Rising temperatures = rising costs

The situation is tense: forests and cities are burning, power grids are melting, and hard work is getting harder. In addition to the staggering human and environmental consequences of extreme weather during this dangerous season, the costs of climate damage have also risen. And those costs are not being shared fairly. California has taken important steps to address some of these equity issues—and now has another big chance to pass the water and wildfire bond, which will be on the ballot in November.
Proposal 4.

One example of these rising costs is the skyrocketing electricity bills of Californians in recent years. This is concerning not only because people are struggling to pay their electricity bills, but also because the rising rates are becoming a barrier to some families and individuals switching to electric vehicles.

There are many reasons for the rising bills, but the main reason, according to the California Public Utilities Commission (CPUC), is the cost of reducing wildfire risk. Hotter, drier conditions due to the climate are leading to longer, more intense wildfire seasons in many parts of California. Worryingly, the commission says that few wildfire-related expenses are reflected on customers’ bills, namely higher costs for vegetation control and wildfire insurance. There are likely many more capital costs to come. And we know that as our climate continues to warm – due to the burning of fossil fuels – the risk of large wildfires will only increase.

To date, public debate has largely focused on the issue of tariffs, i.e. how costs are distributed among different customers. Fair tariff structures are important to ensure affordability. But the hazard season leads to rising overall costs and will further increase the revenue requirement, i.e. the total amount that utilities are allowed to collect from all their customers.

Currently, the increased costs associated with larger and more intense wildfires are largely borne by the hardest hit regions or by individual citizens. This is an extremely regressive way to foot the bill. That’s why California is taking, or should take, these steps:

Sue the fossil fuel industry for damages

Extensive scientific research has shown how fossil fuel companies have contributed to worsening the effects of climate change. A UCS report titled “The Fossil Fuels Behind Wildfires” calculates that about half of the increase in fire danger in western North America since 1901 can be attributed to carbon pollution from 88 fossil fuel companies and cement manufacturers. This alarming finding highlights the important role and responsibility of fossil fuel companies to not only stop their damage in the future, but also to repair the damage they have already done. This scientific evidence has been incorporated into dozens of lawsuits filed by cities, counties and states seeking compensation from fossil fuel companies. Last year, California filed the most significant lawsuit addressing climate fraud and damage. But the wheels of justice can grind slowly, and in the meantime, costs are piling up.

Ensure an affordable tariff structure

Earlier this year, the California Public Utility Commission adopted new requirements to ensure the electricity rate structure addresses growing affordability concerns by implementing an income-based monthly fee that more equitably distributes electricity infrastructure costs while supporting the transition from fossil fuels to clean electricity. The new rate structure lowers electricity bills on average for low-income households and those living in regions most affected by extreme weather events.

Reduce returns for investors to limit rising costs

In addition to finding more equitable financing methods, the government should also consider limiting the amount of money received by utility investors or shareholders (the so-called rate of return) that goes toward revenue requirements. A recent analysis from the Haas School of Business finds that “utilities have earned substantial regulated returns on their capital investments in recent years, particularly compared to the unprecedented low interest rate environment from 2008 to 2022. As the cost of capital declined across the economy, utilities’ regulated returns did not decline nearly as much. This gap suggests that at least some of the growth in capital spending may be driven by utilities earning excessive regulated returns.” They conclude that excessive returns have important implications beyond the additional costs they impose on consumers. From a distributional perspective, higher rates result in a transfer of wealth from ratepayers to shareholders. From a societal perspective, expensive energy can hamper electrification, which is a key element of our efforts to combat climate change.

Achieve our clean energy goals to limit rising costs

In the long term, only limiting the impacts of climate change can significantly reduce the costs of worsening wildfires. California has met the most ambitious climate goals in the country. And while we’ve made important progress, we need to roughly double the amount of clean energy brought online to meet our goals. We’ve reported in previous blogs on solutions to overcome the three biggest obstacles to clean energy: the need for more transmission capacity, delays in the interconnection process, and permitting difficulties.

What you can do: Vote yes on Proposition 4 in November

California has already done much to put us on the right path by filing lawsuits against big oil companies to recover damages and by reforming electric rates to ensure affordability. Now we must focus on passing Proposition 4 this November. Going forward, lawmakers should consider capping the rate of return approved by the California Public Utilities Commission and addressing barriers to clean energy. We cannot afford to be distracted by temporary fixes that undermine our state’s outstanding climate mitigation and adaptation programs. California has always led the way by investing in the future rather than stealing from the past—this time should be no different.