Tipping Point

Energy Affordability: How Soaring Rates are Exacerbating Inflation and Harming Residents, Farms and Businesses

California residents have felt the pinch with Pacific Gas & Electric (PG&E) and Southern California Edison (SCE) raising electricity rates more than 10 percent, this past March. The massive increases are on top of double-digit increases that were added to already high rates on January 1st. On top of that, soaring natural gas rates are continuing to add significantly to manufacturing costs leading to higher costs for consumer goods.

The skyrocketing natural gas and electricity rates could not have come at a worse time as consumers are already grappling with high gasoline prices, still near $5 per gallon in many regions of the state after hitting $6 per gallon just a few weeks ago. Now Newsom wants to drive energy and fuel costs even higher with his package of last minute climate proposals.

Voters are increasingly angry about the economy. Inflation is rising at its fastest rate in a generation, a whopping 9.1% in June and 8.5% in July. Rapidly rising prices for energy, gasoline and food are particularly problematic for Californians. Everything is getting more expensive. Supply chain disruptions, worker shortages and pain at the gasoline pump and grocery check-out lines have made inflation an economic and political problem for elected officials.

Californians are in for even more sticker shock due to rapidly rising energy costs over the next few years. While the rising costs of food, gasoline and other consumer goods is affecting all Californians, the cost of electricity and natural gas from California utilities is far outpacing everything else. Rates will rise even faster as Governor Newsom and legislators seek to accelerate costly renewable energy goals and climate policies.

Energy affordability must be a top concern for lawmakers and regulators. California’s electricity rates are already nearly triple the national average, and are rising more than five times faster than the rest of the country. Utility expenditures to make up for years of wildfire mismanagement and neglect are ensuring California’s already sky high electricity rates go even higher.

Source: CPUC Public Advocates Office

Consider the following:

  • Baseline residential rates have increased more than 59% (SCE), 104% (PG&E), and 126% (SDG&E) since 2009.
  • Rates are rising far faster than inflation with the CPUC projecting rates to outpace inflation by 70% for San Diego Gas and Electric (SDG&E), 40% for PG&E, and 20% for SCE.
  • Pending rate cases at the CPUC are seeking as much as a 45% increase over 2022 rates by 2026.
  • Residential rates are expected to reach 47¢/kwh (SDG&E), 34¢/kwh (PG&E), and 32¢/kwh (SCE) by 2030.
  • Commercial and Industrial rates in California (16.28¢/kwh) are far more than double those found in other neighboring western states such as Arizona (6.67¢/kwh), Nevada (5.74¢/kwh) and Oregon (6.31¢/kwh).
  • Soaring agricultural rates are likewise more than double those found in other states, exacerbated by drought and leading to rapidly rising food costs.
  • Rapidly rising energy costs greatly exacerbate California’s highest in the nation poverty rate (15.4%) and worst in the country homelessness crisis.
  • Rates rising far faster than inflation will continue to strain the budgets of vulnerable Californians, including people of color, women and children.
  • Skyrocketing electric rates further threaten reliability and the state’s ambitious climate goals.

Make no mistake, out-of-control electricity rates will further hamper what is expected to be a very difficult economic recovery and drive inflation. Restaurants, small businesses and residents have been especially hard hit by the pandemic. Policymakers would be wise to avoid any new mandates that will lead to even higher energy costs and the wrath of increasingly cranky voters back home.

Sources: 2011-2017 CPUC website; 2018-2020 utility filings; Public Advocates Offices, Electric Rate Trends; CPUC, Utility Costs & Affordability of the Grid of the Future; SCE Customer Briefing.