← Boiling Point
Boiling Point
Electric Bills Are Too High. Here's What California Is Doing About It
00:42:47
Sammy Roth talks with Matt Freedman, staff attorney at the Utility Reform Network, about what California lawmakers are doing to rein in soaring electricity costs, and why it’s crucial for the state’s climate goals. Read Sammy’s latest column: https://www.latimes.com/environment/newsletter/2025-09-18/california-legislative-session-climate-issues
Loading summary
Transcript93 lines
- [00:01]
Matt Friedman
This is an LA Times Studios podcast.
- [00:07]
Sami Roth
My name is Sami Roth and I'm the climate columnist for the Los Angeles Times.
- [00:12]
This is boiling point.
- [00:29]
2025 was an especially tense year for climate and energy in the California Legislature. Electric bills have been getting out of control for years, and this year, legislators promised they would finally do something about it. Then, in January, two of the most devastating fires in California's modern history tore through Los Angeles. Meanwhile, the Trump administration has been completely undoing federal support for renewable energy. And as if that wasn't enough, two of California's nine oil refineries are planning to shut down in the next year. Lawmakers have had their hands full when the state Legislature finalizes bills at the Capitol in Sacramento at the end of every summer. It's not unusual for members to keep working right up until midnight on the last day to make changes. Well, this year they were having so much trouble figuring out how to deal with all the climate issues that, that they actually stayed up past midnight. This was last week on Tuesday night. And they finally struck a deal with Governor Gavin Newsom. Early Wednesday morning, legislative leaders agreed with Newsom on a series of bills that they say will keep electric rates from getting too high and add renewable energy to the power grid and make sure we keep reducing planet warming pollution. That all sounds pretty good, assuming it works. Newsom and the Legislature also agreed to allow a lot more oil drilling in Kern county, just north of Los Angeles County. That is not exactly an environmental victory, but the governor and many Democratic lawmakers say it's necessary, at least in the short term, to keep gasoline prices from getting too much higher. When those two oil refineries close again.
- [02:17]
We'Ll see if it works.
- [02:19]
Frankly, the legislature passed too many bills last week to unpack all of them in one podcast. So today we're going to focus on electric rates, why they're so important to climate progress, and what the Legislature did to try to get them under control. A lot of it had to do with California's three big investor owned utility companies. Southern California Edison, Pacific Gas and Electric, and San Diego Gas and Electric. We have a great guest with us today who's going to explain how all of this works. His name is Matt Friedman and he's a staff attorney at the Utility Reform Network, also known by the acronym turn. TURN is an Oakland based nonprofit that advocates for utility ratepayers, which basically means Matt and his colleagues are trying to make sure that you're not paying too much for energy. TURN also has a strong focus on climate. Matt has been doing this work for 25 years. And he knows as much about electricity policy in as almost anyone I've ever interviewed.
- [03:20]
You're going to see what I mean in just a second.
- [03:23]
Here's our conversation.
- [03:34]
Southern California Edison Representative
During one of the most severe windstorms Southern California experienced in more than a decade, the Palisades and Eaton fires ignited, leaving heartbreaking losses in our communities. Now, as we build back, we're building stronger, cleaner and more resilient in communities most vulnerable to dangerous weather conditions and wildfires. Southern California Edison is placing power lines underground, hardening the electric system by installing wires with protective coating and adding advanced technology to help keep communities safe. When Southern California faces the next storm, the next most severe event, helicopters, structures adjacent to the pipeline, we'll be ready. Learn more@sce.com disasterrecovery California lawmakers big Oil is slick.
- [04:36]
California Environmental Voters Representative
Don't slip Big oil lobbyists are working hard to roll back climate and clean energy progress to keep their profits so soaring and California hooked on their dirty, expensive energy. We can't afford to slip on big oil's slick PR and lobbying keep California moving forward with affordable clean energy and transportation. Learn more@don'tslipca.org paid for by California environmental voters.
- [05:02]
Sami Roth
Matt, thank you very much for being with us on the Boiling Point podcast.
- [05:06]
Matt Friedman
It's great to be here, Sammy.
- [05:07]
Sami Roth
So all these bills just passed in the legislature. We've got Governor Newsom and all of these politicians talking about keeping people's electric bills, their utility rates. How do you think they did did anything happen that people are actually going to notice our electric bill is going to be any lower or at least not go up any faster? What, what's your take?
- [05:27]
Matt Friedman
Well, there's a lot to unpack here, but I start by saying that it's something of a mixed bag. We got some significant wins going forward on affordability, but we're far from where we need to be. And there is a pretty large unfinished agenda that got left on the cutting room floor this year. So that's my high level assessment, but I can certainly talk quite a bit more about the details.
- [05:50]
Sami Roth
Well, let's you said significant win, so let's start on the positive. What did you see on energy affordability that you liked? What did the legislature do that was that was worthwhile?
- [05:59]
Matt Friedman
Well, the top two things I can point to involve the same issue, which is alternative financing of capital investments in the electric grid. So to start off with, typically when utilities invest in the grid, whether that be the distribution system, poles and wires that connect people to the system or large electric transmission facilities. Utilities finance those projects using a mix of debt that they acquire from the market and the capital from their own shareholders. And the shareholder capital is about 50% of the money that they use for these investments. And it's very, very expensive from a ratepayer perspective. So if we can find cheaper ways to finance grid investments, then those cheaper financing tools allow us to flow through those savings to ratepayers. And there are two mechanisms that were adopted by the legislature this year on that front.
- [06:54]
Sami Roth
So let me stop you from one second. So you're talking about SoCal Edison, PG&E, San Diego Gas and Electric. When they're spending the money from their investors to build new power lines or do things that reduce the risk of wildfire ignitions. When they're spending money from their shareholders, that's expensive because they're charging their ratepayers for it, and they're charging their ratepayers for the profits for their shareholders. So the legislature was trying to figure out what are other ways we can finance those expenses that are less expensive for the ratepayers of those companies. Right. That's basically the idea.
- [07:25]
Matt Friedman
That's right. And not only do the utilities require that those investments compensate their shareholders at a rate of return that's currently around 10%, but ratepayers also have to pay the taxes on that rate of return because profits are taxed. So effectively, ratepayers, customers of the utilities are paying about 14% on the capital that the utilities investors deploy for grid investments.
- [07:51]
Sami Roth
Complicated math. Ratepayers ultimately get charged a bunch of money. So what did the legislature do to try to keep that from going up too much further? Because it's been going up a lot the last few years.
- [08:01]
Matt Friedman
Huge. The amount of capital investments in the system made by the utilities is off the charts. And the forecasts going forward are quite staggering in terms of the amount of capital the utilities think they are going to need. For example, between 2025 and 2028, the three major private investor owned utilities are forecasting almost $95 billion in new capital expenditures on their system. That's insane. That is so much money. And the proposal in the legislature that we started off with at the beginning of this year was to take $15 billion of that, about 95 billion, and to finance it through bonds that would be paid back by ratepayers. But the bonds have a much lower rate of interest than if you finance that same investment from utility shareholders. So at $15 billion of securitization, securitization is the operative term here for the bonds. We estimate that ratepayers would have saved about $7.5 billion over the first 10 years, compared to a scenario where that money came from the utility's own investors. Well, the legislature started out with $15 billion, and that's where we were until last week when the final set of deals were made. And in the last round of deal making, the $15 billion dropped down to $6 billion. And that's what ended up being in the final package that was enacted last weekend.
- [09:27]
Sami Roth
Presumably it went down from 15 billion to 6 billion because opposition from the utilities because the less money they spend investing in all of this infrastructure, the less profit they make.
- [09:38]
Matt Friedman
That's exactly right. The utilities made this one of their top priorities to oppose. They argued that this type of financing mechanism, despite the fact that it has been used many times in the past, that somehow it would undermine investor confidence in California's utilities, it would lower their stock prices, it would threaten their credit ratings. And they actually deployed a phalanx of lobbyists and proxies in the form of Wall street investment analysts to come in and try to lobby the legislature and the governor's office to say don't do this at all, or if you do it, have it be a small fraction of that 15 billion. And in the end, they appear to have prevailed, at least in part. Although we got 6 billion, the original goal was 15 billion. And so it was a significant reduction from the original proposal.
- [10:28]
Sami Roth
So that's $6 billion in spending, the next $6 billion in wildfire risk reduction spending specifically for the three utilities, that they won't be able to profit on lower costs for the customers of those utilities.
- [10:40]
Matt Friedman
That's correct.
- [10:41]
Sami Roth
And that I believe you've estimated that the savings for the customers is what, $3 billion over 10 years as a result of that.
- [10:49]
Matt Friedman
That's right. It's about an average of $300 million a year for the first 10 years. And to put that into perspective, we think that looks like something on the order of a $2 per month customers. Okay, so this is not a game changer, but it is meaningful enough that it, it was one of our top priorities because it's a, a very clear way to achieve savings without sacrificing anything with respect to the amount of work that's being done. It's just essentially free money that we can manufacture for rate payers. And we wanted that number to be much higher. Rather than $2 a month, we were hoping for something on the order of five or $6 a month. But $2 is about where we landed.
- [11:29]
Sami Roth
So you said that was one of two significant victories. What was the other one? I think it had to do with how we pay for building new power lines in California.
- [11:37]
Matt Friedman
That's right. Public financing and ownership of electric transmission. So electric transmission wires, people may notice them because they have these very, very tall towers. They go across wide swaths of the state. They're not with the wires that individual customers hook up to. They're the high voltage lines. And the amount of spending that is being forecasted for this part of the system is quite staggering. Over the next 20 years, for example, the California Independent System Operator that runs the state's transmission network projects up to $63 billion in new transmission expenditures just to connect new clean energy resources needed to meet our decarbonization goals in the state.
- [12:20]
Sami Roth
So we need a lot of new power lines to connect solar farms and wind farms to the big cities, basically.
- [12:26]
Matt Friedman
That's right, and for a variety of other reliability needs as well. But transmission expenditures are a big item over the coming decades. And some of the transmission in the state is already owned not by private entities, but by public entities like the Los Angeles Department of Water and Power, the Sacramento Municipal Utility District. There are consortiums of public utilities in the state that own lines. And when they own them, they finance them through public debt. When the utilities like Southern California Edison or PG&E with the private utilities finance them, they use a combination of shareholder investments, which I've just discussed, and why they're so expensive, and debt. So the idea here is, can we have more public ownership and financing of new transmission additions given the staggering amount of money required to build out that network? So that's the setup for this. And in fact, there was a study that was done earlier this year that looked at the potential savings from public ownership versus private ownership. And what it found was that public ownership could save about 50% on an annual basis in terms of the bills that customers pay for that asset. And if you were to finance all $60 billion of new transmission that's needed publicly, we'd save about $3 billion a year for ratepayers. That's kind of the edge scenario of what's possible.
- [13:47]
Sami Roth
So the bill that got passed, though.
- [13:48]
Didn'T actually go and say, hey, we're going to take all $60 billion of forecasted spending and do it all with public funding. What did it actually do? What's going to happen?
- [13:56]
Matt Friedman
So the final bill establishes a public transmission financing fund that would be administered by an entity Called the Infrastructure bank here in California. The bank would start out with $325 million. That was authorized in Proposition 4 that was passed by voters last November. But the Infrastructure bank would then be authorized to work with a unit of the governor's office to explore alternative financing for new transmission projects, to use that money as seed capital to be able to issue tax exempt bonds and find other funding sources to support public private partnerships where private entities would have to partner with public entities in the development of some of these lines.
- [14:42]
Sami Roth
We should also talk about the big utilities, Edison, PG&E and San Diego Gas and Electric. They did get some. Something really big that they wanted this session. I mean, they lost out on the profits here in these two things that we talked about. They also got all of this money from ratepayers for the Wildfire Fund. Can you explain that issue?
- [15:01]
Southern California Edison Representative
Sure.
- [15:01]
Matt Friedman
Well, this was the big setup for this year's affordability conversation. How could we hope to get big concessions on affordability? Because the utilities needed something that was extremely valuable for them, which is an extension to the state's Wildfire Liability Fund. This is a fundamental that provides liability coverage for damages due to wildfires that are caused by utilities, electric grid infrastructure. This was created back in 2019 to essentially create a risk pooling arrangement, recognizing the fact that these fires can cause huge damages that really can't reasonably be borne by the customers of any one utility. California has a. Has a constitutional principle called inverse condemnation, which is a weird construct. But what essentially it means is that any fire caused by a utility asset, poles, wires, anything, if it is proved to be caused by the utility's own infrastructure, then the utility has to pay the costs of all of the damages, regardless of whether the utility was negligent. Which is normally a principle you would apply to determining whether someone is liable for damages. So because that's the background here in California, that any wildfire caused by a utility asset, those costs have to be paid by the utility. The question becomes, well, how are those costs going to be recovered? Do we hit shareholders with it? Do we pass it on to customers? And the general principle there is if the utility has been negligent, then the utility shareholders pay. But if the utility has not been negligent, then the ratepayers end up paying. We have this Wildfire Fund that was established in 2019 and it was established.
- [16:42]
Sami Roth
After the campfire right, which PG&E caused and burned down the town of paradise and what, 80, 85, I think, died. This was the sort of the response to that from the state legislature because PG&E went into bankruptcy. And that was sort of a crisis.
- [16:54]
Matt Friedman
For PG and E. That was the setup for this. Yes. Is that PGE had caused several fires, had gone into bankruptcy, and there was a recognition that we needed a better way to finance some of these liability costs. And so a statewide pool was set up. The three big utilities joined the pool. And the assumption was that the money in that fund would be sufficient to fund decades worth of fire liability. And that was the general understanding until the beginning of this year when the giant fires in Los Angeles really changed the conventional wisdom around that the damages associated with those fires are astronomical.
- [17:33]
Sami Roth
It's funny how climate change keeps changing.
- [17:35]
Matt Friedman
The conventional wisdom it upended. Everybody's thinking about how much money would be enough. And specifically when there was a view that the Eaton fire that hit Altadena very hard was potentially caused by a transmission tower owned by Southern California Edison. Now, I know there hasn't been a conclusive determination, but there's a general view that Edison is likely to be liable for those costs. And the damages are extraordinary. Right. People are throwing out numbers like $20 billion or more just from that fire alone. So the concern was that this fund was going to be exhausted. And the request from the utilities was to extend the fund and to have it be recapitalized. And the utilities did want all of those costs to be paid by ratepayers. But the final deal that was made by the governor's office and enacted by the legislature last week would provide $9 billion from the utility shareholders and $9 billion from utility ratepayer. So it's a 50, 50 split of costs going forward. And the ratepayer share would be financed with bonds, and ratepayers would start paying on those bonds in 2036. You might say, well, why 2036? How did that year get picked? It got picked because ratepayers are currently paying off bonds for the initial capitalization of that Wildfire fund. And those payments end in 2035. So this would be an extension of those payments going forward.
- [19:07]
Sami Roth
So the Customers of Edison, PG&E in San Diego, Gas and Electric, they're already paying for the initial money that was supposed to go into this fund from 2019 that was, in theory, supposed to last decades. Then the Eaton fire happened and everyone realized, oh God, this fund that was supposed to last decades might not last six or seven years. So now this payment that everyone's putting on their bills is going to be extended for how long?
- [19:28]
Matt Friedman
Past 2035, I think it's at least 10 years.
- [19:31]
Sami Roth
Yeah. So this was the political horse trade that was made, basically. So the utilities got $9 billion from their ratepayers to help replenish this Wildfire Fund to help them stay out of bankruptcy. And what ratepayers get is the stuff that we talked about earlier, less utility profiting on building new transmission lines and on spending on wildfire mitigation. So, you know, the public financing mechanisms for that stuff so that, you know, electric bills go down.
- [20:00]
Matt Friedman
That's right. That ended up ultimately being the deal. There's also another piece of the Wildfire Fund deal that's sort of worth noting. And it comes up, really, when you listen to the governor's office providing testimony on that deal in the Senate last week, which is that they're looking for other ways to finance this liability over time with a recognition that maybe this use of a statewide fund of the three utilities is not durable and sustainable over time. So there's a directive in the bill to examine alternative approaches for allocating these costs. And I think ultimately that may include a review of this construct of inverse condemnation. Should every fire caused by a utility line automatically have those costs paid by the utility? Or should we look deeper at negligence? Should we come up with a different insurance system? I mean, this is a blue sky conversation about how to restructure the assignment of these costs that are attributable fundamentally to climate change.
- [21:03]
Sami Roth
That makes perfect sense because regardless of how fires are ignited, in some cases it's utilities, and there should obviously be some responsibility for them in that case. But regardless of ignition source, fires are getting more severe with climate change. And when we have a fund that was supposed to last decades in danger of running out after five or six years, it makes perfect sense to be thinking about how do we have a sustainable system where ratepayers aren't getting charged billions of dollars for fires every few years and utilities aren't in danger of going bankrupt, because that's not good for anyone. There needs to be a different construct. So it's good to hear that that was in the bill. I hadn't realized that component. I mean, on the whole, when we're thinking about affordability of electric bills, this trade that was made, ratepayers are adding $9 billion into this fund, and this charge gets extended another 10 years, but then also more public financing for transmission. Utilities aren't profiting for a while off of this wildfire risk reduction spending. Do you think utility customers come out ahead there? I mean, was that overall a win for people who are paying high electric bills.
- [22:08]
Matt Friedman
Well, we estimate that the costs of extending the Wildfire Fund are going to be about $3 a month for the average residential customer. And we estimate that the cost, the benefits associated with the $6 billion in alternative financing are going to be about half that. And the benefits of alternative transmission financing are yet to be determined. It will depend upon how much investment actually occurs. So our position was that more alternative financing was needed to zero out the impacts of extending the Wildfire Fund. We're not sure we're there, which is why we think there's an unfinished agenda going forward.
- [22:46]
Sami Roth
One other component that we haven't talked about here is these climate credits. And I think this was in another bill, so we should talk about which bill this was. But people might know that every April and October, if you're an Edison or a PGE or an STG&E customer, you get these bill credits. Where your electric bill. Is it gas bills too or just electric bills?
- [23:05]
Matt Friedman
It's both gas and electric credits. Until now. That's about to change.
- [23:09]
Sami Roth
Okay, so you get this reduction in your bill every April and October. Talk about why that's been the case and how that's going to change under the legislation that just passed.
- [23:18]
Matt Friedman
Yeah, so customers currently get a semiannual climate credit on their electric bills. This shows up in April and October. And by the way, I'm, we're now we're only talking about customers of investor owned utilities when we're talking about the structure of this credit. Publicly owned utilities like Los Angeles and Pasadena and Burbank, they get this money too, but it doesn't show up as a separate credit on their bills. Where is this money coming from? It's coming from free carbon allowances that are provided to each of the utilities under the state's cap and trade program. So if you're an investor owned utility customer in 2025, you're getting about $115 a year on your electric bill. And that's divided into two increments, April and October. And if you're a gas customer, you're getting a once per year credit of about 50 to 60 dollars a month. So that's the status quo. What were we talking about in terms of changing this credit? Well, the first idea was let's get more money into it. This is a direct way to provide benefits to customers in the form of lower bills. And the cap and trade program generates an enormous amount of money every year. And a bunch of that money is used for stuff that is completely unrelated to electric bills, like Funding high speed rail. So could we take some more of that money and funnel that into providing a climate credit that would provide direct bill relief for customers? Well, that didn't happen. There was no result in terms of getting more of that money channeled to customers.
- [24:53]
Sami Roth
Cap and trade is still getting its $1 billion per year automatically.
- [24:56]
Matt Friedman
Well, there's a lot more than a billion dollars a year in the cap and trade program.
- [25:01]
Sami Roth
Oh yeah, that was just kind of the high, the, the top line item. But yes, continue.
- [25:04]
Matt Friedman
Yeah, yeah. So the first idea was let's put more money into this climate credit and you can use this money to provide direct relief to low income customers. There's a lot of things you can do if you're able to establish more money for these bill credits. So the legislature didn't do that. They preserved the status quo and kept all the money for other programs in place. The second idea was to move the gas credit over to the electric side. Should customers for gas service be getting a climate credit? And that is has been changed by the legislature. There will be no more gas climate credit moving forward. All that money will go into providing a larger electric climate credit. And the third issue is maybe changing the way that the climate credit is distributed to customers. Right now it's provided in what are typically the lowest billed months. In fact, some customers may find that they have a negative bill in April and October because of the size of.
- [25:59]
Sami Roth
The credit, because it's not that hot or not that cold in April or October. Those are the shoulder seasons.
- [26:03]
Matt Friedman
In particular, April is one of the lowest usage months in the state. So the idea here was to switch the money to the highest usage months with the notion that customers should get the bill relief when their bills are highest. That might provide the best benefits and maybe to change the way the credit is given. Should we give it as a flat amount on a customer bill or should it be tied to the amount of electricity that you use? These were the questions that came up. And what happened in the end was again, there's no more money available for this climate credit, but the gas credit is being eliminated. The money is being moved over to the electric side and the credit is going to be provided to customers on their bills. And this is the phrasing in the bill in no more than the four highest billed months of each year. So moving to the highest billed months, no more than four months perhaps could be used as an offset based on the amount of electricity the customer uses. Or it might remain a fixed credit. It's not clear.
- [26:58]
Sami Roth
So two things one this whole conversation makes me wonder whose idea was to give those credits in April and October when electric bills and aren't that high to begin with because that seems silly. So this seems better. That's number one to the fact that it's all getting switched from gas bills to electric bills. I imagine that's because that's an extra incentive for people to switch from gas to all electric appliances. Which is better for climate change, right?
- [27:21]
Matt Friedman
Well, that's the idea. I'm not sure how it's going to work out in practice. Keep in mind that customers that are least likely to be able to electrify are low income customers and renters. And there's a correlation between that about 45% of Californians are renters, but about 2/3 of low income customers are renters. So taking away the gas climate credit could end up harming low income customers disproportionately if they're not able to electrify. It's not clear. We haven't seen much analysis on this point, but it's an experiment that the state is going to try to see whether it works to provide more of that money to support electrification.
- [28:05]
Sami Roth
We'll be back after a quick break.
- [28:15]
Southern California Edison Representative
During one of the most severe windstorms Southern California experienced in more than a decade, the Palisades and Eaton fire fires ignited, leaving heartbreaking losses in our communities. Now, as we build back, we're building stronger, cleaner and more resilient in communities most vulnerable to dangerous weather conditions and wildfires. Southern California Edison is placing power lines underground, hardening the electric system by installing wireless with protective coating and adding advanced technology to help keep communities safe. So when Southern California faces the next storm, the next most severe event, Helicopters.
- [29:04]
Matt Friedman
Structures adjacent here at Pipe Road.
- [29:07]
Southern California Edison Representative
We'll be ready. Learn more@sce.com disasterrecovery California ratepayers face some.
- [29:16]
California Environmental Voters Representative
Of the nation's highest electricity costs With a decades old solar policy at the center of debate. Net energy metering was introduced in the 1990s to boost rooftop solar by letting homeowners sell excess power back to the grid at full retail rates. But now the California Public Advocate's Office reports that households without solar are subsidizing those with rooftop systems through higher electricity rates. The Fix the Cost Shift Coalition points out that this shift has led to equity concerns. Solar adoption concentrates among higher income homeowners while costs burden renters and lower income families. Assembly Member Lisa Calderon authored legislation to address the cost shift while maintaining solar incentives at 76 to 82% of current levels, support Assemblymember Calderon and help fix California's electricity crisis. Learn more@fixthecostshift.org that's fixthecostshift.org.
- [30:11]
Sami Roth
There was a proposal at the last minute to that somebody made, I forget who, to replace some of the expiring federal tax incentives for electric vehicles. Right. But I don't think that went anywhere. Nobody did that in the legislature.
- [30:25]
Matt Friedman
I'm not aware of that making it into any of the packages. But keep in mind, there were a lot of ideas circulating in the final weeks. Like 95% of the ideas people had didn't make it into the final bills. It's the, the legislative process is one where you're supposed to have a fully formed proposal by the time your bill hits the first hearing and you're admonished if you, if you try to make changes afterwards. But yet in the final weeks, everyone comes out of the woodwork with crazy ideas that no one's ever heard before and, and some of them end up making it into final deals.
- [30:57]
Sami Roth
Yeah, the whole, it doesn't work the way it's supposed to and it's kind of an open secret. Everybody knows that. One thing that we should probably just say out loud because this has kind of underlaid this whole conversation about electric rates. In addition to just the sort of main thing being California is an expensive place to live, energy bills are way too high. I mean, this is also important for climate. Right. Getting electric rates under control because California has embarked on this huge project not only to clean up its electricity supply and to move from fossil fuels to renewables, but we've got also got to electrify the economy. Moving people from oil fueled cars to electric vehicles, from gas appliances in their homes to electric appliances. And that's just so much harder. If electricity is expensive. I mean, do you. I guess what I want to ask you here is both on a cost of living standpoint and on, you know, a climate standpoint. This is a little bit of a reductive question, but I mean, how do you grade the legislature's performance this year, you know, from an A to F scale?
- [31:57]
Matt Friedman
Well, we were hoping to be able to give the legislature an A grade based on the bills that were in print up until about a week and a half ago. But because those bills got substantially modified, I'd say I'd give them a passing grade. But we're somewhat disappointed by the final outcome because it doesn't contain a number of the initiatives that we had asked for. So I hesitate to give a specific Letter grade on this one, but, but I'll say they passed because we got some decent results. But there's a lot more to do going forward. There's other stuff that also didn't make it. We had a proposal on inflation constrained rate increases where higher scrutiny would be applied. If utilities wanted to raise rates higher than inflation. That just got dropped at the last second. So we're really hoping for more and we know that a lot of legislators would like to see more. It's one of the top issues. I testified earlier this year in front of the Assembly Utilities and Energy Committee. And legislators were saying at that hearing that this was the issue on which they got the most feedback from their constituents, utility bills. And so this response is a modest step in the right direction, but it is by no means a solution.
- [33:07]
Sami Roth
So this was year one of a two year session for the legislature. You give them a passing grade, which I know you didn't say this, but I think generally that means C and above. So make of that what, what, what you will listeners of Boiling Point, what would be your top recommendations for things that need to happen next year? I mean, where should the legislature start as it gets back into gear in I think December?
- [33:28]
Matt Friedman
Well, first off, we'd like to see more in the way of alternative financing. We got $6 billion in alternative financing for utility infrastructure. We'd like to see the other 9 billion that we had proposed this year be back on the table. The utilities have pushed back, saying it'll affect their credit ratings. But as we see their credit stabilize, I think there's an opportunity to make more progress on that. Second, we would like to see greater scrutiny by the Public Utilities Commission on utility rate requests that exceed inflation. We proposed requiring the utilities to include inflation based plans in their submissions in all their spending requests and to have the PUC take a harder look at any spending that exceeds that. That item got left out of the final packages despite being in it until the very end. And we think that's part of the unfinished agenda. And then I think there's other stuff the legislature can do to start cutting back on unnecessary spending by the utilities. I'll give you one example. Back in 2022, the legislature authorized the continued operation of PGE's Diablo Canyon Nuclear Power Plant until 2030 and that that deal was loaded up with sweetheart provisions for PG and E that were completely unnecessary. In particular, there's a $1.3 billion slush fund that PGE gets that's paid by ratepayers of utilities in the state, including Southern California Edison and San Diego Gas and Electric. We think the slush fund needs to go away. There are ways to cut down the incentives under that deal and return more money to ratepayers. So those are the kinds of things we'd like to see. And then on public financing of transmission, the. The bill that was passed just a few days ago is a great first start, but we think there needs to be a more muscular approach with a state agency that is funded and able to go out and sponsor the these new transmission projects, not just provide financing, but actually be the initiator. And the bill that was just passed lays the groundwork for that. But there are more steps that can be taken to accelerate that effort.
- [35:29]
Sami Roth
Now. Matt, you've been working on these issues for a really long time now. What, 20, 25, 30 years, something to that effect?
- [35:35]
Matt Friedman
Yeah, I've been working on these issues in California for about 25 years. I arrived right before the California energy crisis hit.
- [35:42]
Sami Roth
Yeah. So I mean, you've, I mean, you've seen the utilities have a lot of political power. The unions that represent their employees do as well. And I should also say, I mean, the utilities are quite critical for California's climate future, which I think you recognize a lot of people don't recognize that fact. A lot of progress, I think, needs to be made with local and small scale distributed energy, rooftop solar, community solar. But that's not going to get us nearly all the way we, we need to go. There's an important role for large solar farms, wind farms, large scale transmission lines. I mean, the utilities are quite vital to all of that. So there's important reasons to keep them healthy and financially stable, which is, you know, the arguments that they typically make. But I guess what I want to ask you here is, you know, you talk about needing to go further and make more progress. What do you think the political path is to get there? To keep sort of pushing away at utility profit margins, public funding for stuff that traditionally is funded by utility shareholders. I mean, if this, to your mind, is what's really needed to get electric affordability under control, and that's an issue that really has already reached such high crisis points. And this was sort of the year for affordability in the legislature, and this was the best that could be done. I mean, do you see a realistic path to go further than this, or is this the best we're going to do?
- [37:08]
Matt Friedman
Well, I'd like to hope we can do better. I agree with you that there are a lot of headwinds here and the investor Owned utilities are very powerful politically in Sacramento. If they really don't want something to happen, it usually doesn't happen. And the only reason we got some progress this year was because they needed this wildfire fund to pass. In a year where the utilities don't have an absolute demand in terms of legislative action, they will not be motivated to support any type of deal. They'll just want to oppose anything that would reduce their profitability or any measures that they perceive to be antithetical to their interests. So you either need a legislature and a governor that are willing to ignore those concerns, or you need to find a way to make a deal with the utilities. The other thing that I've noticed over time is that when you have a big crisis, a lot of those constraints go out the window. You know, back in 2000, 2001, we had the biggest crisis in the state's history where wholesale power markets went haywire. One of the utilities went bankrupt. The other two were threatening total collapse of electric markets. And in that moment, we had an extremely unique opportunity to make big progress on some of our progressive agenda items. Most notably, we got the state's renewable portfolio standard enacted out of that, which established targets for renewable energy development in the state, which is a landmark program that is now the centerpiece of our decarbonization and clean energy strategy. So it may be that we need to wait till the next crisis to see the political willingness by folks in Sacramento to buck the utilities on their opposition. Barring that, a third way option is find more money from other sources. And this was a big theme in the last couple of years. Can the state find ways to generate more money that can be deployed to offset costs that are paid by customers? But we're in a tough budget environment now, and with the Trump administration slashing all of the incentives provided at the federal level, it's not clear where this additional funding source is going to come from.
- [39:16]
Sami Roth
Well, talking about trying to find alternate sources of funding, there was a bill this year, and I think this was the. Not the first time that this bill was proposed, the Climate Superfund act, also known as Make Polluters Pay, which was designed to levy a fee of some sort on fossil fuel companies and other major carbon dioxide emitters to pay for climate solutions and response to climate disasters, but modeled after, similar to a bill that was passed into law in New York recently. I mean, it's going to. I think the authors are going to continue to push for that in 2026. Do you see that as potentially a source of funding or something that could generate some of these revenues that are needed.
- [39:56]
Matt Friedman
I think polluter taxes are a way to go on this, and that's why we had recommended using more of the state's cap and trade money, which is essentially a carbon tax, to pay for these programs. But the problem is that many of these, many of these funding sources are already fully committed. And once a special interest has access to that funding source and they've locked it in, you kind of have to pry it out of their cold, dead hand. Right. Nobody wants to give up money that they've been given in the past, and that becomes very challenging. So if you come up with brand new sources of money, then you've got a better shot at getting an allocation to customers. And certainly a polluter pays approach makes sense. There's also the idea that you could issue giant bonds at the statewide level that are paid back by taxpayers at very favorable rates of interest and use that money to provide alternative financing or direct bill credits. There's a lot of ways, if there is an interest from leadership in doing something meaningful, and that's really the unanswered question at this point.
- [40:55]
Sami Roth
To go back to one other point you made about potentially needing a crisis, I mean, this is just you and me talking here, and we obviously don't have someone from any of the utility companies in this conversation. But you alluded to the argument that they've made a couple times that if you reduce the amount that they're able to spend and profit on from infrastructure investments, from capital expenditures, that they make that guaranteed rate of return on that, it could hurt their credit ratings, basically, that they're going to lose out on investments to utilities in other states that they won't be as competitive. I think their argument essentially is that that will be bad for their financial situation and that will ultimately lead to higher cost costs for ratepayers by virtue of their bottom line being hurt. I guess I'm curious if you think that there's anything to that argument and the sort of just parallel that I'll bring in and you can tell me if you think there's anything valid to this parallel is we've seen this situation with the oil refineries in California where state policymakers and Governor Newsom have run pretty hard at the oil industry the last few years for climate reasons and for political reasons. And now in the last few months, we've seen two of the state's nine oil refineries that make the state's special brand of gasoline say they're going to close down in the next year. And it sort of created this backlash and political crisis where all of a sudden, one of the other big energy bills that was passed at the end of session was permitting a lot more oil drilling with fewer environmental reviews in Kern county as a way of supposedly, we'll see if it works, keeping gasoline prices from getting out of control, responding to these refinery closures. I guess that's my long winded way of asking. Do you have any fear at all that if you push too hard at the utilities and their profit margins that there's anything to their arguments that that could actually redound negatively and hurt ratepayers if it really does make them less competitive relative to places that investors could park their money in other states?
- [42:56]
Matt Friedman
I think there's a grain of truth to it. But the utilities very much inflate their claims when it comes to all of the things we're actually fighting about. Just as an example, on this alternative financing of grid investments, we asked for 15 billion. That would have been 15 billion out of 95 billion just over the next four years. It would have still allowed them to spend almost $80 billion of their shareholder and market money on new investments in the system. That is hardly a deal killer. And the amount of capital that the utilities are forecasting is off the charts relative to historic norms. But the basic utility argument is anytime they tell their investors that they may be able to spend a certain amount of money in the future, if state policy reduces that by even a single dollar, that that somehow violates some sacred bond between the utilities and the investment community. That's garbage. Come on. You know, the utilities want to make as much money as they can. And the idea that we are going to constrain their aspirational goals for profitability, that that somehow is an existential threat to their existence, is not based on anything other than the utility's crass political and profit objectives. That's the reality. And utility rates in California have skyrocketed in recent years. I mean, since 2020, PG E's electric rates for residential customers have gone up by about 75%. For Southern California by about 80%. And the forecast going forward are that we're going to see rate increases of 5 to 10% per year. That's way above inflation. You have to balance the interests of the investors of the utility with the interests of their customers. And customers have just been getting hammered and they're not going to be able to take it that much longer, Especially with the economic conditions that we're seeing in the state. Right now.
- [44:49]
Sami Roth
Matt Friedman, thank you very much for being with us on the Boiling Point podcast.
- [44:54]
Matt Friedman
Thank you. It's great to be here.
- [45:00]
Sami Roth
Hey everybody, one more thing. Like I said in the introduction, the.
- [45:04]
Legislature passed a whole bunch of other.
- [45:06]
Climate and energy bills that we didn't.
- [45:08]
Really get into here.
- [45:09]
I did write a column about them though. If you want to read it, the.
- [45:13]
Link is in the show notes. Thanks.
- [45:21]
Thank you for listening to Boiling Point. I'm your host, Sammy Roth. My producers are Mary Knoff and Jonathan Shiflett. Sound design and original music by Jonathan Shiflett. Elijah Wolfson is our editor. Denise Callahan is our studio manager. Ben Church is our Production manager.
- [45:40]
Nick Norton is our engineer.
- [45:43]
Special thanks to LA Times Studio President Anna Magzanian, President and Chief Operating Officer of the Los Angeles Times, Chris Argentieri and Executive Editor of the Los Angeles Times, Terry Tang.
- [45:55]
Boiling Point is executive produced by Darius Derekshan and created by me, Sami Roth.
- [46:16]
Matt Friedman
He was a rock climber, a white supremacist, a Jewish Neo Nazi, a Spam king, a crypto billionaire, and then someone killed him.
- [46:28]
Sami Roth
It is truly a mystery.
- [46:29]
It is truly a case of whodunit.
- [46:32]
Matt Friedman
Dirtbag Climber, the story of the murder and the many lives of Jesse James. Available now, wherever you get your podcasts.