Report 2022-115 Recommendation 7 Responses

Report 2022-115: Electricity and Natural Gas Rates: The California Public Utilities Commission and Cal Advocates Can Better Ensure That Rate Increases Are Necessary (Release Date: August 2023)

Recommendation #7 To: Public Advocates Office

To ensure that the utilities' projected costs are not overstated, Cal Advocates should first obtain information that the CPUC requires utilities to provide, including their actual rate-of-return calculations and the major cost categories in which utilities achieved significant cost savings. Cal Advocates should then use this information in subsequent rate case proceedings to assess the risk that projections in these cost categories may be overstated, and it should scrutinize the projections accordingly.

60-Day Agency Response

This work would be ongoing and is dependent on the CPUC requiring the IOUs to provide information.

As previously explained, a regulated utility's actual rate of return is not a meaningful measurement of whether a utility is overearning. An authorized rate of return (ROR) is a regulatory concept that represents the cost that a utility can incur to finance its capital investments. As such, ROR is not a meaningful measure of a utility's earnings. A utility's Return on Equity (ROE) could be a more meaningful input into whether the utility is overearning. We will review the utilities' actual ROEs and incorporate that information into our review of general rate case applications.

California State Auditor's Assessment of 60-Day Status: Pending

All Recommendations in 2022-115

Agency responses received are posted verbatim.