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Public Information Index · Updated July 2026

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How These Programs Are Funded

Three layered funding mechanisms · Ratepayer surcharges, cap-and-trade revenue, and federal tax credits.

California’s residential energy programs are financed through three layered mechanisms. Understanding each one helps explain why specific programs exist, how their budgets are set, and why the programs are designed to deliver benefits to ratepayers who have effectively been pre-funding them for decades.

Layer 1 · Public Purpose Programs Surcharge

Layer 1 Quick Facts
Created byAB 1890 (1996) §381 — California Electric Utility Industry Restructuring Act
EffectiveJanuary 1, 1998
TypeNon-bypassable surcharge on every retail electric and gas bill
Average residential chargeVaries by usage and utility — typically several dollars to over $10 per month
FundsEnergy efficiency · Low-income assistance · Renewable energy · Research, development & demonstration

The Public Purpose Programs (PPP) surcharge is the central funding mechanism for California’s ratepayer-financed energy programs. The surcharge was created by Assembly Bill 1890 (1996) as part of California’s deregulation of the electric industry. Section 381 of AB 1890 imposed a non-bypassable charge on every retail electric and gas bill in PG&E, SCE, SDG&E, and SoCalGas service territories, beginning January 1, 1998.

What the surcharge funds

The PPP surcharge funds four program categories:

  1. Energy efficiency— including the Energy Savings Assistance Program (ESA) for income-qualified households.
  2. Low-income assistance— including the California Alternate Rates for Energy (CARE) and Family Electric Rate Assistance (FERA) discount programs.
  3. Renewable energy— including the Self-Generation Incentive Program (SGIP) for energy storage and DAC-SASH for income-qualified solar in disadvantaged communities.
  4. Research, development & demonstration (RD&D)— administered primarily through the California Energy Commission’s Electric Program Investment Charge (EPIC).

Cumulative ratepayer contribution

The PPP line item has appeared on every residential electric bill in California IOU service territory for over 28 years. Because the charge scales with usage, a typical household has contributed thousands of dollars toward the funded programs since 1998. The cumulative statewide contribution across all ratepayers is in the tens of billions of dollars.

The programs are not free or subsidies. They are returned value on money ratepayers have already paid into the system. Eligible homeowners accessing these programs are accessing benefits they have effectively been funding for years.

Layer 2 · Cap-and-Trade Auction Revenue

Layer 2 Quick Facts
Created byAB 32 (2006) — California Global Warming Solutions Act
Auctions beganNovember 2012
AdministratorCalifornia Air Resources Board (CARB)
Cumulative auction revenue~$28 billion through 2024
Returned to residents viaCalifornia Climate Credit (twice-yearly bill credit) · SGIP

California’s cap-and-trade program, established by AB 32 (2006), requires large greenhouse-gas emitters to purchase allowances at quarterly auctions to cover their emissions. Auction proceeds are deposited in the Greenhouse Gas Reduction Fund and allocated by the legislature.

A portion of the auction revenue is returned directly to residential utility customers twice a year through the California Climate Credit, which appears automatically as a line item on residential electric bills in April and October. Additional cap-and-trade revenue supports the SGIP and other clean-energy programs.

Layer 3 · Federal Inflation Reduction Act

Layer 3 Quick Facts
StatuteInflation Reduction Act of 2022, Public Law 117-169
SignedAugust 16, 2022
Total clean-energy authorization~$369 billion over 10 years
Key residential mechanisms§48E ITC (commercial / TPO solar) · §25D Residential Clean Energy Credit · Energy Community bonus (+10%) · Domestic content bonus (+10%)

The Inflation Reduction Act of 2022 provides federal tax credits for clean-energy investments. For California residential solar, the most relevant provisions are the §48E Investment Tax Credit (claimed by third-party owners in PPA and lease arrangements) and the Energy Community Bonus (an additional 10% credit for properties in DOE-designated zones, which includes most of Contra Costa County, Kern County, and other former or current fossil-fuel-employment census tracts).

How the money reaches a homeowner

  1. Legislature authorizes funding. California enacts statutes (AB 1890, AB 32, SB 100) and the federal government enacts statutes (IRA) that create the authority to collect and allocate funds.
  2. Agencies set rules. The CPUC, CEC, CARB, IRS, and DOE issue regulations, decisions, and program handbooks defining program eligibility, budgets, and disbursement.
  3. Ratepayers fund the bulk. The PPP surcharge appears on every residential bill, the Climate Credit is collected through cap-and-trade auctions, and federal credits are funded through federal tax revenue.
  4. Program administrators distribute. Utilities, GRID Alternatives, and other CPUC-approved administrators disburse rebates, install equipment, and apply bill credits.
  5. Eligible homeowners benefit. Through bill discounts (CARE, FERA, Climate Credit), free measures (ESA, DAC-SASH), rebates (SGIP), or pass-through tax credit value in PPA/lease arrangements (§48E).

Sources: AB 1890 (Stats. 1996, ch. 854) §381 · AB 32 (Stats. 2006, ch. 488) · SB 100 (Stats. 2018, ch. 312) · Inflation Reduction Act of 2022, Public Law 117-169. PPP surcharge averages cited from CPUC residential bill component data. Cap-and-trade cumulative auction revenue from CARB Auction Information & Proceeds reports. Federal credit information summarized from IRS and DOE guidance. For binding interpretation, consult the cited statutes or a licensed professional.