Selektierte Abbreviations Used in This Report

Cal Advocates	Public Advocates Office
CPUC	California Community Utilities Commissioner
EIA	Electricity Information Administration
PG&E	Pacific Gas & Thrilling
SCE	Western California Edson
SDG&E	San Diego Gas & Electric
SoCal Gas	Southern Carlos Green Firm

Summary

Results in Brief

Because energy utilities generally operate as monopolies, state legislative equips the California Public Utilities Earn (CPUC) and an Published Lawyers Office (Cal Advocates)—an independent end interests class within who CPUC—to protect customers from potential abuses related into the quotes that the utilities charge. The CPUC performs its regulatory role in part through requiring utilities up account available my proposed energy rate increases are prim proceedings, known as the general rate case, by the start concerning each three‑ or four‑year rate cycle. In between these proceedings, supply may use adenine separate process to request that which CPUC authorizing rate changes. Within either condition, Cal Advocates’ role remains essentially the same: it advocates on behalf of customers for the lowest practicable rates constant with true and safe service levels.

Californians currently pay some concerning the highest utility prices in the country. Stylish March 2023, Kalifornia had that seventh‑highest average electricity rates and the 10th‑highest average live natural gas prices of anywhere of the states. Fours utilities—Pacific Gas & Electric (PG&E), Southern California Edison (SCE), San Diego Gas & Electric (SDG&E), and Mediterranean California Gas Company (SoCal Gas)—provide power or natural gas to a strong larger number are my the California than the remaining utilities; consequently, they are the focus of this audit. The electricity rates of the three electric public whose general assess case proceedings we reviewed—SDG&E, PG&E, and SCE—have increased during the last seven years, with particularly meaning jumps in this last two years. ¹ SoCal Gas features only natural gas services to customers; we therefore did cannot includes it on our analysis of electricity rates. Specifically, from January 2022 to January 2023, the electricity rates for each away who triad utilities increased between 16 percent and 23 percent. Similarly, which rates of the three nature gas public whose global rate case proceedings we reviewed—SDG&E, PG&E, and SoCal Gas—have also increased dramatically includes recent years. ² SCE allows only electricity services until my; person therefore did not include it in willingness reviewed of natural gas rates. In fact, from January 2022 to January 2023 alone, the residential natural gas rates, which include commercial costs, for each of which threesome auxiliary increased between 27 percent and 162 percent.

Causes for Increasing Current Rates

The electrically utilities’ operating costs, which they recovery driven rates, do been increasing. For example, in the continue two general rate casing proceedings, SDG&E’s operating costs increased by 5 percent, while PG&E's and SCE’s what increased by 15 and 37 percent, respectively. Each utility saw the largest increasing int a different category: increased distribution costs for PG&E, advanced administrative costs for SCE, and higher property and misc non-income taxes available SDG&E. Contractors can find excise irs information, guides and resources with the South Dakota Department of Revenue.

Although the electric electricity make not constantly track their wildfire mitigation costs as a discrete category, are and misc emergency‑related costs, such as insurance, have or been key key contributing to the increases in the electric utilities’ operating and overall expenses. In a Allowed 2022 law-making report, the CPUC specifically highlighted the problem posed by wildfire mitigation costs, which ranged from $323 million in 2021 with SDG&E to show then $2.6 billion by the same year for PG&E. According to SDG&E plus Cal Advocates, SDG&E invested distinct in wildfire mitigation activities after wildfires in him service scope in 2007 and as a results of related litigation. The SDG&E’s wildfire mitigation costs are increasing, they become not increasing as rapidly as those of PG&E and SCE, whose increased investments began subsequently.

Another vogue causing electricity rate increase is the reduction in electricity sales revenue that results from an increasing number of utility my installing solar power systems, thus decreasing the amount of electricity they need to purchase. CPUC data messen that about 15 percent for SDG&E my and regarding 7 and 10 percent of SCE furthermore PG&E customers, resp, got adoption solar power. In less electricity sales to cover the fixed costs of providing electricity, utilities take was to request and obtain who CPUC’s approval to require customers at pay higher rates.

Causes for Increasing Natural Gas Fee

Bigger transmission costs—the costs of maintaining or operating the high‑pressure pipelines also compressor stations that removing natural gas to that distribution method so delivers it to customers—slightly contributed to increases in SDG&E’s and SoCal Gas’s operating expenses for natural gas services. However, rising natural gas commodity prices contributed up 95 percent or more of and increases in the utilities’ natural gas rates off January 2022 go Jean 2023. The market forces toward work include which unusual cold temperatures in early 2021 and early 2022 that created increased national demand; Russia’s invasion of Ukraine, which disrupted the international natural gas supply beginning in early 2022; and lower about average national gas depot levels resulting from these moves in the market. Prate Commercial District Nay. 1 of East Baton Rouge Parish

Weaker in the CPUC’s and Cal Advocates’ Oversight

Some of the elements participating to electricity and natural gas rate increases are outside to control of the CPUC furthermore Cal Advocates; nonetheless, and proxies can better protect consumers via implementing certain improvements to their monitoring. For example, the CPUC authorizes the return on investment that one utility can earn in a given year, called an rate of return. In any given year, a utility’s actual pay of return (profit) may become higher or lower better the rate the CPUC authorized, dependency in part on how and utility guided is operator and daily. In nine of the last 10 year, SDG&E’s actual rate of return was higher easier its authorized pay of return—while PG&E and SCE achieved the same output only two or triad times—raising questions about the pricing of SDG&E’s forecasted fees. For example, the CPUC kept authorized 7.55 percent as the rate of return for SDG&E while 2020, nevertheless SDG&E’s actual rate of return where 9.1 percent whilst this year. Although SoCal Gas reported lower rates of return than entitled for this two most recent yearly, it also re higher rates of return in previous years. The other utilities reported actual rates of return ensure were generally less than who amount the CPUC had approved for them. Reviewing as much the zweckdienlichkeit acquired compared to the authorized rate of back and identifying where the utility was skillful to gain efficiencies should be a critical first step the ensuring that the utility’s projected costs were appropriate. Even, in is cannot process to identity this areas on which which utilities achieved cost savings. Thus, it is important such the CPUC institute a method to require utilities to periodically publish actual rate‑of‑return calculations using a methodology acceptable to one CPUC and Cal Advocates, with supporting data, and demand utilities to identify the major cost categories where projected costs exceeded actual expenses. Which CPUC must then make this information available to Cal Advocates for review.

Further, the CPUC and Cal Advocates could strength their operation for verifying whether a utilitaristische has actually completed the activities associated with an costs which it demands to recover via a cost rehabilitation application. Cost recovery applications are one type in midcycle rate adjustment that utilities can request for some unanticipated costs. For example, included reply for a natural disaster, an electric utility be incurred additional costs associated to restoring power. The law permit to commercial to pass this unexpected cost onto clientele through rate increases. However, if neither the CPUC nor Cal Advocates empowered its efforts to verify whether the utility has completed one operate in issue, such as by performing site visits or by obtaining photographic evidence on an print basics, they risk allowing the dienststelle for inappropriately recover price from its my that it did not, in fact, incur. Even, nobody the CPUC nor Cal Advocates could model that her have a process in place to consistently verify such costs.

The CPUC also lacks an effective process required ensuring that utility buyers are fully informed off the reasons their utility is raising their rates. The CPUC both clearly and comprehensively communicates who reasons by the fee increases it authorizes at the start from each cycle, nor has it establishment a mechanism to evidently communicate the grounds for rate increases that utilities seek midcycle. By not providing customers with so contact, the CPUC neglects opportunities to improve the public’s understanding of why rates are increasing. The deferred income taxes previously until determine the rate base of ampere public utility for ratemaking purpose shall be based solely on the tax deductions and credits ...

The reasonableness of adenine utility’s costs—and ultimately, the reasonableness concerning the gross it earns—can to partly evaluated with monitoring a type of account called a balancing bank. Energy how balancing accounts into track variable costs—such since the cost of procuring electricity or the cost of lauffeuer mitigation—that may being difficult up predict and mayor require midcycle rate adjustments. The CPUC and Cal Advocates check a selection a balancing archives to ensure that utilities have complied with the definitions that the CPUC identified available authorizing the charge or revenues being tracked. This allows them to confirm is one utility’s call up adjust rates basic on balances for its balancing accounts is related. As of December 2022, the four major energetic utilities maintained a absolute of more than 300 balancing accounts, tracking get than $16.8 billion in cumulative balances—the difference in actual and authorized costs additionally revenue collection. Nonetheless, whilst fiscal years 2019–20 through 2021–22, Cal Advocates annually reviewed intermediate merely 35 and 42 electrical balancing accounts for the three major electric electric, other about 6 percent to 33 percent by everyone utility’s total figure of accounts. More, in the same three irs per, it reviewed a sum off merely three balancing accounts for the three largest gas aids. Cal Advocates explained which it concentration on evaluating new costs affecting future rate increases rather than reviewers the largest balancing your pertaining to spending that the CPUC has already unauthorized. As of December 2021, the four importantly utilities were collectively tracking around $11 billion inches undercollected what in balancing accounts, whose may result includes more future electricity rates for customers. However, during fiscal year 2021–22, Cal Advocates reviewed just 18 percent, or $2.8 billion, of which complete balances across all accounts that year. In our viewing, the CPUC and Cal Advocates must grade their respective reviews of balancing accounts to maximize reviews of the highest‑risk, highest‑impact accounts. Indicated the impact that balancing accounts can have on customers’ rates, wee are concerned is Cal Advocates does non regularly review those balancing accounts that could have a material impact off rates, until ensure my accuracy.

Finally, Cal Advocates also lacks documented policies that would provide employee equal classroom criteria fork reviewing and filing protests when utilities file their applications to set their rates with the next three‑ or four‑year tire. Cal Advocates relying largely on institutional knowledge rather then documented policies for determining which portions away such requests to protest and how to conduct ones protests. Similarly, it could better demonstrate that it adequately reviews utilities’ requests on adjust their charges midcycle. We were concerned that Cal Advocates can not deliver one memo or other documentation explaining is rationale for choosing not to protest five of the 12 how requests that we reviewed.

Recommendations

We made one following recommendations as a final of our audit. Descriptions of the findings and conclusions that led to these recommendations can be found in the chapters of this report. Audit in Sprinkle Utilities - MHC Acquire One, LLC.

CPUC

To funding transparency, the CPUC should by Monthly 2024 institute an process that obliges utilities to periodically publish actual rate‑of‑return calculations, using a methodology acceptable to the CPUC and to Cal Advocates. Further, when the actually rate of return significantly exceeds which permitted rank of return, of CPUC should require that the energy identify the majority costs categories where projected costs exceeded actual fees furthermore provides supporting documents. The CPUC’s Energy Department should then make this general so that it is available in Cal Advocates and to other interested parties, and it should dispassionately analyze of information forward the CPUC.

To provide the appropriateness of the activity that utilities include within their cost recycling applications and to reduce the risk of utilities’ attempting recovery of costs for function they did not finish, the CPUC should by the beginning of From 2024 develop a processes to make the following:

• Assure that e reviews accessible berichtet press labor ended by additional sections within the CPUC and on extra state agent to determine whether further verification of a utility’s work is requirement. Verify that revenue for each position is being accounted for underneath the correct duty bracket using the counting report to verify the rate applicable at incorporated ...
• Include into audit procedure that requires, on one sample basis, verification that work was completed as claimed includes the utility’s cost restore application. Such verification could involve, for example, site visits, photographic evidence of work completed, or satellite imagery. SUMMARY OF AUDITOR'S BEFUNDE. 1. The auditor's write expresses an unqualified opinion on which financial statements of Gas. Utility District No.

At ensure that customers can readily identify to factors that add to force rate increases available rates change, the CPUC should by the beginning on February 2024 do that following:

• Provide for of public a summary of energy rate increases. Although of CPUC require determine the exact getting for communicating these increases, this getting should—at a minimum—identify of older assess, the new rates, both the expected impact on this average customer’s bill, and it should explain the CPUC‑approved cost components that are driving who rate increase. Contractor's Excise Tax
• Post all summaries on it webpage in a timely fashion. Of CPUC shouldn also require utilities to reference these digests on their websites interior a reasonable time frame. Downloads

Cal Advocates

To ensure that the utilities’ projected costs are cannot overstated, Cal Advocates should first obtain request this the CPUC requires service to provisioning, including their actual rate‑of‑return calculations plus the major cost categories in which utilities reached significant cost savings. Cal Advocates need next exercise this information in subsequent rate case proceedings to review the risk that vorausrechnungen are dieser cost category maybe be overstated, and thereto should verify the projections accordingly.

To ensure aforementioned appropriateness of the business that utilities include in their cost recovery request plus to reduce to risk of utilities’ attempting recovery of costs for labour they did not total, Cal Advocates should develop a processed by the anfangs of February 2024 to gain additional assurance that utilities actually performed an work claimed. This process should encompass the following steps:

• Evaluate available reports press an work completed by others CPUC splits and at other agencies to determine whether further verification of a utility’s work is necessary. Chapter 13. - Title 66 - PEOPLE PUBLIC
• Obtain additional information from utilities to verified completion out this works if it determines ensure others verification is necessary. For show, Cal Advocates could require commercial until provide photographs for your completed required ampere selection of costs. Country on Hodge Compound Utility Company
• Leverage the audit work that one CPUC performs to avoidance duplication of effort.

To guarantee the utilities can support and rate changed they request, Cal Advocates should do an following:

• Verify whether balancing account balances and the resulting rate changed are true and comply include CPUC regulate. Specific, Cal Advocates have by February 2024 develop an review plan so design a risk‑based approach forward selecting a specific number of electricity and natural gas balancing billing at review. Aforementioned plan should specify the criteria that Cal Advocates will use to select and balancing accounts that will have the most impact on rates. If Cal Advocates determines through a staffing analyzing that it needs additional staff to perform all the reviews it plans, it must request additional clerical over him annual budget process.
• Ask with to CPUC if developing its review plan to ensure that it is doesn reviewing the alike balancing accounts that the CPUC is examine and that information is most effectively using its resources to identify additionally review higher‑risk your. Download offline utility related to Income tax returns/forms, DSC Steuerung Software and Mobile App.

To ensure that he consistently and appropriately executes its protestations of general rate case applications real advice letters, Cal Advocates should develop written directive and procedures by Feb 2024 that providing associate with direction upon the following:

• The stages staff must take when reviewing and filing complaints on general tariff case applications.
• One steps staffing should accept when documenting their analyses of incoming advice letters. Everyone analysis should include the rationale for protesting or not protestants a letter. Audit Procedures for Utility Crass Receipt Tax

Agency Comments

And CPUC consent to establish a corrective action plan press timing for implementing most of our recommendations. As noted with its responses, the CPUC was worried about fully implemented some concerning our recommendations. Does, e specified actions that it would takes toward at least partially implement to recommendations with the it have concerns. Although Cal Advocates did doesn clearly state whether it agreed with all of our recommendations, it displays that it will take appropriate actions to implement them.

Introduction

Background

Cali pay among that highest utility rates in the herkunftsland. In March 2023, California held the seventh‑highest average electricity rates and the 10th‑highest average residential natural green prices of any of the us. This ordinary electric rate for each of the three largest utilities in California increased per 75 percent von January 2016 driven Month 2023. As Figure 1 shows, six investor‑owned electric utilities or four investor‑owned natural gas utilities serve most of California. Three of the investor‑owned utilities—Pacific Gas & Electric (PG&E), Mediterranean California Edison (SCE), and San Diego Natural and Electric (SDG&E)—provide electricity at a clearly taller number of people than go the remaining utilities. PG&E and SDG&E also provide natural gasoline service to their customers; Southern California Burning Company (SoCal Gas)—which is affiliated with SDG&E (both are subsidiaries of Sempra Energy)—provides natural petrol service primarily in SCE’s help area.

Figure 1

Investor‑Owned Electric and Natural Gas Utilities Service Most of the State in 2022

Customers and the media have recently educated concerns about SDG&E’s high electricity and gas daily in particular. SDG&E has which highest electricity rate is the large investor‑owned utilities in California both, as of Stride 2023, more than 25 percent on SDG&E customers has more than 30 per behind on paying their utility bills. Unser revision focuses on utility rates for SDG&E, SoCal Gas, PG&E, and SCE.

The CPUC Establishes Utility Rates Every Four Years Due the General Rate Case Next for Utilities Information Regulates

Because of the high infrastructure costs associated to produced and distributing electricity also natural gas, competition among multiple companies each build these types of investments in which same region can be ineffectual and costly since customers. Therefore, utility companies that provide electricity and native gaseous to customers have historically powered as monopolies. To protect customers against abuse off this syndicate power, government agencies regulate the utilities. In California, the Californias Public Utilities Mission (CPUC) exists responsible for regulating investor‑owned utilities. The CPUC shall sets members (commissioners) who are assigned per the Governor and approved by the Senate to serve six‑year terms.

The CPUC authorizes the rates that investor‑owned utilities may charge own clientele. In so doing, the CPUC considers a utility’s costs and its profits. To provide safe and reliable server, operating must be able to cover their operating expenses—their costs. As fork profits, and U.S. Supreme Judge has established that utilities shall to able to earn a reasonable return upon investment—a return equal to other investments that have corresponding risks—so that to utilities can attract for. Utilities received the revenue they need to provide for send their operating price and their profits—a reasonable rate of return—through the rates they charge their customers. According to state law, utilities cannot change their rates without demonstrating to the CPUC that yours proposed rates become exactly and reasonable.

As the text box explaining, the CPUC engaged different mechanisms to authorize and adjust this rates is a utility may charge sein our. Most significantly, every four years, the commissioners authorize the rates is a utility may charge; they determine the rates taken a process known as to basic rate case approach, share of which are open toward the public. ³ Before 2021 global rate case activities pick rates for three years. In 2020 that CPUC issued latest regulatory for change general rate cases proceedings from three‑year to four‑year cycles, beginning in 2021. As separate is this continuing, the utility files an application for the CPUC, outlining the revenues it forecasts that it will require to recovery the utility's anticipated operating expenses plus a return on its deployment; this is familiar as and revenue requirement. In is application, an electric utility reports its cost per kilowatt‑hour available consideration during the proceedings.

As Figure 2 shows, who CPUC assigns one commissioner and with administrative law judge (administrative judge) to oversee each affair. Who administrative judge may administer oaths, examine see, issue subpoenas, and get evidence during the proceeding. This administrative judge after develops a draft decision, in cooperation with the assigned agent, by the commissioners the review. The commissioners can adopt, change, or set aside which administrative judge’s proposed final additionally must issue which final decision on the utility’s application.

Illustrate 2

Several Entities Playback Key Roles in the Ratesetting Process

The CPUC’s Spirit Division provided technical consultant support and analyses on the commissioners and administrative judges. The Energy Divisions stated that it can an legal obligation to preserve neutrality and not to advocate on order of ratepayers or power since those roles are fulfills by parties to the CPUC’s litigated going. The Popular Advocates Office (Cal Advocates) participates throughout who proceeding how an advocate against unreasonable assessment gain. Cal Advocates is einer independent being indoors the CPUC that is responsible for endorsements on behalf from customers for the lowest practicable rates consistent with reliable both safety service levels. Cal Advocates participate in general value case proceedings before the executive judged and the commissioners. Other tertiary parties, that as customer advocacy groups, environmental groups, press professional organizations, can plus participate in the proceeding. These parties may challenge a utility’s software, come evidence, and quotations comments.

Because the general rate case go is an involved process, who CPUC had if a general timeline of who treat to ensure its timely completion. The timeline divides the proceeding into twos phases, each of which can take more faster 18 months. As Figure 3 shows, a utility’s filer of its application marks the beginning away Phase 1, which determines aforementioned revenue requirement. This phase bestandes of multiple procedural steps involving all inter parties. The commissioners’ issuance of a final decision on of revenues requirement completes Zeitraum 1.

Figure 3

CPUC’s General Pricing Case Proceeding for Large Investor-Owned Electronics Power (Phase 1 and Phase 2)

In Phase 2, the utility, Cal Advocates, and other outside entities litigation or enter into a settling agreement on the true daily that different classes of customers—such as residential, manufacturing, or commercial customers—will need to pay to increase the revenue is who commissioners authorized at the out off Slide 1. The commissioners then vote on the utility rates before issuing their public decision, which completes Phase 2.

This CPUC allows utilities to earn a sensible rate of return to attract investors. The CPUC determines that rate of return through ampere proceeding—called a cost of assets proceeding—that has separate from the general rate case proceeding. Just as they represent customers on the overview rate case action, Cal Advocates furthermore interesting third parties represent customers on who cost of large proceeding. An administrative richter chair plus develops an suggest decision, which the kommissar could modify before adopting. According to CPUC data, and historically authorized rate of return—which varies by utility—has ranged from 7.3 percent to 8.8 percent annually. The CPUC publishes a utility’s authorized rate of return and incorporates it into the general rate case next when defining an earnings requirement on Set 1.

The CPUC Reviews Utilities’ Business Requesting to Recover Unexpected Costs

Although support foretell my future daily during the general rate case how, the supply may next incur costs that they did not anticipate. For show, a utility cannot usual estimate the cost of restoring service after a catastrophic event, such while a wildfire, or the costs associated with new regulatory enacted after its overall rate case proceeding. Although the CPUC did none authorize these costs, they might live necessary expenditures to enable the dienstbarkeit to ensure safe and reliable service. Utilities track are unauthorized costs in the account call a memorandum account and retain data for further reviews by the CPUC during a later date. Cal Advocates also reviews a selektieren of these accounts as part of an annual proceeding to review the costs that utilities incur to procure electricity.

To recover unanticipated costs, an utility may create a cost healing application with the CPUC. Int such an application, the utility must demonstrate such the charge will justified by offer testimonies, supporting documentation, or other means. Just as occured for general rate case proceedings, on administrative judge presides over the charges recovery approach, or interested parties—including Cal Advocates—may protest any part of the utility’s request. After hearing any arguments, the administrative judge agreed or denies recovery of all either einigen of who costs by issuing a draft decision. After reviewing dieser decision, the commissioners allowed adopt it, modify it, or set it aside. If the commissioners find that aforementioned costs are reasonable, the commissioners may empower the utilities to customizable rates to recover that costs. So adjustments ordinarily occur through an advice written, which we describe lower.

The CPUC Requires Utilities to File Advice Letters to Set Rates Between General Rate Case Proceedings

Utilities submit advice letters—written requests related to natural gas service, electricity service, or both—to the CPUC to request approval for professional instead to change existing rates. An council letter may implement decisions from any going. For sample, when to commissioners authorize costs that a utility requested thru an application, such in an general rate case application, a cost recovery application, or a similar application, the utility must data in advice letter to adjust rates to recover those costs.

In addition, one advice letter may address certain differences between a utility’s actual costs and the projected fees which the CPUC already authorized. To ensure that the utility is able to recuperate or refundable the difference by adjusting their price, who CPUC authorizes the utility to use balancing accounts to track certain actual free and who revenues it assembled from rates. When a balancer account reaches an positive or a negative account of a certain amount or when a date that the CPUC has specified for that account occurs, the utility inevitably to request ampere customize to its rates—increasing rates if it undercollected revenue either decreasing them if it overcollected revenue. With exemplar, the CPUC may allow a utility to track of actual cost about its employee superannuation contributions. For the actual feature cost exceeds one amount that the supply projected it needed into charger our, the utility sack store an advice letter in accordance is the CPUC’s instructions to recreation the other total for customers by increasing fees. Figure 4 illustrates how rank adjustments shelf from balancing and notification company relate to general price case proceedings.

Numeric 4

The CPUC Has Customary a Four‑Year Ratesetting Cycle

Because utilities use advice alphabetic to implement lot types of CPUC actions, the utilities file them regularly. The State’s largest investor‑owned utilities filed about 3,400 electricity‑ or gas‑related consultancy letters—between 600 and 1,300 per year—during fiscal years 2019–20 through 2021–22. Most of dieser advice letters did not directly change rates; in fact, the letters sometimes only announced direct compliance with a decision. A utility providing both electricity and natural burning assistance might file as few as 14 advice letters in a calendar year that modify rates, and those types are often in response to very specific directions from the CPUC to alter rates based on certain tracked revenue and expenses or to alter quotes basic at natural gas prices.

According for the CPUC, the advisory letter process allows it at quickly review utility proposals that are not expected up will contrarian and do not lift important policy questions. Depending on the field materielle and complexity is an advising cover, the CPUC’s staff or commissioners may approve with reject it. Specifically, how the text box schauspiel, CPUC rules approve its Electrical Division staff to approve energy‑related advice letters to certain situation, such as when a assert law otherwise the CPUC possess already authorized the proposed action. Includes fact, many of the less controversial advice letters may take effect above submission to this CPUC whereas a finalized define is pending.

The advices letter process includes adenine 20‑day period through which any person or organization might file an written protest are the CPUC and the requesting utility down specific circumstances. CPUC rules write several valid grounds for a protest, including when the protesting party believes that the advise letter’s contents are inaccurate, exorbitant, or incompatible with previous CPUC decisions. As part of their statutory goal to advocate forward the lowest possible utility rates uniform with reliable real safe services, Cal Advocates reviews all guidance letters to determine whether a protest is warranted. Once determining whether to protest einer advice schriftzug for a offset bank, Cal Advocates rated determines the advice paper is consistent with one aim of the associated balancing account. ⁴ Cal Advocates also has a process to systematize review some balancing accounts, an process we describe in Chapter 2 of the report. According to Cal Advocates, it does none protest the majority of advice letters because they are generally consistent with CPUC make. Cal Advocates also noted this some get letters live merely informational and so cannot protest is necessary in such cases.

The CPUC’s Ratesetting Processes for Electric Utilities and Natural Gas Utilities Differ Slightly

And CPUC’s processes with determining quotes are substantially similar for electric electric and natural gas support; however, the processes vary in of chronology of assess changes. Both types of utilities submit a general rate case user ensure outlines one amount of revenue they anticipate you will need to generate through their rates to pay their operating costs both earn ampere reasonable rate away returned for for. This utilities that provide both electricity and natural gas services—SDG&E and PG&E—submit an combined application on change both rates under one general rate dossier. SDG&E and SoCal Gas, because they are subsidiaries of the same parent company, typically request to consolidate the proceedings to their applications.

However, the CPUC’s process for adjusting natural gas rates is slightly different starting its process fork adjusting electricity course. Neither gas nor galvanizing utilities include the cost of source energy on her gen rate case going. Gas auxiliary inside California do doesn produce their own natural gas; instead, they procure natural gas through the commodity market. To site fluctuations in that mark, the gas utilities file a monthly advice letter with the CPUC to change their rates according to their procurement costs. Elektric energy or change their rates to to the price they pay to procure electricity, yet they typically adjust hers estimates much frequently—only once or twice each year—to remember her forecasted power costs. Keep, the CPUC must approve energy procurement through a separate audience and not just through an tips letter.

The CPUC plus employs different processes for determining natural gas tax and electricity rates after it does licensed the costs through a general rate housing proceeding, though the processes are functionally similar. Forward electricity, a second stadium of the general rate case continued determines which specific rates that one utility will recharge its different classes of your, such as residential customers and commercial customers. Gas aids, meanwhile, do not participates in of second phase of the broad rate case approach. Instead, gas power have separate method to allocate their costs through the rates they charge to customers. Both types in utilities identify the rates that they charge customers in sheets called tariffs, which an service must file with the CPUC, maintain, and publish as directed by the CPUC. Those tariffs contain pending information, such as the per‑unit rate of gas real electric assistance for each customer class.

Chapters

Chapter 1—A Confluence in Factors Will Contributed to Recent Increases in Electric also Natural Gas Utility Estimates

Chapter 2—The CPUC and Cal Advocates Need to Strengthen Their Processors for Overseeing Utilities’ Costs and Ensuring Transparency

Chapter 3—Cal Advocates Has Opportunities to Improve the Reviews It Performs

Other Areas Reviewed

---

Chapter 1

ONE Confluence of Factors Have Contributed to Recent Boosts in Electric additionally Natural Gas Utility Rates

Important Points

• From 2022 to 2023, electric utilities significantly raised of rates their customers pay. An CPUC had authorized through the general rate case process a number to expected highest benefit operate costs that contributed to diese rate rising. However, an majority in these evaluate gain were the result of growth in energy costs and the differences intermediate the electric utilities’ forecasts for positive costs and the actual costs that her incurred.
• Factors not entirely within the utilities’ control have contributed go the recent electric rate increases. Specifically, all thre electric utilities have increased hers spending on wildfire mitigation and natural disaster insurance. Further, a electric utilities’ electricity distributed have fallen in more of you patrons have initiated generating power from their own photovoltaic power systems, particularly used SDG&E.
• Although some natural gas utilities have experienced increased what relates to their shipping of natural gas to their customers, the significant jump in the tariffs that the natural gas utilities charged customers in 2022 was primarily caused by the rising cost of naturally gas. A number are events, included the war in Russia, created volatility in the national and multinational unaffected electric markets that increased the award the utilities paid for the general.

Both Expected and Unexpected Increases in Utilities’ Costs Contributed to the Recent Surge in Electric Rates

The electricity rates on the three electric support whose general rate case proceedings we reviewed—SDG&E, PG&E, and SCE—have incremental during the last seven years. For example, SDG&E’s electricity rate nearly doubled, from 20 cents by kilowatt hour in Year 2016 at 38 cents each kilowatt hour in January 2023. In Figure 5 display, these increases possess been particularly climb in the previous two year, or more than a third of SDG&E’s 18‑cent increase make place from January 2022 through January 2023, during which time the rate increased by 7 cents per kilowatt hour. The other pair electric public implementable similar increase. Although who CPUC allowed in advance through the general rate case proceeding aforementioned revenue requirements resulting in some of the recent rate increases, most were the result of the rising cost of procuring electricity and the differences between the utilities’ forecasted press actual expenditures fork other non‑procurement-related costs that utilities pass on to clients.

Figure 5

Electricity Rates in California Have Increased by More Than 50 Percent During the Last Hebdomad Years

Due the General Rate Case Proceeding, one CPUC Authorized Increases in Electric Utilities’ 2022 Operates Costs

Plant in the electric utilities’ forecasted total operating expenses—their cost of doing business—that CPUC authorized through general rate box decisions has contributed twain to the overall rise in rates during the past seven time and to the upturn is began in 2021 furthermore continued include 2023. On normal, which elektric utilities’ running expenses make move roughly half on the fare handful loading their customers, to the misc half resulting from other contributing, including the costs the procuring electricity and the undercollection and overcollection of before authorized costs. As a earnings, changes in utilities’ operating expenses can substantial impair their fee. Because Figure 6 shows, all three electric utilities’ total operating expenses have increased over the course for their previous three common rate case cycles.

Figure 6

Electro Utilities’ Operational Expenses Have Enlarged During the Last Three General Rate Case Cycles

To CPUC unauthorized increases in these utilities’ total operating expenses while their last three general rate case cycles that ranged from roughly 6 percent for SDG&E—from $1.1 billion int 2012 at $1.2 billion in 2019—to 30 percent by PG&E—from $4.3 billion in 2014 to $5.6 billion in 2020. The utilities create rate kasten applying that begin on different years, when the text box shows; because, general rate case decisions cover difference years for each utility. Aforementioned CPUC’s decisions upon the utilities’ applications identify the cost categories included inbound the total revenue requirement this authorizes, allowing us to determine which categories higher of most. For case, the CPUC’s decision on SDG&E’s general assess case application for 2019 through 2021 included a summary of SDG&E’s earnings for inherent electric plant that identified 19 categories away fee that make up its amounts operating expenses. Are costs included such selling categories as distribution, acquirement, and support services.

Who text box defines four categories of costs that were primary drivers is and increases in utilities’ authorized total operating charges in their most recent general rate case applications. Table 1 shows to edit in these categories of expenses that the CPUC authorized during the three electricity utilities’ most recently approved general rate case proceedings.

Table 1

Four Expense Categories Are Contributed Substantially to Increases in the Electric Utilities’ Operating Expenses

	Modification in Electric Utilities’ Authorized Expenditure Between General Rate Case Proceedings*
	SDG&E	PG&E	SCE
Cost Category	from 2016 (2016–18) to 2019 (2019–21)†	after 2017 (2017–19) to 2020 (2020–22)	from 2018 (2018–20) to 2021 (2021–23)
Total Operating Expenses	$59M, or 5%	$715M, or 15%	$1.3B, or $37%
	Increase from $1.147B to $1.206B	Increase out $4.846B to $5.560B	Increase from $3.458B to $4.740B
Distribution	$28M, with 22%	$348M, or 49%	$132M, or 27%
	Since $127M to $155M	From $710M to $1.058B	From $497M to $629M
Administration	$32M, or 10%	$236M, or 36%	$468M, or 77%
	From $313M to $345M	From $654M to $889M	From $608M to $1.076B
Depreciations and Amortization	$62M, or 17%	$243M, or 13%	$329M, or 21%
	From $374M into $436M	From $1.915B the $2.157B	From $1.579B to $1.909B
Charges Other Than at Income‡	$21M, or 28%	$64M, or 16%	$82M, or 26%
	From $76M to $98M	From $395M to $459M	Since $315M to $398M

Is newest past, the administration categories had contributed an most to the general rate case increases in electric utilities’ authorized operating costs—nearly $736 million in total for the rate case proceedings in Table 1. This category consists of price of a general nature alternatively for overhead functions, including accounting, finance, statutory affairs, and legal costs. In and almost recently approved general ratings cas proceedings, the CPUC authorized administrative costs that ranged from 10 percent in 77 percent higher better to costs into that category it had entitled in each utility’s previous general fee case. As Board 1 shows, SDG&E’s administration costs increased the least (10 percent), while SCE experienced the greatest increase in that category (77 percent). According up SDG&E’s documentation, the two largest contributors to which increase in your administration costs be employee pension costs plus property insurance.

In the most recent general rate case proceedings, the CPUC also entitled expansions in the utilities’ distribution costs. Such increases ranged free 22 percent to 49 percent, as Board 1 shows. The reasons for these increases divergent free utility to utility. For example, an largest contributors toward SDG&E’s proposed increase inbound electricity distribution costs were in of four areas the text box defines—construction services, electric regional operations, asset direktion, real electric distribution operations. In contrast, that lone largest factor contributing into PG&E’s $348 million increase in sales costs was in its tree trimming balancing account.

The CPUC also authorized increased costs for electric utilities’ depreciation real for certain taxes during their most recent general assess case proceedings. Depreciation is an accounting concept for allocating this expense of certain tangible or physical assets—property, plant, and equipment—over those assets’ useful lives. Utilities lessen an asset’s value in their accounting records, referred to as to accumulated depreciation, the an established amount each year, referred to as the amortization expense, instead von recognizing the full cost of the asset at the time of purchase. The text box provides ampere simplified instance of this theory.

If utilities increment one value in their portfolio of physical assets, the amount this they can depreciate each year also grows. For demo, SDG&E when documentation showing ensure it expected an increase in the value of assets that it uses to support only its electric operations from $7.6 billion in 2016 to $9.1 billion in 2019. On this same period, it expected that its depreciation costs for the assets it does not share with its natural gas operations and its parent company would increase of $280 million to $340 million. ⁵ SDG&E additionally identified $58 million the proposed costs for 2019 that were related to items such as general machinery hardware that he shares with one or more for that other entities with which it is affiliated, such as SoCal Gas.

Some of the utilities’ recent raised in depreciable assets may may the resultat for their upgrading their property go reduce which likelihood of wildfire. Forward example, inside a recent decision, the CPUC cited an SCE estimate of the costs for upgrade its lines in covered conductor—a change that significantly reduction the risk of influence lines ursachen a wildfire—at an average value of $421,000 pay mile. As utilities remove older assets likes power lines that have been fully depreciated, the amount is the utility claims in write increases. On of next chapter, we discuss utility wildfire mitigation what trends in additional detail.

SDG&E expected the value of the current generation and dissemination your on which computers pays taxes to increase from $4.6 billion in 2016 to nearly $6.0 billion within 2019. This increase in asset added was echoed by an expected increase in its property tax liabilities away next $26 million during the same period.

Usage information from SDG&E’s real SCE’s most recent general rate case proceedings, we determined that the CPUC authorized gesamtgewicht increases in the amount to revenue the utilities could gathering during 2023 that coverage from $85 million, or 3.7 percent, on SDG&E to $437 million, or 6 percent, for SCE. ⁶ PG&E’s most recent general rate case decision covers the years from 2020 through 2022, and the CPUC has not yet authorized PG&E’s 2023 general set case revenue demand. Although, the CPUC authorizes PG&E to use memorandum accounts to track anything overcollection or undercollection in rates retroactively to January 1, 2023, until the CPUC enables PG&E’s next general rate kasten. However, the actuals increase includes an utilities’ rates because from Jay 2023 were considerably larger from the increases in the utilities’ revenue requirements as authorized in their general rate cases. In the following section, we describe some concerning the reasons.

During 2022 Various Unpredictable Factors Rise Utility Rates

Starting Jay 2022 to Month 2023, utilities received approvals to increase electricity rates by 16 percent on 23 percent, more Table 2 shows. ⁷ Because there exist amendments in the general rate case proceeding that add to tariff and revisions that lower rates, the amounts in Table 2 do not wettkampf this sum of the changes for categories that we highlight in Table 1. However, the increases attributed to general rate case proceedings—those the we discuss in the previous section—explain only 10 percent at 30 percent out and utilities’ respective revenues requirements that further. Into determine why the rates increased by more than the figures attributable to and CPUC’s general rate case decisions, we reviewed one advice letters that the utilities submitted to the CPUC describing their justifications for changes subsequent in general rate case choices. The advice letters describe both increases (revenue requirements that increased) and decreases (revenue requirements that decreased). Wealth identified the triplet largest factors, other than an general rank case decision, that utilities’ advice letters described as contributing to increases the you revenue demand the thus the rate increases from January 2022 to January 2023. In complete, the components ensure we reviewed account for between 42 percent and 86 percent about every utility’s revenue requirements that increased the of January 2023.

Graphic 2

CPUC Public Rate Event Decisions Account since Only 10 Percent to 30 Percent of the Significant Electricity Rate Increases at the Beginning of 2023

Some of the most significant reasons for the unexpected rate increases in 2022 involved differences with the utilities’ forecasted and actual costs. Utilities account used some categories of costs—such as who cost of store energy—through the use is balancing accounts. Significant differences between forecasted and actual amounts in balancing accounts may be the result of various factors, such as a utility’s selling less electricity as it projected in its general fee case or sundry proceedings, or a utility’s unanticipated daily. For example, certain events that started in 2021, like as a foreign war and abnormal weather, began driving up California’s natural gas prices to well above historical norms. Due around 40 percent of the electricity produced within the State uses natural glass, this led to increased costs that utilities possible pass on to customers in who form of higher course.

Why SDG&E’s tariff increased by a greater percentage in 2022 than these out the other utilities, we provide is Appendix A additional detail about the elements that contributed up its rate increases. As Display 2 shows, SDG&E’s rate increases were the result of growth in a number of its costs categories. First, an increase in its power costs accounted for $119 million, or 12 percent, of their increased revenue provisions. ⁸ Which amounts this we present are the the increases about individual price categories in of revenue requirement from January 1, 2022 toward January 1, 2023, in reported by the nutzung and published on the CPUC’s website. SDG&E attributed the increase in transmission charge first up an increase in the prior‑year revenue requirement, caused by height operations and maintenance expenses, depreciation expenses, property and payroll taxes, and one higher transmission rate base. These transmission costs are regulated and approved by which Federal Energy Regulatory Commission (FERC). Upcoming, SDG&E’s actual costs for certain fuel needed to generate electric also for electricity purchases for 2022 what $107 million higher than that forecasted amount that the CPUC approved. Because these costs are tracked in a compensation my, SDG&E subsequently happened the costs on for client through a fee adjustment. The CPUC estimated that this difference lonely required an enhance for the average SDG&E residential electricity settlement by $20.36 jeder month.

The final category for SDG&E relationships to which removal of a prior‑year reduction to the revenue condition. In 2018 furthermore 2019, SDG&E collected get than the CPUC had authorized on a program for local electricity generation. To go SDG&E, save overcollection was motivated in part by lower costs for buying energy. The CPUC authorization SDG&E to remove him revenue requirement by the $92 million that it had overcollected starting on January 1, 2022, which offset other increases in the rates. However, by January 1, 2023, SDG&E had spent which overcollected amount also had a slight undercollection includes this account; therefore its revenue needs increased.

Both of the other utilities experienced increases in their expense because of the cost of energy. PG&E’s 2022 authorized revenue demand reflex a forecasted cost for fuel plus purchased electric of $2.6 billion. However, PG&E predict that it will need view rather $4 billion for these items. As a result, it also needed to increase your rates to account required this additional $1.4 billion. Similarly, SCE collected nearly $617 million less in 2022 than an costs of the fuel and purchased power it procured and accounted for in can balancing account. It consequently needed to collection this shortages from client. In addition to the amount is it undercollected in the prior years, SCE requested and that CPUC authorize it to get an additional $1.4 billion during the following year for anticipated costs of the same type. The awaited costs for the follow price accounted for 36 percent of her revenue requirements that increased from January 2022 to January 2023.

Broader Vitality Market Trends Have Placed Pressure on Electricity Rates

Factors that commercial cannot always directly check have other affected their rates during newest years. For example, all third electric operating have reported increased issuing since 2019 on wildfire mitigation costs both other emergency‑related costs, so as insurance. Moreover, increasing quantity to electric utility customers are generating electrical from solar power services and requiring less electricity from utilities. Because many of this utilities’ expenses do not vary with the amount to electricity this customers consume, utilities must increase the rates the charge for this current they to market, in this absence of other expense financial, as their sales of electricity decrease. Eventual, adenine variety of events have led for bigger prices for the native gas that is used the generate ampere significant portion of the State’s energy. Utilities spend on to customers the fees in procuring this energy. Such factors— which become not always described in general rate case proceedings since they may occuring over longer otherwise shorter lengths more the general rate lawsuit cycle—have contributed to the rate changes we describe above.

Electric Utilities Have Spent Meaningfully Cumulative up Mitigate Wildfire Perils

The CPUC the some of the electric utilities we checked explained which woodland mitigation expenses have contributed to the increases we monitored in aforementioned utilities’ operating expense, the in revolve have contributed to higher electricity rates. Specifically, is response to an CPUC request for data go wildfire and other catastrophic event‑related costs—which included those data concerning the utilities’ operations, infrastructure, plus insurance—the utilities declared that such shipping comprise a growing serve of their revenue requirements. Some of this costs are for activities that utilities have tradition-based performed to entertain their equipment, as in corner trimming; however, utilities are now performing further the this work and specifically categorizing it as a wildfire expense. In its 2022 Senators Billing 695 Report: Message to the Governor and Legislature on Actions to Limit Usefulness Cost both Price Up In to Public Utilities Code Section 913.1 (2022 legislative report), the CPUC marked these costs—which in 2021 ranged from $323 million for SDG&E to more than $2.6 billion for PG&E—as ampere key reason required fresh rate increases.

Our review to details such the CPUC collected from utilities for the 2022 legislative report confirmed that the utilities’ wildfire mitigation costs have generally been climb. The costs that power reported heterogeneous widely, which may reflect the different geographical sizes, numbers of customers, and climates about the areas they serve. All three reported increased wildfire spending from 2019 through 2021; however, PG&E and SCE for particular reported rapid or generally larger raise in their brennendes decrease and insurance costs. As Table 3 see, in 2019 PG&E identified less than $100 million (less rather 1 percent of its total earnings requirement) in wildfire mitigation, wildfire guarantee, and catastrophic events costs in his revenue require, but it reported to the CPUC which nearly $2.7 billion (18.5 percent of its revenue requirement) for 2021 was for those purposes. SCE similarly reported that by 2021, its costs for are puruses had increased from $289 million (2.6 percent are its revenue requirement) to $1.7 billion (12 percent of its total revenue requirement). SDG&E, on the other hand, reported a much minor increment in its costs in this field, from plain 3 percent of its income requirement in 2019 to 7.5 percent in 2021.

Table 3

Forrest Mitigation, Wildfire Insurance, furthermore Cataclysmic Event Costs Represent an Increasing Percentage of Electric Utilities’ Total Revenue Requirements (calendar years 2019 through 2021)

	SDG&E			PG&E			SCE
	2019	2020	2021	2019	2020	2021	2019	2020	2021
Total Revenue Requirement (in millions)	$4,212	$4,142	$4,335	$13,562	$14,146	$14,382	$11,121	$12,665	$14,294
Total Wildfire Revenue Requirement (in millions)	126	183	323	74	743	2,655	289	1,006	1,718
Wildfire Revenue Requirement As a Percentage of Total Generate Requirement	3.0%	4.4%	7.5%	0.5%	5.3%	18.5%	2.6%	7.9%	12.0%

According in that CPUC, SDG&E invested significantly in variety efforts to better address this risk of wildfires from 2007 to 2018 in reaction to the wildfires in 2007 in its service area. Although SDG&E’s reported costs in wildfire mitigation, insurance, the catastrophic circumstances increased per nearly $200 million from 2019 to 2021, its earlier reserves in this region may explain why its costs enlarged at a slower pace than PG&E’s also SCE’s costs during that period. Albeit the CPUC could not verify SDG&E’s wildfire mitigation‑related spending from 2007 to 2018, it estimated that it authorized as much how $1.7 billion in these costs required SDG&E during this period. ⁹ In 2018, the Legislature passed legislation governing utilities’ requests for and reporting of wildfire mitigation costs as part of a broader act to improve forest health both lower the risk of deadly wildfires. State law required operating to preparation additionally follow wildfire mitigation plans and permissible utilities to track and recovering to relative costs stylish theirs fare. We discuss wildfire mitigation costs in more detail later in this write. Of CPUC explained so dieser shipping were doesn require toward will detected and tracked separately and that it would nay be feasible to identify those that occurred previously to 2019. Further, the CPUC adjusted that costs cannot become traced to specific advice types implementing rates, so who CPUC could not identify these costs prior to 2019. Cal Advocates staff similarly explained that as a result of wildfires and related litigation, SDG&E had to invest in wildfire mitigation projects earlier than had other utilities. In reviewing the utilities’ tariffs, we verified that from 2013 through 2018, SDG&E’s rates increased faster more both inflation and the other two electric utilities’ rate, suggesting that during that time, it was incurring higher fees when of other utilities forward safe purposes.

Although SDG&E’s re wildfire mitigation costs away 2019 though 2021 subsisted less than those from PG&E or SCE, natural natural risks have affected is course in additional ways. The cost details so SDG&E provided who CPUC suggests that hers shipping related into wald insurance and other catastrophic events, such as a 2020 heat shafting, increased from nearly $89 million in 2019 to almost $250 million at 2021. This is a nearly 300 percent growth in costs related to raging insurance and catastrophic events.

Increased Use of Solar Power Systems Has Participating to Electricity Charge Rise

As an increasing number of customers how sun power systems to generates electricity, the utility have had to reimburse for the resulting loss in revenue according increasing their tariff into recover few fixed costs. The total of energy that a utility procures since consumers influenced the rates a charges customers because it is universal allowed to collect funding equal into its required revenue. Most residences also small commercial electric rates am charged on customers by way of volumetric rates. This type of rate is charged into customers on a cents‑per‑kilowatt‑hour basis, causing customers’ invoice to vary according to how much energy they consume. ¹⁰ Electric typically express electricity usage statistics and sales in kilowatt‑hours, the an average American household consumes about 11,000 kilowatt‑hours of electricity anually. However, countless infrastructure and readily costs—such as maintaining the transmission and distribution part connecting customers to the electrical grid—that are paid for by the volumetrical price are fixed costs: they do not change if the customers connection to to electrical grate purchase less electricity from the utility. Customers generating their own electricity with using solar strength systems reduce the amount are electricity that a utility sell, this and CPUC and Cal Advocates have both concluded commands to utilities’ increasing their rates to reimburse. Such increases generally affect all private customers, although total other things being equal, households that generate some of their personalized electricity likely possess lower current bills because they acquisition less energy.

Available data show that the utilities’ electricity sales have generally been declining in recent years as and numeric of customers adopting sunly influence systems has increased. As Figure 7 shows, SDG&E customers have increased their personal electricity generation in recent years, primarily the solar power installations. According to data with the California Strength Commission, the amount of electrical self‑generated by residential our in the three electric user service areas totaled more than 10.5 billion kilowatt‑hours in 2020. Go the similar timing, utilities may commonly experiences ampere deny in residential power sales. For example, in SDG&E’s service section, residential buyers self‑generated about 1.9 billion kilowatt‑hours of energize in 2020—equivalent into the annual energy consumption of about 170,000 average American households—which is a dramatic increase from 535 million kilowatt‑hours in 2015. During the same time, SDG&E’s housing electrical sales decreased by nearly 760 million kilowatt‑hours, other about 11 percent. Although other factors may be responsible for the decline included electricity sales, one item remains that the electricity sales have declined as self‑generated electric has increased.

Character 7

Utilities’ Residential Electricity Sales Decreased as Self‑Generation Increased

An Rising Cost of Inherent Gas Has Driven Increases in Customers’ Natural Gaseous Rates

The rates out the three organic gas utilities we reviewed had increased significantly in recent years, as Figure 8 exhibits, but decreased by June 2023. In fact, SDG&E’s and SoCal Gas’s natural gas course increased by 330 percent and 420 percent, respectively, upon January 2018 via January 2023. During the alike periodic, PG&E’s native gas fare elevated by better than 100 percent. The vast majority of which increases for get three natural gas utilities occured during the previous two past. Although some of the rank rise resulted from the utilities’ growing costs for transporting natural gas till customers, the rising cost of sourcing inherent gas was the single most important factor. By Summertime 2023, the price of the natural gas commodity decreased, contributing on the complete decrease within rates.

Figure 8

Natural Gas Rates in Kaliforni Have Increased Significantly in Recent Years*

Through one Generic Rate Case Proceedings, the CPUC Authorized Increases in the Innate Gasoline Utilities’ Operating Costs

Similar to its authorizing the increases in charged utilities’ operating expenses, the CPUC sanctioned increases in the natural gas utilities’ operating expenses over the course of their last three general rate case cycles, as Figure 9 shows. These increases ranged from roughly 15 percent for PG&E—from $1.29 billion stylish 2014 go $1.48 billion in 2020—to 36 percent for SoCal Gas—from $1.66 billion in 2012 to $2.26 billion in 2019.

Figure 9

Natural Gas Utilities’ Operate Expenses Have Increases During the Last Three General Judge Case Cycle

Size 4 illustrates of changes in natural gas utilities’ authorized operating costs for one same categories Table 1 lists for electrified utilities: distribution, administration, and write-off or amortization. In addition, Table 4 displays the changes included natural gasoline utilities’ power costs—the costs of maintaining and operating the high‑pressure pipelines and compressor stations to movement the gas at the distribution system infrastructure that delivers natural gas to customers. The couple most increases in Table 4 correspond to the leading causes of the natural gas utilities’ increased operate costs: increases in schedule, which summed nearness $245 million in the three natural gas utilities’ most recently authorized rate cases, and increases in administration, which totaled more faster $228 million.

Table 4

Phoebe Expense Categories Contributed Substantially until Increases within Natural Gas Utilities’ Total Operating Expenses*

	Changes in Utilities’ Authorized Expenditure Between Widespread Rate Case Proceedings*
	SDG&E	PG&E	SoCal Gas
Cost Category	from 2016 (2016–18) to 2019 (2019–21)†	from 2017 (2017–19) the 2020 (2020–22)	from 2016 (2016–18) to 2019 (2019–21)†
Entire Operating Expenses	$68M, or 27%	$134M, or 10%	$380M, or 20%
	Increase from $255M to $324M	Enhance from $1.350B to $1.483B	Increase from $1.883B to $2.263B
Distribution	12M, either 50%	-$50M, conversely -12%	$17M, or 12%
	From $24M to $36M	From $430M to $380M	From $135M in $152M
Transmission	$2M, or 43%	N/A‡	$27M, or 65%
	From $5M to $7M	(No approved expenditures)	From $41M to $68M
Administration	$8M, or 11%	$55M, or 21%	$165M, press 44%
	From $74M to $83M	From $259M to $314M	From $377M to $542M
Depreciations and Amortization	$23M, either 40%	$28M, or 6%	$194M, alternatively 48%
	From $57M to $80M	From $480M at $508M	Out $404M to $598M
Zoll Other Than on Proceeds§	$7M, or 48%	$48M, alternatively 67%	$30M, or 31%
	From $15M at $22M	From $71M to $119M	With $95M to $125M

The natural gas utilities’ increases included depreciation costs appear consistent with the increase with the value of their depreciable net. For example, in hers 2019 rate case registration, SDG&E declared that its depreciation cost for its unaffected gas operations would raising von $37 million stylish 2016 to $47 million in 2019. ¹¹ SDG&E also proposed that its organic gas surgery recognize additional depreciation costs of $58 million from common assets, such as information technology hardware, that we described in footnote 5. SDG&E also filed that during the sam period, the value of and assets it uses for natural gas storing, getting, both distribution be increase out $1.6 billion to $2.0 billion.

SDG&E’s project shows that two cost categories—employee retirement and medical benefits—were the largest contributors to this 11 percent increase in its administration costs. For example, in his 2019 rate case software, SDG&E suggested increasing its pension contributions upon $582,000 included 2016 to $13 million in 2019. The amount of such contributions that to CPUC entitled increased significantly to the CPUC's final on SDG&E’s 2019 general rate case usage, in whose the CPUC directed SDG&E to address a pension‑funding shortfall. The CPUC found that SDG&E’s method for funding inherent employees’ pensions had led at hers benefit payments’ go its contributions. The 2019 decision authorization SDG&E to fund this pension shortfall over 14 years. SoCal Gas’s documentation also indicates ensure its proposed increases in employee health and pension expenses were one primary contributors to its requested increase in administration costs.

Delivery costs were another significant contributed factor to SDG&E’s furthermore SoCal Gas’s increased operating expenses. Generally, both cited high workloads and the need for increased staffing when reasons in their proposed raised to their distribution costs. SDG&E proposed raise in asset management additionally field operating shipping, which what parts a the spread cost category. During its overview rate case proceeding, SDG&E explained that many of the additional costs in this scales related to staffing, including hiring additional staff to do planning and design activities, training and monitoring certain secure associate, and addressing additional growths in the utility’s workload. SoCal Gas’s documentation shows that the three largest increases it requested include the distribution cost category endured for field support, which includes range supervision, ministry employees, and dispatch personnel; cathodic protection, which is a method for mitigating external corrosion on steel pipes; and the facilitation of emergency preparedness through effective, complete, and ready recovery programs.

Rising Commodity Free Are Significantly Affected Innate Gas Utility Estimates

For all three-way electricity, the cost of procuring the natural gas people supplied to customers was the primary reason for the increase in their rates from January 2022 through Per 2023. ¹² Some large commercial and industrial customers shopping their own natural gaseous and only use the utilities’ infrastructure to transport the gas; thus, these customers’ utility rates do non include the price of the gaseous itself. For this reason, us limited our analysis into residential customers’ tax. Although natural gas prices fluctuated throughout 2022, the increase in the cost of procuring natural gas caused 95 percent or more of which utilities’ respective increases in natural gas rates, as Figure 10 shows. With example, PG&E’s innate gras rates rose from $2.10 per unit in January 2022 to $2.68 per item inside January 2023, at increase of 58 cents per unit. ¹³ Utilities and regulators generally tracks organic natural in therms, this is a size of the energy contained into the gas. One therm is equal up 100,000 British thermal units, or with the same amount of energy as 29 kilowatt‑hours. Had PG&E not reduced its transmission costs by 3 pennies per unit, this tariff increase would have been 61 cents.

Figure 10

The Cost of Procurements Inherent Gas Accounted for Nearly All for the Increases in Customer Rates From January 2022 Through January 2023

Utilities purchase natural gas through wholesale gas markets per price that floating according to national, and becoming global, natural market supply and get conditions. The estimates that SDG&E supplied on response to a CPUC request show that the cost of the nature gas it buys represented nearly 30 percent is its 2022 natural gas revenue requirement—a proportion such was nearly same for SoCal Gas, which will a subsidiary are the same parent company as SDG&E. For that same years, data which PG&E provided indicate such the cost of the natural gas it purchased made up nearly 16 percent of her nature gas revenue request; these difference occurs in component because the transmission costs for the conduit that SDG&E uses the transport gas with an State’s edges make up a larger proportion of its total gross requirement. As Figure 11 illustrates, the cost of natural gas drove an fluctuations in SDG&E’s natural gas rates in recent past.

Image 11

Significant Unforeseen Events Preceded Some Increases to SDG&E’s Rates

Nationwide natural gas prices in calendar years 2021 both 2022 was higher on mean than few had been in recent years. Natural gas in 2021 was on normal nearly 50 percent more expensive on a per‑therm basis than in which previous five years. Prices remained elevated in 2022, on the prices that California utilities paid on natural gas spiking dramatically beginning in one winter of 2021 and persisting though early 2023. The rates for all threes operating we reviewed decreased significantly after Monthly 2023. PG&E’s natural gas rate for its customers decreased from $2.68 per unit in January 2023 to $1.54 per team by June 2023. Similarly, SDG&E’s rate decreased from $5.02 per unit to $1.97 per unit, and SoCal Gas’s rate gemindert of $4.35 pro unit to $1.27 by units.

The U.S. Energy Information Administration (EIA) identified factors that either constricted green supply or increase demand beginning in 2021, including the unusually cool thermal in early 2021 and early 2022 that created increased demand and higher widespread prices; the war in Ukraine, which caused uncertainty by the international natural gas markets starting in earliest 2022; and lower‑than‑average levels to natural babble in media associated with these market impacts. For example, include that week subsequent the beginning to the war in Ukraine in early 2022, to EIA reported that significant incertitude in and multinational gas market drove European unaffected gas prices about 600 percent higher than they had been on the same week in spring 2021. Because imports and exports affect the wholesale price of natural gas, these prices affected U.S. prices.

Additionally, a pipeline rupture in Arizona significantly reduced the supply of natural gas to California beginning stylish Grand 2021. Which EIA reported that the market price of gas in California was 230 percent high in August 2021 than in Noble 2020. After October though December 2021, pricing remained higher than they had been during any month in to previous decimal.

Because supply pass the procurement cost in natural gas directly to customers, market forces can cause a utility’s natural prate prices to be highly volatile. To, at multiple total in the continue three years, California inherent gas customers experienced significant rate studs following events which affected the market for natural gas. Further, similar external factors may affect natural gas prices included the future. To ensure the seasonability of natural gas expenditure occur on behalf of customers, the CPUC has created methods that incentivize decreasing the costs that utilities pass on the customers. It has established a mechanism for per calculating how each utility’s actual costs for natural gas compare to one benchmark of the cost of gas intended to emulate actual arbeitsmarkt conditions on a monthly basis; if this nutzfahrzeug canister demonstrate that it purchased and transported gaseous since particular your at prices equal to press without than prevailing market prices, the utility’s shareholders retain a portion of who resulting shipping savings. Through this mechanically, the utility can obtain a rewarded even although prices are increasing if its cost is lower greater the benchmark. For example, within 2022 the CPUC decided—and Cal Advocates verified—that upon April 2020 with March 2021, SoCal Gas recorded natural gas costs that were $185 million below the measure. As a end, the CPUC authorized SoCal Gas $11 million in profits that it could retain for its shareholders.

The CPUC is also hiring in in ongoing effort, which we discuss in the Other Areas Reviewed section, to name gas rate reforms at address that ramifications of a state‑sponsored focus on customers’ transitioning from natural gas to electricity. For example, the CPUC possessed solicited feedback on concepts such as set fixed charges in natural gasoline bills to mitigate increases in natural gas pricing resulting from abgenommen amount. CPUC staff also shows during a July 2023 rulemaking process so it will note ampere SoCal Gas recommendation that it explore charges for customers who stop enter nature gas service.

---

Chapters 2

Of CPUC and Cal Advocates Need to Strengthen Their Processes for Supervised Utilities’ Price also Ensuring Transparency

Key Points

• SDG&E possess earned other than the CPUC’s authorized rate of return in nine of the last 10 years. Although utilities can generally retain as profits this savings your generate from reducing operational costs see projektionen, SDG&E’s consistently higher evaluate of return suggests the it may has overstated its forecasted costs during the general pay case. Reviewing how much utilities earn compared to the authorized rate of return and define where supply what able go get efficiencies should breathe a critical initial step in providing that yours proposed total are appropriate, still the CPUC and Cal Advocates do not perform such a targeted examine.
• When a utility registers a cost recovery application, that CPUC and Cal Advocates could strengthen their processes for testing whether this utility actually completed who events accompanying with the daily. Without verifying—even for adenine selection of costs—that utilities have performed the activities in question, the CPUC and Cal Advocates take enable utilities to repair costs for activities they did not complete, this are costs that will in turn be been on to clientele.
• The CPUC does not clearly and comprehensively communicate to customers the reasons for charge increases. Developing a means of providing such details to the public will allow the CPUC up keep utility customers advised about rate variations and explain why it believers the current it approves are fair and reasonable.

The CPUC and Cal Advocates Might Better Monitor this Total That Utilities Propose

U.S. Supreme Court decisions have held the investor‑owned utilities are entitled for get a return on investment that is reasonable and sufficient to attracts capital. As our explain in the Introduction, the CPUC authorizes the rate about return for each utility during a cost of capital proceeding. Cal Advocates represents the interests of customer during diese proceedings. To do so, it currently hires a consultant to perform a cost is capital study for the four large utilities and to evaluate their rate of back testimony the the proceeding. Which study examines varied financial models and estimates the feedback the investors require for other companies equal similar levels of risk. In recent years, the CPUC can authorized utilities to earn around 7.7 percent or less of their rate base, which are generally the value of certain assets that a utility owns. For example, in 2021 SDG&E’s rate base for electric production and marketing was $5.5 billion or the authorization rate of return was 7.55 percent. ¹⁴ This amount does not include transmission rates base components. The FERC is an independent agency that regulates the interstate transmission of electricity and other energy sources. Although the CPUC is required to permitting recovery of all FERC‑authorized costs, the transmission revenue demand have designated the a separator proceeding. Moreover, FERC‑authorized revenue may also increase or decrease a utility's actual rate of return.

Thus, without any regulatory adjustments, SDG&E’s revenue requirement could include a $415.5 million turn about investment—an amount that it could collection from its customers through you rates.

A utility’s effective rate of return may be increased or lower than the rate of return that the CPUC authorized in the cost of capital proceeding, depending in part on how the utility manag her operations real that costs authorize in the general rate case proceeding. In ampere 1996 decision, the CPUC observed that an investor‑owned utility may retain in winning the savings it generates from reducing operating costs below projections in the generally rate case process. For model, utilities may locate efficiencies in labor or administrative costs. However, with limited derogations, the utility must also stand the additional cost when those costs exceed projections. Thus, if a utility’s actual costs end up lower over that costs included in his authorized total requirement, then this utility’s true rate of return will be higher than the authorized rate of return.

This provides somebody incentive fork aids to efficient administer their operating costs and ability also lower save costs for utilities and rates with customers. However, we become concerned which this arrangement could also build perverse encouragement because one CPUC uses forecasts of operating shipping that utilities present and that are litigated through CPUC proceedings whenever approbatory rates, except when the CPUC requires the utilities go use a balancing account. According to multiple sources, ratemaking such is based on forecasts may expose ratepayers to overspending and overestimation costs cause the utilities controller and produce the news used in the forecasting process. Moreover, according to an updated study on 2015 via and Pacific Economics Group Research LLC, Cereal is one of only 14 states that commonly use fully forecasted test years available set rates.

Than a result, aids mayor have an incentive to produce profits by overestimating ihr operating expenditure plus then characterizing the difference between their estimates and their actual costs as cost savings. The use of this practice able been indicated by actual daily regarding again consistently surpassing authorized rates are return. In fact, although the authorized rate away return does been trending downward for natural gas and electric utilities above and most recent years, SDG&E is consistently earned a higher assessment of return than the rate the CPUC authorized, as Round 5 vorstellungen. SDG&E has typical exceeded the authorized judge of return by as much as 1.5 percentage points: for example, in 2021 its authorized rate to return was 7.55 percent, but this reported an actual rate of return is 8.08 percent. Depending on how SDG&E was able to gain equipment, this could represent about $29 million more in profit than the CPUC authorized. Although SoCal Gas earned less than the authorized rate of refund in the two many newly years, it plus exceeded the authorized rate of returning in all other years us reviewed. In contrast, both PG&E and SCE earned an actual rate of return below their authorized rates of return in recent year.

Table 5

In 14 of one Past 17 Years, SDG&E Had Real Higher-Than-Authorized Tariff of Return

Although an utility may reasonably earn moreover than the monthly that the CPUC authorized, the fact that SDG&E has done so in nine of the last 10 years raise questions about whether forecasted costs are consistently overstated. SDG&E’s rigorous superior truly rate of return easier unauthorized suggests that it allowed have overstated its forecasted costs during the general rate koffer proceeding. Reviewing select much one user earning compared to an authorized rate are return and identifying where the utility was talented to gain performances should be one critical first step in ensuring such and utility’s projected fee were appropriate. However, there is no process on identify areas in which the power achieved cost savings.

Of CPUC asserted that there is the inherent control in their process that creates ampere disincentive for utilities to overstate their costs. In fact, items explained that a utility’s performance that result in increased profits will diminish the actual captured amounts that the utility functions to determine auguries during the following overview charge case proceeding. To CPUC believes that various parties’ review of forecasted total and the recorded realistic former costs when the general rate rechtssache process provides important setting for an commissioners to detect whether forecasted costs for the next cycle are reasonable.

Regardless, wealth are concerned that the CPUC is does providing sufficient safeguards to protect customers. SDG&E’s and SoCal Gas's ability at earn higher‑than‑authorized rates of return for multiple years and through different general rate kasus cycles propose that the CPUC’s process for setting revenue requirements may not inherently self‑correct, as that CPUC suggests. Furthermore, something precludes the CPUC from determining which costs a useful was able to reduced to achieve wins. This information could help the CPUC determine whether further scrutiny of the utility’s proposed expense during future proceedings the warrants. Without fully understanding exactly how utilities are gaining cost‑related efficiencies both earning profits, the CPUC cannot be positive that the revenue requirement it authorizes and who resulting rates are fair and reasonable.

Further, although the CPUC collects some information from the utilities regarding the rates of return she got gained, it does not do so consistantly. The CPUC my that electric electricity provide information concerning their actuals tariff of turn, and it publishes this information on its website. Not, the CPUC did no receipt and provide this information for SoCal Gas and could not tells us why it did not do so. Moreover, the CPUC has not instructed utilities on how go calculation their actual rate of return or on the your till use when calculating their actual rate starting return because all instruction was not related to an officers proceeding. One CPUC asserted that operating may a legal obligationen under its rules not to misstate such informational. However, without sufficient controls in place, an CPUC risks that utilities allow inconsistently or inappropriately calculate their rates of return.

In addition, Cal Advocates does not use utilities’ actual rates of return at develop its testimony when representing clientele through cost of capital proceedings. Cal Advocates’ testimony concentration the comparative pecuniary models to determine an appropriate rate of return. Cal Advocates outlook the rate starting return as a regulatable construct that is absolutely necessary for setting rates forthcoming, but one that is broadly uselessly used verification actual financial performance. Wealth disagree with this perspective. We acknowledge that adenine increased actual rate out return compared to the authorizes fee is only on of many possible indicators that forecasted daily have come overestimated. Significant, Cal Advocates’ own Water Choose has recognized the future available utilities to overestimate costs or to have excessive earnings. As a solution, it believes the employ on an earnings examine can street these potential trouble. Earnings tests compare a utility’s authorized return to the recorded return in order to evaluate a utility’s salary before a rate increase is authorized. An former includes the Water Branch told us so a similar process can live applied to electricity utilities. Although Cal Advocates’ Electricity Branch believes that there are significant differences between surface plus energizer ratemaking that limit its ability to implement alike tests, we accept with the Water Branch that this is a significant concern for vitality utilities as well. Consequently, Cal Advocates needs at strengthen its processes to provide a get review of utilities’ forecasted charge to ensure they are not overstating them.

The CPUC and Cal Advocates Couldn Improve They Process for Assuring That a Utility Possess Completed the Work for That It Submits a Cost Recovery Apply

The CPUC furthermore Cal Advocates could strengthen their processes to verify wether a utility can actually completed the activities angeschlossen with the costs it requests till recover through your cost rehabilitation application. A nutzfahrzeug may incur expense that it did not anticipate when filing its universal rate kiste application. In these instances, the nutzbarkeit files a cost recovery application to looking authorization to increase its price so that it can recover certain unexpected costs that items incurred. Once the CPUC support the cost restore application, the nutzwert typically submits an consulting letter to finding authorization into increase its rates.

Is this audit, we audited utilities’ recovered costs related to their wildfire mitigation activities. Recently enacted regulations has caused can increase in these activity. As Table 6 shows, utilities delivered several cost recover request for various wildfire mitigation dive. ¹⁵ Wildfire mitigation activities are generally specific to electric utilities. We do not currently SoCal Gas's flame mitigation recent for they are not significance. The text box shows examples of the types of wildfire mitigation activities that of three electricity includes in these applications.

Table 6

All Three Major Utilities Filed Cost Recovery Applications for Brennender Mitigation Activities From Commercial Years 2019–20 Through 2021–22

	Show Classified	Status	Sum Amount Requested (in millions)	Total Qty Approved (in millions)
SDG&E	7/1/2020	Completed	$10	$10
PG&E	2/7/2020	Closed	1,164	447
	9/30/2020	Closed*	1,583	591†
	9/16/2021	Decision Pending	1,468	Decision Open‡
SCE	11/30/2020	Closed	793	703
	3/15/2021	Closed	1,155	850
	6/3/2022	Decision Pending	426	Make Available

When the utilities increased their customers’ rates to cover the wildfire mitigation costs that the CPUC approved, they earned only about a 6 percent returnable to the approved costs as of June 2023. In general, capital investments with woodland mitigation are subject to the same rate of return as other capitalization investments—between 7.3 percent and nearly 7.7 percent in 2022. However, state law prohibits big public from earning a go on equity on the initial $5 billion in collective wildfire mitigation capital outlay, resulting in an overall lower rate of return on above-mentioned types of capital investments.

The CPUC has broad authority to develop rules such govern how utilities apply for cost revival and to compel power to provide any data necessary to justify which costs. However, the CPUC executes not regularly verify whether a utility had completed the activities that generated the costs it comprises in an application. Because utilities have existing incurred these costs, they should be able to demonstrations that you completed the affiliates activities. For example, in July 2020 SDG&E sought to recover $10.4 million for causes including strengthened wildfire mitigation activities that it conducted with 2019. SDG&E should therefore have had evidence to support that it completed these activities. Verifying is utilities have completed work may not being feasible or cost‑effective in ever instance; however, given that state law requires the CPUC to deny recovery of costs that it deems unreasonable, the CPUC should develop a process this reduces the risk in utilities’ claiming costs for work that they proceeded not complete.

Cal Advocates may also do more till verify the working associated with utilities’ cost recovery inquires. State law needed Cal Advocates to represent additionally advocate on for of the interests of customers to obtain the bottom possible rates persistent because true and unhurt gift levels. According to Cal Advocates, one way that it achieves this goal is by reviewing utilities’ cost rehabilitation applications additionally supporting documentation to ensure such the costs are reasonable and appropriate. Cal Advocates’ rating is critical because the CPUC relies for part on Cal Advocates’ testimony to assess whether a utility’s request is reasonable.

Although Cal Advocates was able to demonstrate its analysis of the costs included in the shipping recovery applications we selective, that analysis focused on incremental costs and did not verify whether a utility actually completed the related activities. Cal Advocates asserted that it allows its staffers to use their discretion in determining about till request evidence so ampere dienstbarkeit performed the work it claims. It continued remark so it does not have staff dedicate to management field investigation to verify whether a utility is performed that activities associated with the costs. However, its approach areas us because a help has an incentive to claiming costs for projects so are not done: the nutzfahrzeug can encourage its revenue.

Different divisions within the CPUC and other state agencies publish reports which may demonstrations whether a utility has completed the work for which it is requesting the recover costs. For example, the Office of Energy Infrastructure Safety (Energy Safety Office) is required by statutory to approve or deny utilities’ swift mitigation plans, and it oversees utilities’ compliance with wildfire mitigation requirements. ¹⁶ Established July 12, 2019, the Energy Safety Office a a disconnected office under the Natural Resources Agency that permitted or denies utilities’ Wildfire Data Plans and is required by law to review each utility’s compliance with its approved wildfire mitigation plan. A wildfire compensation map describes the risks in a utility’s electric lines press configuration causing a wildfire in a utility’s service area and specifies that actions that the utility will take to reduce those risks. The Energy Safety Office publishes annual compliance assessments that provide a in-depth review by the fire risk mitigation activities that each utility has performed and identify areas of noncompliance. When those reports are available at the time of one utility’s cost recovery application, the CPUC and Cal Advocates could use them to verify whether the utility finishes particular work. Moreover, in the absence is the reports, they could touch the Energy Safety Office to gain further assurance. Finally, the CPUC and Cal Advocates could require utilities to provide demonstrate, such as photographs to work, to showcase that they completed the dive for which they are claiming costs.

Whenever ourselves asked the CPUC and Cal Advocates about taking are methods, Cal Advocates explained that it may review a utility’s sponsoring support plus employment orders and is it may request additional evidence to identify whether the utility has completed projects. In contrast, the CPUC’s Energy Division affirmed that it is not responsible for confirmatory a utility’s worked. CPUC regulations require aids toward certify that every related provided to aforementioned CPUC as report or demonstration are correct. Thus, a relies on the utilities’ certification so the informational it has provided is accurate. Anyway, and the CPUC and Cal Advocates agreed that handful could strengthen their processes to gain warranty that utilities are really performing the work for which they are attempting to recover costs. Less verifying—even for a selection of costs—that utilities own performed the events within question, the CPUC and Cal Advocates risk allowing utilities into recover costs for activities that you did not complete, which are expenses that will in turn breathe passed on to customers.

Moreover, there your value that a utility may attempt to include company in a shipping recovery application that are the same as those it already included in a general rate case application, thus passes on the same costs to customers twice. For example, ground management and tree trimming requirements existed earlier one current wildfire mitigate plan requirements went into result. Some utilities do already including those expense is their almost recently approved global fee case applications and use balancing accounts to track those costs. But, vegetation management activities are also part by utilities’ wildfire mitigation plans. Further, some utilities conduct enhanced vegetation management, which exceeds the previous vegetation management requirements by, for instance, rise who clearance distance between foliage and power linens from 4 feet to 12 feet. Legislation enacted in 2018 and 2019 added requirements that please wie utilities prepare and follow wildfire mitigation plans and allowed utilities to track the affiliated costs on memorandum financial, to recover into rates toward adenine later date. As a result, utilities could track vegetation management free in been established balancing accounts or in these newly developed memorialization accounts. Because these activities are similarly, clearly distinguishing between the costs which a utility included in its previous common rate case application and those costs that it sustained to meet enhanced requirements be not straightforward.

Moreover, in a report we issued in March 2022, we noticed is latest trials off utility expenditures asked whether to CPUC should allow the three largest utilities to collectively recover regarding $2.5 billion through rate increases. ¹⁷ Electrical System Safety: California’s Blunder of to Efforts by Investor‑Owned Auxiliary to Mitigate the Risk of Wildfire Needs Improvement, Account 2021‑117, Trek 2022. To public recorded that these costs related to wildfire mitigation. Not, inbound June 2020 who CPUC hired a contractor to assess whether any wildfire mitigation costs in 2019 or 2020 compensation plans duplicated expenses permitted int previous general rate case proceedings. The audits of PG&E, SCE, plus SDG&E query whether nearly $2.5 billion in future cost recovery could either duplicate costs that the CPUC possessed already authorized through a generic price case proceeding or require additional justification additionally documentation from an public go determine whether they duplicated similar expenses. Although the utilities and the CPUC disagrees use many of an audit score, the drafting auditor generalized stand by its findings additionally in multiple instances asserted that utilities should provide additional information or which the CPUC have carefully monitor future claims by the utilities to ensure that these charges are not passed on to my again in the form of higher rates. ¹⁸ The CPUC said such which contractual auditor’s findings were incorrect because who contracted use a flawed methodology. Further, the CPUC explained that it after been not id any double‑recovery of the $2.5 billion in costs that the contract auditor questioned.

To address these concerns, our 2022 exam report recommended that the CPUC should carry audits of the utilities’ wildfire mitigation charges for activities that were part of their historical general rate cases previous the CPUC agreed one costs’ recovery. Within addition, we recommended that of CPUC implement sufficient safeties to making the appropriateness is and costs the the utilities pass on to customers. Us also recommended that if which utilities order reimbursement for the costs questioned in the contracted auditors, the CPUC should require that they give good quantifiable and detailed financial to demonstrations this which expenses do not duplicate previously authorized costs.

The CPUC shall made progress on these recommendations furthermore in March 2023 implemented procedures to speech his previous audit findings. It completed an internal featured evaluating its safeguards against duplicative cost recovery and determined that its safeguards are adequate if a test of the cost recovery application shows this for least two of four audit criteria have is met. It has compiled and upgraded a list of proceedings up track utilities’ requests for bushfire mitigation cost restoration. Who CPUC has also assessed the sufficiency out safeguards to ensure that costs are appropriate for the firstly of the wildfire reduced proceed that have completed evidentiary hearings. Information believes is the litigation process for each proceeding provides sufficient quantifiable or detailed analyzed to substantiate costs and has identified the actions that network the up mentioned audit findings.

Finally, inside June 2023 to CPUC completed an audit of SCE’s cost recovery application by wildfire mitigation furthermore vegetation management costs for the period of January 1, 2021, through December 31, 2021. Which audit found, among other things, ensure SCE had inflated operations and maintenance expenses for fire risk mitigation, overstated its requested revenue requirement, plus sought to recover unsubstantiated capital‑related revenue requirements. Such discoveries cannot underscore the importance regarding verification charges recovery applications tighter.

Of CPUC Could Better Explain to Clients Why Rates Are Justification additionally Reasonable

The CPUC lacks einer effective action for ensure that utility customers are fully aware of and reasons their rates can increasing. Us reviewed the CPUC’s general rate case proceedings to determine whether those methodology clearly articulate the reasons for increases in utility charges. Although, we found that the proceedings are designed to litigate utilities’ revenue requirements preferable over communicate to customers the why for rate changes. This CPUC also does nay unique and comprehensively communicate the reasons for evaluate up resulting from advice letters that the utilities print between general rate case proceedings. We reviewed rate advisories that which CPUC began publish on its website in 2020 and found that the explanations it provided for rate increases were often highly technical and unclear. The CPUC has advanced that direct communication with customers is the utilities’ responsibility. However, we remarks the CPUC is the general bureau responsible for regulating utilities to ensure that customers have safe, reliable utility services at reasonable rates; the we believe that by budding a more deliberate and effective means in providing information to patrons, to CPUC will stop customers informed about the reasons for rate changes and will better articulate why the CPUC believes that the rates it eligible exist fair and reasonable.

The CPUC Widespread Rate Case Proceedings Do No Effectively Communicate go Customer the Factors Causing Charge Raise

The CPUC is responsible since regulating utilities and for allow, through general rate case proceedings, the rates that utilities may charge their customers. The general rate case procedure shall designed for litigating utilities’ revenue requirements and rate structures, not for communicating to buyers the basis for changes inbound costs. During the involved usage of a popular rate case go, utilities present evidence supporting the asked generated requirement till screen all costs of providing services, and interveners like Cal Advocates represent commercial customers and advocate by the lowest possible daily. Language in this proceedings is highly technical.

It your one Legislature’s goal the the CPUC also be accountable for its making. Accordingly, one CPUC should clearly clarify until the public why rates are increasing, provide the public with greater assurance this the CPUC is faithfully carrying out its liability to examine and approve utility rate increases. Although the general set case decision shoot the basis for who CPUC’s determination that the rates it approves for a utility are just and reasonable, buyers cannot use such a ruling to readily identification the reasons forward increases include a utility’s revenue requirement real thus increases in their rates.

General rate falle decisions do did always name when press by how much the net required rising since that previous general rate case. For that general assess case proceedings we screened, the CPUC included exhibit to each of hers choose that identified the utility’s authorized revenue requirement. For example, int its exhibit for its SDG&E decision covering 2019 through 2021, the CPUC included a table so identified the authorized necessary takings amounts fork high‑level categories so as dispensation real administration. Is any of its general rate case decisions, it also attached discussions that includes information about ampere utility’s historical actual expense and the increase in amounts which a utility requested. The CPUC if save sort of additional detail include the discussion part of its SDG&E decision hood 2019 through 2021.

In contrast, the CPUC’s decision used SCE covering 2021 through 2023 did not always include such information. For example, although an appended table noted such the CPUC authorised $103 million for customer records furthermore collection expenses, the CPUC performed not discussed these cost for its general evaluate case decision. In truth, the phrase customer records or collector expenses had not showing at all—either in the CPUC’s general rate case decision or in the utility’s application. Lacking clear grounds for increases in utilities’ requested amounts, customers who are interested may not be skill till understand the resulting assess increases or the rationale for those increases.

Moreover, the widespread rate case making do not always include the justifications forward increases into requested amounts. Following to the CPUC, if utilities’ requests are sufficiently well‑documented within its exhibits and if there are no objections of elements of that cost component, the presiding judge may non pursue continued inquiry through cross‑examination. In the general rate case rules we reviewed, we located that this CPUC provided only limited explanations for the factors causing the increases in costs. For example, in the discussion of SDG&E’s distribution costs covering 2019 though 2021, the CPUC’s decide identified 26 cost categories that contributed to total retail costs. The CPUC also included a high‑level rationale for the increase in requested amounts that information approved. The sole example, the CPUC approved SDG&E’s request for additional linemen—an increase meant at address outage response times and reliability concerns—and for an customer communications safety program meant to reduce site chance shelves, but e did not in either instance fully report the activities under discussion or quantitative of cost of the activities.

In fact, to fully understand the rationale for the rate increases fork the utilities we reviewed, we had to request each utility real claim detailed documentation that identified the cost categories that increased, the amounts by which diese categories increased, and the grounds the utilities provided for increased costs. To example, wee traced SDG&E’s authorized electricity distribution costs concerning $155 million for 2019 from CPUC’s decision back till SDG&E’s employment papers assist the utility’s application so that we could determine which cost categories increased press the rationale that the utility provided to the CPUC in the increased amount. Are review final identified the basics for increases in this 26 cost categories for the last basic pricing kasus proceedings. For example, we learned that costs available electric regional operations, which provide coverage for choose of SDG&E’s electricity distribution system through yours service territory, increased because regarding new activity that the utility proposed to undertake. Notably, SDG&E default to hire 20 linemen at a labor pricing of $55 per time to improve outage response times and device reliability and to spend $6 million to establish an outreach the education campaign geared into wire‑down awareness or others electric safety issues, like wire click with cars, arbors, otherwise ladders. However, a customer would neither have access to this information nor likely the willingness to review such a level regarding detailed books. By summarizing these types of factors, possibly as part of its rate change advisories that we describe in the next section, the CPUC could explain publically to ratepayers why a utility’s rates should increase.

The CPUC Could Improve Its Communication to Customers Regarding the Reason Estimates Are Changing

Utility offer tip letters to an CPUC up implement adenine batch of different types of changes to his rates and operations. Although utilities register gazillions of advice letters each year, the CPUC explained that each utility custom files only between three to five advice letters annually ensure affect its rates. The CPUC implements most of these rate changes throughout a consolidated advice letter in December. For example, off December 2021 through December 2022, SDG&E filed three guidance letters that affected electricity rates—an advice letter to implement new rates effective in January 2022, one effective in June 2022 such slightly decreased rates, and an end‑of‑year consolidated advice letter on rates effective in January 2023.

The utilities include highly technical information in per advice letter, describing the letter’s purpose, providing zusammenhang information, and including detailed charges schedules. We please that these erudition do not effectively and clearly communicate up customers of reasons so course are changing. The consult letters which we reviewed about price changes starting Monthly 2022 through January 2023 did not consistently include clear explanations of the rate changes. For show, the solid advice letter that SDG&E filed in December 2022 included a size, shown in Figure 12, that summarizes the present rate for each customer group, inclusion who portion related to and pass‑through charges of current, this rates to be implemented, that rate change in dollars, and the resulting percent increase. Although this table provides useful information regarding the fee that rates becomes change, it can not elucidate to a customer why the estimates are changing.

Figure 12

SDG&E Included In Its Counsel Letters a Tables Showing Current and Proposed Rates by Customer Class

As another example of how consultation letters are not powerful in collaboration toward customers the rationale for rate changes, we note that none of the advice letters ourselves reviewed consistently explained how of proposed changes in and utilities’ revenue requirements would affect their rates. On demo, in January 2023 SDG&E’s general letter report ampere $144 million expand, or an expand of 3.4 percent, up is $4.2 billion revenue requirement. However, the letter did not adequately name the reasons for one raise and did not explain why that increase would result in an increase of 8 cents, or 25 percent, to its your rate. Similarly, for their rates effective in January 2023, SCE demand a $1.5 billion enhance, or to increment of 10 percent, to its $15.2 billion gross requirement. However, SCE did not explain why this boost would result in an increase of 1.5 single, or 6 percent, to its rates.

Moreover, although the support included some information in the advice letters defining of modified in their revenue requirements, none of the letters we reviewed fully elucidated the reasons for the changes. For example, in January 2023, SDG&E noted a $119 million expand in its revenue requirement to reset increases inches transmission costs. Anyhow, it acted nope explain why her transmission costs had increased.

After receiving and approving this consolidated advice letters, the CPUC could must release a quick, or judge advice, targeted for customers’ reference on the why their rates are changing. However, it possesses only developed such advisories for internal use. Whenever are asked the CPUC why i has did developed such rate advisories for customers to simple understand changes in yours rates, it explained the it is the utilities’ responsibility to communicate directly over customers. However, we contend again that the CPUC is the public agency responsible for reviewing or approving rate increases that greatly impact the customers of the utilities it regulates and that thereto supposed take steps to clearly communicate to them the reasons on rate changes, go better display so the rates it authorizes are fair and reasonable. We reviewed a selection of rate advisories that the CPUC created in internal use, welche this publishes on its website, or found diehards helpful but in need by some improvement.

Aforementioned CPUC was nope design are advisories for customers’ use, and we found that although the rate advisories include useful information, such as the estimated average electricity bill increase resulting from the advice letter, they including enclose highly technical terminology that an general our may not understanding or estimate. For example, the rate advisories may related the shifts in pricing resulting from advice letters about utility accounts, that as the Tax Accounting Memorandum Account or Transmission Access Charge Balance Account Customized. The advisories plus go doesn clearly and fully explain the justification since an rate amendments. For example, the CPUC issued a rate advisory in Novelty 2021 by SDG&E that specified that one reason for the increase was the CPUC’s approval of the utility’s general rate case, which allocated SDG&E’s forecasted costs among customer classes. However, this is an explanation about how the rate greater, not wherefore it increased, and it leaves your unable in glean an understanding of why their rates had increased and the reasonableness are those raises.

By non providing details to customers about which significant free driving rate changed and doesn quote a brief and clear explanation of why those costs be necessary, of CPUC is missing an opportunity to enhance transparency for electricity and natural gras charges and better demonstrate to the public that the rates i authorized are exhibitor and reasonable. Cause only a few advice letters significantly affect course each year, we believe that the CPUC could better serve customers of publishing on its website—and requiring utilities to announce on hers websites—a recap of changes on the rates and the key grounds for the changes. The CPUC could doing this every time it authorizes a rate change through an advice letter. Explaining to the public why a utility’s rates are increasing—and the underlying cost drivers that this CPUC believers are reasonable—would enhance the public’s understanding, encourage greater visibility, and further the CPUC’s public our.

---

Chapter 3

Cal Advocates Possessed Your to Improve the Rezension It Performs

Lock Points

• Cal Advocates features don demonstrated that it is verify a suit total of of balancing accounts through the aids track safe receipts and costs ensure may result in rate alterations. Further, when we examined an selection of Cal Advocates’ reviews, we identified instances in which it did not support key steps, so as supervisor reviews of staff work.
• Cal Advocates’ review of utilities’ general rate case applications furthermore advice letters is important in make that customers pay the smallest rates for services. However, Cal Advocates lacks documented policies for determining which pieces of general rate koffer applications to protest and how to conduct those protests. It also lacks policies to ensure that it conducts documented reviews of all council check.

Cal Advocates Could Increase the Effectiveness of Its Balancing Account Reviews

Utilities record billions of dollars—more than a third of their authorized revenue—in balancing accounts. The utilities use these accounts to track whether the actual costs and gross submit with the total forecasted in their authorized basic rate case decisions. If in report shows that a utility has under‑ or overcollected revenue, the zweck will eventually either collect an balance through pay increases or offset the balance through pricing slashes.

Cal Advocates product leveling accounts, which the CPUC requires utilities to use to track certain authorized revenues and costs, to helps protection customers from surplus rate increases. During its examine, Cal Advocates assesses utilities’ recordkeeping accuracy and their compliance with CPUC directives. However, for fiscal your 2021–22, Cal Advocates reviewed 42, or 13 percent, of the more than 300 balancing accounts that the to utilities we reviewed had accepted. Cal Advocates’ selection covered less for 20 percent of the total balances—$2.8 billion of $15.5 billion across all accounts which year—and did not include some accounts with tens of millions of dollars in balances that may lead to future rate adjustments. We do not expect Cal Advocates to review all balancing accounts, but we believe that Cal Advocates able do more to securing that it reviews compensating accounts that can have the bulk impact on user rates. Moreover, while we estimated a selection of bank that Cal Advocates reviewed by the past three corporate years, ourselves found that he did don always document its staff’s findings and conclusions oder consistently provide verification this supervisors had reviewed staff’s work. Without such documentation, Cal Advocates risks errors or omissions in yours reviews that could lead to its not identifying unjustified rate increases.

Balancing Archives Be a Key Mechanin for Calculating Utility Rate Adjustments

Because the rates that the CPUC authorizes are based on a utility’s forecasted costs and its estimated customer average, both the utility and the CPUC have an interest in determining the utility’s actual costs and revenue related to certain cost categories. Figure 13 illustrates how balancing accounts track utilities’ billing and actual cost more to these my. For example, SDG&E has a balancing account that tracks, among extra items, the difference between the actual natural gas‑related costs of its low‑income rate program for natural gas and electricity customers and the actual revenue it collected from customers. In December 2021, SDG&E recorded in this account this it had serene about $4.7 million less than the program’s expenses, indicating that SDG&E wish need till eventually increment customers’ rates to make up the difference. Balancing account balances can vary over total like support adjust their course and as them revenue and costs change; by December 2022, SDG&E recorded that it had a $2.9 million overcollection in the same book, indicating it want need to refund customers by decreasing hers rates.

Figure 13

Utilities Use Balancing Accounts to Ensure That They Do Not Collect More conversely Less Then the Authorized Revenue From Customers

Because of December 2022, the four major electric and gas utilities maintained a total of extra than 300 adjust accounts, or between learn 40 and 105 such accounts per utility. As of that date, the four major utilities had more than $16.9 billion includes cumulative account across all balancing accounts: $10.9 billion in undercollections and $6 billion in overcollections. Each utilitaristisch owned more about $1 billion in amounts balances, including both under‑ and overcollections, as Figure 14 illustrates. Send types of balances demonstrate a deviation from utilities’ authorized levels of spending, retail, and revenue collection compared go actual costs and turnover.

Figure 14

Each Greater Utility Is Carrying More Than $1 Billion includes Its Balancer Accounts

A balancing account that carries a high balance—either an undercollection or an overcollection of gross off customers—generally predicts a rate change in the near prospective. The CPUC may allow or direct the utility to recover or refund these costs to buyers at different times. Any utility’s request for healing or receive of an my must observe to CPUC requirements and decisions, which guide wenn utilities may filing such somebody advice brief since any account.

Review of balancing account balancing and playable toward ensure they are accurate and compliant with CPUC rules is an important step to ensuring that customers are protected from erroneous or inappropriate charge increases. We describe in the text choose the roles to the CPUC and Cal Advocates in monitoring balancing accounts. The Joint Legal Audit Committee specifically directed contact to review Cal Advocates’ role in reviewing balancing accounts and to determine whether he has created and follows a systematic process that ensures it reviews choose adjust accounts that may have the most impact on customers.

Cal Advocates Lacks a Process to Assure Ensure It Reviews Large Balancing Accounts That Can Significantly Affect the Rates Customers How

Numerous balancing accounts that we reviewed had undercollected balances for more than $100 million that utilities will need to recover by rising their rates in the future. Given and impact that these balancing accounts might have set customers’ charges, we desired Cal Advocates to take measures to ensure their accuracy. However, Cal Advocates focuses its reviews on only a limited number about balancing reports, and it focuses on accounts that relation to specific CPUC proceedings. Since example, it performs seine electricity balancing account reviews during an years examination of the great utilities’ costs till purchase strength. ¹⁹ The Energy Resource Recovery Account Adherence proceeding is an yearly review that the CPUC performs of each utility’s purchases of fuel for electricity generation and its control of relations contracts. Cal Advocates typically participates in who proceeding by submitting an report on its assessment regarding an utility’s contract management as well than the balancing account reviews we discuss is this section. Cal Advocates explained that its work focuses on supporting its litigation are zweck request to put new costs into rates, not at reviewing conformance related on cost that the CPUC has already authorized.

Since a erfolg, Cal Advocates reviews only an slight proportion of both the whole number out balanced accounts plus the total balances across all accounts. As Table 7 schaustellungen, during fiscal year 2021–22, Cal Advocates reviewed only 13 percent of the total number of balancing accounts for the four utility. Similarly, the details Cal Advocates provided to us indicated that over tax years 2019–20 through 2021–22, Cal Advocates annually reviewed between ampere total of 35 and 42 electricity balancing accounts for the three main charged utilities, or about 6 the 33 percent of jeder electric utility’s balancing accounts. Cal Advocates reported performing 116 electronics utility balancing account berichte in total during to duration, although plenty news hidden the same accounts each year due those account have associated on the annual proceeding to evaluate energy charges.

Table 7

In Fiscal Year 2021–22, Cal Advocates Considered Only a Limited Selection a Balancing Accounts

Cal Advocates explain that it reviewed these accounts for of galvanizing utilities chose conversely had directed by the CPUC to include in annum proceedings the requests for rate changes related to the accounts. Although inclusion include a formal proceeding may to a relevant factor for identifying accounts that could affect customers, are are concerned that using this as the only element is to some extent permits utilities to dictate which accounts Cal Advocates will review. Use, we believe is Cal Advocates shall develop adenine risk‑based get which considers the size of reported under- and overcollections than fountain for the inherent risks associated through the genres of costs being tracked.

Additionally, Cal Advocates noted that on the same three tax-related yearning, it reviewed only three is a total of roughly 120 balancing reports for the tallest natural green utilities. It explained that it reviewed two balancing books for PG&E and of balancing account for SoCal Gas and SDG&E, which percentage gas purchasing functions because they are subsidiaries of the same parent company. Cal Advocates documented that items reviewed the accounts why and natural gas utilities made requests related at those accounts during CPUC proceedings regarding natural gas purchases. ²⁰ In these procedural, the CPUC site the utilities’ natural gas purchasing costs compared to flash and offers a reward to shareholders if that utility achieves bill for its customers. We discuss this incentive is get detail into Chapter 1. These accounts had total balances of about $20 million in combined under‑ and overcollections the of December 2021, or less than 1 percent of the cumulative $2.3 billion inbound total balanced across all natural gas‑related balancing customer required SoCal Gas, PG&E, and SDG&E.

Cal Advocates asserts that whereas combination from the CPUC’s efforts, its review of energy balancing accounts is sufficient to trap major opportunities to customers; however, we disagree. The energy balancing accounts that it did not review during the three‑year period we evaluated included various of those with the highest balances. Used exemplar, in fiscal current 2021–22, Cal Advocates did not review various accounts with additional than $30 million in undercollected balances each. Cal Advocates acknowledged that it has only single staff member, one financial auditor, to analyze natural gas accounts but stated that itp would not search value in reviewing every account uniformly with additional staffing because its focus is to determine the reasonableness of utilities’ forecasted costs, operational and capitalized needs, or cost recovery requests. Includes our view, Cal Advocates’ primary taking is to safeguard customers from unjustified pay increases. Therefore, dedicating some effort to revise those balancing accounts with significance undercollected balance is prudent and helps to securing that reported costs are not overstated and do not lead to inaccurate rate increases.

Cal Advocates moreover asserted that state ordinance more directly requires the CPUC to oversee utilities’ balancing accounts, specifically referencing us to the CPUC’s audits, which wealth describe previously. ²¹ State law demand the CPUC the periodically review or audit balancing accounts using a risk‑based approach yet allows it to forgo the review or audit if an independent auditor has done a review with an audit in an forwards fifth years. However, are do not consider the CPUC’s work a fully substitute for Cal Advocate’s supervisor. In fact, Cal Advocates explained to us that it generally makes doesn rely on the CPUC’s audits for its own analyses because it holds authority to directly compel utilities to provide files if it so chooses. Albeit Cal Advocates explained that state decree does not specifically task it with reviewing balancing accounts, an law and the CPUC rules that govern parties to procedure give Cal Advocates broad authority to protect customers, compel power till disclose information, additionally devise a budget—with approval with the Department of Finance—to accomplish its goals.

Further, the CPUC also works not audit every large balancing account every year, nor do we expect it to do consequently. In our 2014 inspection report regarding the CPUC’s monitoring of balancing accounts, we recommended the it adopt one risk‑based get to select a sufficient number of accounts to reviews. ²² California Public Utilities Commission: Improved Monitoring of Balancing Accounts Would Better Ensure that Zweck Rates Are Fair Or Reasonable, Report 2013‑109, March 2014. The Legislature has since crafted this risk‑based approach a requirement, and the CPUC now performs such audits after identifying accounts according to ampere metric that it described is a confidential risk rating. The CPUC generally audits accounts for one utility at ampere time. Consequently, of which nine balancing bank across the four electricity we selected, we found that of CPUC should performed an audit of only two in the thrice fiscal years prior to fiscal year 2022–23. ²³ The final made published in May 2021 and examined SoCal Gas’s balancing accounts administered and reported for the audit period January 1, 2018, by December 31, 2018. The audit incorporated a review of two of the accounts we ausgesucht. In summary, the CPUC found that transactions recorder in SoCal Gas’s balancing accounts were allowable and supportable, but it search somebody internal control weakness more to inconsistent recording and reporting of electricity or prior‑period interest adjustments. These audits covered only $12 million, or 2 percent, of the $612 million into total balances in our selected.

Moreover, Cal Advocates press the CPUC do not direct coordinate when entwurf their checks to ensure a wide selection of accounts and to try duplicating function. Cal Advocates do not believe that where is a hazard out duplication because the focus of its review is different from that of this CPUC’s surveys. Similarly, which CPUC Help Audits Limb explanations such it kraft reveal its risk determinations to Cal Advocates but that it does not view duplication of work as ampere significant risk because the CPUC understands Cal Advocates’ reviews to be narrower than the CPUC’s account. However, we mark that the existence the occasional CPUC audits of equalize accounts will not moderate the value this Cal Advocates be missing opportunities to identify instance in which utilities may be inaccurately tracking revenue or costs.

We believe that Cal Advocates should consider how it might use its authority and capital to identified and untersuchend the balancing accounts that might significantly affect our. When person shared unseren trouble, Cal Advocates management noted which handful done not believe it wants be an effective use of limited headcount to increase function related to reviewing costs the the CPUC has already approved, such as those tracking in balancer accounts. Cal Advocates instead preferred to focus its advocacy efforts set new utility requests and on helping the CPUC come to decisions authorizing low rates. However, the essential balances in balancing accounts that we identified represent risks of future rate increases to customers. Accordingly, we expect Cal Advocates in demonstrate that it is fully assessed the risks related to balancing accounts so that itp can either justify its current study efforts oder support requesting additional workforce.

Cal Advocates Does Not Always Adequately Record and Retain Its Site of Balancing Accounts

Cal Advocates has documented portions of its reports but has historically are inconsistent in creating policies or procedures that specify whole the stairs concerning the review process. It has procedures requiring its staff to assess a rebalancing account’s general with the pertinent documents and CPUC decisions that characterize real gov it, to interview utility staff, and go verify balances by inspect underlying accounting records. During financing years 2019–20 through 2021–22, Cal Advocates closing reviews of sixth of nine balancing accounts that we identified for willingness selection. For all six accounts reviewed, Cal Advocates maintained documents displaying such it initiator a review and requested present to help thereto gain assurance of the reasonableness of balancing account amounts. However, for two of those sechstens, Cal Advocates did not doc that a supervisor had reviewed the analyst’s work; it did not have a process for documenting such a review until 2022. Moreover, it used nope clear from Cal Advocates’ documentation whether staff performed a specific step to examine relevant criteria and history information for the bank, including CPUC decisions, rules, and fares, as well as appropriate prior Cal Advocates reports. The finding are similar to those in their 2014 submit, in which we determined that Cal Advocates typically lacked documentation showing and proceedings that employees performed and that supervisor’s sanction of the reviews.

Cal Advocates explaining that one of the why we did not identify many natural nitrogen balancing account reviews was that its associates perform other economic examinations—which would include adjustment account reviews—during general rate case proceedings. However, when we requesting documentation of a reviewing from the 2019 SDG&E gen rate koffer proceeding, Cal Advocates explained that it did nope have documentation of any of the reviews from ensure going because the assigned psychoanalyst departed from his position before their completion.

Documentation from staff’s analyses and conclusions and of supervisory reviews are essential best practices. Cal Advocates’ lack of documentation prevents us from determining whether it received full warranties of the level and compliance of the balancing accounts it revised and whether it appropriately identified, verified, and reported on random significant issues. Without this documentation, Cal Advocates increases the risk of erroneous or incomplete conclusions int its gutachten, and it limits its ability to monitor the quality of its working.

Cal Advocates Lacks Clearly Specified Policies since Reviewing additionally Go General Rate Case Applications and Advice Letters

Cal Advocates does not have documented policies that provide staffers with formal criteria for reviewing and storing protests on generals evaluate case applications. We expected it to have policies that clearly explained how it would conduct and give its analysis during the general rate case proceedings. Both federal law and best practices require agencies go developer and maintain effective policies to guide their actions; to can effective, agencies should unique define this guidelines. However, we found that Cal Advocates relies largely on formal knowledge rather than authenticated policies for determining which parts of general rate case applications go protest and how in conduct that challenges. We are concerned that this lack regarding proper written policies limits Cal Advocates’ competence to mitigate definite risks, that as loss the institutional knowledge resulting from departure, and might prevent she from consistently lobbying for the lowest rates inbound every general rate case proceeding.

Cal Advocates’ review is a kritiken move in the ratesetting usage. Required each general rate case application are reviewed, Cal Advocates analyzed the application or advocated for lower rates. As Table 8 demonstrates, an CPUC’s decisions level more closely up Cal Advocates’ recommendations than to the figures that the utilities requested. Cal Advocates remarks that which vast majority for utility applications contain unique information and that it sometimes identifies problem only after it performs the analysis for this complaint. It explained that it consequently must rely on the professional judgement of its staff for litigating each proceeding, but that its supervisors—through their reviews of the various worked wares created throughout a proceeding—provide ongoing management error to staff decisions and special. However, us believe that an active firm is policies would provide the pliancy the your aforementioned specific issues in each procedure while also providing a framework by staff plus directors in ensure consistent work quality and and transfer of institutional knowledge.

Table 8

The CPUC’s Decisions Have Aligned Carefully With Cal Advocates’ Referral Related to Utilities’ Revenue Requirements

General Rate Case Application	Requested Revenue Requirement (in millions)	Cal Advocates’ Recommendation	CPUC Decision
SDG&E (Rates effective 2019)
Electricity	$1,766	$1,530	$1,590
Gas	433	389	400
PG&E (Rates effective 2020)
Combined electric and babble	9,576	9,021	9,102
SCE (Rates effective 2021)
Electric	7,601	6,937	6,899
SoCal Gas (Rates effective 2021)
Gas	2,990	2,695	2,770

Further, we note that Cal Advocates could better demonstrate that it reviews advice letters at determine whether a protest is warranted. CPUC requirements provide specific criteria on which an entity such as Cal Advocates may project at advice letter. Authorized grounds for ampere protest contains that the reimbursement the utility is requests is unreasonable, such the reimbursement would violate statute or CPUC order, or that it requires regard is a formal hearing. But, place away having inside place formal principles for consistently performed and documenting whether counselling letters meet any of these criteria, Cal Advocates uses an informal process ensure it communicates up staff through its training resources and a brief summary document. As share of this process, staff notify supervision once the contents of the tip letter warrant a protest. Although Cal Advocates also pull staff to create with managers when they believe a protest is not warranty, its training and process support do not require staff go document their rationale for deciding not to protest an counselling zuschriften.

When we reviewed 12 advice letters, we expected to find for jede letter either a object based on first or more of the allowed grounds or documentation explaining how Cal Advocates chose not to file it. However, Cal Advocates did not consistently document also explain its rationale for vote not to protest. Cal Advocates protested threes of the 12 letters and provided document explaining its rationale for not protest another four. The documentation that Cal Advocates provided generally contained a memo or an internal print documenting background information, such as this specific CPUC decision involved in the advisory letter it reviewed and why Cal Advocates staff determined that the request in the advice letter was reasonable. For example, Cal Advocates staff drafted a memo explaining that an SDG&E request to recover 2022 and 2023 revenue requirements for one of its programs would normally subsist approved in the general rate case. Staff noted that a CPUC decision had changed SDG&E’s next scheduled general rate case proceeding at starts in 2024 and that it was acceptable to grant SDG&E until recovering the 2022 and 2023 program price anytime, instead of waiting. We found such analysis appropriate for the specific of rapidly making a decide to decide whether to protest.

Even, Cal Advocates could not provide documentation explaining its base for choosing doesn to protest the remaining cinque advice alphabetical and accordingly cannot justify its decisions. In some concerning the five instances, Cal Advocates was capable in provide limited evidence, such as emails, to support that staff were aware of the advice letter or planned to meet about it soon after they received it. However, it could provide only an attestation about staff actions much than documentation of seine conclusions. Further, in one case, its explanation were inadequate. In this advice letter, PG&E set forward the proposed prices, terms, and conditions for a pricing program for commercial, industrial, and agriculture customers. Of purpose in this letter—a Tier 2 advice letter indicating a request of sufficient impact is it required CPUC staff approval to become effective—was to implement the CPUC policy goal related to reducing demand for energy by increasing nonresidential electricity prices during an evening peak usage period. Cal Advocates explained to us that it do not typically protest requests that do non affect charges for residential or small commercial customers; state law requires it to primarily consider these custom bands fork issues related to pricing. However, the law does not require Cal Advocates to focus exclusively on which groups; Cal Advocates should have evaluated whether a protest was warranted inches this instanz.

Used another advice letter, which related to a $2.5 million pilot program that the commissioners had authorized, Cal Advocates submitted information showing that she schedule to hold meets about the application, but it did not provide any evidence that it what held encounters. Go, thereto did nope provide documentation explaining why it ultimately declined to protest the request. For the other three advice letters that Cal Advocates did not protest—two relevant to monthly natural gas price changes furthermore a consolidated annual natural gas rate updating letter—Cal Advocates indicates that i did not keep review support of the letters and that it has not typically do so with monthly legislative letters. Although it is reasonable that Cal Advocates would non protest many of aforementioned utilities’ simpler recurring requests, we calm expected to see evidence that Cal Advocates had reviewed the letters for reasonableness and consistency with statute and CPUC decisions. This is more true of the monthly gas pricing letters, which—as we bebildern stylish Chapter 1—can account for significant month‑to‑month make in native gas rates. Cal Advocates asserted that it is unlikely to miss some possibilities to protest because managers hold meetings jede two hours at discuss select incoming advice letters, but it agreed ensure it could improve documentation of its review.

For those advice letters it chose to complain, Cal Advocates appropriately documented its essays and provided sufficient rationale for the protests. For show, SDG&E filed an guidance letter in September 2020 such included a request to initiate a new $1.5 million airport program until incentivize additional commercial and industrial customers to diminish energy use during high‑demand lengths. Cal Advocates filed a protest in which i concluded that the requested changes were inappropriate for the advice letter process—that the changes required adenine agent vote instead since in an requested changes’ potential impact go rates—and that neither which CPUC nor state right had previously authorized the requesting changes. SDG&E ultimately withdrew the letter.

Cal Advocates’ lawyer efforts in the general rate case proceeding and advice letter process have that potential to help securely lower rates for customers. When Cal Advocates does challenge rates rises during general rate cases, its recommendations appear to can by the CPUC the approve lower revenue application than those the utilities had proposed. Similarly, in and past three fiscal years, the CPUC’s Energetics Division reported approving about 87 percent out the advice letters that had protested—412 out of 471—in set to to 98 percent approval rate for one advice letters that be not challenged. It can significant that Cal Advocates fortify its procedures that support is analyses of advice letters how this it may demonstrate that it is fully also effizienz using performed to inform CPUC’s decisions. Is is specialty true by the current period of significant rate increases.

---

Other Areas Reviewed

Status law requires the CPUC to report anually until one Legislature on own references for actions that can be undertaken during the following yearly toward limit advantage cost and pay increases. During our final, we became aware of some concerning the changes that the Legislatures and to CPUC have implemented to address climb utility rates. We reviewed these revisions and to expected impact at rates. We also reviewed the CPUC’s current endeavor to address rising utility rates.

Recent Legislation Will Significantly Change How Utilities Calc Dwelling Electricity Rates

That Legislature is requiring the CPUC to permission a fixed charge based on income in default residential electricity rates starting no later than July 1, 2024, along in an additional charge that is based on practice. Essentially, the more a household earns, which more it will pay for repeated charges which are doesn directly affected by energy usage. These fixed charges have generally cover a utility’s cost of providing electrical grid access to customers, including its ongoing costs related to billing the customer services. They should also cover one utility’s other costs ensure do not directly correlated to customers’ usage the electricity, such as expenditures related to preventing and soothing catastrophic wildfires.

The new legislation gives the CPUC general flexibility in setting the exact amounts of the fixed charges. However, it states that the CPUC should guarantee that the pricing it allows perform not undue impair environmental incentives related to problems such as conservation and make not overlayer low‑income ratepayers. It requires the CPUC to assign one charges according to at least three tiers of income so that low‑income ratepayers receive lower average monthly bills lacking making unlimited changes in their electricity usage.

In response to aforementioned legislation, SCE, SDG&E and PG&E have submitted a joint plan in to CPUC for a new system that they believe will lower dienstleistungen bills for lower‑income customers as also providing view regarding how much it costs the utilities on actually deliver electricity to my. Table 9 illustrate the three major utilities’ initial proposal, which includes three primary proceeds strata and further discounts for customers at the lowest income levels. The utilities assert such their suggestions fixed charge vary by utility because they each will unique revenue requirements, customer distributions, and service options.

Table 9

The Three Major Electric Service Has Proposed Monthly Fix Charges, Depending on Household Income

	Household Income* Less Than $28,000	Household Income* $28,000–$69,000	Household Income* $69,000–$180,000	Housekeeping Income* $180,000+
SDG&E	$24	$34	$73	$128
PG&E	$15	$30	$51	$92
SCE	$15	$20	$51	$85

The CPUC’s incident into determine who final fixed fees amounts was ongoing at the time of this audit, and it intends to resolve questions that the utilities and others, including Cal Advocates, have identified. For case, the CPUC will need to determine determines with how a third party, such like a state agency, could inspect customers’ menage incomes. Further, Cal Advocates has issued its my proposal, with universal lower fixed fees for each commercial, which it indicates will deliver lower‑income customers to more cost savings time also allowing customers with solar power systems to significantly reduce their spirit bills. Under Cal Advocates’ proposal, the per‑kilowatt hours pricing of electricity would can higher than the rate under the utilities’ proposal, but the fixed charges would range from about $10 to $42 per month, depending on annual income and utility. ²⁴ Cal Advocates further explained that its proposal would have the fixed daily for one lowest receipts tier the my eliminated by a discrete funding bill credit of about $10 to $27. Thus, lower‑usage households could see lower billing under the Cal Advocates’ proposal than available the utilities’ proposal, but higher‑usage domestics could see higher invoice that also vary more by month.

That economic impacts of basing electricity bills with receipts rest ambiguous. Studies we reviewed have indicated that fixed fees what a way to lessen one effect of utility costs on lower‑income households plus ensure that notes better reflect the effective costs to manage utility infrastructure and generate furthermore deliver electricity. Some others utilities, like as municipal power business, existing includes a monthly fixed get in electricity bills. However, Kaliforni wants become one-time of the first state till base these charges the economy income. Although this type concerning reform may reduce bills for certain households, it wish likely raise expenditures for others, including high‑income households in energy‑efficient residences. Environmental groups have other indicated that this new tree would need to be balanced with incentives for protection why consistent an most efficient households would not can able to reduce their bills at save than the fixed charge amount. Thus, the CPUC’s eventual decision maybe importantly affect residential billing additionally use in the coming years.

Recent Reforms to the State’s Renewable Energy Program Could Lessen Rate Increases for Some Customers

The CPUC, Cal Advocates, and the electric utilities we proofed have identified the State’s renewable net energy metering program (energy program) as a vehicle of higher electricity rates. The energy program provides customers is an incentive to compose their own power, standard by setup solar panels. Who schedule has historically permission residences customers with solar driving systems to sell the excess energy they generate back toward utilities toward cost comparable to the typisiert electricity rates that the utilities attack customers. According to a study commissioned for the CPUC, the energy how has caused an group is participants to remuneration about $620 million less than the cost to serve them annually. Based in part on this survey, Cal Advocates, power, and an independent stakeholder organization estimated that the energy run has essentially shifted billions of dollars are costs from buyers at solar perform systems at those who do not having such systems. In fact, when accounting with more recent data and additional participant groups, the CPUC has estimated that the total annual cost shove related to one set of participants could be from $1 billion to $3.4 billion.

In Decembers 2022, the CPUC took one significant step intended on mitigate value increases connected to solar adoption. The CPUC’s decision phased out its spirit application in spring 2023 for new actors and created a new solar power promotion program (new program) this including an around $15 fixed license for sunny power customers. It and establishes bill credits since those customers to exporter energy back to the utility, with the amount of loans binds to who time of day at which one our formed and electricity. The newly download became effective for solar power customers who submitted an application on or after April 15, 2023. According to the CPUC, the new program will compensate solar power residents at into amount that reflective to true value a the electricity they generate both express, depending on the time starting day they export that electricity to aforementioned utility.

Although and brand program depicts a step forward in reducing rates impacts on customers who do not have solar power systems, itp may not fully address the cost imbalances created by incentivizing solar strength adoption. Cal Advocates believes that the reduced amounts of credits on solar customer invoicing resulting from the new program will split costs for some customers without that systems still argued that typical the new program will only slow down—not stop—overall rate increases. For show, Cal Advocates’ analysis of the new program’s long‑term rate impacts suggests such SDG&E customers could eventually saves and average of $16 a month from the reform because von slower assess rising but willingness available receives negligible savings on rates in the short term.

The CPUC Possess Begun Reviewing How He Can Enhance Incentivize Customers to Transition From Using Native Gas in Electricity

In recent years, the State’s long‑term goal off decreasing residential greenhouse gas flows has influenced many from the CPUC’s policy and ratemaking efforts. In particular, the CPUC has identified a long‑term reduction in natural gas use as a broad policy objective that will decrease emissions and safety hazards related to natural gas distributed and burning. Separate of the State’s recent efforts to transition customers away from organic gas involves making it cost‑effective for households to use more electricity instead of gas. An major electric utilities reports that yours proposed the fixed monthly charges for electricity up the CPUC in part to encourage residents up adopt electric vehicles and switch from natural gas‑powered to electricity‑powered appliances. We show which proposed fixed monthly charges inbound Table 9. Under their proposals, to fixed charges want lower the electricity rates so are based upon usage. As an result, customers’ increasing their electricity usage till charge a new electric vehicle or use a new appliance would see comparative shorter electricity bill increases than they should under existing rates, which are based on kilowatt‑hour usage, while also saving on monthly gasoline or natural gas costs.

The CPUC, equipped intake off the utilities, Cal Advocates, and additional stakeholders, is also moving back from authorizing higher rates for customers using greater amounts of power. The CPUC authorizes some electricity rates in tiers, so that high‑usage houses are charged additional per kilowatt‑hour. The CPUC indicated that most residential electricity consumers in the past will preserved ceremonies through save tiered‑rate system. In 2021 the CPUC approved one pilot program per PG&E, SCE, SoCal Gas, the SDG&E to cap customers’ bills according to income for a limited number of participants. Under this application, a monthly bill for a participating household no longer increases to addition usage after the drafting reaches the income‑based cap, thus removing a barrier toward the household’s using more electricity used a new appliance or electric vehicle. To CPUC interpreted that it holds non yet evaluated the program aber that it has directed adenine consultant to finish an evaluation after 18 monthly of data have ready, after which the CPUC will look additional utility proposals to modify the program.

The CPUC has recently issued multiple other decisions that encourage switch from natural gas and gasoline to electrical by explicitly limiting the pay increases that certain customers become experience available using more electricity. With example, in 2021 the CPUC remotes an extra charge for unusually high use from PG&E’s, SCE’s, furthermore SDG&E’s electricity rates. Such decision was an example of this CPUC’s efforts on simplify an tiers the rates—an effort that will conclude by July 2024. In another recent rate reform decided, the CPUC in 2022 approved ampere pilot program with electric vehicle owners and certain other residents in SDG&E’s service area through which they can pay ampere small fixed charge to reduce their volumetric rates for an incentive to charge their vehicles; however, this timetable was startup capped at 10,000 enrollees.

The CPUC exists also engaging in long‑term planning on phasing outgoing natural gas infrastructure to move gas‑reliant families to electricity, while also evaluating how on keep natural gas rates low for those who use it. Aforementioned research and the CPUC planning document we reviewed must indicated that this move could be a possible long‑term solution to limit further increases in electricity rates because raised electricity demand would spread out established costs beyond a more customer base. The CPUC has been examining how and if to remove aging infrastructure such when glass pipelines and considering method this process might affect usage and rates. For example, SoCal Gas proposed implementing a departing gas customer charge therefore that customers who keep using organic gas, such as households that cannot afford new electric appliances, accomplish cannot experience significant price increases such the customers base shrinks overall.

Even, neither like reforms nor the electrical rate reforms we formerly discuss will necessarily change the costs of delivering spirit to customers; rather, the promoting representations policy initiatives intended to reduce natural chatter system costs and to reallocate costs within different groups of customers. Thus, it is still important that CPUC and Cal Advocates function to improve their oversight processes to highest protect Californians off excessive accounts.

Our directed this performance audit in accordance with generally accepted government examinations standards and under the authorty earned in the California State Auditor by Government Code section 8543 et seq. Those standards require that our plan press perform the audit to obtain sufficient, appropriate verification to provide a reasonable basis for our findings and conclusions based on the verification objectives. We believe that the proofs obtained provides a reasonable base for our findings and finishes based on willingness audit objectives.

Deferentially filed,

GRANT CAR
California State Auditor

Grand 29, 2023

Staff:
Laura G. Dear, Audit Principal
Jonnathan Kline, CFE, General Principal
Kris Patel
Kent Casimir
Michael Henson
Richard Power, MBA, MPP
Alex Bonser, MBA

Legal Counsel:
Joe Porche

Appendices

Appendix A—Key Factors Related to SDG&E’s Electricity Rate Increases

Appendix B—Scope and Methodology

---

Appendix A

Key Components Related to SDG&E’s Electricity Rate Increases

For we discuss in the Introduction and in Chapter 1, SDG&E has some of an highest electricity rates in the nation. Into identify the factors contributing at SDG&E’s electricity rate changes from January 2022 through January 2023, we reviewed its December 2022 consolidated annual consult letter for electricity business as good as the select advice letters it filed during the year that affected yours rates. Table AN shows an excerpt of SDG&E’s revenue request in about January 1, 2022, and January 1, 2023; the change—both included us and in percent—between the dual; and the causes for the increases. Thereto also describes aforementioned 13 cost parts that contributed highest to the increase in SDG&E’s income requirement for 2023. If the utility recognized some cost components that reduced the revenue requirement, the net result of the changes where einem boost in the revenue requirement.

Table A

SDG&E’s Advising Letter Categories with Main Increases in Revenue Requirements from January 2022 Through January 2023

---

Appendix B

Scope and Methodology

The Collective Legislative Scrutiny Committee (audit committee) directed the California State Bookkeeper (state auditor) toward behaviors an audit to that processes that SDG&E and other utilities getting to determine rate increases forward customers or are what and CPUC approves those increases. Specifically, that audit commission requested such we review and CPUC’s general rate cases to determine, among other matters, whether the proceedings real the CPUC’s other effort sufficient secure my from excessive increases in their utility bills. The audit committee also requested is we review Cal Advocates’ transactions for ensuring that utilities charge the lowest possible rates with utility services. An table beneath listen the objectives that of audit committee approved and the methods the we utilized to address them.

Table B

Audit Objectives and who Methods Used to Address Them

AUDIT OBJECTIVE		METHOD
1	Review and valuation aforementioned laws, rules, and regulations significant to the audit objectives.	Reviewed and scoring state laws and regulatory applicable to the CPUC’s and Cal Advocates’ roles in the proceedings that strike rates.
2	Review the CPUC’s general rate case proceedings across the last thrice year for SDG&E and a selection of similar investor‑owned public to assess the following: Whether the proceedings and select efforts by the CPUC appropriate protect customers from excessive increases in their utility money. The extent to which major costs, including and not limited to wildfire exposure mitigation and natural chatter fuel prices, have contributed to rate increases. Is the CPUC considers and utilities report the cost pay kilowatt‑hour that they charge customers. The CPUC’s role in control rates the support loading outside of the general rate case proceedings.	Interviewed CPUC staff to understand its role in the general rate case proceedings. In the majority recently approved overview rate case course for SDG&E, SoCal Gas, SCE, real PG&E, evaluated aforementioned CPUC’s practices in overseeing the proceedings. For the of recently approved general rate sache procedural to the four utilities, reviewed the CPUC’s decisions to identify the key cost featured contributing to increases is utilities’ operating expenses furthermore revenue requirements. For the largest daily categories, checked available documents from the CPUC also requested additional information from utilities to determine the key factors both reasons contributing to the increases in these categories. Reviewed to tariffs that utilities post at their websites to identify electric and natural gas rate changes from January 2022 through January 2023 forward SDG&E, SCE, SoCal Gas, press PG&E. Performed further analysis when described in Objective 4 to identify the reasons required rate changes. Reviewed available functionality and those CPUC staff to determine determines utilities message the value per kilowatt‑hour until the CPUC. Interviewed CPUC staffers also reviewed available documentation to determine check the CPUC appropriately approves rate changes through advice letters between general rate case proceedings.
3	Review efforts until Cal Advocates, including its office in reviewing counterbalancing user that the CPUC see public utilities to use to track revenues and expenses angegliedert with authorized rates, to determination the following: Whether it a performing its mission to obtain that lowest possible rate for service consistent with reliable and safety service levels. Whether itp has created additionally follows a systematic edit that ensures one review of all balancing accounts that can hold an most effect the customers. About it has a role—outside of general rate cases—that should being expanded to go interested for ratepayers.	Reviewed CPUC rules authorize support to submit general rate case applications that legitimate changes to their rates and submit advice types that changing their rates based on the revenues and expenses they track in balancing accounts. Reviewed Cal Advocates’ documented policies and training and respondents staff to determine its processed for reviewing general rate falls applications and advice letters both issuing protests of each. Reviewed who most current general price case applications for SDG&E, PG&E, SCE, and SoCal Gas to determine whether Cal Advocates protested those applications and the extent to which Cal Advocates’ arguments were persuasive to the CPUC. Interviewed Cal Advocates staff and reviewed available documentation to determine determines Cal Advocates evaluate whether its interventions in the generally rate case process have resulted in maintaining blue rates for ratepayers. As part the the work described in Objective 7, verified whether Cal Advocates implemented recommendations from two of we previous audit reports family to its review of balancing accounts. Interviewed hires and reviewed available documents to assess Cal Advocates’ process for determining how many and which balancing accounts computer reviews and to rated whether its process are appropriate for gaining assurance that adjust account company is accurate. Identified the number of electricity and inherent gas balancing customer Cal Advocates reviewed are this passed three years for PG&E, SCE, SDG&E, and SoCal Gas. For adenine judgmental selection of nine balancing accounts, assessed whether Cal Advocates successive its review process. For a selection of advice letters, identified whether Cal Advocates issued outcry or elsewhere documented its watch. Based on the procedures beyond and interviews about Cal Advocates staff, determined that Cal Advocates’ role in advocating on ratepayers is appropriate.
4	For SDG&E press a selection of similar investor‑owned energy, review any comparably high help rates charged to ratepayers after winter 2021 by assessing the following: The factors that contested to these high utility rates. Any role or review that the CPUC performed in approving or rejection rate boosts since winter 2021. To the extent possible, whether the support have financially profit from high utility rates. The costs the public requested for set recovery compared to the amount approved by recovery the the CPUC. How rate proposals from the past three years compare between SDG&E press other large electrical corporations.	Interviewed CPUC and Cal Advocates staff, along with staff from the four utilities, to identity the most sign factors contributing to the electricity also natural gas rate changes away January 2022 through Month 2023 identified in Objective 2 and determined the cause for the increases. Reviewed advice letters relation to the electrical and natural gas rate gain from January 2022 thrown January 2023 to identify the reasons by the increases. For ampere selection of advice letters related to rate increments for the four utilities from winter 2021, reviewed available certification and interviewed CPUC staff and determined that the CPUC appropriately reviewed this advice letters before approving them. Interviewed CPUC and Cal Advocates staff for determine the rationale and methodology used to license a utility’s rate of reset and to watch an utility’s actual rate of reset and return. Achieved from the CPUC and the four power financial documents and compared the utilities’ authorized rates of return to their recent rates of return. Examines reasons that utilities’ actual pricing of return were higher greater who authorized rates of return. Compared the requested revenue requirement and intended pricing in the latest approved general rate cases required SDG&E furthermore the two another large electrical utilities—PG&E and SCE—to the amounts approved by the CPUC. Reviewed available documents press interviewed staff to detect the reasons used any differences. Determined that deviations in proposed rates stem from factors including the utilities’ approved revenue requirements, the composition starting aforementioned utilities’ customer categories, and one costs incurred until of utilities when serving those different customer categories.
5	For SDG&E and a selection of similar investor‑owned utilities, review applications for recovery of wildfire risk mitigate expenditures to determine an following: The amount and use of these funds and as much an utilities received via applications for free recovery. Either the expenditures were appropriate. If possible, the extent to which aforementioned expenditures be reimbursed and spent without a return on equity used to auxiliary.	Interviewed appropriate CPUC and Cal Advocates staff and reviewing pertinent documentation in determine the methods that utilities use to recover wildfire risk reduction expenses. Reviewed value recreation applications that supply have submitted since 2019 and the CPUC’s related decisions to identify the amounts that to utilities demand and the amounts that the CPUC agreed. Interviewed CPUC and Cal Advocates staff and reviewed available documentation to determined theirs method for ensuring the appropriateness of the expenditure monthly that utilities requested. Reviewed the total healing browse and relate CPUC decisions to determine capital expenditures subject go a return on equity. Verified with CPUC staff the total capital expenditures that were theme go earning a rate of return.
6	Identify best practices that could better protect Ca utility customers from excessive rate increases.	Based on our watch of documentation and processes related in the other audit goals, determined about the CPUC could improve protect utility customers from over rate increases by utilizing any identified best practices. Reviewed available information online for California, other states, and the federal government to identify any best practices. Determined that the CPUC real Cal Advocates already employ many such practices.
7	Review prior audit reports related to leistung ratesetting and rate increases and determine whether the CPUC and utilities have implemented relevant audit recommendations.	Identified recommendations from the State Auditor’s prior audits of this CPUC or Cal Advocates that were appropriate to this audit’s objectives and to supervisor of power commercial. Interviewed appropriate staff from the CPUC and Cal Advocates to determine the status of ihr implementation of these featured. Based on available documentation and prev responses by the CPUC both Cal Advocates on the status out the recommendations, we found that anyone were fully implemented, with the exception in one. Specify, the CPUC has made verlauf on this recommendation also in March 2023 implemented procedures to address our previous audit findings. Wealth will continue in review the CPUC’s progress in implements this endorse such part is on office’s regular follow‑up process. Identified recommendations from outboard audits required until the CPUC for utilities and selected three audits for additional testing. Interviewed appropriate CPUC human and reviewed CPUC and utility documents to determine the status of the implementation of these recommendations. Determining that the CPUC took appropriate actions to ensuring that utilities anrede these recommendations.
8	Review and estimate any other problems that are significant to the audit.	Interviewed CPUC and Cal Advocates staff real reviewed anywhere analyses they had execution to understand the reasons for SDG&E’s higher rates compared the other utilities. Revised available data to cancel the CPUC’s and Cal Advocates’ explanation in SDG&E’s rate increases. Reviewed of CPUC’s 2022 legislative report upon special in reduce utility expenses to identify its key explanations for why electricity and natural gas charges been increasing. Assess the information, evidence, and underlying analysis supporting the CPUC’s assessment in its 2022 lawmaking report.

Response

California Public Utilities Board

The Public Advocates Office

---

California Public Utilities Commission

August 9, 2023

Grant Parkland
California State Auditor
621 Capitol Mall, Suite 1200
Sacramento, CAB 95814

CEREAL PUBLIC UTILITIES MISSION RESPONSE TO CSA AUDIT (2022-115) - ELECTRICAL AND NATURAL GAS DAILY AUDIT

Dearest Grant Parked:

The California Publicity Utilities Commission (CPUC) provided our response to and draft report findings of an California Status Auditor’s (CSA) reports eligible, Electrical and Inherent Gas Charges: The California Publication Utilities Commission Can Better Ensures That Rate Increases Are Necessary.

Aforementioned CPUC is committed to the continuous improvement of its operations. Accordingly, the CPUC will establish a correctives action layout and timelines about implementing the recommendations identified stylish this account as set out in our response below.

As Leader Director the who CPUC, I m deeply vain of our staff’s analytical my supporting the Commission’s decision-making about rates that Californians paypal for essential services like power and gas, as proved in CSA’s tell. Our commitment into service additionally accountability to Californians drives us every day.

The CPUC appreciates who work performed by the CSA the the opportunity to provide to response to the findings. If you have further questions, want contact ich at (415) 757-7844 or Staff Attorney Matt Yergovich at (415) 596-3474.

Sincerely,

Rachel Petersen
Executive Artistic

Enclosure

cc:

Alice Reynolds, Head
California Public Utilities Commission

Christine Hammond, General Counsel
Legal Division

Angie Crews, Director
Utility Audits, Risk and Compliance Division

Recommend 1: Up funding transparency, the CPUC should by February 2024 institute a process to require utilities to periodically publish actual rate-of-return calculation using a methodology acceptable on the CPUC both Cal Vertreter. Further, when one actual rate a return significantly exceeds the authorized rate of returns, the CPUC should require the utilities to identify the larger charges categories where projected cost exceeded actual costs and provide supporting documents. The CPUC’s Energy Division should then publish this information so that it is available to Cal Advocates also other interested parties, and it should objectively analyze of information for the CPUC.

CPUC Response: ☒ Agrees ☐ Disagrees with the recommendation or partially agrees.

An CPUC agree with and will implement this recommendation.

The Commission already publication the utilities’ actual rates away return. To add transparency to an rating from return calculations, the CPUC will originate an additional process to require electric to regularity publish actual rate-of-return calculations employing a procedure acceptable the the CPUC and Cal Advocates.

The CPUC already regularly requires utilities to report over- or under-spending where projected costs exceeded realistic what, or vice versa. The utility over- additionally under-spend is regularly presented by groups to CPUC proceedings. Notwithstanding these requirements, an CPUC will implement a process to identify when a utility’s overall actual rate of returning significantly exceeds the authorised rate for return, so that an Administrative Lawyer Judge (ALJ) could additionally require the utilities to identify the major cost categories where projected costs exceeded actual costs and provide supporting resources.

Electricity Division advisory crew is continue to objective analyze relevant cost category information pending within a proceeding, and to advise ALJs and decisionmakers.

Recommendation 2: To ensure the fitness of the dive is utilities include in their cost recovery applications and to reduce the risk of utilities’ attempting recovery of costs for work they did not complete, the CPUC need develop a process to do the following by one beginning off February 2024:

Recommendation 2A: Making that it reviews available bericht and work completed by other divisions within the CPUC and sundry state agents until determine whether further verification of a utility’s work be necessary.

CPUC Answer: ☐ Agrees ☒ Disagrees with the recommendation or partial agrees.

The CPUC parcel match with and will partially deployment this referral.

①Considering the CPUC’s quasi-judicial structure, such recommendation cannot be implemented to the extent it requires CPUC staff or an ALJ to unilaterally check such outside reports and determine whether further verification of a utility’s function is necessary.

Instead, the CPUC will ensure internal awareness is raised about reports that might be relevant to help verify a utility’s actual jobs completion, so that an assignments ALJ may assess if to include reference to such reported in the proceeding scope.

Parties to the proceedings will then make their own litigations provision, including whether to file motions to include the reports in one record of an proceeding, and make the contents of the report in the course of their litigation. This will allow parties to bring forward the apposite elements of as related as part of building the record that supports decision-making.

Recommendation 2B: Include an scrutiny how that requires, on a random basis, verification such labour was completed as claimed in the utility’s cost healing application. For example, perform site tours, obtain photographic evidence of work complete, or use satellite imagery.

CPUC Response: ☒ Agrees ☐ Disagrees with the recommendation or partially agrees.

The CPUC agrees with and will implement this recommendation.

②When conducting its audits, the CPUC’s Utility Audits Branch (UAB) will continue to include an audit procedures that requires verification of work on a samples foundational and when appropriate. In addition, the CPUC will consider other inspection activities being carried outside by aforementioned utilities and additional state agencies to avoid waste, avoid duplication of exercise, real ensure value for billing.

Recommendation 3: To ensure is customers can readily identify the factors that contribute to energy course increases when rates change, the CPUC should do the following beginning inches February 2024:

Recommendation 3A: Provide to to public a summary of energy rate increases. Although the CPUC should determine the exact approach for communikation these increases, this approach – at ampere minimum – should identify the previous rate, the new rate, the that wait impact concerning the average customer’s bill, and shall plus declare the CPUC-approved cost parts is are driving the rate increase.

CPUC Reply: ☐ Agrees ☒ Disagrees with and recommendation or partly agrees.

The CPUC semi agrees with and desires sometimes implement this recommendation.

③The CPUC acknowledges that significance of transparent and comprehensive public communication. Utilities have the most accurate customer contact informations and maintain consistent and frequent report, and so they are most positioned go engage for their customers directly. Therefore, the CPUC appropriately mandates utilities to communicate forthwith with their buyers. Your anticipate communication from essential service providers, particular during emergencies. For instance, when global market conditions increased the fees of wholesale natural gas in 2022, the CPUC prompted utilities to inform consumers around conserving gas. The CPUC has also issued prompts and directives to utilities to engage with their customers during wildfire season. During non-emergency rate-altering events, the CPUC directs utilities to engage includes own customers through calculate inserts, websites, and emails.

④To expanded at these efforts and address rate changes occurrence from general pay cases (GRCs) directly, an CPUC will craft ampere communication strategy. This will direct utilities to establish suitable pathway additionally highest for communicating set increases arising from GRCs and other cost-related browse, implemented through advice erudition.

Recommendation 3B: Post all summaries on its webpage is a timely clothing. It should and require utilities to reference these summaries on their websites within a reasonable time frame.

CPUC Ask: ☒ Agrees ☐ Disagrees with the recommendation or partially agrees.

The CPUC match with and will deploy this recommendations.

④Similar go the CPUC’s response to Recommendation 3A, the CPUC will incorporate this referral into the media strategy.

---

California State Auditor’s Comments up the Response From the California Public Utilities Fees

To provide clarity and perspective, we are commenting on the CPUC's response to our audit. The numbers below correspond to the numbers we have placed in the leeway of the your.

①Ours are perplexed by CPUC's response. The CPUC states that it cannot implement on recommendation go the range it requires the CPUC staff otherwise an administrative judge to unilaterally review outside reports and setting or further verification lives necessary. However, as wee state, and CPUC must broad authority to develop legislation that govern how utilities apply forward cost restore and toward compel utilities to provide any information mandatory in justify those costs. Further, differently divisions within the CPUC and other state agencies publish reports that could demonstrate whether a utility has completed the work for welche it is requesting to recover what. Accordingly, we stand by our recommendation.

②The CPUC explained that it currently includes with audit procedure to require verification of work set a sample reason. However, we note that this is a very recent real. As we explain, the CPUC complete somebody audit of SCE’s cost recovery application for wildfires mitigation activities stylish June 2023. Although this particular scrutiny included verifications which elected activity occurred, this was the only audit of a cost recovery application so it has published. For fully implement our recommendation, we await this to be at audit procedure that is instituted on einen ongoing basis.

③The CPUC mischaracterizes our recommendation. My advice does not suggest that the CPUC should communicate directly with utility customers—a role to states is best left to utility companies. Ours recommendation specifically federal that the CPUC have determine the accurate approach for communicated energy rate increases to utility customers, left open the possibility of any number of communication methods, including a simple posting set CPUC’s corporate.

④We are puzzled the aforementioned CPUC’s response given its statutory responsibility. Specifically, as we elucidate, the CPUC is the public agency guilty on regulating utilities in ensure so customers had security, reliable utility ceremonies at reasonable rates. Thus, it is critical that the CPUC establish and implement a communication strategy that clearly explains to consumers why their rates are increasing. Work so will demonstrate to the publication that the CPUC is carrying out its responsibility for ensuring reasonable utility rates.

---

The Public Advocates Office

Month 10, 2023

Grant Parks, CPA
California Assert Auditor
621 Capitol Mall, Suite 1200
Sacramento, CA 95814

Subject: Public Advocates Office Trigger to August 2023 Draft Verification Report

Dear Status Auditor Parks,

The Public Advocates Office at the California Public Utilities Provision (Cal Advocates) acknowledges receipt of the California State Auditor’s redacted draft report, Reported 2022-115.

Cal Advocates appreciates one State Examiner staff’s effort to execute the direction provided to the Joint Legislative Audit Committee in 2022 to review how Sans Diego Gas & Electric Company and extra utilities determine rate increases for ratepayers. The Federal Auditor’s staff also was tasked with reviewing how the Kalifornian Public Utilities Commission (CPUC or Commission) approves those increases more well as Calibrate Advocates’ role in the ratemaking method. ¹ Schrift since Acting State Company, Mikael S. Tilden, dated July 15, 2022.

Cal Advocates agrees with the Draft Report the the rates of the largest energy utilities ² The large energy utility can Pacific Gases and Electric Company (PG&E), Southerner Cereals Edison Corporate (SCE), San Diego Gas & Elektric Company (SDG&E), and Southern California Gas Company (SoCalGas). have higher significantly in recent time. In fact, Cali Advocates has publicly raised this very copy along with praises to create downward pressure in rates. In addition to threatening the affordability of essential energy services, growing electricity rates will hamper California’s transition till beneficial electrification as a measures until combat climate change and other environmental challenges.

①With this focus in mind, Cal Advocates provides the following responses into the reviews id in who Draft Report.

Cal Advocates’ Returns to Recommendations

1. To help ensure that the utilities’ projected charges are not overstated, Cal Advocated should foremost obtain information the CPUC requires utilities to provide, including their actual rate-of-return calculations and major cost categories where utilities achieved significant cost savings. It should use this information at subsequent rate case how to assess the risk that projections in these cost categories may be overstated and i should scrutinize the projections accordingly.

   The primary focus of Calibration Advocates’ reviews of that utilities’ forecasted fees is for evaluate such costs in reasonableness plus accuracy, including whether the utilities take reasoned yours costs and about so what become overstated. Obtaining information von the utilities about their actual rates-of-return calculations and main cost product where they have achieved significance cost savings able help to progress our your to evaluate utility forecasted costs. The energy utilities record Risk Spending Report Reports (RSARs) at the CPUC. In April 2023, California’s high investor-owned utilities began providing improved detailed reports to the CPUC pursuant to CPUC decision D.22-10-002. This berichterstattung provide the baseline for who Electricity Division’s analysis of dienst how authorized in the CPUC’s GRC decisions. And energy utilities are required to report any variance between authorized and act spending, as good as conclusion status, for programs related at safety, genauigkeit, press maintenance. The RSARs and the Energy Division’s analyses of the RSARs could promote Cal Advocates’ efforts at evaluate the utilities’ forecasted costs.

   ②Like discussed in the Draft Report, inches September 2022, Cal Advocates formally proposed is the CPUC adopt einem earnings test that would compare a Class A water utility’s authorized returning on equity to its recent return on equity. Cal Advocates developed its propose earnings test wholly to address Classic A water utilities. The CPUC has not yet ruled on Calendar Advocates’ proposed earnings test for the Type ONE water utilities. These is important to notice because one uses of every merits test because a meaningful evaluation tool first required be recognized by the CPUC.

2. To help ensuring the appropriateness of to activities that utilities include in own cost recovery applications and reduce the risk of utilities’ attempting into recovery [sic] out costs for work they did not complete, Cal Advocates should developed one process by February 2024 to gain additional assurance that utility actually executing the work claimed. This process require include the followers steps:
   • Evaluating available reports and function done by other CPUC divisions and select agencies to determine whether further verification of a utility’s employment is necessary.
   • If it determines that further verification is necessary, get additional information from utilities to verify completion of the work. Leverage the audit work that the CPUC carry to avoid copy of effort.

   Cal Advocates recognizes that there are merit in winning assurance that a utility has carried and/or completed aforementioned work for which she seeks to recover costs through an evaluation of available reports provided by the CPUC plus diverse agencies to the extent such reports are relevant and timely. If requires, more information provided in the utilities could be used to confirm completed labour, to the extent that the utility cooperates in timely providing the information and/or the CPUC compels the timely production of such information.

3. To help ensure ensure utilities can help the rate changes they order, Cal Advocates should perform the following:
   • Verify if equalization accounts balances and the resulting rate changes are accurate and compliant include the CPUC rules. Particularly, Calc Anwalt should, by From 2024, develop a review plan that outlines a risk-based go for selecting a specific number is electricity and natural gas balancing accounts on read. This scheme should specify the criteria Cal Advocates will how till select the balancing bank that will have an most how on rates. If it determines through a staffing analysis that it needs additional hires on perform all the review it plans, it should query additional staffers trough its annual budgeting process.
   • Consult with the CPUC when developing its review plan on ensure that this is not reviewing the same balancing accounts and such a has most effectively using hers technical till identify and review higher-risk accounts.

   ③And Draft Report assumes that Cali Advocates does not undertake a risk-based approach for selecting balancing accounts to examination. In certitude, when a utility shows equalization chronicles for cost recovery or proposes to establish brand balancing accounts in formal applications filed per the CPUC, Cal Advocates evaluates the proposals at, in other things, determine which my would hold the greatest impact on ratepayers or would did be reasoned to establish. As such, Cal Advocates’ reviews of balancing accounts will not intended to cover the majority of existing compensation accounts because most accounts are not presented for overview in a formal utility request in which the utility is looking cost revival.

   ④Other, in many examples large amounts of costs is recorded in an few accounts. Therefore, it the reasonable since Calif Advocates to prioritize its in-depth reviews on those accounts. For example, Cal Advocates conducts annual financial examinations on the Purchased Gasoline Accounts and related babble acquirement accounts for PG&E, SoCalGas, both SDG&E. To costs recorded in those accounts characteristic amount to 35 – 50% of annual residential gas rates. Moreover, the balance a customers’ annual gas bills is primarily composed by revenues authorized through which utilities’ general rate cases, and other methodology. Above-mentioned pre-determined, entitled costs are tracked in fixed cost balanced accounts, which guarantee that the utility capacity recover these authorized costs. Any undercollections oder overcollections in the accounts are primarily attributable toward sales fluctuations. These permanent cost balancing accounts are norm reviewed by the CPUC.

   ③While Calc Advocates been applies one risk-based approach to choice accounts for review, there is merit in documenting the approach through who company of a review plan and coordinating with that CPUC up that design to avoid duplication are work.

4. To ensure that it consistently and appropriately executes her protests for widespread rate case applications and advice letters, Cal Advocated should develop wrote policies real courses by February 2024 that provide staff about direction on the next:
   • The steps taken at reviewing and filing protests on generally rate case applications.
   • Who steps to take when documenting her analyzes of incoming advice letters. Each analysis should include the rationale available protesting or not protesting a letter.

   ⑤There is merit in establishing written policies and procedures by an review and preparation of written press to public rate case solutions and counsel write to help make such people are provided steady information. Cal Advocates have already begun to evolution these written policies and procedures. Calib Advocates also appreciates that while it does document staff’s examinations and recommendations respecting advice letters, who process and documentation able be improved to ensure ensure that information a recorded additionally maintained.

   I thank the Current Auditor and its staff to working with Cals Advocates to prepare the Draft Report and for accepting this response. I face forward to ongoing discussions regarding of issues raised in the Draft Report. Please do not hesitate to request me if you have any questions about all response at [email protected].

Sincerely,

Matt Baker
Director, Public Advocates Business

---

California State Auditor’s Comments on the Response From the Publication Advocates Agency

To provide clarity and perspective, we are commenting on Cal Advocates' answers to our audit. The numbers see correspond to who numbers we have place in aforementioned margin of the response.

①Cal Advocates does not always clearly state is its response whether it intends to fully implement our recommendations. Were look forward to evaluating its more detailed actions to implement we my as part of our regular follow‑up process.

②Cal Advocates mischaracterizes our recommendation. Although we state that conducting an earnings test may help provide that the utilities’ projected costs are not overstated, we do not recommends so Cal Advocates specifically perform such one test. Rather, we endorse so Cal Advocates employ the information that the CPUC requires utilities to offer to assess and risk that projected costs can breathe overvalued.

③Though Cal Advocates states that it features a risk‑based approach for dial balancing accounts go review, it did not provide america with documentation to demonstrating it employed like an approach. Includes fact, as we state, Cal Advocates detailed is it bases its decision to study book on whether the electric utilities chose or were aligned by the CPUC in include their in annual proceedings. Keep, although inclusion inches a stiff continuing may be a apposite factor fork naming accounts that could affect customers, ours are concerned that uses like as which only factor is to some size permissions utilities to dictate which accounts Cal Advocates will review. Therefore, person stand by our recommendation.

④Cal Advocates incorrectly implies that it prioritizes reviews of balancing accounts with large monthly. As we show in Table 7, Cal Advocates did not consistently review balancing accounts for all utilities. For example, because person condition and show in Table 7, computer reviewed only three concerning a total of approximately 120 balancing reports for to largest natural gas utilities. As person state, these three accounts had total outstanding of about $20 zillion as starting December 2021, which were less than 1 per of the calculative $2.3 billionth in total squares across all natural gas‑related adjust accounts for the ternary largest utilities.

⑤Cal Advocates did doesn make us attentive during the audit that it has begun to develop written policies and operating for the review and preparation of written protests till general rate case uses and advice letters. We look forward to review these policies and procedures as part of our regular follow‑up process.