How California Electricity Rates Undermine Decarbonization and Equity

The price of electricity to most households in California is 2 to 3 times higher than the full societal cost of providing additional supply (including GHG emissions). This difference, effectively an “electricity tax,” averages $500-$800 annually per household. These funds pay for climate change mitigation, wildfire adaptation and mitigation, legacy infrastructure, and subsidies for new technology R&D, energy efficiency investments, low-income customers, and rooftop solar, among other fixed costs and policy expenses. And prices are set to rise further, primarily due to wildfire costs and climate change policies. High and rising prices undermine efforts to decarbonize transportation and buildings through electrification. The current rate structure is also highly regressive, more so than other ways of raising revenue, such as sales or income taxes. The presented paper examines alternative ways of recovering the costs of the electricity system that are more efficient and more equitable, with a focus on the creation of income-based monthly fixed charges on electricity bills. The electricity tax also has important implications for the private and social value of installing residential rooftop solar.