USA – CALIFORNIA Trends and Developments Contributed by: Nora Sheriff and Samir Hafez, Buchalter
replace aging natural gas distribution infrastruc - ture. Funding these efforts through utility rate struc - tures and surcharges, rather than legislative tax measures, shifts the cost burden of California’s climate policies onto utility customers, effec - tively using regulated rates to fund the state’s clean-energy transition. Escalating costs related to wildfire mitigation, infrastructure upgrades, and various energy programmes have exacer - bated the burden on households and businesses alike, leading to a deepening energy affordability crisis. In response to this crisis, Governor Gavin Newsom issued an executive order on 30 Octo - ber 2024 aimed at cutting costs by identifying redundant or unnecessary programmes “that could be inflating customer bills” . While Gov - ernor Newsom indicated that he remains com - mitted to ambitious climate and energy goals, his recognition of the unsustainable burden on ratepayers signalled openness to a more meas - ured approach to reforms, given the affordability crisis. More recently, the state Assembly Committee on Utilities and Energy and Senate Energy, Utili - ties and Communications Committee have held oversight hearings focused on addressing the root causes of skyrocketing rates and considera - tion of actionable recommendations. In a 2024 report to the Legislature and its Janu - ary 2025 response to Governor Newsom’s Octo - ber 2024 executive order, the CPUC identified wildfire mitigation costs and an inequitable Net Energy Metering rate structure as the primary drivers of California’s electric affordability crisis. The CPUC also acknowledged that rising rates are attributed to ratepayer-funded public policy
programmes, including those supporting legisla - tive mandates tied to the state’s climate goals. Costs of Wildfire Risk Reduction Measures Balloon From 2019 to 2024, the utilities collected around USD24 billion in wildfire mitigation and insurance premium costs. Since 2021, wildfire risk reduc - tion expenses, such as vegetation management and liability insurance, have risen sharply. By the end of 2023, these costs made up 18% of PG&E’s total revenue requirement; 12% for SCE, and 9% for SDG&E. Wildfire-related capital expenditures, includ - ing installing covered conductors and under - grounding portions of distribution systems, are expected to take up an increasingly large share of IOU revenue requirements, further driving rate increases. Net Energy Metering Subsidies Increasingly Shift Growing Costs Most industrial, commercial, and residential cus - tomers do not have solar panels, yet it is esti - mated that these customers paid approximately USD8.5 billion in 2024 for the 15% of customers who do have them. This cost shift occurs under the legacy Net Energy Metering tariffs and the successor Net Billing Tariff. This cost shift repre - sents 21-27% of residential customer bills, and grew from USD3.4 billion in 2021 to USD8.5 bil - lion in 2024. Low-Income Discount Programmes Both a Relief and a Burden The rate discounts provided under the California Alternate Rates for Energy and Family Electric Rates for Energy programmes provide low- income customers with discounts on their util - ity bills. These programmes result in an annual USD1.75 billion cost-shift to non-participating
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