- Total System Average Rate (SAR) increases are rising for California's three investor-owned utilities, as revenue requirements grow to meet statutory mandates and operational needs, according to a report released Wednesday by the California Public Utilities Commission.
- Because lower electricity usage is no longer offsetting rate impacts in some areas, regulators warn some customers could see "a growing trend of bills exceeding national averages."
- The issue is exacerbated by California's wildfire crisis. Utility mitigation plans could result in monthly bill increases of up to 7% for some customers — and possibly higher, depending on how liability costs are allocated.
Historically, California's electric utilities have charged rates higher than the national average, while modest customer usage served to keep bills low. But that dynamic is changing, according to a report titled "Actions to Limit Utility Cost and Rate Increases."
"Rising rates and bills stem from declining utility sales, while revenue requirements continue growing to meet statutory mandates and operational needs," the report finds. "This means that fixed costs are paid for by fewer customers."
Utility wildfire mitigation plans will add to bills, but that may not be the final economic impact. If wildfire liabilities are passed on to ratepayers in large portion, "rates and bills could dramatically increase beyond the costs of existing programs and wildfire mitigation plans," the report concluded.
Total electric SARs for the three large IOUs increased annually from 2012 to 2019, according to the analysis. For Pacific Gas & Electric and Southern California Edison, the increase was 2% on average. For San Diego Gas & Electric, the increase was 6%.
A utility's SAR consists of its total authorized revenue requirement divided by total kWh sales.
"These average annual SAR increases, especially in the case of SDG&E, underscore the need for transparency between operating and infrastructure investment costs, and the costs of policies and programs that keep California's grid green, safe, and reliable," the report concluded.
SDG&E's smaller customer base reduces the utility's economy of scale for large investments, the report said, explaining the utility's steeper rate increases. In addition, the utility has an "increasing share of customers investing in roof-top solar," both of which are driving SDG&E's SAR at a faster rate.
The analysis was included in a trio of reports the CPUC released on Wednesday, focused on cost trends at the IOUs.
A second report concluded the IOUs' total annual renewable portfolio procurement expenditures increased from $5.3 billion in 2017 to $5.6 billion in 2018, while renewables increased from 36% to 40% of total generation procurement at the same time.
And a third report on utility costs found that compared to 2017, regulators last year authorized annual revenue requirement increases for SCE and SDG&E of 1.2% and 2.4%, respectively, while PG&E requirements decreased by 9.5%.
The decrease for PG&E relates to a 16% decline in the utility generation revenue requirement since 2016. According to the report, it "reflects the reduction in PG&E's overall procurement due to lower bundled load over the period 2016–2019."
Wildfire impacts have thrown the state's utility finances into disarray, leading to PG&E's bankruptcy and higher rates for customers. Along with recovering the costs of wildfire mitigation, IOUs have also asked regulators to adjust their returns to account for higher risk.
In April, SCE asked federal regulators to significantly raise its return on equity due to "dramatic, material changes" to its regulatory and financial conditions. PG&E has also asked California regulators to raise its ROE from 10.25% to 16%, adjustments the utility says are necessary to attract capital for safety and reliability investments.