California utilities must live within their means

By Travis Ritchie, especially for CalMatters

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As Xavier Becerra and Steve Hilton head into California’s general election for governor, each campaign promises quick solutions to electricity prices, which have risen faster than anywhere else in the country.

Becerra promised freezing electricity prices. Hilton suggested breaking up PG&E.

Those slogans may work on the campaign trail, but solving California’s electricity crisis won’t be easy. The next governor will have to roll up his sleeves and do the hard, unglamorous job of containing utility costs.

In a new policy reportThe Center for Law, Energy and the Environment at the University of California, Berkeley dug into the the drivers of rising electricity prices in California — which are nearly double the national average — and laid out what it would take to bring them down.

There are no flashy solutions or easy captions. Getting rates under control requires getting back to the basics of utility regulation.

Most importantly, California must make wildfire spending, the biggest driver of rate increases, more efficient.

After several catastrophic utility-fueled fires in 2017 and 2018, California regulators allowed investor-owned utilities — PG&E, Southern California Edison and SDG&E — to racked up $27 billion in wildfire-related costs by raising the rate. Wildfire costs now account for as much as 19% of the average residential customer’s bill, an increase of up to $490 per year.

California has pioneered some of the most comprehensive and sophisticated wildfire mitigation plans in the country, but at a high cost. The state can now implement solutions to ensure utility customers pay less for wildfire mitigation without sacrificing safety.

First, state leaders could cut back utility profit margin for capital projects for wildfire mitigation plans. Wildfire prevention projects already reduce utilities’ exposure to costly liability claims. These savings balance the potential credit impact of lower investor returns from these projects.

Another solution would be to focus more spending by utilities, private stakeholders, and state and local governments on reducing property loss in wildfire-prone communities and less on minimizing ignitions of thousands of miles of utility equipment lines.

Also, government officials could put utilities on budget and keep them there.

Utilities are supposed to submit one rate change request every four years, known as a general rate case. Regulators set a multi-year budget that incentivizes utilities to reach or below that budget.

However, hundreds of special tracking accounts covering everything from tree trimming to nuclear decommissioning allow utilities to spend money on some projects and bill customers after the fact, bypassing normal budget discipline. What began as a tool for exceptional circumstances has become a routine solution.

The Legislature and the California Public Utilities Commission could eliminate most of these special tracking bills and let utilities win or suffer depending on how well they stick to the budget set in the general rate case.

California can also use public funds — instead of utility costs that are passed on to customers — to invest in grid infrastructure so that those costs stay out of rates overall. Wildfire costs aren’t the only driver of rate hikes. Spending on distribution systems other than wildfires, such as power lines, poles, transformers and repair crews, doubled between 2016 and 2025, part of a nationwide trend.

Not all of these costs have to come from utilities. Government funding and public-private partnerships can keep some costs off the books entirely. Californians will still pay for these investments, but through more cost-effective, transparent and fair means than electric bills.

The forces driving up electricity prices in California are real and will continue. The good news is that California has the tools to address electricity affordability and more than a century of utility regulation insight into strategies to ensure safe and reliable service while charging reasonable rates.

The next governor’s job will require sustained pressure on utility spending, not flashy campaign slogans.

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.