Here’s the Real Reason PG&E Rates Are Skyrocketing in California

California now holds the ignominious prize for the highest electricity rates in the nation, except Hawaii. How did we get into this predicament?

Because the California Public Utilities Commission — the five-member agency appointed by Governor Gavin Newsom that regulates the prices, service and reliability of private energy utilities — has failed to do its job.

There are other government entities that hand out cookies to energy companies without a care for who pays the bill. But the buck stops at the Public Utilities Commission to protect utility customers.

When a private utility like PG&E decides it needs to build new infrastructure — say, to protect against wildfires — it’s the commission that determines if the infrastructure is necessary, if the utility’s proposed costs for that infrastructure are fair, and if better and cheaper alternatives exist.

The commission enjoys limited scrutiny by the courts. Decisions made by other state agencies can be appealed to Superior Court. But only an appellate court can hear commission appeals, and taking that case is discretionary. This limited judicial review means that the Public Utilities Commission essentially answers to the governor alone.

As a former commission president, I know what keeping energy prices down requires: a sharp pencil to control relentless spending requests from utilities that allow them to generate more profits, adherence to legal mandates that require it to protect ratepayers and allow only “just and reasonable” costs and the backbone to just say no to the utilities’ unceasing demands that customers pay for programs that are ineffective or unnecessarily expensive.

None of this is happening, and Californians should be outraged.

Last November, the commission authorized a historic rate increase — more than $2.56 billion for PG&E’s 2023-2026 general rate case spending estimates. PG&E applied to the commission to charge its customers for the costs of running its gas and electricity businesses, including new infrastructure, system maintenance, and employee and management salaries.

That rate increase hits in stages. The commission let PG&E charge its customers immediately for the first $1.3 billion, painfully hitting in January’s bills. But that’s not the end to commission-permitted rate increases: The utility will collect $716 million more in 2024, $359 million in 2025 and $204 million in 2026.

The commission allowed these increases despite its administrative law judge’s initial decision finding that PG&E’s evidence justified a much smaller rate hike. (The commission employs administrative judges to independently vet whether or not utilities have proved that they are entitled to charge their customers for their costs.)

The administrative law judge’s decision hinged on whether PG&E’s spending was “just and reasonable” — the legal prerequisite for approving any utility cost. Instead, politically appointed commissioners overruled the judge and gave PG&E the vast bulk of what it wanted despite what the facts support.

Before the ink on PG&E’s unprecedented 2023 rate increase was dry, the utility came back, asking the commission to order its customers to pay over $4 billion more for Diablo Canyon nuclear power plant costs, power purchases from electricity generators and infrastructure upgrades for “energization” efforts.

PG&E wants $691 million of that upfront — paid now — before the Public Utilities Commission even evaluates whether those costs are just and reasonable.

Adding insult to injury, in its March 12 decision, the commission handed PG&E yet another increase of $516 million — to take effect immediately. This time the commission dispensed with pesky legal requirements for evidentiary hearings, testimony or proof of PG&E’s asserted costs. By not even attempting to evaluate the reasonableness of the utility’s demands, commissioners set a new low in disregarding the law, which allows the commission to increase rates only after it holds a hearing that includes testimony under oath and cross-examination of PG&E’s witnesses.

In its decision, the commission admitted that granting PG&E half a billion up front, based only on PG&E’s word, “departs from the general requirement to raise rates only after the costs are determined reasonable.” Despite PG&E’s admission that its original $5.7 billion expense estimate actually only totaled $2.7 billion, commissioners approved the increase anyway, only timidly admonishing that “PG&E should be more transparent at the outset to assist with decision-making.”

What should have occurred?

Formal hearings, with PG&E’s witnesses testifying under oath about the true amounts of their asserted costs. The commission should have followed the law that requires PG&E to prove that its costs are “just and reasonable” — before forcing its customers to pay more. The law requires public, rules-based fact determinations about what money is really needed to provide safe and reliable service versus what constitutes frivolous, unnecessary or profit-plumping projects.

The commission blithely maintains that it will review PG&E’s actual costs later — years from now. If unreasonable costs are found, it will order refunds of the money PG&E took from its customers.

But PG&E will almost certainly fight such refunds by scaring future commissioners into inaction, claiming that “the markets” have expected them to keep the money so it can’t be taken away.

Kowtowing to PG&E despite the evidence and the facts — or in this latest case, raising rates without any evidence or facts — shows the Public Utilities Commission’s utter indifference to the hardships these rate increases impose on California’s families and businesses.

Now, a new commission scheme is set to create a “fixed charge” on top of current pay-as-you-use prices, which would be marginally reduced, only for residential customers, under the plan.

On March 27, an administrative law judge published a proposed decision that, if approved in May, will impose a new fixed $24.18 monthly charge on residential customers not eligible for low-income discounts. The commission touts this proposal as a win because it set the charge significantly lower than the $70-$90 the utilities initially proposed. But the new charge still exceeds twice the national average for similar charges.

Fixed fees are the start, not the end, of more rate increases because the commission doesn’t prohibit the fixed charge from increasing whenever PG&E wants. The plan lacks safeguards against utility double-dipping, so it will be hard to tell whether the costs embedded in this new fixed charge are duplicated in other cost-recovery requests. Even PG&E’s low-income customers are not protected — they already pay more than the average customer in the Sacramento Municipal Utility District.

The Public Utilities Commission’s rubberstamping of unproven, unwarranted, unjust electricity costs must stop. It is up to the state Legislature to inject sanity into the regulatory system and protect California families and businesses from ruinous, undeserved rate increases.

Thankfully, legislators have introduced AB1999 to stop this increase and cap any fixed charge at $5 for low-income customers and $10 for other customers. AB2054 would stop the revolving door of former commissioners moving to jobs with utilities and scrutinize utility funds, and SB938 would stop ratepayers from paying for utility lobbying and advertising, among other reforms.

Passing these bills would be important first steps to reining in California’s rogue Public Utilities Commission and halting runaway energy rates.

More robust oversight by the Legislature is needed. Without it, you can expect your energy bills to continue to skyrocket.

Loretta Lynch is a former president of the California Public Utilities Commission and an attorney in San Francisco.