This piece originally appeared in the May 11, 2025, issue of the San Francisco Chronicle.
By Richard McCann
Late last year, California Gov. Gavin Newsom issued an executive order that instructed state energy agencies to look for ways to cut power costs.
The motivation behind the governor’s order was obvious. Residential rates for Pacific Gas and Electric (PGE) are more than twice the national average, increasing an average of 12.5 percent annually over the past six years. This is more than double the rate increases approved under California’s three previous governors, including those following the electricity crisis in 2001.
Unfortunately, California has spent the intervening months since Newsom’s mandate focusing on all the wrong things. The California Public Utilities Commission and some state legislators have almost exclusively pointed fingers at their favorite scapegoat: rooftop solar consumers.
California’s latest attack on rooftop solar comes from AB 942, which would retroactively break contracts with millions of solar consumers by cutting the compensation they receive from providing energy to the grid if their home is sold or transferred. Those with solar leases, who are predominantly lower income, will be forced to buy out those contracts when they sell.
Why would the state do that to solar users?
For the same reason they’ve spent the past several years trying to make it financially untenable for homeowners to add rooftop solar: Too many officials have bought a key utility company excuse for rising energy prices — solar “cost shift.”
Maintaining, operating and expanding the electrical grid is expensive — transmission lines, substations, and more need to be built and repaired to deliver electricity to homes. The rates you pay for electricity include the cost of this infrastructure. Cost shift theory argues that since home solar users generate their own electricity, everyone else is stuck paying more to keep the system running.
This theory has a kind of superficial logic. But its supporting evidence is based on a seriously flawed notion.
It asserts that PGE owns 100 percent of the electricity generated by its customers and is entitled to full profits even for energy it does not deliver from solar users. PGE’s claim that it is “losing money” on rooftop solar is only true when it claims ownership of the kilowatt-hours generated and used by home solar.
In other words, embedded in the seemingly dire calculations of the role cost shift plays in rising energy costs is the idea that PGE deserves a profit on the energy generated by home solar owners.
But PGE is not entitled to those profits. Nor does it need them to run a sustainable business.
As an energy consultant with four decades of experience, I did the math myself. Using the California Public Utilities Commission staff’s own spreadsheet, I found that customers with rooftop solar supply their own energy only about half of the time. They do not owe PGE any payments for that amount.
Further, I found that in trying to tabulate the alleged impacts of cost shift to the system, the commission staff made several calculation errors, ignored the payments home solar customers do make to PGE and excluded most of the savings created by the investments these customers have made.
Instead of freeloading off the system, rooftop solar actually saves ratepayers money by preventing the need for the system to expand. It played a major role in keeping energy demand flat since 2006, especially on hot summer days when California gets itself into the most trouble. In fact, the California Independent System Operator, which runs the grid, credited rooftop solar in its decision to cancel 18 transmission projects — saving ratepayers $2.6 billion in 2018 alone.
Those savings include avoiding the costs of new generators, transmission lines and distribution grid equipment. By my calculations, solar users provide 12,000 megawatts of energy to the system that would have needed to be filled through utility-controlled generation and assets.
Without rooftop solar customers paying to add that capacity, those expenses would have been added to current electric rates. That is why California launched the Million Solar Rooftop program in 2006 — it was wildly successful at meeting growing loads with customers’ own resources.
Moreover, California’s two million solar users aren’t the wealthy land barons they are often portrayed as. Nearly 60 percent are working and middle-class families who earn on average only eight percent more than other homeowners. Their investments are on pace to save all ratepayers $1.5 billion in 2024 due to decreased load on the grid and other shared benefits.
Gov. Newsom should be doing more to promote rooftop solar, not less, if he wants to keep electricity prices down. He should also focus on the real driver of skyrocketing energy rates.
When analyzed over time, utility infrastructure spending — more than any other type of spending on things like wildfire mitigation, clean energy incentives or subsidies for lower-income households — is what’s primarily driving up rates. Grid infrastructure spending to bring power in from remote generation to your house has increased more than threefold over the past two decades, four times faster than the rate of inflation — despite electricity demand remaining flat. Wildfire spending, meanwhile, accounted for only 12 percent of total utility costs recovered from ratepayers in the past two years.
If electricity demand has remained flat for so long, what is PGE spending all that money on exactly?
That’s the question state officials should be asking.
If the system’s costs are mostly “fixed,” as PGE claims, then these costs should not have increased so rapidly.
Yet instead of getting to the bottom of this quandary, the state is going after low and middle-income families just trying to make living in California affordable by generating their own electricity from the sun.
Of course, flattened demand and cancelled investment projects do mean less profit for utilities like PGE. To keep earning higher profits, PGE must keep finding new ways to spend ratepayer money on grid infrastructure, and the commission must keep giving it the green light.
Yet utility profit motive should not be what drives energy policy in California.
If we really want to get rates under control, we need to stop attacking what’s working — betraying the good deeds that we asked solar customers to do — and instead focus on the true source of the problem.
Regulators and political leaders need to get serious about reigning in spending by utilities and stop basing our energy policy around expanding their profits.
Richard McCann is a founding partner of M.Cubed, which provides economic and public policy consulting services to public and private sector clients.
This piece originally appeared in the May 11, 2025, issue of the San Francisco Chronicle. Banner photo of solar panels on a home in San Anselmo by Jessica Christian. I make no claim to either the article’s content or photo.