As a former PG&E employee living in PG&E territory, I frequently get asked the same question from friends, colleagues, and neighbors, “What is going on with electricity rates?” Of course, I’ve noticed a big jump in what I’m paying PG&E every month, too. I researched residential rates on the Department of Energy website and other publicly available sources. Here’s what I found: The average annual residential rate in California has more than doubled in the last 10 years, from 0.143 $/KWh to close to 0.30 $/KWh, but this is deceiving because of the multitier rates. So, I focused my analysis on the moderate residential consumption of 755 KWh per month for a typical household and looked at a larger sample of California utilities. I was stunned how difficult it was to gather this information!
I discovered that the latest increases in PG&E’s rates mean that the utility has the highest average monthly residential rate in California, even higher than SDG&E.
Is California’s electricity restructuring the cause for PG&E retail rates to double? The simple answer is no!! In fact, restructuring of the wholesale energy market, which is only one component of the residential bill, mainly the energy line item, has decreased, but the remaining components of residential electricity costs that were not restructured have skyrocketed.
Rate increases are disproportionate among California utilities for a variety of reasons. As an example, IID, a public power utility, has the lowest rates in California. This despite being in the desert of southern California where there is no hydro generation and extremely hot weather. We certainly should give them a lot of credit for keeping rates low, but this disproportionality across the utilities, regardless of why, is worth exploring.
A typical residential electric bill comprises four components: (1) Energy; (2) Transmission; (3) Distribution; and (4) Public Purpose Surcharge & Other. For instance, in 2024, the customer bill from PG&E will be: Energy $0.1332 (30% … used to be much higher), Transmission $0.18/KWh (40% … used to be much lower), Distribution $0.13/KWh and Public Benefit & Others $0.02/KWh, for a total of 0.46 $/KWh.
The good news is the energy cost component decreased due to competition, but the T&D costs have tripled or quadrupled. For instance, transmission costs increased from 0.045 $/KWh in 2006 to 0.178 $/KWh as of 2024, a fourfold increase, wiping out all the energy-cost reductions deregulation afforded. The T&D rate increase is prominent across the IOUs and to some extent LADWP, whereas the rest have lower transmission rates between 0.02 to 0.05 $/KWh, up to 7x lower than the IOUs.
Some may argue transmission cost increases were the result of renewables development, while the increase in distribution costs is a result of climate change and wildfire prevention, in particular. Whatever the reasons, T&D remains regulated and monopolized, and the costs keep going up. My prediction is that we have not come close to hitting the ceiling on these costs. Perhaps we need to focus on a different approach to lowering utility bills or, at least, prevent these opened-ended increases. Is it the time to open T&D to competition?