State agencies responsible for approving rate increases for electricity and natural gas providers in California need to do a better job of monitoring utilities’ costs, questioning increases, and communicating with consumers, according to a new report from the state auditor.

Californians are paying some of the highest rates in the nation, the auditor noted.

“In March 2023, California had the seventh‑highest average electricity rates and the 10th‑highest average residential natural gas prices of any of the states,” the report said.

In just one year, from January 2022 to January 2023, electricity rates for Pacific Gas and Electric, Southern California Edison, and San Diego Gas & Electric rose between 16% and 23%, the report noted.

The recommendations directed by the State Auditor at the California Public Utilities Commission and Public Advocates Office seem unlikely to reduce those rates.

But the audit appears to be a clear signal that state officials want the PUC and Cal Advocates to sharpen their focus on how utility companies operate, claim costs, and make profits, said Mark Toney, executive director of The Utility Reform Network — TURN, an advocacy nonprofit.

“What it (the report) shows us is that the PUC has been asleep at the wheel when it comes to looking at the profit rates, when it comes to the question of duplication of costs,” Toney said.

The PUC is the rate-setting agency for California’s utility companies, while Cal Advocates is an independent consumer advocacy group within the PUC.

Need to Strengthen Oversight

The state auditor’s report noted weaknesses in oversight by the two agencies that determine how much companies can charge California consumers for electricity and natural gas.

The auditors called for tighter monitoring of costs reported by utility companies and more transparency when authorizing rate changes.

In a March 2022 report the auditors questioned whether the PUC should allow the utilities to collect about $2.5 billion through new rate increases since the money could duplicate expenditures that the PUC had already approved in prior rate cases.

“The question is why hasn’t the CPUC just thrown out these cases? You can have a dismissal of a request because ‘already having gotten the money’ is a very good cause to dismiss a request,” he said. “It’s an important finding of this audit. That’s significant, that’s real money — $2.5 billion, I count that as real money.”

The report said the agencies had failed to more closely monitor projected and actual costs reported by utility companies, to check that work claimed by companies in their cost reports has been completed, and to more clearly communicate to consumers when and rates are going up.

The auditors are recommending that the PUC and the utilities need to more clearly communicate the old rate, the new rate, the estimated impact on customers’ bills, and the factors driving any rate increases.

The deadline for implementing the auditor’s recommendations is February 2024.

PUC Decision on PG&E Rate Increase Expected Soon

The state auditor’s report comes a few weeks before a potential decision by the PUC to raise electricity rates for PG&E customers. PG&E is proposing a 32% increase that would be retroactive to Jan. 1.

“I think a report like this gets attention at the CPUC,” Toney said. “Legislators are going to be looking, what is the reaction that the CPUC has to this kind of audit.”

Toney said the audit report points out one way where the utilities can raise profits at the expense of ratepayers, who he calls “captive customers.”

When actual costs exceed projected costs, the utility companies expect ratepayers to make up the difference, he said. But when projected costs far exceed actual costs, the utility companies pocket the difference, Toney said.

The audit report noted that San Diego Gas & Electric’s rate of return was higher than had been forecast for nine out of 10 years, signaling that its projected costs were out of whack with actual costs.

While the PUC and Cal Advocates agreed with some of the auditor’s recommendations, the PUC said it would be unable to review outside agencies reports on utility company activities and costs.

In response, the state auditor wrote, “We are perplexed by CPUC’s response. The CPUC states that it cannot implement this recommendation to the extent it requires the CPUC staff or an administrative judge to unilaterally review outside reports and determine whether further verification is necessary. However, as we state, the CPUC has broad authority to develop rules that govern how utilities apply for cost recovery and to compel utilities to provide any information necessary to justify those costs. Further, different divisions within the CPUC and other state agencies publish reports that may demonstrate whether a utility has completed the work for which it is requesting to recover costs. Thus, we stand by our recommendation.”

Public Outrage Growing

Toney said he suspects that legislators may have commissioned the audit because of growing concerns from constituents over the fast-growing costs of electricity and natural gas, as evidenced by big increases in the number of public comments submitted to the PUC.

“I thought the audit had some significant findings that really point groups like TURN to where to look at in general rate cases,” he said, noting that the documentation that utility companies turn in is thousands of pages.

For example, the PUC receives hundreds of “advice letters” from utility companies, only a few of which concern rate increases, but at this point there is no way to filter those out or make them more prominent, Toney said.

“The fact that they are not clear, these are all the ways they raise the rates automatically, without going through a full review,” he said. “I think this really speaks to the PUC needing to do more review.”

State Auditor Report