Reimagining utility rates to unlock cleaner, cheaper power
Both Johnson and Cheng contributed to a recent report by the American Council for an Energy-Efficient Economy, Industrious Labs, the Sierra Club, and Synapse Energy Economies that outlines strategies for updating industrial rates to accelerate electrification.
Their analysis is meant to inform California’s three biggest utilities as they devise new rate options for large customers. The concepts, however, could apply to other parts of the country that have plenty of intermittent renewables, like Texas and the Midwest “wind belt,” and regions where industrial electricity is far more expensive than fossil gas, such as the Upper Midwest and Northeast, Johnson said.
Last August, the California Public Utilities Commission instructed Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric to design dynamic hourly rates that “align electricity prices more closely with grid conditions to promote efficient energy use.” Simply put, the goal is to make it cheaper for large customers to use power when the grid is overloaded with utility-scale solar, which often gets curtailed.
The three investor-owned utilities are required to start offering customers the option of dynamic pricing by 2027, providing a chance to transform how major electricity users pay for power.
Why does California have high electricity costs with such high take-up of solar? Not being snarky - I’m genuinely asking. I understand why CA would have higher prices for some energy given that it’s on the “wrong” side of the mountains for fossil fuels. But it’s got massive renewable numbers - not just solar, but wind and large hydro, which make up half their electricity generation. Plus another 10% coming from nuclear.
They’ve made massive strides towards renewables, and those are supposedly lower cost energy sources these days. What’s causing their electricity rates to be so high?
But Californians also use far less electricity. While per capita sales to residential users have steadily climbed in the US as a whole, California’s have not changed much since the late 1970s. They now sit at half the level of the US overall. Explanations differ here as well, with some crediting the state’s pioneering energy efficiency regulations and others the state’s demography and temperate climate. California’s utilities also point to lower consumption as one reason for higher rates, since similar infrastructure costs must be covered with less revenue.
For many years, lower consumption easily trumped higher rates for most Californians. Monthly electricity costs for the median California consumer were $15 to $20 lower than in other states (adjusted for inflation) throughout the 1980s, 1990s, and early 2000s. But since 2015, the surge in rates has outpaced lower consumption, pushing bills higher. Median bills are now comparable between California and the rest of the country.
Also, there is the tiny matter of the Moss Landing fire last year, which ought to damped enthusiasm for further battery storage projects. Also, many of the dams that PG&E currently depends on are aging. Hence, the reason some came down last year, which is a project I endorse.
I mean - no? I didn’t deeply research it. That’s just what the AI slop at the top of Google’s search engine told me. But it’s close to what a little further looking pulled up for official figures. Per the California Energy Commission, non-fossil sources made up about 57% of CA electricity generation. About 8% of that was nuclear. Nearly half were renewables - AI overstated the solar/wind/large hydro, because there’s nontrivial geothermal and small hydro. But close enough for government work.
So again…I don’t entirely understand why CA would have such high electricity rates if renewable energy were cost-comparable to fossil energy.
But so-called “renewables” aren’t a lower-cost alternative to carbon-based electricity generation once the all-in costs are considered, never mind their greater environmental destructiveness, never mind the need for and the cost of backups.
I don’t know why CA energy costs are near the highest in the nation. But part of the reason probably has to do with the fact that all costs of living in CA, not just housing and energy, are higher than in many states, as are wages and incomes. That’s where doing state by state rate comparisons fail and why rate comparisons need to be adjusted on a purchasing-power basis.
When that is done, is CA really paying higher rates than the rest of the country? I’d doubt it, given that CA has access to so much cheap hydro power, plus even some geothermal, which the rest of the country doesn’t.
California’s electricity is expensive due to massive grid investments for wildfire prevention and recovery, ambitious clean energy policies, aging infrastructure, high demand, and utility costs, with fixed charges increasingly shifting costs onto per-kilowatt-hour rates, burdening consumers despite lower overall usage.
Utilities spend billions on clearing vegetation and hardening power lines to prevent fires, costs passed to customers; past fire damages also drive up rates.
Fixed costs (like grid upgrades) are loaded onto per-kWh rates, making electricity seem more expensive per unit, even for low users, notes the Energy Institute Blog.
But shouldn’t that in large part be ameliorated by having so much of their electricity come from zero-operating cost sources, like wind and solar and other renewables?
Many jurisdictions around the country (arguably most) face aging infrastructure, high demand, and utility costs. Wildfire costs might be a little unique to CA, but only to an extent (here in Florida we have hurricane hardening costs). So it’s a little hard to square CA’s high rates with the state’s longstanding position that renewable energy sources are significantly less expensive (both to operate and overall) than the fossil fuel plants that make up a larger percentage of other states’ energy mixes.
Actually, now that I think about, I’m also wondering if the change in ownership of a major power producer like PG&E is part of the reason rates for Californians increased over the years.
My Dad was a power-plant operator, a job many WW 2 sailors rotated to when the war ended, because what is a land-based power plant but a ship that never goes to sea? Boilers are used to create steam, that drives turbines, that spins generators.
He loved his job, as did his co-workers, who shared the belief they weren’t just keeping the lights on but, making life possible for the customers of the company, and “the company” had the same benignly paternalistic belief. They were providing an essential service that they regarded as a sacred trust.
Then came the takeovers and buyouts of later years and a ruthless attitude on the part of headquarters and the accounting departments. What now mattered was corporate profitability, not public service, and that would show up in frustrating ways even at the deck plate level of daily operations. Broke his heart. The company he retired from wasn’t the same company he had gone to work for decades earlier.
Here’s where we differ. I say wind and solar are NOT low-carbon energy when the whole process is considered, from construction to maintenance to decommissioning.
Yeah, the link is to a work of fiction. But the points made are valid.
Nuke, OTOH, is a cleaner alternative I’d favor, esp. if the US were ever to stop thinking each plant had to be a unique prototype rather than a standardized, off-the-shelf model. Yeah, there the fuel disposal problem, plus the initial mining problems. But a well-built plant, such as many I worked around on ships, seems a better environmental choice than commercial-scale wind/solar.
Sure. I know that, which is why it’s surprising that CA’s electricity rates are that much higher than the national rate. I know CA’s got some expenses for wildfire hardening that might be somewhat unique to the state - but every electricity provider is spending money on infrastructure and grid upgrades and the like. So it is a bit puzzling that if CA has so much of its electricity being generated by sources that are cheaper than fossil fuel power plants, why its electricity rates would be so much higher.
The other problems with nuclear the cost and schedule. Look at the Vogel 3&4 nuclear plants completed a couple of years ago. The Plant Vogtle Units 3 and 4 expansion in Georgia experienced severe delays and massive cost overruns, with the final price tag exceeding $30 billion—more than double the original $14 billion estimate. The project, featuring the first new U.S. nuclear reactors built from scratch in decades, ran roughly seven years behind schedule, with Unit 3 beginning commercial operation in 2023 and Unit 4 in 2024.
I don’t know for sure how rates for electricity are set in each state. My understanding is that rates are regulated by a state utility commission none of which are likely to be free from political interference and abuse, a classic example of which is CA’s Golden Gate Bridge.
Originally, tolls were charged sufficient to cover maintenance. Then various factions saw the bridge as a possible revenue source for themselves and their own pet projects, and rates were increased and keep increasing, as anyone who has driven across it lately knows. Another example of an utility that is more expensive due to extraneous add-ons than its internals justify is phone service. Some of the taxes date back to WWII.
Also, why does CA’s electric rates matter to you? If you’re a CA resident, then go wind or solar, plus insulate properly.
As you drive down 80, just past the Carquinez Bridge there’s a house near the freeway on the right hand side that’s had a DIY wind turbine on its roof since at least the 60’s. The turbine blades were made from barrel halves mounted vertically. Simple, clever, cheap, and it was always spinning every time I drove past.
California is going clean energy and electricity. The PJM, Midwest and South are all stuck with their old coal fired power plants. They are not going for clean electricity. They fight clean electricity except in Texas. They are praying for cheap nuclear which is work in progress and may never happen.
They are also working toward a more equitable rates use of solar as stated in the OP.
It’s just curiosity. I saw the original post, which noted that even though California has abundant solar their factories aren’t using it and posited that the very high prices were the cause. That seemed incongruous to me. It might make sense in the very earliest days of a pivot to green energy, when you’re dealing with a new approach and have all these initial costs to start getting things up.
But solar in CA has reached the point where it is close to their largest source of electricity - a third of total generation and the largest single source, more than natural gas, for the 12 months ending April 2025:
A significant milestone! But one that makes it a little surprising that they still have such high electricity prices. Solar isn’t some newfangled fringe power source in CA. It’s reached economies of scale. It’s either the largest or second-largest source of their power (depending on the time frame).
Again, I understand California’s goals. I just don’t understand that now that they’ve gotten to a fairly mature solar industry, supplemented by a fair amount of other renewable power and existing hydro, their electric bills can still be so very high. Solar’s supposed to be cheap. They’ve moved almost a third of their electricity into the cheap source. How can prices still be that high?
Why should the companies producing the electricity pass on their supposedly lower costs to rate payers? Though they called ‘public utilities’, they are just the same predatory capitalists that run nearly every company, publicly-traded or not.
Consider PCG, for example. Institutions own 97.5% of the company, the general public, just 2.2%. The top three institutionals are --predictably-- Vanguard, Blackrock, and State Street. They couldn’t care less about the impact of electric rates on CA business and retail users.
