Solutions to Rising Cost of Climate Change in California Should Include Passage of Prop 4

Rising temperatures = rising costs

The heat is on: it's burning down forests and towns, it's melting down grids, and it's making hard jobs even harder. Beyond the staggering human and environmental toll of danger season's extreme weather, there are rising costs associated with climate damages. And those costs are not being borne equitably. California has taken important steps to address some of these equity concerns-and now has another big opportunity to pass the water and wildfire bond, which will be on the ballot this November as
Proposition 4.

As one example of these rising costs, Californians' electricity bills have been skyrocketing over the past few years. This is concerning not only because people are struggling to pay their utility bills, but also because increasing rates are starting to become a barrier to transitioning to electric vehicles for some families and individuals.

There are multiple reasons why bills are increasing, but the main driver is costs related to reducing wildfire risks, according to the California Public Utilities Commission (CPUC). Climate-caused hotter, drier conditions are leading to longer, more intense wildfire seasons in many parts of California . Worryingly, the Commission notes that only a few wildfire-related expenses have made it onto customer bills, namely increased costs for vegetation management and wildfire insurance. There are many more capital costs likely coming. And we know that as our climate warms further-driven by burning fossil fuels-the risk of large wildfires will only grow.

To-date, the public narrative has largely focused on the narrow issue of rates, or how costs are distributed among different customers. Equitable rate structures are important to ensure affordability. Yet, danger season means costs are rising overall and will continue to drive up the revenue requirement, or the total amount of money that utilities are allowed to collect across all their customers.

Right now, increased costs associated with larger and more intense wildfires are mostly borne individually or by the most impacted regions. It's a starkly regressive way to pick up the tab. 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 climate change impacts. A UCS report, The Fossil Fuels behind Forest Fires, calculates that about half of the rise in fire-danger conditions in western North America since 1901 can be traced to carbon pollution from 88 fossil fuel companies and cement manufacturers. This alarming finding clarifies the significant role and responsibility of fossil fuel companies to not only stop their harm moving forward, but also to address damage they have already done. This science has been incorporated into dozens of lawsuits filed by cities, counties, and states to collect damages from fossil fuel companies. Last year, California filed the most significant lawsuit addressing climate deception and damages. But the wheels of justice can turn slowly, and in the meantime, costs are racking up.

Ensure affordability in rate structures

Earlier this year, the California Public Utility Commission passed new requirements to ensure electricity rate structures address growing affordability concerns by incorporating an income-based monthly charge that more equitably shares the costs for electricity infrastructure while also supporting the transition from fossil fuels to clean electricity. The new rate structure guidance lowers electricity bills on average for lower-income households and those living in regions most impacted by extreme weather events.

Reduce the rate of return to investors to limit rising costs

Beyond finding more equitable financing methods, the state should also consider limiting how much money utility investors or shareholders receive, known as the rate of return, included in the revenue requirement. Recent analysis from the Haas School of Business finds "that over recent years, utilities have earned sizeable regulated rates of return on their capital assets, particularly when set against the unprecedented low interest rate environment from 2008-2022. When the economy-wide cost of capital fell, utilities' regulated rates of return did not fall nearly as much. This gap raises the prospect that at least some of the growth in capital spending could be driven by utilities earning excess regulated returns." They conclude that excess rates of return have important implications beyond just the additional cost they place on consumers. From a distributional standpoint, higher rates create a transfer of wealth from ratepayers to shareholders. From a societal standpoint, expensive energy can discourage electrification, which is a key component of our efforts to tackle climate change.

Achieve our clean energy goals to limit rising costs

Over the long-term, the only way to significantly reduce the costs associated with worsening wildfires is to limit climate change impacts. California has passed the nation's most ambitious climate change emission reduction goals. And, while we have made important progress, to achieve our goals we need to roughly double the amount of clean energy coming online. We have previously blogged about solutions to overcome the top three clean energy barriers: the need for more transmission capacity; delays in the interconnection process; and permitting difficulties.

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

California has already done a lot to get us on the right path by filing lawsuits against big oil companies to recoup damages and by reforming electricity rate structures to ensure affordability. Right now, we now need to focus on passing Proposition 4 this November. Moving forward, lawmakers should consider limiting the rate of return that is authorized by the California Public Utilities Commission and addressing barriers to clean energy. We cannot afford to be distracted by temporary fixes that will raid our state's preeminent 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.

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