How Low Will Utilities Rates Go?

Power companies, consumer groups at odds over rate costs in California

by: Laura Mecoy, from: AARP Bulletin, November 1, 2012

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TURN Communications Director Annie Spatt stands for a portrait in San Francisco's financial district - California advocate for lower utility rates

AARP California is working with The Utility Reform Network (TURN) and its communications director Mindy Spatt, above, to advocate for lower rates than those requested by four utility companies. — Annie Tritt

More than 18 million utility customers across the state can expect smaller energy bills next year. The question is: how much smaller?

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The California Public Utilities Commission (CPUC) is expected to decide by year's end how much to reduce rates for customers who get their electricity and natural gas from the state's four largest investor-owned utilities: Southern California Edison (SCE), Pacific Gas and Electric (PG&E), Southern California Gas Company (SoCalGas) and San Diego Gas & Electric (SDG&E).

Utilities Information

The CPUC periodically reconsiders the return on equity that utilities can earn. Earlier this year, it required the utility companies to submit new proposed rates that would reflect post-recession market conditions.

The return on equity indicates how much profit a company generates with the money shareholders invest. Because these utilities are regulated, the CPUC — rather than the market — determines their return on equity.

How low should they go?

The utilities have proposed returns on equity around 11 percent, which they say would result in small reductions — from 12 cents to $12 annually — in an average residential energy bill.

AARP California and other consumer groups are seeking larger reductions. The Utility Reform Network (TURN), a consumer organization, is advocating for a 9.4 percent return on equity rate, which it says could save each residential customer about $50 annually.

The Division of Ratepayer Advocates, the independent consumer advocate within the CPUC, has proposed returns on equity ranging from 8.5 percent to 8.75 percent, said Jerry Oh, a division regulatory analyst.

David Pacheco, AARP California state president, said the association is seeking lower rates because "in today's economy, many California seniors living on fixed incomes are struggling financially and simply cannot afford to pay high utility bills."