Why Utilities Keep Raising Rates Even While Going Green — The 'Stranded Assets' Problem Explained

Why Utilities Keep Raising Rates Even While Going Solar & Lowering Their Costs — The "Stranded Assets" Problem Explained

It seems like it should work the other way around: as utilities invest in cleaner energy and modernize the grid, shouldn't costs eventually come down? In practice, California homeowners have watched the opposite happen — rates have climbed steadily even as utilities tout their progress toward carbon-free electricity. Understanding the concept of "stranded assets" and the regulatory model behind utility profits explains why.

What Are Stranded Assets?

A stranded asset is infrastructure a utility built and is still paying off — natural gas plants, transmission lines, substations — that may become less economically useful as the system shifts toward renewables and distributed generation. Utilities don't get to simply write off this older infrastructure. Regulators generally allow them to keep recovering its cost from ratepayers over its full depreciation schedule, even while the utility simultaneously invests billions in new clean energy infrastructure.

The result: homeowners often end up paying for both the old system being phased out and the new system being built to replace it, layered on top of each other for years.

The Bigger Mechanism: Cost-of-Service Regulation

This is where it gets structural. California's investor-owned utilities operate under a regulatory framework called cost-of-service regulation. In simple terms, regulators allow utilities to recover their approved operating costs, plus a guaranteed rate of return — typically in the high single digits — on their "rate base," which is the value of their approved capital investments.

Curious whether you qualify for California's Net-Billing rate plan? Check your eligibility and current CPUC rates at myhomesolution.org/california_public_utility_commissions.

This creates a powerful incentive: more approved infrastructure investment means a larger rate base, which means a larger guaranteed return for the utility. Whether that infrastructure is a new natural gas peaker plant or a state-of-the-art battery storage facility, the underlying financial incentive for the utility is largely the same — build more, earn more.

Why This Matters for "Going Green"

This explains the seeming contradiction homeowners notice: utilities can genuinely be retiring fossil fuel plants, building renewable energy contracts, and investing in grid modernization, while bills keep rising regardless. The green transition doesn't eliminate the underlying regulatory incentive to invest in approved infrastructure — it just changes what kind of infrastructure gets built. Wildfire mitigation, grid hardening, and clean energy procurement are all "approved investments" that increase the rate base in the same way a traditional power plant once did.

What This Means for Homeowners

None of this is necessarily a scandal — utilities need capital to invest in reliability and safety, and regulators are trying to balance many competing interests. But understanding the mechanism helps explain why rate relief rarely follows good environmental news, and why bills are unlikely to meaningfully decline even as the grid gets cleaner. For homeowners, the most direct way to insulate yourself from this dynic is reducing how much grid electricity you need to buy in the first place. Every kilowatt-hour you generate and store yourself is one you're not paying a guaranteed-return surcharge on, regardless of how the utility's rate base evolves in the years ahead.

California's utility rate increases aren't simply a function of fuel costs or weather. They're built into a regulatory structure that rewards approved capital investment with guaranteed returns — a structure that persists whether that investment is "green" or not. Solar and battery storage remain one of the few tools homeowners have to opt out of a portion of that structural cost growth.

Curious whether you qualify for California's Net-Billing rate plan? Check your eligibility and current CPUC rates at myhomesolution.org/california_public_utility_commissions.