What should policymakers do?

CCAs have identified three opportunities where policymakers could provide ratepayer relief now and in the future.

1. Leverage the Greenhouse Gas Reduction Fund (GGRF) to Support Affordability

California’s quarterly cap-and-trade greenhouse gas allowance auctions generate an average of $4.2 billion annually for the state’s GGRF. The Legislature appropriates these funds for a variety of purposes; roughly 65% are continuous appropriations and the remainder is available for discretionary appropriation. Separately, IOUs receive an allocation of allowances from the Air Resources Board that they monetize in the auction. For 2022, the allocation produced $1.4 billion for distribution to customers in the form of the California Climate Credit.

Investments of GGRF funds to boost the California Climate Credit can provide immediate ratepayer relief. An additional $650 million per year in GGRF funding would increase the Climate Credit by approximately $60 annually per household. The credits could be provided to customers monthly or allocated for the four summer months (June-September) when electricity rates are highest.

• Alternatively, GGRF funds could be allocated for policy-driven transmission projects that are approved by the California Independent System Operator in the grid operator’s annual Transmission Plan. This would support affordability in the future by buying down the costs of building transmission infrastructure vital to the achieving the state’s climate goals.

2. Reduce Ratepayer Costs by Reducing Artificial Resource Adequacy Demand

California load-serving entities (LSEs) must meet their resource adequacy (RA) obligations on an hourly basis but are required to transact with a resource for all hours that it provides RA. If an LSE is short of RA in only one hour, for example, it may be required to procure RA for the full 24 hours a resource operates to fill that hour. This mismatch leads to unnecessary costs for ratepayers due to overprocurement, higher RA prices driven by artificial demand, and non-compliance penalties levied upon LSEs.

• Permitting LSEs to trade hourly load obligations would reduce the cost of RA procured to meet customer requirements through lower prices, less overprocurement, and fewer penalties, which, for non-profit LSEs, flow through directly to customers. CalCCA estimates that adopting hourly load obligation trading would save California ratepayers over $180 million annually. Learn more above the cost savings here: https://cal-cca.org/ra-transactability/.

3. Increase Accountability and Transparency

The California Public Utilities Commission (CPUC) is responsible for regulating IOUs and implementing policies as directed by the Legislature. The Legislature can encourage long-term fiscal discipline by implementing recommendations included in the California State Auditor (CSA) report on the CPUC and expanding the requirements for considering the impact of the Commission’s actions on affordability.

• CPUC Affordability Analysis. Requiring the Commission to publish an “Affordability Analysis” for each major policy change it proposes would increase awareness of the affordability impacts of CPUC decision-making. When considering changes to existing policies or implementing new policies, the CPUC should be required to quantify the potential rate impacts associated with a proposed policy and consider potential alternatives and their price tag.
• Audits of IOU Balancing Accounts. The CSA report recommends more frequent audits of spending tracked and costs recovered via IOU balancing accounts. The Legislature should implement this recommendation and adopt new requirements for the California Public Advocates Office (PAO) and CPUC to review and audit IOU balancing accounts that (1) present a risk of a material rate increase and (2) present a risk of double recovery.

“The CPUC needs to provide greater transparency when authorizing rate changes.”
– California State Auditor*

• Enhance Oversight of IOU Rate of Return. Because rates are set on a forecast basis, an IOU’s actual rate of return may exceed its authorized rate of return. The Legislature should direct an annual CPUC review of actual IOU returns and provide a report explaining the factors contributing to any excess return. The Legislature further should direct the CPUC to increase verification of IOU work to ensure the IOU is spending its authorized budget as proposed in its General Rate Case.
• Adequately Fund the CPUC and PAO. The CPUC and PAO require sufficient funding to ensure each has the resources necessary to adequately scrutinize utility spending requests. With more resources, the CPUC and PAO are better able to process utility spending requests and audit actual spending. Greater oversight will encourage IOU spending discipline.

It is important to understand that newer policy initiatives such as the Income Graduated Fixed Charge will not change the cost of delivering energy to customers. California must find innovative ways to bring down IOU T&D costs through creative financing and other means. At the same time, the CPUC and California Public Advocates Office (Cal Advocates) — an independent consumer advocacy group within the CPUC — must work together to improve their oversight of IOU rates to best protect Californians from excessive bills.

For California to achieve ambitious clean energy mandates unprecedented upfront investments in the state’s grid and distribution system are needed over the next five years. Accordingly, IOU T&D costs will continue to rise sharply in the near term, creating even more rate shock. The time to act is now.