Shifting Costs Does Not Solve California’s Electricity Shortages
California’s Little Hoover Commission was created in 1962 “as an independent and bipartisan state agency charged with making recommendations to the governor and Legislature on ways to make state programs more efficient.” Funded by taxpayers, officially nonpartisan, they’ve just released a set of recommendations to lower “The High Cost of Electricity in California.”
They’re right about the high cost. On page 3 of their report they display a table “Average Price of Electricity by Sector (2014-2024). A look at residential prices in California vs. the U.S. average reveals a growing disparity.
Ten years ago, a California resident could expect to pay 16.25 cents per kilowatt-hour, compared to 12.52 cents/kWh in the rest of the U.S. That is, Californians paid 30 percent more than people elsewhere in the U.S.
Last year, the average rate in California rose by 96 percent compared to ten years ago, to 31.86 cents/kWh, compared to a 32 percent rise in the rest of the U.S. to 16.48 cents/kWh. Californians are now paying 93 percent more for electricity than people in the rest of the U.S.
Notably, the rise in the CPI between 2014 and 2024 was also 32 percent, which is to say that adjusting for inflation, the price of electricity in the rest of the U.S. was flat. It didn’t change at all. But in California, after adjusting for inflation, the price of electricity increased by 48 percent.
The Little Hoover Commission (LHC) attempts to explain the reasons for this increase, but their explanations don’t tell the whole story. They claim wildfires and homebuilding in the “wildland urban interface” have caused distribution costs to explode. But why would these factors be disproportionate to other western states that have also been ravaged by wildfires and also undergone massive exurban expansion?
The LHC report goes on to blame “Power for Profit” as a source of rising rates. Notwithstanding the implicit anti-capitalist bias in this phrase, they go on to correctly point out that recovery of capital investments constitutes a major portion of electricity bills. But here again, they fail to explain why this isn’t putting upward pressure on rates in other states.
The LHC also claims that the billions of dollars of capital investment needed to retrofit the state’s grid to accommodate renewables is definitely driving California’s higher electricity prices. But why hasn’t that caused higher electricity rates in Texas, a state where renewables as a percent of total power is comparable to California?
It might be somewhat off-topic to suggest that electricity costs more in California because everything costs more in California. Figuring out how to lower the cost of everything in California may go beyond the scope of LHC’s report, but that’s the biggest cause. In California utilities pay far more than utilities in other states for capital investments, maintenance and upgrades, and disaster preparedness and recovery.
Other recommendations from the LHC include redistributing funds from the Cap and Trade program to low income households to help them pay their bills, and – yes, it’s still on the table – to fluctuate the fixed charge in proportion to each customer’s household income. But redistributing wealth fixes nothing. It merely raises costs for some while lowering rates for others.
The complexity of public utility regulations can and should discourage criticism that oversimplifies the challenges regulators face. But the Little Hoover Commission and the California Public Utility Commission are not questioning the basic model: To finance “renewable” electricity, either the state’s overall tax base subsidizes grid upgrades and utility scale solar, wind, and battery farms, or prices to the state’s ratepayers must increase. Both have happened, with no end in sight. And despite all the subsidies the state has come up with, rates have soared – to nearly twice what people pay in the rest of the country.
Nowhere does LHC make an obvious suggestion: optimize use of California’s conventional sources of electricity, utilizing plants that are already paid for. In 2024, Diablo Canyon supplied 9 percent of California’s total in-state electricity generation, hydroelectric contributed 14 percent, and natural gas was responsible for 40 percent of the total, still more than any other source. Altogether these conventional sources still contributed 62 percent of California’s 216,000 gigawatt-hours of in-state electricity production.
The LHC might have suggested that we quit shutting down a natural gas power plant every time another solar farm or battery park comes online. The LHC even might recommend we permit natural gas plants to provide baseload power instead of just backup when the sun is down – California’s fleet of natural gas power plants only operated at 26 percent of capacity in 2024. If they’d operated at 90 percent of capacity, they could have generated 304,133 gigawatt-hours in 2024, instead of only generating 86,479 gigawatt-hours. If they’d done that, electricity in California would be dirt cheap. Instead of closing California’s fleet of natural gas power plants, they could be upgraded to operate long-term with better efficiency and negligible pollution.
The LHC might also recommend nuclear power plant proposals compete on a level playing field instead of having their costs artificially elevated through over-regulation. And they might call for the state legislature to restore California’s timber industry so the private sector can profitably thin our forests and chaparral to reduce fire danger, and actually create jobs and pay taxes in the process.
The Little Hoover Commission has released a report that addresses symptoms and ignores the most significant underlying causes. High prices are lowered through competition, not wealth redistribution. Prices are lowered through deregulation, not through more regulatory oversight. Rates will go down when the supply of electricity rises faster than demand.
Edward Ring is the Director of Water and Energy Policy at the California Policy Center, which he co-founded in 2013. Ring is the author of Fixing California: Abundance, Pragmatism, Optimism (2021) and The Abundance Choice: Our Fight for More Water in California (2022).