A pair of just-released reports have bad news for utility customers in the San Diego area and across California: Prepare to pay higher bills.

An annual report from the California Public Utilities Commission predicts “electric rates are expected to continue increasing above inflation through 2027” for all three of the big investor-owned utilities in the Golden State — San Diego Gas & Electric, Pacific Gas & Electric and Southern California Edison.

Looking at a more immediate horizon, a separate report from the Public Advocates Office predicts average residential electricity rates will increase next year for all three utilities.

Both reports show SDG&E’s cost projections rising at a slower rate than those of PG&E and Edison.

Each year, the utilities commission issues its Senate Bill 695 Report that looks at costs and rate increases and suggests ways to limit them. This year’s edition mentioned California’s “numerous clean energy projects” needed to meet the state’s “ambitious greenhouse gas and zero carbon targets.”

State policymakers want California to derive 100 percent of its electricity from carbon-free sources by 2045, if not sooner.

While the report said the state is on track to meet the target, rate increases have outpaced inflation for the past three years and are expected to keep climbing in the near future.

The report anticipates the average electric rate for residential customers in San Diego Gas & Electric’s service territory will grow 5.6 percent through 2027.

Southern California Edison’s rates are expected to rise 6.8 percent and PG&E’s rates are projected to go up 10.8 percent.

“Cost containment is essential,” said the report issued by the utilities commission, known as the CPUC.

On July 22, the Public Advocates Office — the independent arm of the CPUC created to look out for ratepayer interests — released a quarterly report that produced its own set of sobering projections.

Using data submitted to the CPUC from utilities, the report from the Public Advocates Office, or PAO, shows residential electric rates since 2014 have nearly doubled for SDG&E and Edison. Rates in PG&E’s service territory have soared more than 100 percent in that time.

The report anticipates that average SDG&E residential customers will pay about 40.6 cents per kilowatt-hour by the start of 2025, which is a little more than 2 cents higher than the rate paid in March.

PG&E customers are expected to pay 40.4 cents per kilowatt-hour in January, while Edison customers will pay 33.9 cents.

The prediction from the PAO report includes what SDG&E is requesting from the CPUC in its general rate case for 2024 through 2027. The commission is expected to issue a proposed decision soon and then vote on whether to accept, reject or modify SDG&E’s spending request later this year.

Why are costs going up?

The costs of maintaining, upgrading and running the system that supplies power to customers across California are ultimately funded by ratepayers.

The CPUC’s mission is to make sure customers receive safe, reliable (and in recent years) clean utility service at reasonable rates.

The existing system that distributes power to customers “will need significant upgrades to accommodate the anticipated load from electric vehicles, electric heat pumps, and other electric appliances,” the SB 695 report said.

The costs of integrating upgrades and clean energy projects — as well as things like poles and wires and maintaining existing more conventional assets such as natural gas plants — are folded into rates that customers pay.

Another major driver of costs is wildfire prevention, which get rolled into rates customers pay.

SDG&E, for example, has spent about $5 billion after the Witch Creek, Guejito and Rice wildfires in 2007 destroyed more than 1,300 homes, killed two people and injured 40 firefighters. One of the fires was caused by a tree limb that fell onto an SDG&E line during high winds.

Since then, SDG&E efforts have included:

• establishing 222 weather stations that measure wind speed, temperatures and humidity every 10 minutes, and
• placing about 45 percent of utility infrastructure underground

Much of PG&E’s increase in customer rates over the past few years can be attributed to a series of devastating wildfires in Northern California that forced PG&E into bankruptcy proceedings, causing the utility to boost wildfire prevention spending.

“Wildfire mitigation costs have climbed since 2021 and are projected to continue their upward trend due to climate change-induced risks,” the SB 695 report said.

The CPUC and the Public Advocates Office each said another contributor to rising rates is Net Energy Metering — the program that compensates rooftop solar customers when their systems generate more energy than they consume.

In a controversial decision, CPUC commissioners in December 2022 ruled that new rooftop solar customers will no longer receive credits at the retail rate of electricity when their systems generate excess energy. Instead, they will get paid at the “actual avoided cost,” which is much lower.

The rationale behind the ruling? The commission believed the more generous compensation rate led to a “cost-shift” in which ratepayers who don’t have solar ended up paying an unfair share of the fixed costs that come with maintaining the electric system — things like wires, substations and transformers.

That, the SB 695 report says, translates to an average cost burden of roughly $20 to $35 per month for customers without rooftop solar.

The CPUC does not expect the new rules will fully offset the differential because rooftop customers who installed their systems before the decision was passed won’t be immediately affected.

Those customers still get compensated at the retail rate for 20 years from the time their systems were installed. For example, a solar customer who had a system installed in 2018 still gets credited at the retail rate until 2038. After that, the customer would be credited at the lower rate.

“Every time rates go up, that subsidy goes up and that’s really kind of a runaway train,” said Michael Campbell, the PAO’s assistant deputy director of energy.

But advocates for the solar industry bitterly reject that argument.

“This cost-shift thing is manufactured scapegoating,” said Bernadette Del Chiaro, executive director of the California Solar & Storage Association. “The utilities do it because they have a profit motive to try to squash consumers generating their own energy. And then, what appears to us is, the regulators (at the CPUC) are repeating it because it’s a very convenient cover for them because they simply have not done a good job of restraining utility spending. Utility spending has been out of control.”

Any hope that rates will go down long-term?

The CPUC’s SB 695 report says integrating a growing demand for more electricity comes with “challenges and costs, but also opportunities.”

While the costs of upgrading the electric distribution system will cost “tens of billions of dollars,” the commission anticipates “significant cost savings” by residential and business customers as they reduce spending on natural gas, gasoline and other fossil fuels via electrification.

The CPUC “is taking action to mitigate costs, put downward pressure on rates, and promote equity during this significant transformation of the energy sector in California,” the 112-page report concludes.

The San Diego-based Utility Consumers’ Action Network, or UCAN, is not as optimistic.

“There is no indication that rates will go down, especially since people will be needing/using more electricity due to electrification goals and more extreme weather,” UCAN executive director Edward Lopez said in an email to the Union-Tribune.

“We will need to see a dramatic change in the way the CPUC regulates SDG&E — and other utilities — if (lower rates) happen in the long-term,” said Lopez, who also alluded to SDG&E reporting profits of $936 million last year.

SDG&E spokesperson Anthony Wagner said “the need to keep energy costs down for customers has become more urgent than ever,” while asserting that nearly 25 percent of customer bills are driven by California legislative mandates.

“At SDG&E we are listening and taking action to stabilize electric bills and address the affordability challenge head-on,” Wagner said in an email. Those actions include reducing operating costs, seeking approval from the CPUC to spread costs over a longer period of time and pursuing money from the federal government to offset expenses related to transmission infrastructure.

As per CPUC rules, utilities such as SDG&E cannot profit on the price of electricity or natural gas. Instead, they make money primarily on more infrastructure projects, where they can earn a rate of return that hovers around 7 percent — provided the CPUC gives the project the green light.

Critics say the system gives power companies an incentive to spend money on capital investments that may not be needed.

Others say California should tap the brakes on its 100 percent decarbonization goals.

“I’m not surprised” by reports of rates outpacing inflation, said Wayne Winegarden, senior fellow at the Pacific Research Institute, a Pasadena think tank that espouses free-market solutions to policy matters. “When you put on costly mandates, you can expect prices will rise and you can expect that people who are lower income, who live farther away from the ocean in inland areas, they’re going to have the highest burdens.”

In the meantime, almost 1 in 5 households in California (18.4 percent) are behind on their energy bills. In SDG&E’s service territory the figure is 23 percent, with the average amount owed being $737, as of May. The average past-due Southern California Edison customer owed $1,013.

“The good news is that all of the policymakers very clearly understand that we are in a rates crisis and there needs to be some action,” said Campbell of the Public Advocates Office. “But without some real changes, it’s hard to think that we’re going to see a period where rates are slowing down below the rate of inflation.”

Rate increases not only affect SDG&E customers but also impact customers enrolled in the county’s two community choice energy programs — San Diego Community Power and the Clean Energy Alliance.

That’s because the rates SDCP and CEA charge deal only with the costs of purchasing electricity generation for the residents and businesses in their respective municipalities.

Above and beyond that, costs associated with the transmission, distribution and delivery of power remain with SDG&E and are passed on to customers enrolled in SDCP and CEA in their overall monthly bills.

Originally Published: August 2, 2024 at 6:00 a.m.