electricity affordability utilities in California

California Governor's Executive Order on Affordability

INTRODUCTION

On October 30, 2024, Governor Newsom issued an Executive Order (EO) titled “Tackling Raising Electric Bills.” While the EO does not take any action that will directly reduce rates or bills, it orders the California Public Utilities Commission (CPUC), the California Energy Commission (CEC), and the California Air Resources Board (CARB) to prepare reports focused on eliminating or finding non-ratepayer sources of funding for, ineffective programs funded by ratepayers, reducing wildfire mitigation spending, and the reducing consumer bills through revenues from the cap-and-trade program. 

Since the agencies have been focused on affordability and have already prepared external and internal reports for discussions, it is unlikely that any new proposals will be included in any of the reports. The Governor’s statements make clear that the reports are intended to shape legislative discussions in 2025. 

Summary of Governor's Executive Order on Affordability

The affordability of electricity bills has been the top political issue for policymakers in 2024. Multiple bills were introduced to address high electricity bills, and the Governor’s staff were actively engaged in developing proposals that could reduce overall bills. However, each proposal had its own set of challenges – political, bill impact, or implementation – and consequently, no meaningful proposals were approved. New laws added some transparency to the ratemaking process by requiring more disclosures from the utilities. The fact that the EO does not direct any new specific action and instead only orders new studies shows that there are still no easy paths to reduce bills. 

While the EO does not create any new programs or change policy directly, it clearly signals that affordability will remain the paramount political consideration for energy policy consideration in 2025. Many energy advocacy groups will likely have to prioritize defensive strategies in 2025 to defend spending on existing programs. Any proposal for new programs or policy will need to clearly show that it will not increase bills and likely will need to show that it will result in near and long-term reductions in bills. 

Some Programs That Will Likely Be In The Agency Reports

As discussed above the EO requires the CPUC, CEC, and CARB to prepare reports. This section details the programs that will likely appear in each agency’s respective report.

CPUC

The CPUC’s report will look at programs it oversees and promulgated rules and regulations that may be unduly adding to electric rates or more appropriately funded from non-ratepayer sources. The report will make recommendations to the Legislature on any statutory changes that would be needed to reduce costs. The CPUC is also ordered to take immediate action to eliminate any programs it has the authority to terminate that are underperforming. In theory, this directive could include every aspect of utility operation. The CPUC has wide ranging authority to create or terminate utility programs and only in a few cases where the legislature has specifically mandated a program would legislation be needed to terminate it. However, based on prior reports from the CPUC, the report will likely focus on the following: 

  • Energy Efficiency – Energy Efficiency (EE) programs collectively represent the largest single ratepayer program the CPUC oversees. Some of the individual programs in the portfolio do not meet the CPUC cost-effectiveness definitions, but the portfolio as a whole must result in ratepayer savings. The CPUC will likely single out many of the individual programs to cut. However, they will also likely use the report to defend the overall program structure. 

While CalAdvocates and TURN have lobbied for reductions in EE spending and for changes in how the programs are run, many environmental groups, environmental justice groups, companies and trade groups have a vested interest in these programs, and their opposition to dramatically changing EE programs will be hard to overcome. 

EE spending also includes programs specifically focused on low income communities. While most of these programs are not defined as cost-effective, meaning they cost the utility and ratepayers more than save, these programs help lower the benefiting customers’ overall bills. Thus, while they are likely to modestly increase overall rates, they can have a significant impact on lowering bills for participating low-income customers. 

  • Clean Energy Rebate Programs – Multiple programs provide direct rebates to customers who install clean energy technologies like batteries, solar panels, and heat pump water heaters that the CPUC oversees. These include the Self Generation Incentive Program (SGIP), Solar on Multifamily Affordable Housing (SOMAH) Program, and TECH programs. Each of these programs was authorized to collect a specific amount of funding from ratepayers. In most cases, the funding has been fully collected or nearly fully collected from ratepayers but may not have been fully spent. The CPUC could recommend terminating these programs and refunding spent funds to ratepayers. 

At this point, most of these programs’ spending is focused on low-income communities, and the spending would result in lower electric bills for the specific participating customer. This means terminating the programs would benefit ALL customers by a small amount by refunding already collected funds, but it would disproportionately hurt a small number of low-income customers who could have seen big bill decreases if the programs continued. 

  • Net Energy Metering (NEM) – The EO specifically identified NEM as a driver of bill increases and specifically credited the CPUC for taking action to reduce the bill impacts of NEM through its NEM 3.0 decision in 2022. That decision reduced the bill credits customers with rooftop solar receive for electricity they export to the grid. Since customers without solar panels ultimately fund bill credits for solar customers, the reduction in bill credits reduces the impact of bills on non-participating customers over time. However, the NEM 3.0 decision grandfathered in all customers who installed solar before NEM 3.0 was implemented and allowed them to continue to receive a much higher bill credit for 20 years. The grandfathering means the bill impacts of NEM 2.0 remain embedded in utility rates. The CPUC may recommend eliminating this grandfathering of NEM 2.0 customers and moving ALL solar customers to new bill credits provided under NEM 3.0. The CPUC could use the report to provide an analysis of how the termination of the grandfathering provisions could directly impact overall rates. 

Ending the grandfathering provision would impact millions of solar customers. It would directly increase the electric bills for the current NEM 2.0 customers. For customers leasing their solar system or financing the systems, it could flip the system’s value so that they are paying more for the lease or loan than they are saving in their electricity bills. While the aggressive campaigns against NEM 3.0 failed to change the direction of the CPUC, a change in the grandfathering provisions will likely have even more opposition, which will be harder to overcome since it will not impact millions of existing customers and not just new customers. 

  • CARE – The CARE program provides all qualifying low-income customers with approximately a 30% reduction in their electric bills. All other customers pay for this program. While it is unlikely that the CPUC would recommend reducing or eliminating this program, the CPUC could recommend modifications to the program that change eligibility requirements or payment structures. This could help make low-income customers’ bills more affordable but would likely have no or upwards impact on non-CARE customer bills. 

Outside of EE funding and CARE, the total costs of programs overseen by the CPUC and funded through ratepayers result in less than $200 million a year in statewide bill collections. This is a very small percentage of customer bills, and cutting all of these programs would result in almost imperceptible reductions in average bills. 

CEC

Electric Program Investment Charge (EPIC) is the biggest program the CEC oversees, funded by ratepayers, and is California’s premiere public interest research program that drives clean energy innovation and entrepreneurship to help meet the state’s climate and clean energy goals. EPIC is a $130 million annual ratepayer-funded R&D program. The program does not have many vocal critics and has broad-based support (especially from the University of California, hundreds of companies, and local governments who have received grants from the program). While the CEC has historically struggled to show how much of the funding in the program directly benefits California ratepayers, in 2023, 18 of the funded projects saved utility customers $1.5 million and 22 funded projects deployed more than 4000 clean energy technology installations. However, in the few points in time when legislative oversight committees have focused on the EPIC program, the committees were critical of the overall program as well as specific aspects of the program. While the CEC will likely use its report to show the benefits of EPIC, EPIC may be a candidate for any legislative effort to cut programs. 

Most of the other CEC programs are already funded through other sources of funding including the General Fund, specific bond funding, Cap-and-Trade allocations or federal grants. 

CARB and the Climate Credit

CARB is directed to work with the CPUC to develop ways to maximize the effectiveness of the California Climate Credit. The California Climate Credit is a bill credit that is funded through revenues the utilities earn by selling their carbon offset credits. Under the Cap-and-Trade program, each utility is allocated offset credits that they are required to sell in the Cap-and-Trade Market. The proceeds from the sales must be used to benefit ratepayers. The CARB rules also require that any credit to ratepayers must be designed to maintain the price signals the Cap-and-Trade program is supposed to send for using carbon intensive resources. For electricity rates, the CPUC designed a program that allocates 85% of the revenue from the utility Cap-and-Trade proceeds to customers through a fixed bill credit. The credit is the same for all customers, irrespective of usage. The program initially allocated the credit twice a year in months that were typically low-usage and thus had low bills, so customers would be more aware of the bill credit. However, since the start of COVID, the CPUC has moved the credit to high-bill months to help reduce the impact of the higher bills. 

The statute currently requires utilities to allocate 85% of the credit on bill credits. The CPUC and the legislature have allocated the other 15% to clean energy programs that could reduce overall carbon emissions. 

Outside of allocating 100% of the revenue to bill credits, there has been no discussion about other ways to make the program more effective. It is possible that proposals could be made to means-test the allocation of the credits or to allocate the funding into a bill credit each month. 

Maximize Federal Funding

The CPUC and utilities are directed to pursue any federal funding that would help reduce ratepayer costs. 

It is notable that this directive only focuses on the CPUC. Multiple California agencies have been coordinated for several years to maximize federal funding from the Infrastructure Act (IIJA) and Inflation Reduction Act (IRA) for energy investments in California. The vast majority of the funds would flow through agencies other than the CPUC. The CPUC, like other state agencies, has been slow to develop the programs needed to qualify for some of the federal programs.

What is Not in the EO

  1. A number of proposals that have been discussed among key stakeholders in the past six months are notably not included in the Executive Order. The Governor’s staff has been open to some of these proposals in the past, so their exclusion from the order may not be indicative of a lack of future support. 

    • Alternative Financing – Reducing the financing cost of major infrastructure investments will generally result in lower ratepayer costs since ratepayers ultimately pay those costs. 

    Government financing of transmission or generation projects will reduce the cost of those projects since they could be financed with tax-exempt bonds, and the government would not need to earn a rate of return on the investment. California could set up a transmission authority to finance transmission projects or use the IBank to provide low-cost financing to the project developers. Historically, the utilities and labor unions have opposed government financing since it would also result in lower profits for the utilities. 

    The utilities have proposed securitizing the financing of some of their spending. Securitization involves the CPUC creating a specific charge on the customer bill to fund specific utility spending. This results in lower financing costs because investors view the payback of that borrowing as more certain since it is tied to fixed charges that cannot be altered. Securitization can result in ratepayer savings depending on what the utility is financing, however, it can also be used to fund a short-term rate decrease that leads to long-term rate increases if it is used to fund operational costs that typically are paid in real-time and not financed. 

    • Rate Design – Rate design doesn’t change the overall utility revenue collected so it doesn’t change the average bill, but it can change which customers pay, when customers pay, and the impact of utility bills on affordability. In California, customers in hotter regions of the state are disproportionately impacted by high utility bills because they rely on air conditioning and use much more electricity than customers in the cooler coastal and mountain regions. The hotter regions also house a larger percentage of California’s low-income residents. California rates already provide a baseline allowance that helps reduce the bill impact in hotter climate zones and has a low-income bill credit to help all low-income residents. The CPUC also recently approved a fixed charge that will help reduce bills for customers in hot climate zones who use more electricity (and increase the bills for customers who use very little electricity). Even with these programs, the impacts of high bills do not equally impact all customers. Changes to baseline allocations and how low-income credits are allocated could help the customer who pays the most and the customer who can least afford new bill increases. 

How Can Stakeholders Impact this Process

  1. The language of the EO is clear that the reports from the CPUC, CEC, and CARB will influence legislative discussions in 2025. Typically, the legislative policy committee gives official reports from the energy agencies a high degree of defiance. It is difficult for parties to challenge any statements of fact in the reports. While the Legislature will not rubber stamp any agency recommendations, the reports will be the starting point of debate. 

    The process of preparing these reports will most likely not be public, and the first time most stakeholders see the reports is when they are released in January. Given the importance of these reports, stakeholders should ask for some form of public vetting of the reports and/or workshops to discuss options that could be considered in the reports.

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Hope Fasching Headshot
Hope Fasching
Associate
Ms. Fasching is a green hydrogen policy expert and clean energy advocate, having spent several years working in clean energy consulting and policy development. Prior to joining Caliber, Ms. Fasching served as a Consultant and Senior Policy Analyst at Strategen, a clean energy strategy consulting firm, and also helped lead the Green Hydrogen Coalition. In this role, she worked extensively with the California Public Utilities Commission (CPUC), California Energy Commission (CEC), and California Air Resource Board (CARB) on various clean energy topics. She also tracked relevant clean energy legislation at the California State Legislature. Ms. Fasching also worked with the Governor’s Office of Business and Economic Development (GO-Biz) and other key stakeholders on California’s clean hydrogen hub. Ms. Fasching holds a Masters in Public Policy from the University of California, San Diego, with a focus on energy policy and econometric analysis. She also holds a Bachelor of Arts from the University of California, Los Angeles in Political Science.
Hope Fasching Headshot

Hope Fasching

Associate

Ms. Fasching is a green hydrogen policy expert and clean energy advocate, having spent several years working in clean energy consulting and policy development.

Prior to joining Caliber, Ms. Fasching served as a Consultant and Senior Policy Analyst at Strategen, a clean energy strategy consulting firm, and also helped lead the Green Hydrogen Coalition. In this role, she worked extensively with the California Public Utilities Commission (CPUC), California Energy Commission (CEC), and California Air Resource Board (CARB) on various clean energy topics. She also tracked relevant clean energy legislation at the California State Legislature. Ms. Fasching also worked with the Governor’s Office of usiness and Economic Development (GO-Biz) and other key stakeholders on California’s clean hydrogen hub.

Ms. Fasching holds a Masters in Public Policy from the University of California, San Diego, with a focus on energy policy and econometric analysis. She also holds a Bachelor of Arts from the University of California, Los Angeles in Political Science.

Hope Fasching Headshot

Hope Fasching

Associate

Ms. Fasching is a green hydrogen policy expert and clean energy advocate, having spent several years working in clean energy consulting and policy development. Prior to joining Caliber, Ms. Fasching served as a Consultant and Senior Policy Analyst at Strategen, a clean energy strategy consulting firm, and also helped lead the Green Hydrogen Coalition. In this role, she worked extensively with the California Public Utilities Commission (CPUC), California Energy Commission (CEC), and California Air Resource Board (CARB) on various clean energy topics. She also tracked relevant clean energy legislation at the California State Legislature. Ms. Fasching also worked with the Governor’s Office of usiness and Economic Development (GO-Biz) and other key stakeholders on California’s clean hydrogen hub. Ms. Fasching holds a Masters in Public Policy from the University of California, San Diego, with a focus on energy policy and econometric analysis. She also holds a Bachelor of Arts from the University of California, Los Angeles in Political Science.