Given the volatility of California’s energy market, it is no surprise that several factors are at play that strongly impact the state’s retail electric rates. In this blog, we will examine the main drivers of retail electricity cost inflation and provide a higher-level understanding of historical rate increases and how they may inflate in the future.
Why do retail electric rates change?
Fuel and energy costs
The primary factor influencing historical rate changes is fuel and energy costs. In 2022,natural gas accounted for 42% of California’s in-state electricity generation. Any change in the price of natural gas will influence the cost of the utility to generate electricity because a significant portion of the state’s electric generation is powered by natural gas. Customer bills include the cost of fuel that is purchased to generate their electricity, and natural gas prices fluctuate based on circumstances beyond any utility’s control.
Changes in demand
Demand plays a role in the retail electric rate inflation as variances in energy consumption, economic climate, and population growth directly impact electric pricing. Demand is the rate at which electricity is consumed at any home or business at a given time. A popular trend noticeably increasing demand is electric vehicles (EV) and EV-charging, causing prices to change in the short and long term.
Infrastructure investments
Electric utilities require regular maintenance to ensure the most reliable service. Improving distribution pipelines requires utility capex investments (later recovered via ratepayer bill increases), for example.
Regulatory and policy changes
Updates to regulations and policies result in retail electric rate changes. For example, thePublic Purchase Program surcharge gathers funds for various programs, such as Energy Efficiency, the Self-Generation Incentive Program, and Low-Income Assistance Programs.
Environmental mandates
Utilities are required to meet given specifications, such as grid modernization initiatives and energy efficiency targets, resulting in more expenses on behalf of utilities. According to wildfire mitigation plans filed in early 2021 with the California Public Utilities Commission (CPUC), the state’s Investor-Owned Utilities (IOUs) forecasted spending approximately$11 billion during 2021 and 2022 on programs designed to minimize the risk of wildfires within their territories.
How our team maintains California’s changing rates
Rate schedules include information about a specified utility rate tariff. Energy Toolbase has over 100 thousand global rates in our rates database, spanning over 12 thousand utility territories. Our database covers every state in the country and 42 international territories. The utility rates database is managed by our team of in-house utility rates experts, available to support users in designing new custom rate tariffs.
Energy Toolbase has developed a standardized user interface, providing a streamlined solution for users to review charges according to charge type and other characteristics for a chosen utility rate. Users can create utility rate schedules by copying an existing rate schedule or by building one from scratch. Our platform is the only platform that designs custom rates for users.
The necessity of an expert utility rates team
Energy Toolbase’s utility rates team tracks rates in-house, giving us full control when recreating utility bills and modeling dollar savings analysis. Energy Toolbase is the gold-standard software platform for quantifying the cost, savings, and economics of behind-the-meter solar and storage projects. Since our founding in 2014, Energy Toolbase has employed an in-house utility rates team devoted to updating and building rate tariff database records across the United States and around the world. Electric rates are constantly changing based on updates to different rules, prices, and rate structures, and our team makes tracking rates internally a priority and core function, one far too important to outsource to a third party.
To read more about how retail electric rates have changed in California over the last 10 years, download our ‘Electric Bill Inflation in California’ Whitepaper.
