Will California leaders deliver on their affordability promise?
Exactly 12-months ago, negotiations between the Legislature and Administration regarding a suite of new energy affordability policies broke down. On the measures that did pass, experts labeled them a "political gesture or, at best, a small first step toward solving the problems". The Senate Pro Tem, Assembly Speaker, and Governor Newsom, all citing the "urgency" of the state's affordability crisis, committed to delivering something for Californians by the end of the next year.
Now 12-months later, following dozens of introduced bills and committee hearings and a lot of talk about affordability, the question remains: will the Governor and Legislature deliver on their promise?
New polling shows voters demand action on electricity affordability
If there was any doubt regarding voters continued prioritization of electricity affordability compared to other policies, this was put to rest in a poll released only days ago. The results showed:
85% of voters say that it is important for their legislative representative to do everything possible to lower electricity bills for consumers this year.
58% of voters say they would be more likely to oppose a legislator for reelection if that legislator had an opportunity to vote to lower electricity bills for consumers and businesses and didn’t do so.
Multiple electricity affordability proposals in the mix
There are multiple policies that are currently subject to negotiation between the Assembly, Senate and Administration.
Public financing of transmission: $3 billion in savings per year
The most significant measure by far is to enable public financing of transmission, as proposed in AB 825 (Petrie-Norris) and SB 254 (Becker).
The LAO, California Public Advocates Office, and state energy agencies have all identified the significant savings by shifting a portion of grid investments to a public financing model.
This policy would provide more than $3 billion per year in ratepayer savings, which is 3-4x more than the next best proposals.
Recent research shows that public financing of transmission would have no impact on the financial health of California investor-owned utilities, despite claims to the contrary.
This diagram highlights the customer savings potential for building new transmission under alternative models. Applying public financing (far-right chart) to only a portion of new transmission yields billion in annual savings.
Securitization of distribution, wildfire investments: $750 million in savings per year
Both SB 254 and AB 825 would restrict IOUs from putting in their equity rate base the first $15 billion of investments relating to distribution and wildfire investments and instead authorize the recovery of these costs via the issuance of bonds, a process known as securitization.
This policy is estimated to provide on average $750 million per year over 10-years.
The $15 billion represents only 16% of the $94 billion in new capital spending through 2028 forecasted by the three largest investor-owned utilities.
Regionalization of electricity market: $400 million to $1 billion in savings per year
SB 540 (Becker) proposes a pathway to expand the state's electricity market to other western states, a concept known as regionalization.
This policy is estimated to provide $400 million to $1 billion per year in ratepayer savings, depending on the level of market participation that could occur.
Reforms to the California Climate Credit: 10% bill savings
A final key proposal is redesign of the climate credit. The climate credit, which is derived from cap-and-invest auction proceeds, is currently provided twice annually and equally to all ratepayers in April and October. Proposals to change the nature of this allocation, including based upon energy usage as well as targeting the credit to the summer months, could alleviate rate pressures in a more targeted way.
A key consideration is that this affordability benefit is dependent on the reauthorization of cap-and-invest, underscoring the importance of reaching a deal on this climate policy this year also. There appears to be overlap between the Assembly and Senate proposals, which would enable a more meaningful climate credit by phasing-down free allowances to gas corporations.
All eyes on the Governor, Legislative leaders
With only days remaining in the legislative session, it remains to be seen what deal on affordability will be reached. It is clear that voters are demanding far more meaningful action than was achieved last year. With concrete proposals vetted over dozens of oversight and committee hearings, including key policies that could provide a path for other states struggling against rising energy costs themselves, state leaders can shape the next generation of energy policy for the benefit of Californians and the nation.
