Redefining Electricity Costs: A Bold Proposal by California Lawmakers

In California, two bills, Senate Bill 254 and Assembly Bill 825, are making their way through the state Senate and Assembly with the aim of lowering electricity costs for residents and improving the state's power grid infrastructure.

These bills propose the use of state financing to help pay for the expansion of the power grid and make it less vulnerable to wildfires. The collective planned expenditures of the state's three big utilities – Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric – amount to about $90 billion from 2025 to 2028, with a significant portion dedicated to hardening the grids against the risk of sparking deadly wildfires.

Both bills propose a process known as securitization, shifting $15 billion in grid spending from utility capital expenditures to financing via bonds. This move could reduce financing costs by eliminating profit margins and lowering interest rates, according to Becker, one of the sponsors of SB 254.

Securitization is a process commonly used by regulated utilities to reduce the cost of closing aging power plants and rebuilding grids after storms. However, there is little precedent for securitizing future productive utility capital spending, as noted by Julien Dumoulin-Smith, an analyst at investment firm Jefferies.

The bills aim to rein in the biggest driver of rate increases, which is the tens of billions of dollars California's utilities are investing in grid hardening. TURN, a consumer advocacy group, has supported SB 254 and is hoping these bills' public-financing portions will secure support from Governor Gavin Newsom and remain in any electricity-affordability legislation 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 proposed by SB 254 and AB 825, could save about $8 billion over 30 years, with $7.5 billion of that savings coming in the first 10 years. This equates to about 2-3% of an average residential customer's bill, or about $4-$5 a month.

In addition to securitization, SB 254 is an omnibus of electricity-affordability policies, including streamlining permitting for grid and energy projects and forcing utilities to propose investment plans that limit their spending to the broader rate of inflation. AB 825, while more limited in scope, shares key concepts with SB 254, such as state financing of utility infrastructure.

The electricity cost crisis has made rate reform a top-tier issue in California. Nearly one in five customers of the state's three biggest utilities is behind on paying their electric bills. Utility costs in California have reached a level significantly higher than the U.S. average, with customers now paying almost twice as much for power.

The utilities have opposed these bills, as they object to using public funding for grid infrastructure projects because they earn guaranteed profits if they invest in infrastructure themselves. During a virtual town-hall event in June, Becker discussed the need to make sure grid hardening work is done as efficiently as possible and questioned whether that should be included in rates going forward.

The sponsors of the two bills, SB 254 and AB 825, are Becker for SB 254 and Petrie-Norris for AB 825; the governor of California is Gavin Newsom. The passage of these bills could bring significant relief to Californians struggling with high electricity costs and improve the state's power grid infrastructure, making it less vulnerable to wildfires.