USA – CALIFORNIA Trends and Developments Contributed by: Nora Sheriff and Samir Hafez, Buchalter
customers; almost three quarters of this burden falls to non-residential customers. Climate-Related Programmes Also Add Costs The cost of remaining IOU electricity pro - grammes required under legislative mandates totals around USD2 to USD2.5 billion annually. Only half of that spending has been for pro - grammes demonstrated to be cost-effective. The RPS Program requires the utilities and other Load Serving Entities to provide a certain per - centage of retail electricity sales from renewable generation in order to fuel the state’s energy transition. It was established in 2002, and has been accelerated since. In 2018, the legislature set the goal for all retail electricity sales to come from zero-carbon resources by 2045, with inter - im targets of 44% by 2024, 52% by 2027, and 60% by 2030. While the costs of electricity generated from renewable resources have declined in recent years, RPS procurement has resulted in an almost 5% increase in overall retail rates for utility customers. The CPUC is also authorised to implement ratepayer-funded programmes intended to double energy efficiency savings by 2030, in addition to incentives for transportation electrification. As a result, utility ratepayers are now supporting a range of environmental and renewable energy initiatives, including the con - version of the state’s vehicles to zero-emission alternatives, and expediting renewable energy infrastructure investments. Roughly 4% of the large utilities’ average rates are dedicated to support for climate-related activities, equating to about half of the funding for public purpose programmes. “While many other states operate ratepayer-supported ener- gy efficiency programs, on average, we estimate
that Californians contribute a notably greater share of their rates to such programs than is typi- cal across the country” , the Legislative Analyst’s Office has concluded. The Natural Gas Transition Complicates Everything The CPUC is also considering how to “prune” the utilities’ natural gas distribution system in alignment with the state’s longer-term decar - bonisation goals, while preserving near- and mid-term safe, reliable, and affordable natural gas service. A key concern is that, as more cus - tomers electrify and leave the system, the result - ing gas revenue loss will increase the financial burden on remaining gas utility customers, who must still cover fixed system costs. This “death spiral” poses the greatest risk to hard-to-electrify industries and low-income customers unable to afford upfront electrification costs. Additionally, this trend has significant implica - tions for electric affordability. Despite Califor - nia’s push toward renewable energy, natural gas remains a critical fuel source for electricity generation and is expected to be needed for grid reliability in the foreseeable future. As gas cus - tomers exit the system and costs rise for remain - ing customers, power plants reliant on natural gas will also face increasing fuel costs, ultimately driving higher electricity rates for all consumers. The CPUC must also consider key legal ques - tions surrounding the gas utilities’ statutory obli - gation to serve, which ultimately will need to be addressed by the Legislature. On CARB, Curbs, and Cap-and-Trade In 2022, CARB issued its 2022 Scoping Plan, which laid out an ambitious roadmap for sec - tor-specific actions needed to achieve carbon neutrality by 2045. CARB described the plan as
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