If you ask climate policy experts how to steer the economy toward a cleaner future, virtually all would agree with Saul Griffith, founder and chief scientist of Rewiring America, that “All roads point to electrification.”
To signal that direction to consumers, governments in both Washington and Sacramento now offer billions of dollars in subsidies to support sales of electric vehicles and heat pumps, powered increasingly by clean renewable energy, rather than cars and furnaces that burn climate-polluting fossil fuels.
But these worthy government programs ignore one of the biggest obstacles to widespread electrification: sky-high electric rates in states like California. As of this March, the average resident of San Francisco paid more than 33 cents per kilowatt-hour, double the national average of 16.6 cents and one of the highest rates in the country.
“Here in California, we are in a period of relatively extreme rate inflation,” acknowledged Matt Baker, the director of the Public Advocates Office for the California Public Utilities Commission last year. “Our climate experiment is too important to crash on the shoals of high costs.”
That’s why we applaud a proposal by Pacific Gas and Electric Co. and the state’s two other investor-owned electric utilities to lower rates by revamping the way customers are billed for their electric service.
Today, utilities recover nearly all of their costs for maintaining the grid, funding safety programs and supporting state policies (like energy efficiency) through the rates they charge per kilowatt-hour. The utilities propose instead to lower usage rates by more than 20% and recover more of their costs that don’t vary with use through a monthly fixed charge.
The utilities’ total revenue wouldn’t change — this isn’t a charitable proposal — but lower rates would go a long way toward encouraging customers to switch from gas to electricity.
As required by Assembly Bill 205, which became law last summer, the new fixed monthly charge would be tiered by household income, so low-income families would retain or improve on the discounts now embedded in their existing rates.
PG&E estimates that its lowest-income customers would enjoy a 21% cut in overall bills, while the highest-earning households would pay about 24% more. That seems fair since today’s rate system is more regressive in its impact on the poor even than the state’s sales tax.
Plenty of other utilities, including the Sacramento Municipal Utility District, already levy fixed monthly charges to cover system maintenance in return for lower variable rates for usage. One of our recent bills from Marin Municipal Water District charged just $19 for our thrifty water consumption and $86 for various fixed charges, including capital maintenance and watershed management.
Reforming electric rates could make a real contribution to California’s climate leadership. A 2021 study by two University of California economists concluded that, “In California and some other parts of the United States, distorted electricity prices are likely to be among the most significant incentive barriers to reducing fossil-fuel emissions through electrification.”
In a follow-up report in 2022, economists at UC’s Energy Institute estimated that the state’s high rates imposed an implicit tax in PG&E’s service territory of about $700 a year on electric vehicle customers and $850 a year on customers using heat pumps in their homes.
Based on well-known relationships between energy prices and vehicle sales, they estimated that electric vehicle sales in California would be at least 13% higher if California had more efficient electric rates. Similarly, lower electric rates would stimulate an estimated one-third increase in home heating electrification.
As relatively light users of electricity who don’t qualify for low-income discounts, both of us would almost certainly pay more under this reform. We still support the change because it’s the right thing to do.
Jonathan Marshall, of San Anselmo, and Ray Welch, of San Rafael, are volunteers for Citizens’ Climate Lobby in Marin and previously worked for PG&E but have no stock ownership in the company.