Most PG&E ratepayers don't understand how much higher the rates they pay are than what it actually costs PG&E to generate and transmit the electricity to their house. When I looked into this recently I was shocked. The average PG&E electricity charge now starts at 40 cents per kilowatt hour and goes up from there. Silicon Valley Power, Santa Clara's utility company, is getting power to customers for 17 cents per kilowatt hour. Sacramento's utility company charges about the same.

PG&E's rates are high enough that, even with the massive headache and expense involved, it's feasible for cities to create their own utility and undercut PG&E's rates. When the savings per household are around $800-$1200 per year, though, they should take it seriously.

Here are the basic components of how much it costs to get electricity to your house.

• Generation: The cost to actually generate the electricity in a power plant or utility-scale solar farm. This varies by time of day but typically costs about 4 cents per kilowatt hour; you can see the current wholesale rate on the CAISO website.

• Transmission: How much it costs to move the power from the power source to a local substation/transformer, over large transmission lines. PG&E breaks this out in its detailed rate chart at about 4 cents per kilowatt hour.

• Distribution: How much to get the power from your local substation to your house over local power lines. In PG&E's rate chart, they charge 20 cents per kilowatt hour for this. That just does not match up with how much it actually costs them to transmit power over local lines and keep the lines maintained.

• Everything else: Operations, maintenance, profit. This is where PG&E is actually seeing large expenses, because their coverage area is massive, it costs a lot of money to deliver power to rural customers, and they are also undertaking a massive project to underground utility lines in fire-prone areas.

The high price and design of the electricity system have a number of bad effects:

• People really hate inflation. When utility bills spike, it makes people unhappy and also fuels the (not incorrect) perception that California is poorly governed.

• Lower income people spend a higher percentage of their income on electricity, so higher utility bills disproportionately hurt them.

• The net effect of charging higher rates to everyone to pay for undergrounding is that people who live in urban areas are paying more money to subsidize energy transmission for people who live in $2 million houses in places like the Berkeley and Orinda hills. This makes no sense.

• Higher rates for electricity make electricity less competitive vs. gasoline when people are considering a car purchase. It makes electricity less competitive vs. natural gas for heating a house, heating water, or choosing a laundry machine. As gas is warming the planet and electricity is substantially easier to generate in abundance from renewable sources, it's just bad policy to have high electricity rates.

Let's walk through what this might look like for a particular city to undercut PG&E's rates. I will pick Walnut Creek because it's a reasonably big city with a good mix of detached homes and multifamily. Walnut Creek also has experience with public ownership of amenities - the City operates a golf course and a downtown parking garage with ground floor retail.

There are a number of particular problems with applying PG&E's rates to Walnut Creek:

• Walnut Creek is an urban area with a compact footprint that has little acreage in a high severity wildfire zone. It has two transmission lines as well as a local transformer grid along Ygnacio Valley Road. It is very cheap to transmit power from power plants to Walnut Creek, and from transmission lines to every house in Walnut Creek.

• Walnut Creek has an above average number of apartments. Apartments do not have as much space for rooftop solar, and landlords don't have an incentive to provide rooftop solar because they typically pass through utility costs. This means NEM1 and NEM2 subsidies — 12% of the average non-solar bill — disproportionately hurt Walnut Creek renters.

• Local businesses have disproportionately high energy costs. Safeway and Whole Foods need to keep a row of refrigerators and freezers running 24/7. When they pay PG&E's rates to do that, those high energy costs are passed through as higher food prices.

We are going to adapt Palo Alto's income statement, found on page 50 of their annual report, to Walnut Creek's situation. For each category, I am going to try to shade the numbers assuming we can't be as efficient as Palo Alto.

Usage, Revenue, Expenses

Palo Alto's total electric consumption was 830 gigawatt hours in 2024 - 19% of this usage was residential, and 81% was businesses and industry uses. Applying some adjustments for Walnut Creek - our population is bigger, it's a bit hotter here, and energy use has increased - let's say Walnut Creek uses about 1150 gigawatt hours per year.

Palo Alto earned $172 million in revenue for 830 gigawatt hours, which is about 20 cents per kilowatt hour.

Expenses

Here's where Palo Alto's utility company spends money:

Acquisition of the network and financing cost

The first thing you need to do is buy out PG&E's distribution network - all of the power poles and local equipment that sits between the transmission lines and people's houses. San Francisco proposed buying this for $2.5 billion in 2019; PG&E rejected this offer for being too low. Adjusted for inflation and Walnut Creek's population, this is about $230 million, let's round up and say $350 million. Let's also assume it costs $50 million in startup costs and one time expenses to hire utility staff, buy equipment, marketing expense.

Cities with an AA credit rating can issue a 30 year loan at about 4% interest. Borrowing $400 million would cost about $23 million per year in interest and principal payments.

$23 million per year of financing cost spread across 1150 gigawatt hours is only about 2 cents per kilowatt hour.

Generation and distribution

Palo Alto spent $114 million buying energy in 2024, about 14 cents per kilowatt hour. Let's assume Walnut Creek can get power for about 17 cents per kWh.

Operations

This covers customer service, financial management, billing, engineering work for maintenance (tree trimming etc), and resource management. Palo Alto spent $65 million on these expenses in 2023. Let's assume Walnut Creek's costs are much higher at $90 million per year. This is about 8 cents per kilowatt hour.

Capital Improvements

Another $25 million per year is allocated for grid modernization, undergrounding, and reliability work. Let's assume this is $35 million per year for Walnut Creek, which would be about 3 cents per kilowatt hour.

Total

Adding this up, we get 30 cents per kilowatt hour, which is ten cents lower than PG&E's base rate and about 15 cents lower than PG&E's blended rate. At 1150 gigawatt hours, this would save Walnut Creek residential ratepayers about $23 million per year in total, about $800 per ratepayer, and Walnut Creek businesses about $92 million per year. That is a huge amount of money that could go toward much more productive uses - paying higher salaries, lowering prices for goods, spending more at local businesses.

Most elected officials would jump at the chance to mail every household a $800 check every year. The next best thing is to put $800 back in their pocket.

Other Benefits for Walnut Creek

There are huge ancilliary benefits for Walnut Creek to running its own utility network.

• Easier and cheaper infrastructure upgrades: Public safety is a large concern in Walnut Creek. Things like installing new streetlights can take a substantial amount of time and coordination. PG&E took over nine months just to turn on the power for a crosswalk in Berkeley. With local control of the utility, Walnut Creek can deliver investments in things like streetlights, new housing or HAWK signals faster and cheaper.

• Green infrastructure investments: Walnut Creek has made sustainability a key priority. Palo Alto owns a share in a hydroelectric dam, and Santa Clara owns a share in a geothermal plant. At a time when there are exciting new technologies that have the potential to reduce greenhouse gas emissions and deliver clean, cheap energy to residents - things like Fervo Energy that use the tech behind fracking to deliver geothermal power - Walnut Creek can use its very low cost of capital to finance these investments. This is something PG&E cannot do as effectively, because as a public utility with massive amounts of debt and wildfire liability, their borrowing cost is much higher. Public ownership would enable transformative green energy investments with a low borrowing cost.

• Encouraging the green transition: A 25% reduction in the cost of electricity relative to natural gas would make electric upgrades like heat pump water heaters or electric cars much more financially prudent investments.

• Fiscal stabilizer: Like every city in California, Walnut Creek has boom and bust cycles. Utilities have much more stable revenues than cities. Walnut Creek could borrow from its utility in recessions, and loan money during booms.

• Encourage incorporation: Walnut Creek has a number of unincorporated pockets (San Miguel CDP, Shell Ridge CDP) that administratively make little sense - they are served by different police, they have different tax rules. If these homes could save $800 per year on their utility bill by joining Walnut Creek, this may provide an incentive to incorporate, which would ultimately lead to better governance.

• The best alternatives are good: PG&E is terrified of cities leaving its service network. Look at the concessions they are offering to South San Jose to try to prevent them from starting their own utility.

  Even if Walnut Creek doesn't ultimately pursue its own utility, just investigating the possibility may lead PG&E to offer concessions such as undergrounding the transmission line over downtown. Because you can't build under a transmission line, this makes a 100 foot wide strip of very valuable land undevelopable. St. Paul's would love to redevelop its parking lot under the transmission line for affordable housing, but can only develop tiny corners of the lot with the transmission line overhead. Undergrounding the line would deliver huge benefits to Walnut Creek.

  

• Lowering the cost of urban living in safe places: PG&E's current rate structure has urban rate payers subsidize rural rate payers and people who live in wildfire zones in e.g. the Orinda Hills, who need substantial investment in order to receive power without sparking wildfires. This is bad policy - instead of subsidizing fire zones, it should be cheap to live in safe places and more expensive to live in dangerous places. Lower cost of electricity would reverse these trends.

California is kneecapping its own climate transition with high electricity prices. The resulting inflation hurts our state's ability to retain a high class, diverse workforce. Perversely, it also serves as a subsidy to wildfire zones at the expense of infill areas. It's time to reverse those trends and deliver lower energy prices in places we want more Californians to live.

What should I do if I want this to happen? Cities around the region are doing "priority setting" exercises for 2025. Contact your Mayor or City Council and ask them to explore the possibility of creating their own utility, potentially partnering with other cities. I would probably select cities that do not have large fire zones (ie, not Orinda or Moraga).

Liked what you read? I am available for hire.