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Experts tell Little Hoover Commission that utility spending, not rooftop solar, is the main driver of rising electricity rates
Summary
Economic consultant Dr. Richard McCann and industry witnesses told the Little Hoover Commission on March 27 that rising utility spending on transmission and distribution — not rooftop solar — explains much of California’s high electricity rates, and urged stronger regulatory scrutiny and reforms at the Public Utilities Commission.
Dr. Richard McCann, a founding partner of economic consulting firm M cubed, told the Little Hoover Commission on March 27 that “utility spending is driving rate increases.” He said transmission and distribution spending has risen about 300% over the last 20 years while demand has been flat, and that the resulting spending increases have tracked almost one-for-one with higher retail rates.
Why it matters: Commissioners heard that addressing utility capital spending and the regulatory incentives that reward it would be more effective at reducing rates than trying to shift costs onto rooftop solar owners. McCann and witnesses argued the Public Utilities Commission (CPUC) lacks the technical capacity to fully vet large utility spending requests and that legislative or administrative changes are needed to give regulators more ability and independence to audit investments.
Key testimony and evidence: McCann walked commissioners through charts showing flat peak demand since the mid-2000s alongside sharply rising transmission and distribution investment. “Transmission and distribution, which is about half of the utility bill, has gone up 300% over the last 20 years,” McCann said. He told commissioners wildfire mitigation spending explains only a small share of that growth and that investor-owned utilities’ allowed returns have been set above levels needed to attract capital, contributing to higher customer costs.
Commissioners pressed McCann on how oversight could improve. He suggested auditing utility investments for ‘‘used and useful’’ status, changing the allowed return on equity, and strengthening the independence and staffing of the state’s consumer advocate office. He also said transmission costs include interconnection of remote renewables and that distribution increases appear tied to spending requests based on overstated load forecasts.
What commissioners asked: Commissioners raised a range of questions about whether investor-owned utilities should be public, how utilities size distribution versus transmission, and whether planning accounts for rooftop solar. McCann said publicly owned utilities generally borrow at lower rates and that investor-owned utilities are being allowed returns ‘‘about 4 percentage points too high.’’ He also said CAISO and the California Energy Commission use metered peaks that reflect rooftop solar, so rooftop solar affects planning at larger scales but not at the final-line transformer that serves an individual house.
Limits and open questions: Witnesses and commissioners agreed that not all utility spending is wasteful — some investment is necessary for safety and reliability — and that regulators must balance those needs. Multiple commissioners and witnesses said the CPUC is understaffed and under-resourced to do the engineering reviews required to challenge detailed utility capital proposals.
Ending: Commissioners thanked the witnesses and said the testimony will inform later hearings that will include the CPUC and investor-owned utilities. The commission signaled it will review regulatory and legislative options for auditing and reining in spending.
