouped slowly through 2019-2023.26 Of this total, $11 billion was spent on customer bills with profit and/or interest added to insurance costs alone. In 2023, wildfire-related costs the total. represented between 7 percent (SDG&E) and nearly 13 percent (PG&E) of a customer bill. The rate base is the total value of generation, transmission, and distribution assets owned by For now, operational costs like vegetation a utility. As for-profit companies, investor-owned management as well as insurance costs make up utilities are allowed to charge a “rate of return” on the bulk of this total. Capital expenditures (e.g., line the assets that make up their rate base. The overall undergrounding) make up only a small percent in rate base of utilities has risen steadily over the past part because these costs are spread out over time.27 20 years. This upward trend accelerated beginning, As the wildfire rate base continues to grow, however, once again, around 2018 or 2019, with distribution- these costs will likely rise in the future. Indeed, related capital expenditures making up the bulk of PG&E recently submitted its Wildfire Mitigation the increase (Chart 6). 29 Plan for 2026–2028, which provides high-level cost projections: PG&E expects to spend $5.51 billion in This means that customers are paying not only for 2026, $6.45 billion in 2027, and $6.91 billion in 2028 rising infrastructure costs themselves, but also for on wildfire mitigation efforts.28 the profits and interest at rates authorized by the Chart 6: Rate Base Trends and Composition Source: California Public Utilities Commission 8 | LITTLE HOOVER COMMISSION CPUC. As consultant and former energy executive Volumetric pricing encourages conservation because Mark Ellis has shown, according to SDG&E’s 2024 customers pay more as they use more electricity. General Rate Case filings, about half of its total But, because it also recovers fixed costs, volumetric revenue goes towards capital costs, and half of that pricing can have unintended consequences, such pays for investor profits, interest on loans, and taxes as threatening funding for fixed-cost expenses if (Chart 7).30 consumption decreases. And, if rates get too high, it can discourage electrification because the cost Chart 7: SDG&E Revenue of charging an electric vehicle or using electric heat becomes prohibitively expensive.31 Because the electric grid is a shared system, declining participation—due to conservation or self-generation—results in a smaller customer base sharing a greater proportion of fixed costs. This phenomenon, known as a cost shift, has been identified as a major driver behind rising electricity rates in California and elsewhere.32 This is especially relevant to California’s Net Energy Metering (NEM) program. Because solar customers contribute less toward fixed system costs because they generate their own electricity, non-solar customers end up paying more.33 This cost shift is increased further because NEM 1.0 and Source: M. Ellis / American Economic Liberties Project 2.0 customers are compensated for power they supply to the grid at the retail rate. Indeed, the COST DRIVER 3: RATE DESIGN Public Advocates Office calculated that, in 2024, the Customers pay for most electricity-related costs—up NEM cost shift added $8.5 billion in extra charges to the amount authorized by the CPUC—based on to non-solar customers, although this figure has the quantity of electricity they consume as measured been debated.34 This will be discussed in more detail in kilowatt-hours (kWh). This is called volumetric below. pricing. This pricing model mirrors how most people CHARTING A PATH FORWARD pay for the bulk of the goods and services they buy, Achieving significant electricity cost reductions and on the surface, it seems fair that households may be possible, though challenging. California above a certain low-income threshold would pay the faces several state-specific headwinds—extreme same amount per unit of electricity consumed. wildfire risk, fast rising insurance costs, obligations to costly programs like Net Energy Metering, and However, utility bills pay for both variable costs—for its commitment to renewable energy—that make example, the natural gas burned by a power plant to lowering electricity rates difficult. make energy—and fixed costs that do not depend on how much energy a customer uses. Fixed costs A different approach is to “flatten the curve” of cover things like grid maintenance, wildfire mitigation accelerating costs—setting clear goals for limiting and insurance, and funding for a variety of electricity- rate increases over time and aligning utility budgets related public benefit programs. with those targets.35 While dramatic short-term rate THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 9 cuts may be unrealistic without major tradeoffs, modest reductions that compound year after year could produce meaningful long-term savings. Policymakers are already thinking in this direction. For example, an early version of a 2025 bill would have required utilities to submit an “inflation- constrained” scenario as part of their General Rate Case application.36 Under this provision, the CPUC would only be allowed to authorize expenditures that outpace inflation if the utility provides “clear and convincing evidence” that such expenditures are necessary. Finally, it is important to recognize that achieving significant universal rate cuts will be difficult without shifting major costs onto non-ratepayer funding sources. Efforts may therefore need to be targeted towards those who carry the greatest cost burdens. The state should also prioritize streamlining utility- related processes and reducing waste to control costs and increase public confidence. These priorities are reflected in the recommendations that follow. 10 | LITTLE HOOVER COMMISSION RATE REDESIGN FOR CALIFORNIA’S ENERGY FUTURE Electric rates in California are high in large part making their use potentially cheaper than non- because these rates pay for much more than just electric alternatives.40 the cost of electricity itself. How these costs are Importantly, by charging a flat monthly fee, the state recovered—through volumetric pricing, fixed charges, will ensure that all customers—including rooftop or non-ratepayer sources—affect not only customer solar owners—contribute fairly to fixed utility costs bills, but also the state’s ability to achieve its climate such as wildfire mitigation, grid maintenance, and and equity objectives. The Commission believes that public-purpose programs. Currently, every customer modifications to current rate design can both lower pays a “non-bypassable” charge on the energy they costs for customers and stabilize how electricity- consume from the grid to help pay for some of these related expenses are funded. costs.41 But, because this charge is volumetric and LOWER RATES BY RAISING THE FIXED solar owners consume less energy from the grid, they CHARGE may not always contribute their full share toward To help address the problems inherent in volumetric these costs. electricity pricing outlined above, most customers of California’s investor-owned utilities will begin paying The adopted fixed charge has drawn criticism, a $24.15 fixed charge beginning in late 2025 or however. Some argue it will increase bills for early 2026.37 Low-income households receiving a bill customers who conserve electricity, while others subsidy will pay $6 or $12, depending on the program worry that lower rates could encourage wasteful in which they are enrolled. use. Critics have also raised concerns that the charge provides insufficient support for low-income The fixed charge is intended to cover costs that do households and fails to reflect differences in income not vary with consumption as described above. It levels.42 is not expected to significantly change customers’ total monthly bills because rates will go down by five Several alternative proposals were offered, including to seven cents per kWh (about 15 percent), thereby a highly progressive structure modeled after state offsetting the charge. California is unusual in that its income tax brackets, and simpler tiered models investor-owned utility customers do not pay a fixed developed by the Public Advocates Office and the charge. In fact, almost 75 percent of such customers utilities themselves.43 The overall amount of the nationwide pay a charge of between $5 and $20 and, charge was also a matter of debate as can be seen in some cases, the charge is markedly higher.38 from a chart published by the CPUC in its AB 205 Fact sheet (Chart 8).44 Supporters of the fixed charge concept point to several benefits. By lowering the per-kWh electricity The charge the CPUC adopted is identical—down rate, it will provide bill relief for high-use customers, to the cent—to that billed to Sacramento Municipal including larger, often lower-income households, Utility District (SMUD) customers and is presented as well as those in hot climate zones that rely on as the median among municipal utilities in the state. air conditioning.39 The fixed charge also reduces However, by setting the charge at this level, the CPUC seasonal bill fluctuation for customers and creates may have limited the potential benefits of the charge. a more stable revenue stream for utilities. And, by lowering overall electricity rates, it may encourage the adoption of electric vehicles and appliances, THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 11 Chart 8: Comparison of Proposed Fixed Charges Source: California Public Utilities Commission Table 2: Fixed Charge Impact on Rates Source: SCE, PG&E, SDG&E 12 | LITTLE HOOVER COMMISSION Many groups—including ratepayer advocates such ◊ Broader Cost Distribution: Fixed costs are as the Public Advocates Office (“Cal Advocates”) and spread more evenly across all customer classes, The Utility Reform Network—argued for a higher fixed including Net Energy Metering customers. charge than the one ultimately adopted. And, in their ◊ Targeted Bill Impacts: Larger households and joint proposal, the three large IOUs contended that those in hot climate zones would benefit because the charge should not simply replicate SMUD’s dollar their higher energy use means they would reach figure, but instead be scaled to reflect the IOUs’ much the “breakeven point” more quickly, with savings larger revenue requirements and customer bases. increasing as consumption grows. Using SMUD’s charge as a percentage of revenue ◊ Stability for Customers: Seasonal fluctuations in recovery, they proposed monthly charges in the $50 bills would be moderated, providing greater bill range (and higher for SDG&E)—more than double the predictability for households that rely heavily on $24 ultimately adopted.45 electric heating or air conditioning. Of particular note is a table the IOUs submitted ◊ Incentivizing Electrification: Lowering electricity illustrating the cumulative fixed charges required rates makes it less expensive to operate to cover different non-variable components of the an electric vehicle or appliance, potentially revenue requirement, alongside the corresponding encouraging adoption. step-by-step reductions in volumetric rates (Table 2).46 ◊ Utility Revenue Certainty: Revenue stream volatility tied to seasonal demand or increasing This table is helpful for several reasons. First, by cost shifts is reduced. linking specific non-variable costs to specific fixed charge amounts, policymakers can get a clearer sense of the dollar amounts required to meet different While the Commission does not advocate for a costs. For example, wildfire mitigation and vegetation specific fixed charge amount, it does recommend management expenses fall under the category of that the Legislature task the CPUC with revisiting and “non-marginal distribution costs”. For PG&E, funding increasing the fixed charge to advance the equity this cost category alone would require a fixed charge and climate objectives outlined above. Geographic of $37.93—well over the total amount of the adopted inequities persist in California—residents of hot charge for 2025-26. regions, who often have lower incomes, face high energy burdens they cannot avoid. At the same These figures show that, under the IOUs’ proposal, the time, the state’s climate goals are more likely to breakeven point for energy consumption—the level be met under a rate structure that encourages of usage at which savings from lower per-kilowatt- electrification. hour rates offset the higher fixed charge—would shift downward. For example, applying UC Berkeley That said, there is a real risk that both rates and professor Severin Borenstein’s method to the the fixed charge could simply continue to climb proposed fixed charge, a PG&E household would need once implementation begins. In fact, investor- to use about 485 kWh per month to offset a $58.21 owned utilities immediately sought the ability to fixed charge with the associated $0.12 per-kWh rate raise the fixed charge above $24, not only through reduction (485 kWh × $0.12 ≈ $58.20). (The breakeven the General Rate Case process but between point under the adopted $24.15 charge is 514 kWh per proceedings.48 month).47 To protect ratepayers, the CPUC should provide Based on these calculations and the discussion above, guarantees against raising rates beyond a certain the Commission believes a higher fixed charge and amount once the new fixed charge is in place. For corresponding reduction in rates will bring a number example, any future increases to the fixed charge of benefits: could be pegged to inflation. Moreover, periodic THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 13 equity tests could also be mandated to ensure identify which costs should not be recovered through that proposed increases do not disproportionately monthly bills and (2) match those costs to appropriate burden low-income customers or residents of high- non-ratepayer funding sources. An example of a cost climate zones. These types of measures will help possible scoring-based mechanism for such an ensure that utilities are able to recoup costs while assessment has been provided in Appendix C. ensuring that customers continue to benefit from the Furthermore, the recommended report should original intent of the fixed charge. contain a formal feasibility study to assess the RECOMMENDATION 1: The Legislature should potential benefits, limitations, risks, and long-term mandate that the CPUC increase the income- implications of funding certain costs from non- graduated fixed charge with the goal of lowering ratepayer sources. For example, supporters of moving rates, reducing the cost burden on customers in costs onto the General Fund argue that it would make hot climate zones, and encouraging electrification utility funding more progressive in contrast to the while spreading cost drivers such as the NEM regressive status quo.50 California’s tax system takes program and wildfire mitigation expenses across all income into account, while utility bills remain flat customer classes. Safeguards should be established across income brackets with the exception of the CARE to guarantee that rates will not be increased beyond and FERA subsidy programs. defined limits following the implementation of the Yet there are tradeoffs that should be taken into charge and that targeted customers continue to account. The state budget is vulnerable to economic benefit. fluctuations, potentially resulting in program cuts. DEVELOP A STRATEGY FOR IDENTIFYING Programs that are removed from bills and tied to the FUNDING SOURCES General Fund could face risks in lean years, potentially In his executive order, Governor Newsom directed undermining long-term planning and investments. both the CPUC and CEC to identify programs A legislatively-mandated feasibility study could “whose funding might more appropriately come help clarify which energy-related costs, if any, are from a source other than ratepayers”. The source appropriate to shift off customer bills, and under what or sources of this funding were not specified, but conditions such a shift would be fiscally prudent and could potentially include the State General Fund equitable. or Greenhouse Gas Reduction Fund, as well as grants. In its response, the CPUC suggested using RECOMMENDATION 2: The California Legislature non-ratepayer funding to pay for the NEM cost shift should require the CPUC to create a clear, criteria- and “any future cost-shifting programs”, to increase based framework to determine which electricity costs CARE and FERA subsidies, and to pay for programs should be shifted from customer bills to alternative that do not meet its cost-effectiveness threshold. funding sources, and to match each cost with the It also discusses reallocation of the Climate Credit most appropriate source, such as the General Fund, to reduce rates, and briefly mentions funding Greenhouse Gas Reduction Fund, or federal grants. wildfire mitigation costs using “a source other than This framework should be accompanied by a formal ratepayers.”49 feasibility study to assess the benefits, risks, and long- term fiscal implications of such shifts, including their The Little Hoover Commission does not take potential impacts on equity, affordability, and program a position for or against using non-ratepayer stability. A structured approach would ensure that funding sources to lower electricity rates. However, any movement of costs off bills is transparent, fiscally it recommends that the Legislature move the prudent, and aligned with California’s policy goals. discussion beyond broad suggestions and require a thorough, evidence-based assessment of the idea. This should include developing clear criteria to (1) 14 | LITTLE HOOVER COMMISSION Regulatory Reform: Keeping Power in Check Californians get their electricity from different in the revenue requirement without the need for sources depending on where they live—and annual proceedings. sometimes by choice. Most are served by either The General Rate Case is an “evidentiary process” investor-owned utilities (IOUs) or publicly owned that is often equated to a trial.56 It begins with an utilities (POUs) such as municipal utilities. In many application from the utility presenting its rationale IOU service areas, residents can also opt to have for the total amount it should be allowed to collect the generation portion of their electricity provided from customers in a given test year, typically higher by a community choice aggregator (CCA), which is a than in the prior cycle due to changes in operating publicly owned and locally governed entity. conditions, inflation, and the need to recover costs Although the state regulates certain aspects of all for new capital projects. In a series of hearings these entities, investor-owned utilities are subject presided over by an administrative law judge, the to the heaviest regulation.51 This is because they utility and formal parties—including the CPUC’s are considered “natural monopolies” and, as such, own Public Advocates Office, outside experts, and have been granted the sole right to operate the advocates—present evidence, submit testimony, and transmission and distribution infrastructure in cross-examine witnesses. their respective service territories.52 This is allowed The administrative law judge then issues a proposed because competition in electric infrastructure has decision, which the commission may adopt, modify, historically harmed markets and the public interest— or reject. In-person and virtual public forums are imagine multiple poorly regulated power lines held throughout the process to solicit input from the crisscrossing neighborhoods, customers losing power public. A similar process is used for both Phases I and due to companies going out of business, or being II of the General Rate Case: Phase I determines the denied service due to profit motives.53 total revenue requirement, and Phase II decides how In the absence of market competition, it is the job of that amount is allocated among customer classes and the California Public Utilities Commission to regulate the specific rates each will pay. investor-owned utility funding and profits, set rates, MANDATE TIMELY COMPLETION OF THE implement and monitor policies and programs GENERAL RATE CASE mandated by the State Legislature, and to ensure that General Rate Case proceedings are huge Californians have access to safe, reliable electricity undertakings. One CPUC overview describes the over the short and long term.54 rate case as an “18-month+ process” from filing to THE GENERAL RATE CASE decision.57 In fact, since 2017, Phase I proceedings have averaged over 26 months—over two years— The total amount investor-owned utilities are allowed with approvals often granted well into the test to collect from their customers and, ultimately, year (Chart 9). Phase II proceedings typically begin the electricity rates for each customer class, are before Phase I concludes and are decided even later, determined through the two phases of the General sometimes extending beyond the test year entirely.58 Rate Case (GRC). Through that process, revenue requirements are determined on a four-year cycle, These delays have several consequences. When with an initial “test” year followed by three “attrition” decisions for a test year extend into or beyond that or “post-test” years in which annual revenue year, the very concept of the test year becomes requirements are adjusted.55 This allows for changes muddled. Customers initially pay rates based on THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 15 the previous revenue requirement, then must all future cases. It should be added that protracted catch up by paying the new—typically higher— proceedings may invite unwarranted complexity, revenue requirement retroactively. The problem is distracting parties from addressing pressing compounded when the Phase II decision lags behind challenges in a focused manner. Phase I, leaving customers to pay the updated The Commission therefore recommends that the revenue requirement under outdated rate designs. Legislature require Phases I and II of the General Delays also slow down capital improvement projects Rate Case to be completed within a defined timeline and increase the cost of capital more generally. that concludes before the start of the test year with These concerns are detailed in a motion by Southern provisions for extension in extraordinary cases. California Gas Company and San Diego Gas & Electric There is precedent for this among several other urging the CPUC to commit to a General Rate Case states. To cite just a few examples, the Regulatory timeline that would approve new rates as close as Commission of Alaska—its equivalent to the possible to the start of the test year.59 The motion CPUC—has 270 days (9 months) to rule on a utility’s argues that “a timely decision in a General Rate Case application for a new revenue requirement or rate proceeding not only provides regulatory certainty design or the application automatically takes effect.60 and demonstrates the Commission’s commitment In Ohio, the process must be completed within 275 to prior decisions, it also helps protect ratepayers by days and, within that timeframe, certain actions must reducing rate volatility and providing rate stability.” It also be completed by various deadlines.61 Although notes that the CPUC attributed the delay to “overlap” seemingly not bound by law, New York State’s Public with other proceedings, but counters that accepting Service Commission has committed to an 11-month this rationale could result in “perpetual delays” in timeline.62 Clear, month-by-month guides specify what must be accomplished to complete the review on time. Chart 9: Length of General Rate Case Proceedings from Filing to Decision Source: General Rate Case Filings (CPUC) 16 | LITTLE HOOVER COMMISSION California should adopt a similar approach to these Investor-owned utilities in California submit Cost of states, supported by the streamlining and staffing Capital Applications to the CPUC every three years, recommendations outlined in this report. Californians most recently in March of 2025.65 These filings include will benefit from—and are entitled to—the timely proposed costs for long-term debt, preferred equity, completion of rate case proceedings, which would and common equity, along with a recommended improve rate stability and ensure that utility debt-to-equity ratio. Of particular significance is the budgeting reflects current market conditions. return on common equity—the utility’s allowable profit rate—which is intended to attract financing RECOMMENDATION 3: To reduce costs and for capital improvements. Return on equity is, by improve regulatory responsiveness, the Legislature necessity, a prediction based on market forces, which should mandate that General Rate Cases be change along with the economy and the strengths completed within a specified timeline prior to and liabilities of the utility in question.66 That said, the start of the test year in question, with default for the past several decades, the average authorized mechanisms in place if deadlines are missed. return on equity has generally fallen between 9 and 12 percent for utilities nationwide.67 ENSURE FAIR COST OF CAPITAL ASSESSMENT Utilities argue that high rates of profit are necessary In addition to the revenue requirement, the CPUC to attract investors and finance infrastructure. But also determines how much profit each utility is some believe these returns are higher than necessary allowed to earn—based on market conditions and and that the methods used to calculate them favor company risk—through its separate triennial Cost utilities. In its most recent filing, Southern California of Capital proceedings.63 Investor-owned utilities do Edison justifies its proposed return on equity by citing not earn profits on day-to-day costs such as energy market volatility and heightened financial risk. Much generation, distribution, or operating expenses, of its rationale is based on testimony from Dr. Bente which are provided to customers at cost. Instead, Villadsen of the Brattle Group, who uses two proxy utilities are allowed to earn a profit on long-term groups (electric utilities and other regulated utilities) capital expenditures and to pay interest on money and several models to estimate a “reasonable” return borrowed in order to attract financing. on equity.68 Dr. Villadsen concludes that Southern California Edison’s risk profile warrants a return on Because utilities earn profits on capital equity at the high end of the range: 11.75 percent. improvements, they may be incentivized to pursue projects that are more expensive than necessary, Utilities also defend higher profit margins by pointing since expensive projects maximize investor returns. to the risks they face. For example, in a recent Moving overhead wires underground to prevent filing, PG&E gave several reasons for requesting wildfire ignition is a commonly cited example. a higher return on equity—that is, rate of profit According to the CPUC, California’s IOUs have on investment.69 These included the company’s reported that moving existing overhead distribution exposure to wildfire-related risks and concerns that lines underground will cost anywhere from $1.85 the state’s wildfire fund may not be sufficient to cover million per mile to $6.1 million per mile—about ten future liabilities. The company also cited the need times the cost of building new overhead lines. Given for major spending on wildfire prevention and clean that PG&E alone plans to underground 10,000 miles energy projects. And, because it is still recovering of powerlines, this both represents a major expense from bankruptcy and has a relatively weak credit and raises questions about whether utilities tend to rating, it argued that a higher return on equity would choose the most cost-effective solutions or the most help attract investors and improve its longer-term lucrative ones.64 financial stability. THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 17 But critics have shown that utility regulators often inflated profit requests, reduce strategic over-asking, approve profit levels that exceed what is truly needed and ground CPUC decisions in objective and fiscally to attract investment. A working paper by two prudent thinking. Berkeley Energy Institute graduates shows that utility COORDINATE AND STREAMLINE COST profit rates have stayed high and steady nationwide PROCEEDINGS for the past 40 years—even as the actual cost of Uncoordinated timelines as well as voluminous and raising capital has gone down.70 Using the Capital duplicative filings get in the way of holistic oversight Asset Pricing Model, a widely accepted method for of utility spending. The General Rate Case occurs estimating the cost of capital, the authors found that every four years and is staggered across utilities. By ROEs granted to utilities have remained above the contrast, both Wildfire Mitigation Plan reviews and model’s prediction.71 Cost of Capital proceedings follow a three-year cycle Mark Ellis points to several reasons for this pattern: and are not staggered, requiring all utilities to file at utilities have the resources and expertise to make a the same time. Other cost-related proceedings follow difficult-to-counter argument for higher profits; may less predictable schedules. rely on questionable or overly complex economic Moreover, as noted above, utilities often employ models; and justify high returns by referencing past well-resourced consultants—funded by ratepayer high rates and other states, potentially reinforcing a revenue—who present detailed and technically “cycle” of generous allowances.72 complex proposals that can be difficult to challenge.74 To disrupt this pattern, the Commission recommends For example, PG&E’s General Rate Case docket for that the Legislature mandate that the State 2023–26 includes over 560 separate filings, and its Treasurer’s Office provide the initial determination Wildfire Mitigation Plan for 2023–25 runs more than of the rate of return on equity and return on debt 1,500 pages.75 These materials contain complex (collectively, the rate of return) authorized for each financial models, legal arguments, engineering utility. The utility and advocacy groups can then specifications, and risk assessments—all of which respond to this initial determination as parties. require close scrutiny to ensure reasonable costs and equitable outcomes. As California’s “lead asset manager, banker and financier,” the State Treasurer’s Office is well The Commission therefore recommends that this be positioned to perform this role, drawing on its addressed through improved synchronization and expertise in capital markets, interest rate trends, integration of cost-related proceedings, including— and investor expectations.73 Involving the Treasurer’s but certainly not limited to—the General Rate Case, Office early in the process could introduce a more Wildfire Mitigation Plan review, and Cost of Capital neutral, market-oriented benchmark, improve proceedings. It also recommends that utility filings transparency, and reduce the time and resources be standardized and simplified to the extent possible currently spent on protracted debates over these without sacrificing detail necessary for adequate figures. oversight. RECOMMENDATION 4: To improve fairness, There has already been policy proposed along transparency, and cost-effectiveness, the Legislature these lines. The CPUC recently recommended should task the State Treasurer’s Office with reducing wildfire-related costs by better aligning the conducting an independent analysis to inform Cost of Wildfire Mitigation Plan with the General Rate Case Capital proceedings at the CPUC. This analysis should process. Other states do not separate rate cases identify appropriate borrowing rates and return from cost of capital determinations; for example, on equity, based on current market conditions and these deliberations are integrated in New York and utility-specific risk. This approach would help prevent 18 | LITTLE HOOVER COMMISSION Texas, among others.76 Indeed, in California, cost of proceedings and the high stakes for ratepayers of capital was part of the General Rate Case prior suggest a need for closer scrutiny. The CPUC’s to 1990 and was reviewed annually until 2008. This explanation of delays in the General Rate Case history suggests that maintaining an up-to-date process due to competing priorities, as noted above, sense of the cost of capital has long been regarded should also be taken seriously as a potential indicator as valuable. The Commission recommends returning of limited resources. A formal evaluation by the State to this practice, while also taking steps to ensure that Auditor would help determine whether the agency’s deliberations be concluded in a timely fashion. current staffing levels, allocations, compensation structures, and recruitment pipelines are adequate RECOMMENDATION 5: Integrate as many cost- to meet its expanding responsibilities. related regulatory proceedings as possible (e.g., cost of capital, wildfire) into the General Rate Case to RECOMMENDATION 6: The Legislature should facilitate holistic budget planning. Modernize CPUC direct the State Auditor to evaluate whether the proceedings to improve accessibility and efficiency California Public Utilities Commission has adequate by adopting streamlined standards for filings and staffing and expertise to conduct rigorous, timely accelerating review timelines. rate case and cost of capital reviews, and effectively monitor utility and program performance. EVALUATE CPUC STAFFING The Auditor should recommend increases or The Little Hoover Commission recommends reallocations as needed to strengthen oversight. evaluating whether the California Public Utilities Commission has sufficient staff capacity and expertise to effectively regulate investor-owned utilities, with a particular focus on its ability to review complex filings, oversee utility performance, and engage the public. This recommendation does not call for an automatic increase in staffing, but for an in-depth analysis of staffing levels, allocations, and coordination to inform potential organizational changes. Multiple witnesses raised concerns that the CPUC remains at a disadvantage relative to the utilities it regulates. During the Commission’s February hearing, Severin Borenstein testified that CPUC staff are overwhelmed: “I think the CPUC is massively understaffed and undercompensated, and they are just overwhelmed with the many things that they are required to do with limited staff. And when they get into these rate of return hearings, the utilities are able to bring world experts in finance, and the CPUC is really outgunned and outmanned on this.”77 However, the number of staff dedicated to utility regulation has more than doubled from 440 in Fiscal Year 2019–20 to 898 in Fiscal Year 2025– 26.78 The Commission is aware of this increase and does not assume that additional staffing is automatically warranted. In any case, the complexity THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 19 Why Aren’t IOUs as Cheap as Municipal Utilities? Municipal utilities are public agencies owned and operated by local governments. As publicly- owned utilities, they typically serve defined geographic areas like cities or counties and are largely unregulated by the CPUC.79 Some—like the Los Angeles Department of Water and Power (LADWP) and Sacramento Municipal Utility District (SMUD)—own both distribution and generation assets, while others rely on energy markets to procure electricity. Electricity rates charged by municipal utilities are generally lower than the rates of large IOUs. This can be seen in a chart created by UC Berkeley professor Meredith Fowlie, which compares electricity rates per kWh across a large number of investor- and publicly-owned utilities in California (Chart 10).80 Chart 10: Rate Comparison by Utility Type (July 2023) Source: Energy Institute at Haas / UC Berkeley This rate disparity can be explained, in part, by structural differences. Publicly-owned utilities, such as municipal utilities, do not need to seek profits for shareholders and, for this reason, are not incentivized to pursue expensive capital projects to generate return on equity. They can also access tax-exempt municipal bonds, allowing them to raise capital at lower cost.81 Investor-owned utilities, by contrast, face cost drivers that municipals often do not. IOUs often operate in large swaths of wildfire-prone regions, are liable for wildfire-related damages, and must make major infrastructure investments to mitigate wildfire risk. IOUs are also required to 20 | LITTLE HOOVER COMMISSION comply with a variety of costly state mandates, such as the Net Energy Metering program. And, as Severin Borenstein testified, IOUs serve geographically large and diverse territories, which introduces significant operational inefficiencies.82 Most municipal utilities serving California’s metropolitan areas were established in the late 1800s and early 1900s. With the exception of the Southern California Public Power Authority, no publicly-owned electric utility serving a major population center has been formed since the 1940s.83 The California Constitution permits cities and counties to operate public utilities, including electric utilities, and state law outlines the process for forming Municipal Utility Districts.84 Nevertheless, investor-owned utilities (IOUs) often oppose municipalization, not least because it represents the departure of their customer base. For example, PG&E has opposed municipalization in San Francisco.85 And, in 2010, PG&E also lobbied strongly in favor of Proposition 16, which would have required a two-thirds supermajority of voters to form a municipal utility, making municipalization much more difficult. The measure was defeated, though only narrowly.86 THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 21 Equity and Access The report’s final set of recommendations addresses To encourage rooftop solar adoption, the state electricity-related programs under the broad themes implemented its Net Energy Metering (NEM) incentive of equity and access—ensuring these initiatives are in 1996 and this was renewed in 2016 under slightly fair, easy to participate in, and provide meaningful different terms as ‘NEM 2.0’. In addition to powering benefits to the people they are intended to serve. their own homes, customers with rooftop solar who Programs covered include Net Energy Metering (NEM), are enrolled in the NEM program are awarded credits the California Climate Credit, the Family Electric for the excess electricity they supply to the grid. These Rate Assistance (FERA) Program, and the Electric credits could then be used to offset electricity costs Program Investment Charge (EPIC). In each case, the incurred when solar panels were not generating Commission’s recommendations aim to maximize power, for example, at night. value for participants while placing equity at the State and academic analyses have generally center. concluded that the NEM program—whose benefits BALANCE FAIRNESS AND REFORM IN NET are guaranteed for 20 years, ending completely in ENERGY METERING 2043—significantly contributes to high electricity rates for non-solar customers. This is for two reasons. First, California leads the nation in installed solar capacity. NEM customers pay less into the system because they As shown in Chart 11, solar generation fluctuates generate their own power. Second, these customers seasonally, but in recent summers utility-scale solar are compensated at the retail rate for the energy they has supplied more electricity than any other source.87 produce. When the estimatedamount of energy generated by small-scale solar is added, solar provides more than This means that NEM customers are not paying half of the state’s total energy during summer months. enough for fixed utility costs—e.g., new infrastructure, The continued growth of utility-scale and rooftop solar wildfire costs, public programs—but, as electricity rates is critical not only for meeting California’s ambitious rise due to their non-participation, non-solar owners clean energy goals, but also for improving reliability have to compensate NEM customers at increasingly during peak demand periods and in regions prone to high levels. Chart 12 helps visualize the impact of this power shutoffs. cost shift on customer bills in 2023.88 Chart 11: Generation Amount by Energy Source Source: U.S. Energy Information Administration 22 | LITTLE HOOVER COMMISSION Chart 12: Impact of the NEM Cost Shift on Average Bill Source: California Public Utilities Commission And NEM costs have continued to rise. The Public ◊ End legacy NEM benefits at sale of home Advocates Office estimates that, in 2024 alone, NEM A recent review of these cost-saving solutions has shifted approximately $8.5 billion in costs to non- raised concerns about their effectiveness and the solar customers, representing between 21 and 27 unintended consequences of implementing them.93 percent of their total bill. This total has been debated, For example, ending a NEM contract when a home however.89 The CPUC states that funding the NEM is sold represents a significant loss of value and 1.0 and 2.0 cost shift through non-ratepayer sources could make a challenging housing market even more would reduce average rates by 15 percent.90 challenging for all involved. To help limit costs, California introduced the There may also be legal obstacles to modifying NEM Net Billing Tariff (NBT), also known as NEM 3.0, benefits after the fact. Indeed, even as the CPUC has beginning in April 2023. Under the NBT program, proposed drastic reductions in previously agreed- solar owners receive credit only for the wholesale upon Net Energy Metering benefits, the California cost of producing energy, typically cited as a 75 Supreme Court recently ordered a lower court to percent reduction compared to credits received reconsider whether it erred in allowing the reduction under NEM 1.0 and 2.0.91 And, more recently, the of solar payments by replacing NEM 2.0 with the CPUC has suggested several additional mechanisms NBT program.94 Litigants argued that the court was for reducing expenses associated with the NEM cost overly deferential to the CPUC and failed to properly shift:92 account for the public benefits of rooftop solar. As a result, policy around solar and Net Energy Metering ◊ Fund NEM costs through non-ratepayer sources remains in a state of flux. ◊ Reduce legacy periods The Commission recognizes that, while the Net ◊ Determine compensation based on Energy Metering program is a major driver of interconnection date electricity costs for non-solar customers, home ◊ Add a charge to solar customers to offset shifted solar is good for grid stability and the environment. costs THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 23 It also acknowledges that home solar adoption is It should also be noted that the transition to the Net a major investment driven by a desire to pay less Billing Tariff (NBT) has significantly impacted the solar for electricity and to contribute to clean-energy industry, leading to a major decline in installations.97 generation. According to a California Solar and Storage Association report, solar installations dropped by Furthermore, solar adoption is not solely the domain approximately 66 percent from 2023 to 2024—and of the privileged, but has become more equitable in higher figures are cited elsewhere. The report also recent years. While rooftop solar adopters remain states that “at least” 17,000 high-quality California a minority of the total population, trends suggest jobs in the solar industry were lost as a result of the growing accessibility. The Lawrence Berkeley National shift to NBT.98 Laboratory (LBL) has tracked these changes in its annual reports on solar demographics (Chart 13).95 The Commission believes that California should seek to find a balance between reductions to NEM In 2023, California’s median household income was benefits and fairness to those who have invested in $95,521, according to the U.S. Census Bureau.96 home solar systems. Thus, legacy NEM participants LBL data indicates that households earning under should retain their compensation structure until they $100,000 per year accounted for 40 percent of have recovered their system installation costs plus a total solar installations, while the remaining 60 reasonable return on their investment. percent had incomes above this threshold. Among these, the largest group of adopters falls within the This threshold should be defined based on the $50,000–$100,000 income range, suggesting that installed cost of the system—minus rebates and low-to-middle-income households are increasingly tax credits—and should account for both self- embracing solar. consumption savings and export earnings. Once a system reaches a certain threshold—such as 110 to 120 percent of net cost—export compensation Chart 13: Income Trends of Home Solar Owners (2010-2023) Source: Lawrence Berkeley National Laboratory 24 | LITTLE HOOVER COMMISSION should change to a more sustainable rate All residential customers of California’s investor- design. This approach preserves solar customers’ owned utilities currently receive the state’s Climate expectations of a return while ensuring that Credit twice a year. In 2025, depending on their ratepayers are not excessively burdened. provider, households will see between $56 and $81 credited to their bills in April and again in October, RECOMMENDATION 7: To balance fairness for drawn from a total pool of $1.39 billion.101 home solar investors with the need to reduce the cost shift due to Net Energy Metering, the state In his executive order, Governor Newsom directed should limit NEM program duration and/or benefits CARB and the CPUC to collaboratively identify ways while ensuring participants can recover their to increase the effectiveness of the Climate Credit, investments in a timely fashion. “particularly for low-income Californians.”102 In response, the CPUC has calculated various scenarios MAKE THE CALIFORNIA CLIMATE CREDIT for how this credit to be allocated and its impact on MORE EFFECTIVE customer bills (Table 3).103 The California Air Resources Board (CARB)—a unit within the California Environmental Protection Of these scenarios, the Commission supports Agency—shapes energy policy through its regulation redirecting the Climate Credit to all customers who of airborne pollutants, particularly greenhouse gas receive low-income subsidies and customers in hot emissions.99 CARB has established a declining cap on climate zones provided they are not enrolled in a total emissions from electricity providers and other Net Energy Metering program.104 It also recommends “covered entities,” compelling them to reduce their distributing this credit during summer months when climate impact over time.100 bills are highest to provide maximum relief.105 To support compliance, CARB collects emissions data As Chart 14—created by the Public Advocates and operates the state’s Cap-and-Trade auction— Office—illustrates, during summer months, electricity recently renamed Cap-and-Invest—which allows bills in these areas have historically been more than companies to buy and sell emissions allowances twice those in cooler zones.106 This disparity is not the and offsets. Proceeds from the auction fund various result of waste but of necessity. As climate change environmental programs and are also returned drives hotter summers, households must rely more directly to ratepayers through the California Climate heavily on air conditioning, driving up bills. Credit. Table 3: Climate Credit Reallocation Scenarios Allocation Total Residential Cli- Estimated Total Bene- Resulting Bill mate Credit, 2025 fiting Accounts Credit All Customer Accounts (status quo) $1.39 Billion 11.6 million $120 CARE and FERA Customer Accounts $1.39 Billion 3.1 million $454 only Non-NEM 1.0, 2.0, or NBT Customer $1.39 Billion 9.9 million $142 Accounts Non-NEM/NBT CARE, FERA, and Cus- — — $445 tomers in Hottest Climate Zones Source: California Public Utilities Commission THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 25 Chart 14: Hot and Cool Climate Zone Summer Bill Amounts Source: Public Advocates Office This is a matter of equity. In many—though not all— This suggests that low-income houses are putting instances, the hottest parts of the state correspond their comfort and potentially their health at risk in with lower-income populations. This is evident when seeking to save money on electricity.109 the map detailing PG&E’s “baseline territories” are compared with the income maps for California’s The Commission recognizes that poverty is not counties.107 confined to hot climate zones and that middle- and high-income households are also present in hot A utility’s baseline allowance determines the amount regions of the state. Even so, directing the Climate of electricity a household in a given location can Credit to these zones will provide a climate-focused consume at a relatively low rate based on average benefit that is broad in scope yet still weighted usage in that area. Once the baseline is exceeded, the toward lower-income populations, who are rate goes up. disproportionately represented in hotter areas. This approach offers the most effective way to deliver High summer baseline allowances are provided in the meaningful bill support through a credit designed for state’s hottest regions—for example, Central Valley climate purposes. counties stretching from Redding to Bakersfield in PG&E’s service area—to account for the substantial RECOMMENDATION 8: Direct California Climate energy required for air conditioning. These territories, Credits to all low-income subsidy customers and all located up and down California’s Central Valley, customers regardless of income in hot climate zones also correspond with some of the lowest median who do not participate in Net Energy Metering. These household incomes in the state (see Figs. 1 and credits should be distributed during summer months 2).108 Research has shown that households in lower- when usage is high. Doing so will increase the efficacy income census tracts tend to resist using energy of the credit and, in particular, will provide bill relief for heating and cooling as compared to wealthier in economically burdened regions of the state. households. 26 | LITTLE HOOVER COMMISSION INCREASE LOW-MIDDLE INCOME SUPPORT to increase the CARE and FERA discount.”112 This California utilities administer two ratepayer-funded could take the form of a larger discount for current subsidies that provide energy bill assistance to low- participants, as the CPUC suggests, or an expansion income households: the California Alternate Rates for of eligibility to include households with slightly higher Energy (CARE) and the Family Electric Rate Assistance incomes. (FERA) programs.110 Eligibility is based on household In an April 2025 filing, the three large IOUs plus size and overall income. CARE provides a 30 to 35 Southern California Gas conducted a county-by- percent discount on electricity bills to households county comparison of the number of CARE-enrolled making up to 200 percent of the federal poverty level. households relative to the estimated number FERA provides an 18 percent discount on electricity of CARE-eligible households and found that the bills to households making between 200 and 250 enrollment rate was between 97 and 110 percent. percent of the federal poverty level. CARE is much By contrast, FERA enrollments were between 12 and larger than FERA, disbursing over $2.23 billion in 16 percent of eligible households, falling far short subsidies in 2023 compared to just under $34 million of enrollment targets.113 And, indeed, in its July 2025 for FERA.111 filing, Southern California Edison reported that just The CPUC has acknowledged that energy costs will 15 percent of its budgeted subsidy dollars had been remain high for the “foreseeable future” and has spent—around $7.7 million out of a total pool of recommended using “stable non-ratepayer funds $51.5 million. Figure 1: PG&E Baseline Figure 2: Median Household Territories Income by County Source: Pacific Gas & Electric Source: National Institute on Minority Health and Health Disparities THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 27 The state’s efforts to support low-middle income using budgeted but unspent funds to ease electricity utility customers through the FERA program are costs for organizations that directly serve the public. laudable. However, the program is not achieving As FERA enrollment levels shift, the scale of these its goal of mitigating energy bills for low-income grants could be adjusted accordingly. households that do not qualify for CARE. Some RECOMMENDATION 9: California should expand progress has been made—for example, Senate assistance for households above the CARE income Bill 1130 (Bradford—2024) expands FERA eligibility threshold who still struggle with high energy costs. to one- and two-person households and requires This could be achieved by raising FERA’s eligibility investor-owned utilities to strengthen enrollment and ceiling, merging CARE and FERA into a graduated reporting efforts. Still, structural challenges hinder program, or automating enrollment through tax and participation. The narrow income eligibility band benefits systems. Policymakers might also consider (200–250 percent of the federal poverty level) makes repurposing unspent FERA funds to provide bill relief it difficult for customers to know if they qualify, through community-based organizations or public- especially given income fluctuations. As a result, serving institutions that support low- and middle- many mis-enroll in CARE or fail to enroll altogether.114 income Californians. Even as utilities continue efforts to boost FERA SIMPLIFY ACCESS TO ENERGY GRANTS enrollment, the Commission recommends that policymakers pursue more aggressive and creative The California Energy Commission administers strategies to improve electricity affordability for numerous programs supporting its energy goals. households that do not qualify for CARE yet still One of these is the ratepayer-funded Electric struggle to pay their energy bills. Such actions could Program Investment Charge (EPIC). In its response take a variety of forms: to the Governor’s executive order, the CEC describes the EPIC program as “the leading state energy ◊ Raise FERA’s upper limit to 300 percent of the research and development program in the United Federal Poverty Level States”.116 The CEC, along with the three major IOUs, ◊ Merge CARE and FERA into a single program with administers about $148 million in EPIC funding graduated discounts per year to support three “investment areas”: ◊ Automate enrollment or outreach through tax applied research and development, technology filings demonstration and deployment, and market facilitation. The CPUC has approved funding for the ◊ Use unspent FERA dollars to establish bill EPIC program through 2030. assistance grants distributed through community- based organizations. Within the larger context of ratepayer-funded The Commission could also envision repurposing expenses, costs associated with the EPIC program unspent FERA subsidy funding to reduce electricity are fairly small—about 1 cent per resident per day as costs for public-serving institutions. There is reported by the CEC. And the benefits of the program precedent for this approach: the CPUC’s California appear significant, incubating promising new Teleconnect Fund “provides a 50% discount on technologies in California IOU territories.117 advanced communication services (including internet and broadband) to qualifying schools, libraries, For example, highlighted EPIC projects for 2023 annexes, community colleges, government-owned included a fully renewable microgrid in Humboldt hospitals and health clinics, and community-based County to provide backup power for community organizations”.115 While it may not be fiscally prudent infrastructure; virtual power plant programs in to offer the same level of discount on electricity bills Richmond and Lancaster; and a dynamic energy to all such institutions, the underlying idea is sound— use project by the Lawrence Berkeley Laboratory. 28 | LITTLE HOOVER COMMISSION The benefits of these programs are, moreover, not limited to new technologies—new energy regulatory policy is developed simultaneously, helping pave the way for broader societal adoption. Recipients of EPIC funding value the program but believe it could be improved. They point to delays between identifying problems and getting projects funded and to market. They also note that the EPIC program managers should have more flexibility, including discretion to allocate a portion of funds outside the competitive bidding process and authority to provide small amounts of initial funding to launch projects quickly, as was possible under the earlier Public Interest Energy Research (PIER) program. Cost-sharing requirements have also grown increasingly onerous, with a large proportion expected from private industry, which discourages smaller firms and nonprofits. Finally, the heavy reliance on full RFPs makes participation expensive and difficult. A two-stage process that begins with brief concept proposals could reduce upfront costs and open the program to a broader set of applicants. RECOMMENDATION 10: Streamline the application and funding processes for EPIC and similar clean energy grant programs to reduce administrative burden and accelerate the distribution of funds. These improvements will enhance program effectiveness and support timely project implementation. THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 29 Data Centers and Electricity Policy California’s Silicon Valley and university systems have made the state a global leader in artificial intelligence research and development.118 Policymakers—recognizing the potential benefits to the state’s economy and the welfare of its residents—have worked to support artificial intelligence in the tech, education, and government sectors, while also proposing progressive regulations to protect against AI-related harms.119 AI applications have already had significant impact in sectors such as medicine, education, and government, with more adoption on the horizon.120 McKinsey estimates that artificial intelligence could contribute $4.4 trillion in long-term productivity gains.121 California has already put the technology to work, for example, integrating AI into customer service and wildfire-fighting operations.122 In late 2024, the Little Hoover Commission released two reports on AI use in government operations and social services, and remains enthusiastic about its expanded role in the public sector.123 However, the proliferation of new data centers—designed to support artificial intelligence applications—has become a major energy policy concern in California and beyond.124 Built at a rapid pace to meet the fast-growing compute requirements of AI, these facilities will offer opportunities along with significant challenges for the state’s already costly electricity system, which must absorb their immense power requirements.125 As California considers regulatory policy for new data centers, the Commission has flagged the following questions as especially important: • Electricity impacts: How will AI data centers affect electricity rates in California? Can the presence of data centers lower electricity costs for ratepayers? • Water impacts: How much water will AI data centers use, and what will this mean for costs passed on to ratepayers? • Stranded asset risks: What are the risks of stranded assets with AI data centers, and how can they be reduced? For example, what happens if technology lowers workloads, or if a company shuts down or moves operations out of state or overseas? • Rate design options: What are the pros and cons of creating separate electricity rates for AI data centers, and how have other states and countries approached this? • Capital costs and siting: What will it cost to build new AI data centers, where will they be located, and which utilities will develop them? Utility revenues generated by data centers could help pay for expensive electricity-related costs. But these centers also come with extraordinary energy demands that will necessitate costly new infrastructure and could reduce grid reliability. If these costs are not allocated appropriately, ratepayers could face higher bills. With electricity demand from data centers projected to rise sharply, California must balance economic benefits against risks to affordability, reliability, and the state’s clean energy goals. 30 | LITTLE HOOVER COMMISSION Over the next decade, data centers are projected to drive dramatic increases in electricity use. A 2024 Lawrence Berkeley Lab study forecasts that, by 2028, data centers could represent between 6.7 percent and 12.0 percent of all U.S. electricity consumption (Chart 15).126 At the regional level, the Western Electricity Coordinating Council predicts a 20.4 percent growth in demand over the next decade, with data centers and crypto-currency mining cited as primary drivers. In response, regulators are planning for an unprecedented expansion of generation resources.127 Chart 15: Past and Future Data Center Electricity Consumption Source: Lawrence Berkeley National Laboratory RELIABILITY AND INFRASTRUCTURE MISMATCH Additions of new data centers could threaten California’s delicate energy balance. Regulators must already account for both daily and seasonal peaks while managing rising temperatures and wildfire-related risks.128 Data centers can come online relatively quickly, whereas generation and grid projects typically require years of planning and construction. This discrepancy heightens concerns about energy availability to support these projects as well as residents, potentially leading to interruptions in the power supply.129 LOCAL ENVIRONMENTAL AND INFRASTRUCTURE IMPACTS Data centers are drawn to areas with abundant power, water, space, and low electricity rates.130 In California, this has concentrated development in Santa Clara and Los Angeles. These facilities are resource intensive. In Santa Clara, data centers account for the majority of local electricity use and consume vast amounts of water.131 They also rely on backup generators, which, together with server operations, can create noise, pollution, and potential health risks.132 THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 31 While California data centers are largely clustered in Santa Clara and Los Angeles—both served by municipal utilities that offer power at significantly cheaper rates—Pacific Gas & Electric has received a large number of requests for service to new data centers. According to reporting by Melody Petersen, PG&E claims the data center boom will benefit the utility, industry, and customers.133 It regards the grid as largely underutilized and anticipates monthly customer bill savings of between one and two percent per additional 1000 MW of load. That said, billions of dollars of new infrastructure will be required, and PG&E is already behind on connecting new customers. LOCAL ECONOMIC EFFECTS For communities, data centers present a mixed picture. They provide substantial tax revenue while creating little additional traffic, which can appeal to smaller jurisdictions seeking income without population growth.134 Yet they create relatively few jobs once construction is complete. And municipally owned utilities that host these centers often have power mixes that are more polluting than those of investor-owned utilities or community choice aggregators.135 The need to provide power to data centers may likewise compel investor-owned utilities to draw on non-renewable energy sources. RATES, FIXED COSTS, AND STRANDED ASSETS The effect of data centers on electricity rates remains uncertain.136 New facilities require transmission lines, substations, and interconnections, all of which add to the rate base. While additional demand might help spread costs, the benefits are not guaranteed. Rate design is critical: if data centers help mitigate fixed costs relating to wildfire or the Net Energy Metering, they could provide a valuable funding source and potentially lower rates for all. But if they are granted discounted pricing, the burden will fall on other customers.137 Energy demand projections for data centers remain highly volatile. The Western Electricity Coordinating Council’s forecast doubled between 2022 and 2024—the period when tools like ChatGPT drove a frenzy of interest in developing and deploying AI. If data centers are overbuilt, relocate, or if usage declines, remaining customers could be saddled with stranded costs for infrastructure.138 Technological advances also complicate forecasts: some newer AI models like DeepSeek require less compute, raising the possibility that today’s infrastructure investments could become stranded assets—that is, obsolete long-term funding obligations.139 MORE STUDY NEEDED California must proceed cautiously. Data centers can provide revenue, lower electricity rates, and support innovation. But, if not properly regulated, they could pose risks to reliability, energy and water resources, and could raise electricity costs. Given the long-term commitments involved in energy planning, policymakers should pursue opportunities while guarding against the potential for stranded costs, increased ratepayer burdens, and threats to California’s clean energy and sustainability goals. For this reason, the Little Hoover Commission recently agreed to conduct a separate study on AI data centers and energy and environmental policy. It will incorporate perspectives from the technology, academic, environmental, energy, and public sectors. The Commission’s report and recommendations, intended to help guide policymakers, are expected to appear in 2026. 32 | LITTLE HOOVER COMMISSION The Cost of Fighting Climate Change Through the passage of SB 100 (De León, 2018), The 2021 SB 100 Joint Agency Report states that, to California committed to supplying 60 percent of achieve the goals of SB 100, California must add its retail electricity sales from renewable sources 145 gigawatts of utility-scale generation capacity— by 2030 and 100 percent from renewable or other more or less tripling its current capacity of 87.8 zero-carbon resources by 2045.140 This electricity- gigawatts.143 A 2024 Stanford study found that sector target complements AB 1279 (Muratsuchi, California will need to expand grid capacity by 1.5 2022), which requires statewide greenhouse to 6 times its current size—equivalent to adding gas emissions to be reduced at least 85 percent 4 to 15 times more capacity than has been built below 1990 levels by 2045 and mandates that any since 2000.144 remaining emissions be balanced with removals This transition will be expensive in two key ways. to achieve overall carbon neutrality.141 First, upgrading the grid to meet rising demand California’s path toward meeting its emissions will be a major cost passed on to customers. reduction goals is outlined in the California Air For investor-owned utilities, those costs will also Resources Board’s 2022 Scoping Plan for Achieving include profits and interest owed to investors and Carbon Neutrality. The plan outlines a multi- lenders. Second, electrifying homes, businesses, pronged strategy that includes accelerating and factories will carry high upfront costs for electrification across all sectors, powering the consumers, such as purchasing heat pumps, state with clean, renewable energy, and offsetting adopting new power sources for industry, remaining emissions through natural solutions or redesigning processes to be less carbon and emerging technologies.142 intensive—all against the backdrop of California’s already high electricity rates. Achieving electrification on the scale envisioned will require a fundamental shift in how Californians live Cost control will be critical. The 2021 SB 100 Report and power their lives. It means replacing carbon- estimates that, under its preferred scenario, emitting power plants, industrial processes, gas achieving these goals would cost an additional appliances, and gasoline vehicles. As demand $4.5 billion per year beyond the added costs of rises from electrification—for example, charging meeting the 2030 60 percent RPS requirement.145 cars instead of fueling them—the grid will need to This translates to only a modest increase in rates expand dramatically with new clean power plants, per kilowatt hour. Although beyond the strict transmission lines, substations, and related scope of this report’s focus on current electricity infrastructure. rates, this issue deserves to be closely monitored by state policymakers, especially given the state’s history of rapidly rising rates. THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 33 Appendix A: California Energy Agencies146 34 | LITTLE HOOVER COMMISSION Appendix B: Types of Energy Providers147 THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 35 Appendix C: How to Move Costs Off Customer Bills148 As an example of a criteria-based method for evaluating opportunities for shifting costs off ratepayer bills, the following score-based method could be used. Each cost would receive a 0–2 score based on each of the following criteria, with higher scores favoring moving costs off customer bills. The sum out of a total of 20 is used to identify the default funding source (see scoring/funding guide below): SCORING RUBRIC (SCORE EACH 0-2) 6. Budget stability risk 1. Who benefits? 0 = Needs steady, multi-year funding certainty. 0 = Mainly private bill payers. 2 = Can handle normal ups and downs in budget 1 = Benefits are mixed (some private, some broader cycles. public). 2 = Broad, statewide, or general public benefit. 7. Ease of administration 2. What causes the cost? 0 = Expensive or difficult to move, track, or report 0 = Directly caused by electricity use or grid 2 = Easy to shift using existing systems and connection. processes. 2 = Caused by factors outside electricity use (e.g., public policy goals, external events). 8. Legal or constitutional constraints 0 = Likely to face legal or constitutional barriers. 3. Impact on fairness 2 = Clearly allowed under existing law. 0 = Moving off bills is regressive (hurts low-income more). 9. Time frame of cost 2 = Moving off bills would clearly make costs more 0 = Ongoing operations and maintenance. progressive (fairer). 2 = One-time, finite, or legacy costs. 10. How the program works best 4. Impact on greenhouse gas emissions 0 = The program only works well if charges stay on 0 = No significant change in emissions the bill (customers need to see the cost in their bill to 2 = Clear, measurable greenhouse gas reductions per respond). dollar (eligible for GGRF). 2 = The program would work better as a separate, budget-funded program—especially if it can be 5. Effect on energy-use incentives targeted to specific groups (e.g., low-income 0 = Moving off bills would weaken helpful price assistance). signals (e.g., conservation, shifting usage away from peak hours). 2 = Moving off bills would strengthen helpful price signals (e.g., making electrification or efficiency more attractive). SAMPLE SCORING AND FUNDING GUIDE (OUT OF 20 TOTAL) • 15–20 with high greenhouse gas score - Greenhouse Gas Reduction Fund • 15–20 with high beneficiary/equity score but low greenhouse gas score - General Fund • ≥12 with finite horizon - Securitization/Federal Funding • <12 or high causation/incentive risk - Keep on bills (but optimize rate design) 36 | LITTLE HOOVER COMMISSION Notes 1. Based on the average residential, commercial, 10. M. Baldassare, D. Bonner, L. Mora, and D. and industrial rate as reported in the U.S. Energy Thomas, PPIC Statewide Survey: Californians and Their Information Administration (U.S. EIA), Electricity Data Government, Public Policy Institute of California (Jun. Browser (report generated Aug. 27, 2025). Electricity 2025). costs related to transportation are not taken into 11. M. Baldassare and T. Cantil-Sakauye, Californians account. These customer classes do not correspond and the Energy Transition, Public Policy Institute of exactly to those used by California’s investor-owned California (Aug. 2025). utilities. 12. R. Sabalow and S. Kamal, “California Democrats 2. Figures in Table 1 generated using the U.S. EIA, Vowed to Tackle Affordability—But the Agenda Isn’t Data Dashboard: California. Accessed Aug. 7, 2025. Clear”, CalMatters (Feb. 27, 2025). The number of bills 3. U.S. EIA, “Retail Electricity Prices Closely Tracked mentioning “electricity” has markedly increased over Inflation Over the Last 10 Years” (Sep. 11, 2024). the past decade: 145 (2015-16), 145 (2017-18), 190 (2019-20), 176 (2021-22), 207 (2023-24), 132 (2025 4. Chart 1 from Public Advocates Office, Q1 2025 only, i.e., half session). Electric Rates Report (May 20, 2025), p. 9. 13. Gov. Gavin Newsom, Executive Order N-5-24 (Oct. 5. U.S. EIA, “Residential Electric Bills in Hawaii and 30, 2024). Connecticut are Twice Those in New Mexico, Utah” (May 12, 2025). Cf. A. Durrani, “Monthly Utility Costs 14. For a more detailed but still accessible summary in the U.S. By State”, Forbes Home (Jul. 26, 2024). This of costs charged to customers, see B. Sieren-Smith study drew on information provided by the Bureau et al., 2024 Senate Bill 695 Report, California Public of Labor Statistics, Energy Information Agency, and Utilities Commission (July 2024), pp. 15-18. the Energy Department. 15. Chart 2 is from the California Energy Commission 6. Public Advocates Office, Q1 2025 Electric Rates “California Energy Consumption” dashboard. Charts Report (May 20, 2025), p. 4. 3 and 4 are from the California Public Utilities Commission, “Historical Electric Cost Data” website. 7. See, for example, SB 598 (Hueso, 2017), which outlines the magnitude of the problem and the 16. California Public Utilities Commission, CPUC groups impacted, and directs the CPUC to take Response to Executive Order N-5-24 (Feb. 18, 2025), p. several corrective measures. 9. 8. M. Baldassare, D. Bonner, L. Mora, and D. 17. Relatively modest rate increases in the 2000s Thomas, PPIC Statewide Survey: Californians and and 2010s have been attributed to various causes: Their Economic Well-Being, Public Policy Institute of flat demand, meeting the requirements of the then- California (Dec. 2024). nascent Renewable Portfolio Standard, and the closure of the San Onofre Nuclear Generating Station 9. Cf. T. Thorman, P. Malagon, and P. Cha, “Low- in 2013. E. McGhee, “A Closer Look at California’s Income Households Struggle with the Cost of Surging Electricity Rates”, Public Policy Institute of Electricity Bills”, Public Policy Institute of California California (Apr. 1, 2025). J. Clemente, “Hey EPA: “The (Aug. 12, 2025). California Model” Doesn’t Work, and We’ll Need More Electricity”, Forbes (Oct. 27, 2014). L. Davis and C. Hausman, “Market Impacts of Nuclear Power THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 37 Plant Closure”, American Economic Journal: Applied 25. Pacific Gas & Electric “Community Wildfire Safety Economics 8.2 (1016): 92-122. Program” website. 18. Chart 5 is from B. Sieren-Smith et al., 2024 Senate 26. The data and analysis that follows is from B. Bill 695 Report (July 2024), p. 8. It does not include Sieren-Smith et al., 2024 Senate Bill 695 Report (July estimated generation costs charged by community 2024), p. 47-55. The PAO has estimated that wildfire choice aggregators. With this addition, the total costs now accounted for between 10 percent to 24 revenue requirement for 2024 is approximately $54 percent of total utility revenue requirements in 2024. billion. Analysis is complicated by delays in PG&E’s Public Advocates Office, “2023-2024 Wildfire-Related 2023 General Rate Case, reflected in the inflated Cost Increases of California’s Three Major Investor- 2024 distribution figures. Owned Electric Utilities” (Jun. 14, 2024), p. 1. 19. California Public Utilities Commission, CPUC 27. B. Sieren-Smith et al., 2024 Senate Bill 695 Report Response to Executive Order N-5-24 (Feb. 18, 2025), (July 2024), p. 51-52. p. 14. CARE/FERA costs as a percentage of a total 28. Pacific Gas & Electric, PG&E Wildfire Mitigation Plan average bill can be found on p. 31. R0 2026-2028 Vol. 1 (Apr. 4, 2025), p. 23. Moreover, 20. See the CAL FIRE statistics website for lists of the PG&E estimates the cost of undergrounding power top 20 fires in the various categories. For a brief, lines at $3 million per mile and states that the interesting overview of the wildland urban interface average cost of installing covered conductors is and fire, see the U.S. Fire Administration “What is the around $1 million per mile (p. 129). WUI” website. 29. Chart 6 is from CPUC, 2023 California Electric and 21. For a history of California utilities and wildfire, Gas Utility Costs Report: AB 67 Annual Report to the see K. Blunt, California Burning: The Fall of Pacific Governor and Legislature (Apr. 2024), p. 15. Gas and Electric–and What It Means for America’s 30. Chart 7 is from M. Ellis, Rate of Return Equals Cost Power Grid (2022). For a more succinct account of of Capital (Jan. 2025), American Economic Liberties how wildfires have prompted action by both the Project, p. 4 (Fig. 1). state and California’s utilities, see California State Assembly, Utilities and Energy Committee Oversight 31. S. Borenstein, “Rebalancing Rates for Hearing, Energy Affordability: Wildfire Spending (Mar. Electrification and Equity” Energy Institute Blog, UC 5, 2025), pp. 2-4. Berkeley (May 1, 2023). 22. I. Penn, “PG&E, Troubled California Utility, 32. There are, in fact, many kinds of actions that Emerges From Bankruptcy”, New York Times (Jul. 1, result in cost shifts. These range from small 2020). improvements in home energy efficiency to the wholesale departure of communities from an 23. The Public Advocates Office has recommended IOU’s customer base when they opt to form a reforming utility liability so that it is based on municipal utility. For further discussion, see S. whether the utility exercised “prudent and Borenstein, “Every Electricity Demand Reduction is a responsible conduct,” rather than the strict Cost Shift”, Energy Institute Blog, UC Berkeley (Jul. 14, standards of inverse condemnation. Public 2025). Advocates Office, Ratepayer Impacts of Strict Liability and Inverse Condemnation (Apr. 7, 2023). 33. The NEM cost shift will be discussed in detail later in this report. Important introductory articles include: 24. A. Lazo and S. Olmos, “As LA County Sues Edison S. Borenstein, “California’s Exploding Rooftop Solar Cost Over Deadly Fire, Is the State’s Wildfire Fund in Shift”, Energy Institute Blog, UC Berkeley (Apr. 22, 2024); Jeopardy?”, CalMatters (Mar. 7, 2025). 38 | LITTLE HOOVER COMMISSION R. McCann, B. Heavner, B. Del Chiaro, Rooftop Solar 41. CPUC, “Net Energy Metering and Net Billing” Reduces Costs for All Ratepayers, M.Cubed Consulting website. NEM 2.0 and NBT customers also pay a $94 to and the California Solar + Storage Association (Feb. $145 one-time interconnection fee. 2025); S. Borenstein, “How To Fix the Solar Cost 42. S. Borenstein, “Reality Checking California’s Income- Shift”, Energy Institute Blog, UC Berkeley (May 19, 2025). Graduated Fixed Charge”, Haas Energy Institute Blog, UC 34. Public Advocates Office, 2024 NEM Cost Shift Fact Berkeley (May 13, 2024). Sheet (Aug. 22, 2024). See above for articles that 43. See S. Borenstein, M. Fowlie, and J. Sallee, Paying debate the amount, or even the veracity, of the NEM for Electricity in California (Sep. 2022), pp. 28-30. cost shift. Public Advocates Office, Opening Brief of the Public 35. The concept of “flattening the curve” was raised Advocates Office Regarding Track A of the Order Instituting during LHC staff conversation with leadership from Rulemaking to Advance Demand Flexibility Through The Utility Reform Network (TURN). Electric Rates [R.22-07-005] (Oct. 6, 2023), esp. p. 21. 36. This clause was stripped from the bill prior to 44. Chart 8 is from California Public Utilities passage. For a link to the original text, see SB 254 Commission, CPUC Decision Cuts Price of Electricity (Becker) sec. 739.14. Under New Billing Structure and Accelerates California’s Clean Energy Transition, Energy Division Fact Sheet (May 37. For an introduction to the fixed charge, see 9, 2024), p. 2. California Public Utilities Commission, CPUC Decision Cuts Price of Electricity Under New Billing Structure and 45. Joint IOUs, Opening Comments of the Joint IOUs Accelerates California’s Clean Energy Transition, Energy on Proposed Decision Addressing Assembly Bill 205 Division Fact Sheet (May 9, 2024). Requirements for Electric Utilities [R.22-07-005], pp. 3-4. For a discussion of methodology, see Public Advocates 38. S. Borenstein, Severin and J. Bushnell, “Do Office, Opening Brief (Oct. 6, 2023), p. 20. Two Electricity Pricing Wrongs Make a Right? Cost Recovery, Externalities, and Efficiency”, American 46. Table 2 is from Joint IOUs, Joint Testimony of Economic Journal: Economic Policy 14.4 (2022). Southern California Edison Company, Pacific Gas and Electric Company, and San Diego Gas & Electric Company 39. Cf. S. Borenstein, “Energy Hogs and Energy Angels: (the Joint IOUs) Describing Income-Graduated Fixed What Does Residential Electricity Use Really Tell Us Charge Proposals [R. 22-07-005] (May 3, 2023), p. 38. about Profligate Consumption?”, American Economic Association Papers and Proceedings 115 (May 2025): pp. 47. S. Borenstein, “Reality Checking California’s Income- 357-62. Graduated Fixed Charge” (May 13, 2024). 40. For a discussion of these benefits, see the CPUC 48. Joint IOUs, Opening Comments of the Joint IOUs Fact Sheet cited above as well as S. Borenstein, M. on Proposed Decision Addressing Assembly Bill 2015 Fowlie, and J. Sallee, Paying for Electricity in California: Requirements for Electric Utilities [R.22-07-005] (Apr. 16, How Residential Rate Design Impacts Equity and 2024), p. iii. Electrification, Next10 (Sep. 2022). This assumes that 49. Gov. Gavin Newsom, Executive Order N-5-24 consumers engage in rational, long-term economic (Oct. 30, 2024), Secs. 1-2, 6. California Public Utilities decision making. For an alternate view, see J. Commission, CPUC Response (Feb. 18, 2025), pp. 16-17, Sallee, “The Supply-Side Economics of Residential 23, 31-34. Electrification”, Energy Institute Blog, UC Berkeley (Aug. 30, 2021). 50. J. Sallee, “Equitable Decarbonization Requires Rate Reform,” Energy Institute Blog, UC Berkeley (Sep. 26, 2022). THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 39 51. California has six investor-owned utilities. The 63. For a helpful overview including definitions of three largest—Pacific Gas & Electric, Southern technical terms and some relevant recent figures, see California Edison, and San Diego Gas & Electric—serve the CPUC’s “What is Cost of Capital (CoC)?” website. the majority of Californians. 64. CPUC, “CPUC Undergrounding Programs 52. For a good introduction to this concept, see M. Description” website. Cf. PG&E’s “Undergrounding Ellis, Rate of Return Equals Cost of Capital, American & System Upgrades” website, which also contains Economic Liberties Project, pp. 2-3. a link to a helpful underground fact sheet. Also E. Randolph, What is Driving Up Electric Rates in 53. G. Bakke, The Grid: The Fraying Wires Between California? Options to Address the Issues, Caliber Americans and Our Energy Future (2016), pp. 41-43. (Jan. 2025), p. 10. For a critical economic analysis of undergrounding vs. its alternatives, see M. Fowlie, 54. California Public Utilities Commission “Electrical “Fighting Fires in the Power Sector”, Haas Energy Energy” website. Institute Blog, UC Berkeley (Feb. 20, 2024). 55. As example, here are links to PG&E 2023 GRC 65. Links to the utilities’ Cost of Capital applications application and post-test year ratemaking proposal: can be found on the CPUC “What is Cost of Capital 2023 General Rate Case Application of Pacific Gas and (CoC)?” website. Electric Company (U 39 M) [A.21-06-021] (Jun. 30, 2021). Pacific Gas and Electric Company 2023 General Rate Case 66. M. Ellis, Rate of Return (Jan. 2025), p. 5. Ellis Exhibit (PG&E-11) Post Test-Year Ratemaking [A.21-06- discusses the methods used—by utilities and 021] (Feb. 28, 2022). others—to estimate ROE on pp. 5-8. 56. L. Tesfai, “Understanding How the CPUC Processes 67. K. Dunkle Werner and S. Jarvis, “Rate of Return a General Rate Case”, California Public Utilities Regulation Revisited”, Energy Institute at Haas (UC Commission (Jul. 29, 2025). Berkeley) Working Paper [329 R] (Revised Mar. 2025), p. 15 (Fig. 1). 57. L. Tesfai, “Understanding How the CPUC Processes a General Rate Case” (Jul. 29, 2025). 68. Dr. Villadsen’s testimony and other documents filed in support of SCE’s 2026 cost of capital 58. Chart 9 was created using information from application can be found here. Methods used include historical General Rate Case docket filings. the Capital Asset Pricing Model, the Empirical Capital 59. Southern California Gas Co. and SDG&E, Joint Asset Pricing Model, and the Discounted Cash Flow Motion of Southern California Gas Company (U 904 Model. G) and San Diego Gas & Electric Company (U 902 69. John P. Perkins III, Application of Pacific Gas and M) to Amend the Assigned Commissioner’s Scoping Electric Company (U 39 M) for Test Year 2026 Cost of Memorandum and Ruling [A.22-05-015/016] (Oct. 27, Capital (Mar. 30, 2025). 2022). 70. K. Dunkle Werner and S. Jarvis, “Rate of Return” 60. Alaska Stat. § 42.05.175. (Revised Mar. 2025). Cf. S. Borenstein, “What Does 61. Ohio Public Utilities Commission “Rate Case Capital Really Cost a Utility?”, Energy Institute Blog, UC Process” website. Berkeley (Oct. 3, 2022). 71. Dunkle Werner and Jarvis also note that while 62. For a month-by-month timeline of the process, utilities are quick to request higher ROEs when see the New York State Department of Public Service capital costs rise, those profit levels don’t drop “Major Rate Case Process Overview” website. when capital costs fall. This suggests that utility 40 | LITTLE HOOVER COMMISSION commissions may be reluctant to lower profits, even 82. S. Borenstein, Challenges to Affordability in California’s when market conditions justify it. Energy Sector, Little Hoover Commission Hearing on California Electricity Costs (Feb. 28, 2025), Slide 11. 72. M. Ellis, Rate of Return (Jan. 2025), pp. 10-15. 83. Based on historical data found in the California 73. California Office of the State Treasurer, Municipal Utilities Association 2025 Membership Directory “Responsibilities and Functions” website. (Apr. 2025). 74. M. Ellis, Rate of Return Equals Cost of Capital (Jan. 84. Cal. Const. art. XI, § 9; Cal. Pub. Util. Code § 11561- 2025), American Economic Liberties Project, pp. 11- 11562. 15. 85. See the Our City Our Power “Document Library” 75. Links to the 2023 PG&E General Rate Case website for numerous examples. docket and 2023-25 Wildfire mitigation plan can be found here and here, respectively. 86. 47.25 percent of voters supported Proposition 16, 52.75 percent opposed it. For an overview with analysis, 76. Office of Accounting & Finance, New York State see the Legislative Analyst’s Office, “New Two-Thirds Department of Public Service, “Analysis of Rate Vote Requirement for Local Public Electricity Providers. Elements in a Regulatory Price Review” (Nov. 2011). Initiative Constitutional Amendment” (Feb. 17, 2010). For D. Tietjen, “Tarriff Development: Review of the Basic a clearheaded overview of municipalization and its pros Ratemaking Process”, Public Utility Commission of and cons, see R. Lazenby, S. Ashford, and M. Chhabra, Texas (n.d.). Power Struggle: California’s Electric Utility Ownership Dilemma, Pritzker Environmental Law and Policy Brief 77. Little Hoover Commission “Hearing on California [UCLA School of Law] (Jun. 2025). Electricity Costs (Part 1)” (Feb. 27, 2025). 87. Chart 11 was created using the U.S. Energy 78. These figures are taken from CPUC final budget Information Administration, Electricity Data Dashboard and staffing allotments found on the California (California) (generated Aug. 27, 2025). It is estimated Department of Finance “E-Budget” website. that small-scale solar generated ~3,500 thousand 79. POUs are overseen at the local level and not megawatt hours of electricity in June 2025. subject to the CPUC. That said, they must adhere 88. Chart 12 is from B. Sieren-Smith et al., 2024 Senate to statewide clean energy mandates and, in this Bill 695 Report, California Public Utilities Commission respect, are subject to oversight by the California (July 2024), p. 40. Energy Commission and California Air Resources Board. 89. Public Advocates Office (PAO), 2024 NEM Cost Shift Fact Sheet (Aug. 22, 2024) and California Public Utilities 80. Chart 10 is from M. Fowlie, Meredith and D. Commission, CPUC Response to Executive Order N-5-24 Callaway, “Not All of California’s Electricity Prices Are (Feb. 18, 2021), p.12. See also S. Borenstein, “California’s High”, Energy Institute Blog, UC Berkeley (Jul. 10, 2023). Exploding Rooftop Solar Cost Shift”, Haas Energy Institute Cf. S. Borenstein, “Challenges to Energy Affordability” Blog, UC Berkeley (Apr. 22, 2024). (Feb. 27, 2025), Slide 10. 90. California Public Utilities Commission, CPUC Response 81. For a clear introduction to tax-exempt bonds, to Executive Order N-5-24 (Feb. 18, 2025), pp. 12, 31. their benefits, and related policy, see A. Lautz, “The 2025 Tax Debate: Tax-Exempt Municipal Bonds”, Bipartisan Policy Center (May 6, 2025). THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 41 91. See the CPUC “Net Energy Metering and Net targets and provides guidance on electricity Billing” website for a detailed comparison of NEM generation, electrification, and clean transportation 1.0, 2.0, and NBT. On the reduction in compensation infrastructure. For links to the various Scoping Plan and impact on the solar industry, see J. Cart, documents, see the CARB “AB 32 Climate Change “What’s Happened Since California Cut Home Solar Scoping Plan” website. Payments? Demand Has Plunged 80%”, CalMatters 100. See the CARB “Cap-and-Trade Program: About” (Jan. 26, 2024). website, which contains a wealth of background and 92. California Public Utilities Commission, CPUC technical information about the program and the Response to Executive Order N-5-24 (Feb. 18, 2025), association auction. pp. 16-17. 101. PG&E customers received a $58.23 credit, SCE 93. S. Borenstein, “How To Fix the Solar Cost Shift”, customers received $56.00, and SDG&E customers Energy Institute Blog, UC Berkeley (May 19, 2025). received $81.38. The same amounts will be credited again in October. Pacific Power’s much smaller 94. M. Carollo, “California Supreme Court Hands customer base receives approximately $250 twice Victory to Rooftop Solar Owners”, CalMatters (Aug. 7, annually. See the CPUC “California Climate Credit” 2025). website for more details. 95. S. Forrester et al., Residential Solar-Adopter 102. Gov. Gavin Newsom, Executive Order N-5-24 Income and Demographic Trends: 2024 Update, (Oct. 30, 2024), sec. 4. Lawrence Berkeley National Laboratory (Dec. 2024). Chart 13 is from the Lawrence Berkeley Lab Energy 103. Table 3 is from California Public Utilities Markets & Policy “Solar-Adopter Income Trends: Commission, CPUC Response (Feb. 18, 2025), p. 20. Data Visualization Tool” website. 104. This recommendation is similar to the 96. U.S. Census Bureau, California State Profile CredHBBTNoNEM scenario outlined in L. Smith, E. (accessed Aug. 26, 2025). Macomber, M. Mastrandrea, M. Wara, “Improving Electricity Bill Affordability for Low-Income Customers 97. G. Barbose, One Year In: Tracking the Impacts Using the California Climate Credit”, Climate & Energy of NEM 3.0 on California’s Residential Solar Market, Policy Program White Paper, Woods Institute for Lawrence Berkeley National Laboratory (May 2024). the Environment, Stanford University (forthcoming). S. Borenstein, “Guess What Didn’t Kill Rooftop Policymakers are already thinking along these lines. Solar?”, Energy Institute Blog, UC Berkeley (Jan. 27, AB 1207 (Irwin), which extends California’s Cap-and- 2025). Trade Program through 2045, also mandates that the Climate Credit be disbursed during the four highest 98. R. McCann, B. Heavner, B. Del Chiaro, Rooftop billed months of the year (Sec. 13 (a)(3)). This bill was Solar Reduces Costs for All Ratepayers, M.Cubed signed into law by Governor Newsom in September Consulting and the California Solar + Storage 2025. “Governor Newsom, Legislative Leaders Association (Feb. 2025), pp. 30-31. Announce Major Deal to Save Money on Electric Bills, Stabilize Gas Market, Cut Pollution” [press release] 99. CARB conducts research, data collection, (Sep. 10, 2025). monitoring, and program implementation in areas such as public health, zero-emission vehicles, 105. The “summer months” portion of this and environmental justice. Finally, it produces recommendation was adopted through the passage the periodic Scoping Plan for Achieving Carbon of AB 1207 (Irwin), which was signed into law on Sep. Neutrality, which charts a statewide path toward 19, 2025. meeting AB 32’s greenhouse gas reduction 42 | LITTLE HOOVER COMMISSION 106. Chart 14 was graciously created by Public 114. Evergreen Economics, FERA Study (Jun. 6, 2025), Advocates Office staff in response to a data request. pp. 2-3. 115. CPUC, “California Teleconnect Fund” website. 107. Figure 1 is from the PG&E “Baseline Allowances” website (map here). The highest baseline allowances 116. California Energy Commission, California Energy belong to Territories P, R, S, and W. Commission Response to Executive Order N-5-24 (Jan. 1, 2025) [published Feb. 18, 2025], p. 9. Funding 108. The county-level income map (Fig. 2) was amounts and investment target areas appear on created using the data visualizer available at the same page. For more information, see the CEC, the National Institute on Minority Health and “Electric Program Investment Charge Program – EPIC” Health Disparities, “HD Pulse Data Portal” website website. (generated Aug. 25, 2025). 117. California Energy Commission, California Energy 109. L. Smith, E. Macomber, M. Mastrandrea, Commission Response (Jan. 1, 2025), p. 9. Projects M. Wara, “Improving Electricity Bill Affordability described in this section are from California Energy for Low-Income Customers Using the California Commission, 2023 EPIC Highlights (Aug. 2024), p. 2. Climate Credit”, Climate & Energy Policy Program White Paper, Woods Institute for the Environment, 118. This is clearly shown in Gov. Gavin Newsom’s Stanford University (forthcoming), pp. 5-6. executive order on Generative AI: Cal. Exec. Order N-12-23 (Sep. 6, 2023). 110. CPUC “CARE/FERA Program” website, which also provides a table of household-size-to-income 119. For an overview of executive action in this thresholds for participating in either program. space, see the state’s “GenAI for California” website. A search for bills relating to “artificial intelligence” 111. CPUC, 2023 California Electric and Gas Utility using the CalMatters Digital Democracy website gives Costs Report: AB 67 Annual Report to the Governor and a sense of the quantity and range of California AI Legislature (Apr. 2024), pp. 56, 60. legislation. 112. California Public Utilities Commission, CPUC 120. M. Bankhwal et al., AI for Social Good: Improving Response (Feb. 18, 2025), p. 17. Lives and Protecting the Planet, McKinsey & Co. (May, 2024). 113. PG&E, Southern California Gas Co., SDG&E, and SCE, Compliance Filing of Pacific Gas and Electric 121. M. Chui et al., The Economic Potential of Company (U 39-M), Southern California Gas Company Generative AI, McKinsey & Co. (Jun. 2023), p. 9. (U 904-G), San Diego Gas & Electric Company (U 902- M), and Southern California Edison Company (U 338-E) 122. California Dept. of Tax and Fee Administration, Regarding Annual Estimates of CARE Eligible Customers “California Moving Forward with Generative Artificial and Related Information [A.19-11-003-7] (Apr. 14, Intelligence in State Call Center” [press release] 2025), Attachments B and C. On PG&E’s FERA (May 5, 2025). UC San Diego, “ALERTCalifornia and enrollments vs. targets, see Evergreen Economics, CAL FIRE’s Fire Detection AI Program Named One of FERA Study: An Assessment of Achievable Enrollment TIME’s Best Inventions of 2023” [press release] (Oct. and Program Efforts (Jun. 6, 2025), p. 1. See also 24, 2023). Southern California Edison, Monthly Report of Southern California Edison Company (U 338-E) on Low 123. Little Hoover Commission, Artificial intelligence income Assistance Programs for July 2025 [A.19-11- and California State Government [Report #284] (Dec. 003] (Aug. 21, 2025), p. 55. 2024) and Artificial Intelligence, Food Insecurity, and California’s Vulnerable Populations [Report #285] (Dec. 2024). THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 43 124. For a survey of policy responses in California 132. S. Cooper, “Noisy, Hungry Data Centers Are Catching and other states, see K. Johnson, “Crackdown on Communities by Surprise”, New York Times (Sep. 15, Power-Guzzling Data Centers May Soon Come 2024). Y. Tao and P. Gao, “Global Data Center Expansion Online in California”, CalMatters (Feb. 18, 2025). and Human Health: A Call for Empirical Research”, Eco- Environment & Health 4.3 (Sep. 2025). 125. T. Spencer and S. Singh, Energy and AI, International Energy Agency [World Energy Outlook 133. M. Petersen, “Power-Hungry AI Data Centers are Special Report] (Apr. 2025). Raising Electric Bills and Blackout Risk”, Los Angeles Times (Aug. 12, 2024). 126. A. Shehabi, A. Newkirk, and S.J. Smith, 2024 United States Data Center Energy Usage Report, 134. See, for example, comments from Mark Morgan as Lawrence Berkeley National Laboratory (Dec. 20, quoted in F. Barringer, Thirsty for Water and Power, Bill 2024). Chart 15 is from p. 12 of this report. Lane Center for the American West [Stanford University] (Apr. 8, 2025). 127. Western Energy Coordinating Council, Western Assessment of Resource Adequacy 2024 135. M. Petersen, “Power-Hungry AI Data Centers”, Los [n.d.]. Manufacturing is cited as a third driver of Angeles Times (Aug. 12, 2024). According to the McKinsey increased load. Page numbers are not provided in report cited above, data center construction can add up the report, which is entirely web based. On planned to 1500 jobs, but the average facility employs only 50 infrastructure growth, see also the California Energy permanent workers. Commission quarterly report cited below. 136. I. Penn and K. Weise, “Big Tech’s A.I. Data Centers are 128. California Energy Commission, Joint Agency Driving Up Electricity Bills for Everyone”, New York Times Reliability Planning Assessment: SB 846 Third Quarterly (Aug. 14, 2025). Report 2025 (Aug. 2025), p. 12. 137. This was the intent behind the original version of 129. This point is emphasized in the Western Energy SB 57 (Padilla), which would have required the CPUC Coordinating Council report cited above. Cf. Z. Hale, to create a new rate for “large load” customers—i.e., “Experts See ‘Mismatch’ Between US Utility Planning data centers—that would minimize cost shifts due to Cycles and Data Center Builds”, S&P Global (Jul. 17, transmission and distribution expenses. This has since 2024). been stricken from the bill. 130. F. Barringer, Thirsty for Water and Power, AI- 138. C. Chen, “China Built Hundreds of AI Data Centers Crunching Data Centers Sprout Across the West, to Catch the AI Boom. Now Many Stand Unused”, MIT Bill Lane Center for the American West [Stanford Technology Review (Mar. 26, 2025). University] (Apr. 8, 2025). B. Srivasthan, M. Sorel, and 139. J. Quigley, “Load Growth Irrational Exuberance P. Sachdeva, AI Power: Expanding Data Center Capacity Crashes into DeepSeek”, Kleinman Center for Energy Policy to Meet Growing Demand, McKinsey & Company (Oct. Blog [University of Pennsylvania] (Jan.31, 2025). 2024), pp. 5-7. 140. Click here for a link to the text of SB 100. For a 131. B. Sakura Cannestra, “Santa Clara Data Centers helpful overview of the bill and the actions needed to Hit Max Energy Capacity”, San Jose Spotlight (May 30, fulfill its mandate, see the California Energy Commission 2025). See the M. Petersen article cited below for “SB 100 Joint Agency Report” website. information about the proportion of electricity usage in Santa Clara. 44 | LITTLE HOOVER COMMISSION 141. Click here for a link to the text of AB 1279. “Comparing PGE&E to CCAs and POUs”, Musings from For a succinct overview of the bill and its rationale, California blog (Jun. 26, 2024); California Community see Asm. A. Muratsuchi, “Governor Newsom Signs Choice Association “Making California Electricity Assemblymember Muratsuchi’s AB 1279, the More Affordable” website. CPUC “Community Choice California Climate Crisis Act” [press release] (Sep. 16, Aggregation—Consumer Information” website. 2022). 148. Created in collaboration with ChatGPT-5. As a 142. California Air Resources Board, 2022 Scoping scoring-based method for guiding energy policy, this Plan for Achieving Carbon Neutrality (Dec. 2022). framework is similar to J. Wilcox, N. Deich, and H.J. Buck, Elevating Carbon Management: A Policy Decision- 143. CEC, CPUC, and CARB, 2021 SB 100 Joint Agency Making Framework and Rubric for the 21st Century, Report (Mar. 15, 2021), p. 75. Information about UPenn Kleinman Center for Energy Policy (Jul. 2025). current grid capacity is from the California Energy Commission “2023 Total System Electric Generation” website. 144. J. Neutel et al., Pathways to Carbon Neutrality in California: What Will It Take to Get to Net-Zero Emissions in California?, Stanford Center for Carbon Storage and Stanford Carbon Removal Initiative (Jul. 2024), p. 1. 145. CEC, CPUC, and CARB, 2021 SB 100 Joint Agency Report (Mar. 15, 2021), p. 10. 146. This chart is a composite of several sources. In addition to the agency websites themselves, the budgets for the CPUC, PAO, and CEC provide detailed accounts of funding, personnel and agency activities. See also N. Zanjani, A Brief History of the California Public Utilities Commission: Examining the Past to Help Shape the Future, CPUC (Aug. 15, 2014), Public Advocates Office “Our History” website, and the video “45 Years of Leadership: A Look Back at the CEC”. Budget and staffing figures are from the 2025-26 approved budget. Budget and staffing numbers for the Public Advocates Office are subtracted from CPUC totals. The official name of the CEC is the Energy Resources Conservation and Development Commission. 147. This chart represents an aggregate of several sources. See, in particular, StudyElectrical.com “Types of Electric Utilities in the United States” website; California Municipal Utilities Association “What is a Publicly Owned Utility?” website; Bloom Energy “New Challenges and Market Dynamics for CA Electric Utilities” website; E. Pelegri-Llopart THE HIGH COST OF ELECTRICITY IN CALIFORNIA | 45 Little Hoover Commission Members PEDRO NAVA | SANTA BARBARA JOSÉ ATILIO HERNÁNDEZ | Burbank Appointed to the Commission by Speaker of the Assembly Appointed by Speaker of the Assembly Anthony Rendon John Pérez in April 2013 and reappointed by Speakers in April 2023. Founder and CEO of IDEATE California, Rendon in 2017 and 2021 and Rivas in 2024. Government a public relations and policy management firm. Also, relations advisor. Former State Assemblymember from founder and Board Chairman of ideateLABS. Former 2004 to 2010, civil litigator, deputy district attorney and Director for External Affairs and Community Relations for member of the state Coastal Commission. Elected chair of ConnectEd: The California Center for College and Career. the Commission in March 2014. JASON JOHNSON | Napa ANTHONY CANNELLA | Ceres Appointed by Governor Newsom in June 2023. Member Appointed by the Senate Rules Committee in March 2022. of the Land Trust of Napa County Board of Trustees and Elected Vice Chair in July 2023. Civil engineer and principal Horary Commander of Travis Air Force Base. Former with Northstar Engineering Group. Former State Senator Managing Partner at Founders Den. Founder and former from 2010 to 2018. Previously served on the Ceres City CEO at August Home Inc. Council and was twice elected mayor of that city. GAYLE MILLER | Sacramento DION ARONER | BERKELEY Managing Director of Transition, Institutional Appointed by the Senate Rules Committee in April Relationships and Investments for Brookfield Asset 2019. Partner for Aroner, Jewel, and Ellis. Former State Management and Vice-Chair of the Delta Stewardship Assemblymember from 1996 to 2002, chief of staff Council. Previously served as Senior Counselor on for Assemblymember Tom Bates, social worker for Infrastructure and Clean Energy Finance for Governor Alameda County, and the first female president of Service Newsom and Chief Deputy of Policy at the California Employees International Union 535. Department of Finance. Appointed to the Commission by Governor Gavin Newsom in January 2025. DAVID BEIER | San Francisco Appointed by Governor Edmund G. Brown Jr. in June 2014 SENATOR ROGER NIELLO | Fair Oaks and reappointed in January 2018. Managing director of Elected in 2022 to represent the 6th Senate District. Bay City Capital. Former senior officer of Genentech and Appointed by the Senate Rules Committee in February Amgen, and counsel to the U.S. House of Representatives 2025. Elected in 2022 to represent Senate District 6, which Committee on the Judiciary. encompasses portions of Placer County, including cities such as Auburn, Granite Bay, and Lincoln, as well as parts SENATOR CHRISTOPHER CABALDON | West of Sacramento County, including cities such as Antelope, Sacramento Folsom, Orangevale, and Rancho Cordova. Appointed by the Senate Rules Committee in February 2025. Elected in 2024 to represent Senate District 3, which ASSEMBLYMEMBER LIZ ORTEGA | San Leandro encompasses portions of Contra Costa, Napa, Solano, Appointed by Speaker of the Assembly Anthony Rendon Sonoma, Yolo, and Sacramento Counties. in March 2023. Elected in November 2022 to represent Assembly District 20. Represents Hayward, San Leandro, AASSEMBLYMEMBER PHILLIP CHEN | Yorba most of Union City, portions of Dublin and Pleasanton, Linda and several unincorporated communities. Appointed by Speaker of the Assembly Anthony Rendon in October 2021. Elected in November 2016 to represent JANNA SIDLEY | Los Angeles District 55. Represents portions of Los Angeles, Orange Appointed by Governor Edmund G. Brown Jr. in April and San Bernardino counties and the cities of Brea, Chino 2016 and reappointed in February 2020. Partner at Ichor Hills, Diamond Bar, La Habra, Industry, Placentia, Rowland Strategies and appointed to the Board of the Los Angeles Heights, Walnut, West Covina and Yorba Linda. City Employee Retirement System (“LACERS”). Former general counsel at the Port of Los Angeles and city GIL GARCETTI | Los Angeles attorney at the Los Angeles City Attorney’s Office. Appointed by Governor Gavin Newsom in November 2021. Professional photographer and author of ten Full biographies are available on the books. Former Los Angeles County District Attorney, teaching Fellow at Harvard University’s Kennedy Commission’s website at www.lhc.ca.gov School, and president of the California Science Center Foundation’s Board of Trustees. “DEMOCRACY ITSELF IS A PROCESS OF CHANGE, AND SATISFACTION AND COMPLACENCY ARE ENEMIES OF GOOD GOVERNMENT.” By Governor Edmund G. “Pat” Brown, addressing the inaugural meeting of the Little Hoover Commission, April 24,1962, Sacramento, California Milton Marks Commission on California State Government Organization and Economy www.lhc.ca.gov