The Public Purpose Program: California’s Hidden Tax Driving Up Utility Bills

After several rate hikes implemented in the last few years alone, Californians are asking why their energy bills keep climbing when they use the same amount of electricity or gas. According to a 2023 report from the Transparency Foundation, residents of California pay up to 67% more for electricity and 30% more for natural gas than the U.S. average, with many customers seeing bills double or triple during peak months.

Although utility company profits often come under scrutiny when rates increase, the increase in customer bills is driven by numerous hidden charges imposed by the state government.

One of these hidden charges is a result of the “Public Purpose Program,” which builds a state-created surcharge into Californians’ utility bills to fund multiple statewide programs. These include assistance for low-income households, energy-efficiency upgrades for some customers, and “diversity” or “underrepresented community” programs. These programs may be well-intended, but funding them through utility bills makes energy costs higher for all households, including middle-class residents who do not reap the benefit of the programs but incur much of the cost. Most families don’t even know they’re paying it.

California’s Public Purpose Program (PPP) charges have their roots in the mid-1990s, when the Legislature passed AB 1890 (1996), creating the first “Public Goods Charge” on electric bills beginning in 1998 to fund low-income assistance, energy-efficiency, and renewable-energy programs. A few years later, the Legislature again took the lead with AB 1002 (2000), which added a similar public purpose surcharge to natural-gas bills. The CPUC administers and adjusts these surcharges, but the authority to create them originally came from the Legislature, not the Commission acting alone.

Because utility companies are required to collect it, it acts like a tax, but is exempt from the normal tax process, and doesn’t appear as a clear tax line on most bills. Instead, it is bundled inside the rate structure approved by the California Public Utilities Commission. According to the TF report, hidden taxes and mandates together add at least one-third to the average bill, with PPP being a major part of that, with the CPUC allowing companies to pass costs fully onto customers.

These hidden costs fall hardest on retirees and households on fixed incomes. Families already dealing with high grocery and housing costs see utilities rising faster than their paychecks, and many households do not qualify for the programs they are forced to fund. The surcharge isn’t transparent, so most people cannot see what they’re being charged for. In a year when budgets are already tight, hidden charges like the PPP tax make it even harder for families to keep up.

There are a multitude of remedies for this problem, many of which do not require the cancellation of the various PPP-funded programs. The legislature could choose to fund these programs through the general fund, financed primarily by direct income and sales tax, instead of utility bills. Furthermore, lawmakers could require clearer labeling of all taxes and surcharges on bills, known as “truth in billing,” which would increase transparency for utility companies passing costs onto consumers. This solution would solve the “hidden” problem, but would not reduce the ultimately redistributive outcome of the program itself. Whatever the remedy might be, families deserve to know what they’re actually paying for, and who decided to impose those charges.

Mitchell G. Bahnsen is a research assistant at California Policy Center. He can be found on X (@mitchbahnsen)