The Rising Cost of Electricity in California
A Crisis for Consumers, Farms and Businesses
California’s electricity prices are high and going higher, with rates climbing nearly 50% between 2019 and 2023. At 31.62 cents per kilowatt-hour, California's electricity prices are now the highest in the continental U.S. Residential rates for the state’s three investor-owned utilities (Southern California Edison, San Diego Gas & Electric, and Pacific Gas & Electric) are even higher, averaging over 40 cents per kilowatt-hour. While wildfire mitigation, renewable energy investments and infrastructure upgrades play a role in prices, profit-driven utilities and state regulations are also fueling excessive rate hikes — leaving residents, farms and businesses struggling to afford basic energy needs.
One of the biggest drivers of California’s electricity costs is the built-in profits that utility companies are guaranteed. Investor-owned utility companies such as Pacific Gas & Electric (PG&E), Southern California Edison and San Diego Gas & Electric receive a return on equity as part of their pricing structure. These guaranteed return rates hover around 10%, more than double the rate of 10-year U.S. Treasury bonds, which are a common economic benchmark. As a result, the more utilities spend, the more profits they earn. History has also shown that once disaster strikes for one of these companies, the California Public Utilities Commission (CPUC) green lights rate increases - basically insuring that ratepayers are on the hook for any financial liability these companies face while shareholders continue to profit.
Wildfire mitigation costs are another major factor contributing to rising electricity bills. After decades of deferring routine maintenance in favor of shareholder profits, utilities are investing heavily in fire prevention efforts. PG&E is prioritizing costly undergrounding of power lines over cheaper alternatives, such as covered conductors or insulated wires, which cost only a third of undergrounding while still reducing fire risks by 85%. State regulators continue to allow PG&E to charge higher electricity rates, incentivizing expensive solutions over cost-effective ones.
The CPUC, which oversees the state's energy industry, has been criticized for approving repeated rate increases that benefit utilities at the expense of consumers. In 2024 alone, the CPUC approved six separate rate hikes for PG&E, despite the company already being the most expensive provider in the state. Since 2020, PG&E rates have risen by 54%, with no significant efforts to curb these increases. Governor Gavin Newsom has acknowledged affordability concerns, but his administration has yet to take strong action to rein in excessive rate hikes or to demand better accountability from utilities.
As a result, more than 2.2 million customers are behind on their utility bills, owing more than $1.8 billion to the state’s three main IOUs.
The burden of higher utility bills falls disproportionately on lower-income households, which already spend a greater percentage of their income on energy. Families that rely on electricity for heating and cooling — especially in warmer climatic zones, such as the Sacramento and San Joaquin valleys—are finding it harder to manage their budgets. Many are being forced to choose between paying their electricity bills and covering other essentials like food and healthcare. The rapid increase in electricity prices is also making it harder for middle-income Californians to justify investing in electric vehicles or home electrification projects, slowing the state’s push toward a cleaner energy future.
As frustration grows, lawmakers must seriously consider reforms to prevent further price hikes and to hold utility companies accountable. The CPUC also needs to impose stricter oversight on rate hikes, ensuring that utilities cannot raise rates without demonstrating that their spending is both necessary and cost-effective.
Without significant reforms, California’s electricity crisis will continue, burdening residents, businesses and farms with some of the highest power bills in the country and worsening economic inequality. For now, Californians are caught in a cycle of rising rates, growing utility profits and limited relief from state regulators.
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