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.”
A March report from the Natural Resources Defense Council, a supporter of SB 254, examined wildfire-mitigation costs at PG&E, the state’s largest utility, which has doubled rates on average over the past decade and increased them 40% above inflation since 2018. According to that analysis, about 60% of PG&E’s rate increase stemmed from wildfire-related expenses, Merrian Borgeson, NRDC’s California policy director for climate and energy, said during the June town hall.
PG&E, which was forced into bankruptcy in 2019 after its power lines sparked the state’s deadliest wildfire, is under state mandate to invest in preventing its grid from causing more conflagrations. But the utility has also notched record-breaking profits in the midst of its record-breaking rate increases — in large part because of the guaranteed return it’s earning on that wildfire-prevention work.
Customers need quick relief from bearing those costs, and “the things that you can do the fastest to reduce electric rates are to take things out of rates,” Borgeson said.
Freedman of TURN highlighted differences between the securitization approaches of SB 254 and AB 825. AB 825 would apply only to the costs of burying power lines to prevent them from sparking wildfires. These “undergrounding” projects make up a big chunk of the broader wildfire-mitigation spending, particularly for PG&E. SB 254, by contrast, would apply to wildfire mitigation more broadly, as well as to spending to expand utility grids to serve fast-growing demand for electricity from big new loads like data centers and electric-vehicle charging hubs.
But in both cases, replacing utility spending with state borrowing would significantly lower costs to utility customers, he said. First, California can borrow money at lower rates of interest than utilities can. Second, the state can spread out the costs over a longer period of time, and reduce the portion of costs borne in earlier years, compared to how utilities pass on the cost of capital investments to their customers, he said.
It’s also been done before in California. In 2019, lawmakers passed a $21 billion wildfire bill to backstop California utilities’ financial stability in the face of PG&E’s bankruptcy. That bill forbade utilities from recovering a return on $5 billion in investments in wildfire-mitigation spending, but offered them the option of securitizing that spending instead, which they accepted. That’s expected to reduce ratepayer costs by as much as $2 billion over the lifetime of those assets.
Containing costs over the long term
The $15 billion securitization plan in SB 254 and AB 825 is targeted at reducing utility costs and rates in the shorter term. But both bills also propose a longer-term public-financing option aimed at the state’s high-voltage transmission grid.
“The idea here is to establish a state infrastructure authority that would have the capacity to finance and own these lines,” Freedman said.
That’s not a completely novel concept. The state-run New York Power Authority has owned and managed transmission grids since the 1930s, as have federal power-marketing entities such as the Bonneville Power Administration and the Tennessee Valley Authority. More recently, New Mexico and Colorado have created transmission authorities to facilitate grid buildouts.
The California Independent System Operator, which manages the state’s grid, estimates that California must spend between $46 billion and $63 billion over the next 20 years to meet its goal of achieving a carbon-free grid by 2045. An October report from Net-Zero California and Clean Air Task Force found that “traditional investor-owned utility financing and development” of those projects “could substantially increase consumer rates,” but that a public-private partnership model could reduce those costs by up to 57%, saving utility customers as much as $3 billion per year compared to a status-quo approach.
“There are lots of institutional changes, and changes to authorities that operate in California, needed to operationalize the full range of those savings,” said Nicole Pavia, Clean Air Task Force’s director of clean energy infrastructure deployment. SB 254 and AB 825 don’t specify what form any future public-private ownership or public-financing structures for transmission might take, she noted. But both “are picking up pieces of the institutional changes that might be needed to advance some of these savings.”
The two bills take different approaches to this issue, Freedman said. SB 254 would establish a new Clean Infrastructure Authority to take on the work, while AB 825 would revitalize the California Consumer Power and Conservation Financing Authority, a now-defunct entity created after the state’s 2001 energy crisis to finance new power generation, he said.
The move to increase state authority over transmission development would not offer immediate relief to ratepayers, said Vivian Yang, an analyst at the nonprofit Union of Concerned Scientists.
“These are big projects that are regardless going to take five to 10 years,” she said. “It’s not like we can pass those public-financing bills and then the next year our rates will go down.”
Instead, it would help the state position itself to avoid yet another cost crisis in the years to come. Given the massive amount of transmission California will need over the coming decades, “having all these tools to get us there — one of which is public financing for projects — is really important,” she said. California needs to get to work now to “have these structures up and running already and use them more nimbly, and not discover 10 years out that we’re stuck using what we’ve got.”
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