SACRAMENTO, Calif. (CN) — California's public regulatory agencies must work harder to monitor utility companies and explain why utility rates jump to unprecedented levels, the state's auditor says.
In an audit of the California Public Utilities Commission and the Public Advocates Office released Tuesday, state Auditor Grant Parks said both agencies must strengthen their monitoring of utilities’ costs. The commission also needs to have greater transparency about authorizing rate changes, he said.
Californians pay some of the highest utility rates in the country. From January 2022 to January 2023, electricity rates increased between 16% and 23% and residential natural gas rates increased between 27% and 162%.
The audit analyzed rates from four utility companies: Pacific Gas & Electric, San Diego Gas & Electric, Southern California Edison and Southern California Gas Company. The companies' operating expenses have increased by 5% to 37% between their two most recently approved general rate cases.
SDG&E has the highest electricity rate of the large investor‑owned utilities in California and as of March, more than 25% of its customers were more than 30 days behind on paying their utility bills.
The commission is the public agency responsible for regulating utilities and the rates charges, while the Public Advocates Office — or Cal Advocates — is an independent organization within the commission that advocates for utility ratepayers.
Parks said rate increases in 2022 were higher than previously forecast, and utility companies cited factors like wildfire mitigation, greater solar power adoption, the war in Ukraine and an unusually cold winter. Higher transmission costs — to maintain and operate pipelines and compressor stations that move natural gas to delivery systems — also contributed to SDG&E’s and SoCal Gas’s increased operating expenses.
However, rising natural gas commodity prices contributed to at least 95% of rate increases from January 2022 to January 2023, Parks said.
The state regulators lack processes to ensure that utilities’ projected costs are not being overstated.
“It is important that the CPUC institute a process to require utilities to periodically publish actual rate‑of‑return calculations using a methodology acceptable to the CPUC and Cal Advocates, with supporting data, and require utilities to identify the major cost categories where projected costs exceeded actual costs,” Parks said.
He also said the commission should find a way to check that utilities really finish projects where they report costs to recover. For example, an electric utility might spend money during a natural disaster to restore power — but neither agency has a clear process in place to verify such costs.
The commission also needs an effective system to see that customers are told why their rates are rising, Parks said. There should be more transparency about why the commission authorizes rate changes, and by February 2024 it should institute a process requiring utilities to periodically publish their profits, or actual rate‑of‑return calculations.
By that date, the auditor also wants the commission to show that it is reviewing reports and verifying work as claimed in utility cost recovery applications.
Parks also found that Cal Advocates does not review enough of what are called “balancing accounts” — how utilities track their authorized and actual costs and revenues — to ensure that rate adjustments are necessary. He set a deadline of February 2024 for Cal Advocates to establish a way to confirm that utilities actually performed the work they claimed.
“Cal Advocates should first obtain information that the CPUC requires utilities to provide, including their actual rate‑of‑return calculations and the major cost categories in which utilities achieved significant cost savings," he said. "Cal Advocates should then use this information in subsequent rate case proceedings to assess the risk that projections in these cost categories may be overstated, and it should scrutinize the projections accordingly.”
The commission said in a response dated Aug. 9 that it cannot implement Parks’ recommendations if staff or an administrative judge must unilaterally review outside reports and determine whether further verification is necessary. However, Executive Director Rachel Peterson said the commission will make a corrective action plan and timelines toward implementing Parks' recommendations.
Cal Advocates said Aug. 10 it agrees that the largest energy utilities' rates have increased significantly. The office said it is already developing written policies and procedures to better review general rate case applications.
“In addition to threatening the affordability of essential energy services, increasing electricity rates will hamper California’s transition to beneficial electrification as a means to combat climate change and other environmental challenges,” Director Matt Baker said.
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