UC Berkeley analysis blames regressive state policies for high electricity bills

In California, more than one-third of the cost of electricity bills stems from state policies around wildfire prevention and solar energy development.

According to PG&E, these fixed costs account for an average of 34 cents out of every dollar a California resident spends on their electricity bill.

A recent analysis by the Berkeley Economy and Society Initiative on campus examines how California state policies, intended to push renewable energy development and safeguard Californians against growing wildfire risks, have relied on regressive funding methods to the detriment of low-income Californians.

“California has long led the way on climate and environmental policies. But upon close examination, some of these policies fail to produce significant environmental benefits while substantially raising energy costs,” wrote BESI researcher Samuel Trachtman in the analysis. “Those costs fall heavily on low- and middle-income residents.”

Californians currently pay 80% more for electricity than the national average, but in 2015, they only paid roughly 33% more. Trachtman’s analysis points to solar subsidies and wildfire prevention costs as primary drivers of that increase.

California subsidizes the cost of electricity for individuals with solar panels, giving them a credit for the electricity they generate and contribute back to the grid. The state pays the cost of that subsidy by offloading the expense onto electricity consumers without solar panels.

According to PG&E, customers without a solar panel pay 20% more for electricity than those with solar panels.

“It’s unquestionable that these subsidies have increased the adoption of rooftop solar in California,” Trachtman said in an interview. “At the same time, my understanding is that wealthier Californians are much more likely to make that investment and to benefit from the subsidy than lower-income Californians.”

A 2023 study from Lawrence Berkeley National Laboratory found that households that adopt solar energy tend to sit above the median national income. As a result, the increased costs of power from California’s solar subsidies hits low-income consumers — who often cannot afford solar panels — harder because power bills often make up more of their income.

Wildfire prevention costs also contribute to increasing electricity costs, accounting for roughly 10% of monthly PG&E bills.

Because California law holds utility companies liable for wildfire damages caused by their equipment, regardless of whether they are found negligent, utility companies are incentivized to invest heavily in hardening infrastructure against wildfire risks.

Utilities companies such as PG&E pass that cost off to customers and are licensed by the state to charge an additional cost to ensure profitability for investors. For PG&E, the current rate of return authorized by the state is 9.98%.

Other state programs, including programs meant to help poor consumers cover electricity bills, also factor into increased electricity bills.

According to District 4 Councilmember Igor Tregub, the city of Berkeley charges a 7.5% utility tax on electricity bills. That tax, Tregub said, may raise costs in the short term, but is meant to bolster electricity infrastructure, lowering costs long term.

“Berkeley has also supported exploring alternatives to the current investor-owned utility model,” Tregub said in an email. “I believe we should be willing to examine structural reforms that could provide reliable, clean energy at a more affordable cost, while continuing to advocate for greater accountability and affordability within the existing system.”

Tregub said Berkeley residents struggling to pay their electricity bills in that system might consider switching to alternative utility provider Bright Choice, which he said tends to charge less than PG&E.

PG&E customers can use its rate comparison tool to determine if they are on the lowest-cost plan. They can also choose to enroll in a time-of-use rate plan, which raises electricity costs during peak use hours and reduces them at times of low strain on the system.

In a statement, PG&E said it had reduced electricity rates five times since 2024, and claims that rates have since stabilized. The California Public Utilities Commission has previously disputed that claim, estimating that PG&E bills could jump by more than $400 in 2027.

Regardless, according to Trachtman, California residents have little ability to address rising electricity costs — that responsibility lies with the state’s legislators.

“We need to think more seriously about the regressivity of a lot of the kind of quote-unquote ‘liberal,’ progressive programs,” Trachtman said. “It’s not enough to have a policy that subsidizes renewables, which is something that a lot of us in California support, you also want to design that subsidy in a way that is not hurting lower-income Californians the hardest.”