Luam Tesfaye, deputy executive director for energy and climate policy at the California Public Utilities Commission, told the Little Hoover Commission on July 24 that the CPUC views rooftop solar tariff design and wildfire-related costs as “the 2 largest drivers of electric rates today.” Tesfaye described the CPUC analysis conducted after Governor Newsom's Executive Order N-5-2024 directing work on electric bill affordability and presented several possible responses, including moving some program costs off utility rates and reallocating the state's climate credit.

Why it matters: The CPUC said the combination of long-term capital investments in transmission and distribution, wildfire mitigation spending and the continuing presence of legacy net energy metering (NEM) customers has pushed fixed system costs onto customers who do not avoid usage. Tesfaye said there is “no silver bullet” to reduce rates but the agency is pursuing several changes the commission believes can slow rate growth.

Most important facts: Tesfaye explained that many customers remain on older NEM tariffs and therefore continue to shift fixed costs to nonparticipating customers. She described the CPUC's prior action to adopt a net billing tariff in 2022 to reduce that cost shift going forward, but emphasized the change was not retroactive. Tesfaye also said wildfire mitigation investments have largely been treated outside the utility general rate cases and recommended integrating wildfire spending forecasts into general rate case proceedings to provide fuller scrutiny.

Climate credit and rulemaking: Tesfaye laid out options for reallocating the climate credit (the twice-yearly customer credit tied to the state's cap-and-trade program). She said the current credit is about $120 per year, typically paid in two installments, and described alternatives that would direct the credit toward low-income customers, customers without rooftop solar or customers in the state's hottest climate zones. Tesfaye told the commission that “the Commission is taking action to open a rulemaking to look at this opportunity with the climate credit,” which she said would invite stakeholders to propose and vet ways the credit could be targeted to improve affordability.

Limits and dependencies: Tesfaye said the investor-owned utilities will need to collect roughly $44 billion from customers this year to build and operate the system and that many program costs are embedded in long-term investments. She also noted some programs are not required to be cost-effective and said the CPUC has been applying a consistent cost-effectiveness test to better understand cost shifts.

What the CPUC did not decide at the hearing: Tesfaye presented recommendations and said the CPUC will open a rulemaking; the hearing did not adopt any change to tariffs, reallocate funds, or alter statutory program funding. She also noted opportunities to leverage non-ratepayer funding sources such as the General Fund and Greenhouse Gas Reduction Fund, but said there is currently no line item in the state budget for rate discounts.