California lawmakers have a radical idea for lowering electricity bills

After years of failing to rein in rapidly rising electricity rates, California lawmakers are hoping a radical new approach — and billions of dollars in state financing — can offer a solution.

Bills moving through the California Senate and Assembly would use money raised from state bonds to help pay for the hugely expensive process of expanding the power grid and making it less vulnerable to wildfires. This path would relieve some pressure on utility customers in California, because funding grid upgrades through bonds is cheaper than doing so through energy bills.

Utility costs have reached a boiling point in California, with customers of the state’s three biggest utilities — Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric — now paying almost twice the U.S. average for their power. Nearly one in five customers of these utilities is behind on paying their electric bills, according to a May report from state regulators.

The bills — Senate Bill 254, sponsored by Sen. Josh Becker, and Assembly Bill 825, sponsored by Assemblymember Cottie Petrie-Norris, both Democrats — aim to lower electricity costs for Californians. Both include provisions that would force the big three utilities to accept public financing for a portion of the tens of billions they plan to spend on their power grids.

The two bills have been passed by their respective legislative chambers. That’s despite opposition from the big investor-owned utilities, which object to using public funding for grid infrastructure projects because they earn guaranteed profits if they invest in infrastructure themselves. The utilities have defeated previous legislative efforts that would have crimped those future profits by having the state assume a portion of the expenses.

But the electricity cost crisis has made rate reform ​“a top-tier issue in California,” said Matthew Freedman, senior attorney at The Utility Reform Network (TURN), a consumer advocacy group that has joined other consumer and environmental justice groups in supporting SB 254.

“This is different from what we’ve seen in the past — and the solutions being sought by the legislature are more ambitious than what we’ve seen in recent years,” he said. TURN is hoping these dynamics will allow the public-financing portions of the bills to secure support from Gov. Gavin Newsom (D) and remain in whatever electricity-affordability legislation emerges before the end of the state legislative session in September.

TURN’s analysis indicates that pulling $15 billion out of the rate base of California’s three big utilities, as SB 254 and AB 825 propose to do, could save about $8 billion over 30 years, with $7.5 billion of that savings coming in the first 10 years. That equates to about 2–3% of an average residential customer’s bill, or about $4–$5 a month, Freedman said.

“Does this solve the affordability crisis? No. There’s no silver bullet. That’s the biggest frustration we have and that many policymakers have,” he said. But it does offer a straightforward path to a quick reduction in rates, and ​“we’re trying to get some near-term benefits here.”

Putting a dent in rising electricity rates

SB 254 is an omnibus of electricity-affordability policies, ranging from streamlining permitting for grid and energy projects to forcing utilities to propose investment plans that limit their spending to the broader rate of inflation. AB 825 is more limited in scope, but the two bills share a couple of key concepts for state financing of utility infrastructure.

First, both bills would shift $15 billion in grid spending from utility capital expenditures to financing via bonds — a process known as securitization. Regulated utilities have commonly used securitization to help reduce the cost of closing aging power plants and rebuilding their grids after storms, by foregoing the return on equity that utilities typically earn for capital investments and tapping the lower cost of debt available to states or state agencies.

But there’s ​“little precedent for securitizing future productive utility capital spending,” Julien Dumoulin-Smith, an analyst at investment firm Jefferies, wrote in a June research note. The prospect that lawmakers might force California’s major utilities to securitize some of their highly profitable grid investments has in recent months weighed down investor expectations for the firms, he wrote.

The lawmakers pushing these bills argue that it’s more important to protect Californians from unchecked rate increases than to protect utility profits.

The state’s three big utilities are collectively planning about $90 billion in new capital expenditures from 2025 to 2028, Becker noted in a June press release after SB 254’s passage by the state Senate. Securitizing $15 billion of those investments would ​“reduce financing costs by eliminating profit margins and lowering interest rates,” Becker said.

In particular, the bills aim to rein in the biggest driver of rate increases — the tens of billions of dollars California’s utilities are investing in hardening their grids against the risk of sparking deadly wildfires.

“We’ve asked the investor-owned utilities to do a lot of that work, and we have to make sure it’s done as efficiently as possible,” Becker said during a virtual town-hall event in June. ​“I think we can have a discussion today about whether that’s something that should be in rates going forward.”