A bill introduced in the California legislature proposes to slash hundreds of millions of dollars from programs that help schools replace worn-out HVAC systems, low-income households install batteries, and affordable housing projects deploy solar panels — all for what would amount to a one-time rebate of no more than $50 for customers of the state’s three major utilities.
Lawmakers and Governor Gavin Newsom’s office have crafted the legislation, which they are calling the “affordability project,” in response to fast-rising utility rates at the state’s three large investor-owned utilities: Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric.
But community groups, environmental advocates, and clean energy industry groups say the cuts will cause immediate and severe harms to those relying on them while doing next to nothing to fulfill their purported goal of reining in the state’s sky-high electricity rates.
“It’s not a way to solve the problem, and you’re hurting programs that are working,” said
Merrian Borgeson, policy director for California climate and energy at the nonprofit environmental group Natural Resources Defense Council, told Canary Media in an interview.
AB 3121 emerged late Wednesday evening after weeks of backroom negotiations over how best to control rate increases for customers. But the reforms proposed by the bill do little to address the primary drivers of those increases, which come down to the investments utilities are making in their power grids to meet rapidly rising electricity demand, and also to harden them against the risk of sparking deadly wildfires.
Another bill introduced late Wednesday, SB 1003, would call on state agencies to increase oversight over utilities’ wildfire-mitigation spending, which could lead to cost reductions. And another bill, AB 3264, would require the California Public Utilities Commission (CPUC) to assess and analyze total annual energy costs for residential customers, with the goal of finding ways to shift some costs from ratepayers.
“California’s high electricity prices are a decade in the making,” Borgeson said in a Thursday statement. “We need an overhaul that targets the root causes of this surge: wildfire spending, capacity constraints, insufficient regulatory oversight, and the need for funding sources beyond consumer-paid utility rates to address the climate crisis. This policy proposal will move the needle on some of these challenges, but it also includes damaging cuts to important programs that benefit vulnerable communities.”
NRDC has estimated that the cuts being proposed would yield only about a $50 one-time rebate for the average residential customer of the state’s three major investor-owned utilities. A report from Politico this week cited an unnamed California lawmaker who estimated the cuts would provide customers as little as $30 each in one-time rebates.
A Wednesday letter signed by NRDC and more than two dozen other groups warned Newsom, California Senate President Pro Tempore Mike McGuire, and Speaker of the Assembly Robert Rivas against cuts to “critical programs that advance energy affordability, reliability, and climate resilience for vulnerable communities.”
“Focusing on short-term tactics will not resolve California’s affordability crisis,” the groups wrote. “Instead, it will exacerbate it, making our energy system more expensive, polluted, and dangerous — especially for our most vulnerable communities.”
The pushback comes as lawmakers are scrambling to address unfinished business before this year’s legislative session ends at midnight on Saturday — including a June pledge from California Assembly Utilities and Energy Chair Cottie Petrie-Norris, sponsor of AB 3121, to cut the bills of customers of the state’s three big utilities by $10 per month. (Petrie-Norris’s office did not immediately respond to a request for comment on Thursday.)
The high cost of electricity has become a pressing problem for low-income Californians struggling to pay their utility bills, and is threatening to derail the state’s broader electrification efforts by dramatically increasing the costs to consumers of switching from fossil fuels to electricity to power their cars and provide household heating.
In the past 10 years, average electrical rates have risen by 110 percent for residential customers of PG&E, 90 percent for those served by Southern California Edison, and 82 percent for customers of SDG&E, according to data compiled by state regulators. The past three years alone have seen average residential rates jump by 51 percent for PG&E and SCE and 20 percent for SDG&E.
And more rate hikes are looming at PG&E, the state’s biggest utility, which serves about 16 million people in Northern and Central California. In November, the California Public Utilities Commission approved a rate case adding about $32.50 per month to customers’ bills, followed by a further rate hike in March of about $5 to $6 per month starting this spring.
In a July report, the CPUC forecasted average annual electric rate increases of 10.8 percent for PG&E, 6.8 percent for SCE, and 5.6 percent for SDG&E, compared with an assumed inflation rate of 2.6 percent.
This chart from the CPUC’s July report breaks out the proportion of the state’s three big utilities’ “revenue requirement,” or how much money they must bring in from ratepayers to cover their costs. The biggest increases are coming from distribution-grid investments, primarily driven by PG&E’s program aimed at burying power lines, clearing vegetation, and installing technology to reduce wildfire risks.
According to reporting from The Sacramento Bee citing anonymous sources familiar with the negotiations, earlier versions of the affordability package included proposals to reduce broader grid expansion costs via “securitization” — financing some portion of utility spending through debt, rather than by passing them on to ratepayers.
But those components, which could reduce the profits that utilities earn for investments in their capital infrastructure, were dropped from the bill, the Bee reported last week.
With the potential savings from the wildfire-mitigation cost controls and broader energy cost analysis as yet unclear, the only immediate savings from the legislative package would come from cuts to programs that serve “people who don’t have political power,” said Beckie Menten, senior regulatory and policy specialist at the nonprofit Building Decarbonization Coalition.
“We’re really supportive of solutions that address affordability,” she said. But “what we’re seeing on the table for the most part are pretty reactive and not very comprehensive of our systemic solutions.”
On the chopping block: School HVAC retrofits and solar and batteries for low-income residents
AB 3121 proposes to provide utility customers with rebates by clawing back unspent and “unencumbered” funds from three programs: California Schools Healthy Air, Plumbing, and Efficiency (CalSHAPE); the Self-Generation Incentive Program (SGIP); and Solar on Multifamily Affordable Housing (SOMAH).
The CalSHAPE program, administered by the California Energy Commission, was created by a law passed during the Covid pandemic to help schools repair HVAC systems to improve health, and it has disbursed 646 grants totaling $421 million in funding for the ventilation upgrades.
Roughly $250 million remains in the program, and many schools were in the process of applying for funding, said Stephanie Seidmon, program director of nonprofit advocacy group Undaunted K12. But AB 3121 would retroactively set the deadline for those applications at July 1, 2024, and return any funds not disbursed to utility ratepayers.
But the one-time rebates per customer that would result aren’t worth the loss of funding for schools that need the money to improve air-conditioning and ventilation systems, Seidmon contended. “It’s really important for low-income schools that can’t raise a bond measure to upgrade their HVAC systems, or schools facing these wildfire and heat risks,” she said.
Much of CalSHAPE’s remaining $250 million in funding “is for schools that are replacing their HVAC as we’re going to be facing wildfires this fall,” said NRDC’s Bergeson. “It’s crazy to me we’d be taking away that money, especially when many of these schools are in disadvantaged communities and were depending on this.”
The SGIP program provides incentives for low-income customers to purchase batteries to provide backup power during power outages. In a March decision, the CPUC allocated $280 million to the program’s current grant cycle, and lawmakers pledged in a 2022 budget and climate law, AB 209, to provide $350 million to the program over the next several years.
Returning unspent portions of those funds to utilities would provide a minimal one-off rebate to individual customers at the cost of undermining a program that “helps both rural and disadvantaged communities” obtain batteries that are increasingly valuable in a state experiencing heat- and wildfire-driven grid emergencies, said Edson Perez, California policy lead for clean energy industry trade group Advanced Energy United.
The batteries installed through the program also help store solar power for use in evenings, when grid power tends to be dirtier and more expensive, which “helps the grid as a whole,” he said. A May report to the CPUC found that batteries installed through SGIP have reduced utility costs by roughly $27 million, primarily during a September 2022 heat wave that threatened to overwhelm California’s grid.
The SOMAH program has a budget of $100 million and a legislatively mandated goal of installing 300 megawatts of solar by 2032, and is “California’s landmark program for multifamily affordable housing access to affordable solar and affordable storage,” said Steve Campbell, western regulatory director for nonprofit Vote Solar.
AB 3121 doesn’t call for reclaiming the entirety of that funding stream. But it would require the CPUC to credit “no more than 1/2 of the program funds that are unencumbered as of January 1, 2025,” back to utilities to return to customers as rebates.
SOMAH was created in 2019 and saw a significant slowdown during the Covid pandemic, Campbell said. In the past year, however, applications and projects have picked up steam.
“When a low-income program starts to work again is the worst time to pull the rug out from underneath it,” he said.