While many Santa Clarita Valley residents were left in the dark over the past two weeks due to power outages, the state’s Legislative Analyst’s Office issued a report trying to answer the question of why Californians pay so much for their power.  SCV residents are among many angry in California that their rates have increased at a pace roughly three times faster than inflation over the past four years, according to the new report from the agency responsible for determining the impacts of state legislation and policy.  Statewide, Californians’ rates are double the national average and second only to Hawaii in terms of cost, according to the LAO report issued Jan. 7.  “Electricity is a modern necessity, essential to keeping our homes cool and food from spoiling, maintaining basic human hygiene and — with increasing prevalence — powering our transportation,” according to the 24-page report, which also notes the rapidly rising cost of power put the state’s citizenry at odds with California’s ambitious climate-change goals.   “In the coming years, the Legislature likely will confront difficult decisions about how to approach electricity rates in order to best support its varied goals, including balancing the desire to both mitigate and adapt to climate change as well as preserve affordability.”  The report also is part of an annual requirement that the LAO report on the costs and benefits of the state’s GHG emissions-reduction targets.  Political discussion   The data in the report drew a strong reaction from some in the Legislature, including Sen. Suzette Martinez Valladares, R-Santa Clarita, who shared the report in a Jan. 7 email, as well as a statement expressing frustration over the costly burden that utilities place on Californians.  “The affordability crisis in California is out of control. Families in this state pay nearly double in utility bills over those in any other state, pay more for each gallon of gasoline than in any other state, and struggle to find insurance for their homes that cost more than in any other state,” she wrote.  “The super majority’s aggressive regulations are driving up the cost of basic needs, and Californians need relief. I’m ready to work with my colleagues on both sides of the aisle to address the affordability crisis and ensure current and future generations can afford to live the California Dream.”  Assemblywoman Pilar Schiavo, D-Chatsworth, was not immediately available to respond to a request for comment Monday.  Southern California Edison officials said they were working on a statement in response to the report Monday afternoon.  At City Hall last week, more than a half-dozen residents shared their frustration that despite their rising utility bills, they’re still getting their power shut off during heavy windstorms, which are one of the ways that the utility prevents a potential equipment-related wildfire — which also impacts the utility’s revenue, a cost bound to be passed on to all ratepayers, per the LAO report.  Background  The report begins by explaining the three main components of the power system — generation, transmission and distribution. Most of the power consumed is generated at large-scale plants and then transported through high-voltage power lines known as transmission lines, which is then distributed through low-voltage distribution lines such as the wooden poles commonly seen that deliver power to homes.  Most of these power systems in California, with a small handful of exceptions, such as the L.A. Department of Water and Power, are run by investor-owned utilities, which includes PacifiCorp, Pacific Gas and Electric Co. and, in most of Southern California, Southern California Edison. The LADWP is an example of a POU, or publicly owned utility.  These IOUs are private companies typically overseen by corporate boards and accountable to shareholders, and they manage roughly three-quarters of the state’s power, according to the report.  The report explains these electrical systems and their construction, maintenance and operations are covered by ratepayers, who also pay for state-mandated public purpose programs, such as low-cost alternative-rate programs and state commission costs.  Rate setting   In California, how rates are determined is a three-step process the LAO describes as “complex,” which is overseen by the California Public Utilities Commission.   The first step is revenue requirement, or the amount of money the utility “should be allowed to recover through rates to support the main components of the electricity system and other activities,” according to the report. The CPUC sets IOUs’ revenue requirements so they can recover the value of capital investments multiplied by an authorized rate of return.  This rate of return is a key factor affecting the level of profit the IOU is able to generate for its shareholders, according to the LAO. The state is charged with setting a rate that compensates shareholders at a level consistent with the returns they would receive on investments of similar risk.  The second step is determining how much of the utility’s revenue should be generated from residential accounts versus business customers, which is intended to align with the costs of serving each base. The LAO estimates 40% of all state utilities are recovered through residential rates.  The third step is matching the rate structure for residential customers to generate the required revenues, per the LAO, which includes determining how much should be generated from fixed charges versus usage-based ones. But there are also different structures for subgroups of customers, according to the report, which notes that low-income customers and solar-panel users have different rates from average consumers.  Reasons for rising rates  It’s difficult to standardize rates, due to a number of factors, which is part of why there’s so much fluctuation in cost, according to the report.  But despite constant changes in demand, storage challenges and seasonal variations that create stress and relief for the state’s power grid, local ratepayers have felt one constant:  “On average, California IOU electricity rates are more than 50% higher than rates charged by POUs,” per the LAO report. “In some cases, the differences in rates between individual utilities are quite stark, even within similar geographic areas.”  These rates also have even outpaced inflation, “rising by about 47% over the four‑year period from 2019 through 2023 compared to overall growth in prices of about 18%,” according to the LAO.  One of the big changes noted since 2019 is the way utility rates, especially for IOU ratepayers, began to be impacted by wildfire costs.  Under California’s liability standard, POUs and IOUs are liable for costs associated with a utility‑caused wildfire, regardless of whether there was negligence.  “The magnitude of the damages and risks from utility‑sparked wildfires have increased substantially in recent years,” according to the LAO.  “Correspondingly, IOUs have spent unprecedented amounts in recent years on wildfire mitigation‑related activities to try to reduce the likelihood of future utility‑caused wildfires, with the associated costs often passed along to ratepayers.”  Furthermore, California IOUs and their ratepayers pay for insurance against future wildfires, including contributing to the California Wildfire Fund. This fund, established in 2019, helps cover the costs of certain utility‑sparked wildfire damages.  Other factors  There are many factors in its report for why Californians pay higher energy costs, which are always more for customers in IOU-controlled areas like the SCV, according to the LAO.  One is that the state’s ambitious energy goals have come at a significant utility cost for the average ratepayer who might not be able to afford to meet the goal.  “Solar customers in California have historically received large credits for the electricity they generate, which has shifted more of the burden for covering fixed costs to (and correspondingly raised rates for) nonsolar customers,” according to the LAO. The LAO also is backed by a February report from the Public Advocate’s Office that explained how and why these climate goals were putting an undue financial burden on ratepayers who couldn’t afford solar panels.   In terms of standard rate structures, much of this cost disparity is explained by two major IOU programs: net-energy metering for solar customers and the CARE program for low‑income households.   Both these programs shift costs between different types of customers, according to the report. However, the LAO also explains that means the average ratepayer — who doesn’t qualify for CARE, nor has the money for solar panels — could pay a bill 70% higher than a customer of the L.A. DWP, which is a POU, residing just a few miles away.  Specifically, IOUs are operated with the goal of generating returns for their shareholders. This, in turn, could lead to higher costs because electricity rates must pay for shareholder profits. Additionally, IOUs generally cannot benefit from tax‑exempt borrowing sources that are available to POUs, which increases operating costs. However, in California, the costs of wildfires far outpace the poorly budgeted solar incentives, according to the LAO.   The post LAO: Utility costs to bring tough decisions on climate policy  appeared first on Santa Clarita Valley Signal.