These proposals include reforming the program that will pay homeowners $8.5 billion this year for solar panel energy, phasing out funding of non-energy related social programs such as “food deserts” assistance from energy budgets, and reducing capital expenditures. 

Under current regulations, utilities’ profits are capped relative to the value of their capital investments, which the report says incentivizes utilities to spend and borrow as much money as possible to increase their profit allowance – at ratepayers’ and taxpayers’ expense. 

According to the California Public Utilities Commission’s latest electricity rate report, rates for the state’s three largest utilities have increased by an average of 96% since January 2014 and 42% since January 2021.

“California’s electricity rates have surged beyond inflation, straining households and businesses hindering decarbonization efforts,” wrote the CPUC. “Wildfire mitigation measures, costly infrastructure investments, and rooftop solar subsidies all contribute to rising costs. Without changes in how utilities recover expenses, rates will continue to climb.”

The governor’s order put significant constraints on the CPUC’s scope of recommendations, requiring the recommendations “reduce costs to electric ratepayers without compromising public health and safety, electric grid reliability, or the achievement of the State’s 2045 clean electricity goal and the State’s 2045 economywide carbon neutrality goal.”

Within these constraints, the CPUC made four recommendations on how to reduce rates by 4-5% within the first year, with future rate reductions growing over time.

First, CPUC recommended minimizing “expensive construction projects,” explaining how current regulations encourage utilities to choose expensive options that allow them to raise their CPUC-regulated profit allowance. 

“There is a profit motive for utilities to pursue capital-intensive projects, as they earn a ‘return on equity’ on these investments which increases overall costs for ratepayers,” wrote the CPUC, which must approve utility projects. “Without proper oversight, this profit motive can lead to prioritizing expensive projects over more efficient alternatives.”

In addition to recommending choosing lower cost options, the CPUC also suggested securitizing some higher cost projects, which would require bonds to be issued, and paid back by ratepayers — which would not come with ROE provisions. CPUC estimates this change on just undergrounding of power lines could save customers $41 million per year in 2025, and $310 million per year by 2026. 

CPUC suggests significantly reforming the rooftop solar subsidy plan that will issue $8.5 billion per year by the end of 2024 — up from $3.5 billion per year in 2021 — to energy customers with solar panels installed.

Under the existing plan, solar-equipped customers “receive payments at retail electricity rates for their exported energy, often exceeding its actual market value.” 

Utilities often must pay other operators to take excess solar energy, on top of paying solar customers the retail rate for the negative-value solar energy, leaving non-solar customers with the bill. 

“These growing subsidies, paid for by non-rooftop solar customers, contribute to higher electricity rates and result in a higher cost burden to non-[solar] customers,” wrote the CPUC. “Additionally, rooftop solar customers do not contribute their fair share of fixed grid costs, such as maintaining power lines and ensuring grid reliability.” 

An earlier CPUC report found 15% of non-solar customers’ energy bills went towards payments to solar customers. 

The CPUC recommends reducing the solar compensation rates and transitioning buyers of property with high-reimbursement agreements to the current lower rate. 

CPUC further recommended that utilities “phase out non-cost-effective programs from electricity rates,” that it says often have “very little to do with reducing energy consumption,” which means “funding them through customers’ energy bills effectively acts as a regressive tax.” 

The CPUC said “programs addressing food deserts or supporting high school and community college courses, while socially beneficial, are better suited for taxpayer funding than ratepayer funding.” 

It also pointed to a “state-administered grant program for school infrastructure improvements,” and energy efficiency programs, finding, “Despite increasing investment, many of the programs funded today are not cost-effective and do not primarily focus on cutting energy use.”

The recommendations align with concerns raised by some state lawmakers — especially Republicans, about inequitable energy costs.

“It’s no secret that the benefits of wind and solar energy are not equally enjoyed in some communities,” said California Senate Utility, Energy and Communications Vice Chair Brian Dahle, R-Bieber, in an earlier interview with The Center Square on solar payments. “It’s time for energy resources, renewable or not, to stand independently without offsetting costs by adding more fees and relying heavily on taxpayers’ support.”