California laws, drought, and fire could increase utility bills

California taxpayers are likely to face higher utility bills in the future.

A report released on Tuesday by the financial corporation Fitch Ratings showed that an increase in wildfires is a challenging factor for California-based power companies, largely due to the financial impact of the fires.

“A utility provider can be held financially liable for wildfire damages if its equipment is found to have caused an incident,” says the report.

In California, public utility companies that act recklessly can be sued, even if it is following the industry’s best practices.

Utility provider PG&E filed for bankruptcy in 2019, after a judge ruled the company to be responsible for several fires.

Drought is another problem affecting the price of utilities in the state, which largely relies on hydropower. The U.S. Energy Information Administration (EIA) predicts the state’s overall hydropower production to fall 49% in 2021. According to analysts, this drop will have a greater effect on Northern California, the area most dependent on hydropower.

Lastly, climate regulations increase utility costs for Californians, making them costlier than the national average.

“With the rising cost of energy and the wildfires, California utilities face a rise in operating costs associated with clean energy goals,” indicated the report. “California’s average operating costs in 2020 were 15.1 cents/kWh, compared to the national average of 10.2 cents/kWh.”

Modernizing homes could reduce energy usage, however, analysts expect that the added costs to upgrade the energy grid will likely negate those savings.

Although California has pledged to transition away from fossil fuels, Fitch Ratings expects the state’s energy dependence on natural gas to increase once other energy sources decline.

Natural gas is often the largest energy source in California and other states, providing as much as 44% of the state’s energy during the 2015 drought, said the report.

Utility companies usually fix gasoline prices for several months, but a sudden increase in the dependence on natural gas would not allow this and would force taxpayers to pay more.

“By relying on natural gas as an alternative to hydroelectric or renewable energy, utility companies do not usually secure natural gas upfront… Utility companies could be exposed to the price variability that currently affects natural gas prices as an alternative for power supply, which could increase the costs of energy,” states the report.