A new study says that low-income households bear the brunt of electricity costs

The cost of electricity has skyrocketed for Californians in recent years. A report published last year by the California Public Utilities Commission (CPUC) predicted, if unmitigated, this trend will only continue. The agency found that wildfires will likely continue driving up these costs. 

And according to a new study, low-income households in California are bearing the brunt of this cost. The study, authored by UC Berkeley researchers and commissioned by environmental nonprofit Next10, found that as a whole, consumers paying for electricity via investor-owned utility companies – like Pacific Gas & Electric (PG&E), for example – shouldered an average of $678 annually, which is a cost added to their bills on top of the price of providing electricity on its own.  

This study is a follow-up to one published last year, which investigated the reason for high electricity bills. In that study, UC Berkeley researchers found that most of what consumers pay in those bills is not the cost of providing just the electricity itself. Instead, they found that a higher proportion of electricity costs pays for efforts including climate change mitigation, subsidies for rooftop solar and low-income customers and much more.

On top of that, recent wildfires have added to these costs. Money raised from the utility bills analyzed –  served by PG&E, San Diego Gas & Electric (SDG&E), and Southern California Edison (SCE) – has also been used to pay for wildfire damages and compensation for wildfire victims, for example. 

“We're pursuing a lot of things that are state policies and other sorts of costs that really aren't the cost of providing the electricity,” said Severin Borenstein, faculty director of UC Berkeley’s Energy Institute at Haas and co-author of the report. “And in the first study, we said, you know, that's a problem because it's going to make it more costly to electrify our various energy uses, particularly electric vehicles and buildings.”

This additional cost is what is described in the study as, in effect, an “electricity tax.” Borenstein said that in decades past, this “tax” made up a much smaller portion of consumers’ utility bills. Additional costs to pay for policy mandates were slowly added over time. 

But wildfires have wreaked costly damage for utility companies, causing those additional costs to skyrocket in the last few years.  

To quantify this “tax,” researchers looked at the utility bills of over 11 million California households served by Pacific Gas & Electric (PG&E), San Diego Gas & Electric (SDG&E), and Southern California Edison (SCE). 

These were bills issued in 2019, before the pandemic hit. Borenstein said they used utility bills from that year since he believed it would be more representative – but he also added that since then, the problem has “undoubtedly worsened.”  

“Electricity powered consumption patterns haven't changed that much. The main change is that rates have gone way up and that the current requests are for them to go up even more,” Borenstein said. 

And importantly, he said those costs would be disproportionately shouldered by low-income households. In the utility bills surveyed, Borenstein says he saw that about half a percentage of a high-income household’s annual income went toward those additional costs. But the number for low-income households was much higher. 

“In fact, in PG&E territory, low-income customers pay over 3% of their income, not for their whole electricity bill, but just for the portion [of] what we call the electricity tax that is above the cost of just providing the electricity,” Borenstein said. 

Borenstein said that these costs also make it more difficult for low-income customers to transition to electric appliances, a goal encouraged by the state to mitigate greenhouse gas emissions. In the report, the authors use electric vehicles as one example: They say that the “electricity tax” raises the cost of operating an electric vehicle by about $600 annually. They then say that recent research suggests that this additional cost could be reducing electric vehicle adoption by 13 to 33 percent. 

“We're really shooting ourselves in the foot,” Borenstein said. “We're doing a lot of good things to decarbonize, but at the same time, we're sort of putting this weight around our neck that makes it a lot harder to achieve the goals."

Legislators have already heeded some of the suggestions provided in this and the earlier report, taking action during the legislative session that ended in August. 

In June, a piece added to the state budget instructed the CPUC to institute income-based fixed charges for electric use. This was among the suggestions offered by Berkeley researchers in the previous report, an action that would help to reduce the burden for low-income customers. The commission will have until 2024 to design and institute these fixed charges, according to Borenstein.

“The open question is, how big are those charges going to be?” said Borenstein.

Another suggestion from this report was that some of the additional charges on utility bills, those categorized by researchers as part of the “electricity tax”, should be funded through the state budget rather than by consumers.

“It was pretty clear that paying for these things through electricity prices was disproportionately hurting poor people,” Borenstein said. 

This suggestion gained enough traction to inspire a bill proposal in the last legislative session , but it failed to advance. However, Borenstein said that he’s heard it will likely be brought up again in the future.