The San Diego City Council’s Environment Committee voted unanimously on Thursday to draft a resolution in response to an 89-page report about electricity and natural gas rates from the Auditor of the State of California.
The resolution will be drafted alongside the San Diego City Attorney’s Office and City Council's District 1 and District 5. Then, it will be presented to the full city council.
”This is a very important topic to many people," San Diego City Councilmember Marni von Wilpert said. "It’s something that we here at City Hall do not have direct authority over, but we are equally frustrated over some of the highest rates we see in the nation."
During a regularly scheduled meeting, the Environment Committee heard directly from auditors on the state level who helped craft the report. In it, they looked into the four largest utilities in the state, including Pacific Gas & Electric, San Diego Gas & Electric, Southern California Edison and Southern California Gas Company.
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SDG&E is pinpointed in the report on one of the first pages. It reads, “for nine out of the last 10 years, SDG&E earned more than the CPUC-authorized rate of return.”
But, what does this mean?
Every four years, according to the report, utilities have to submit their proposed energy rate increases in formal proceedings — known as the general rate case — with the California Public Utilities Commission. In those proceedings, the rate increases are determined, in part, by comparing how much it will cost the utility to operate.
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“In the application, they outline all of their forecasted costs, sales and authorized return on investment," Kris Patel, a senior auditor for the California Bureau of State Audits, said in a virtual presentation to the committee. "After a lengthy process, the CPUC authorizes these costs, which are known as the revenue requirement, and that forms the basis of the rates the utilities charge for electricity as well as natural gas."
“The first issue is that the CPUC and CalAdvocates could better monitor the cost that utilities propose,” Laura Kearney, a principal auditor for the state, who also worked on the report, added.
“For example, utilities may find efficiencies in labor or administrative costs. Thus, if a utility’s actual cost ends up less than those forecasted in its revenue requirement, then the utility’s actual rate of return will be higher than the authorized rate of return,” Kearney explained. “As a result, utilities may have an incentive to make profit by overestimating their forecasted operating costs.”
Both the auditors and members of the Environment Committee agreed that there needs to be more oversight on utility companies, including SDG&E.
“California has some of the highest electricity and natural gas rates, and the checks in the system, as dictated, either do not have the information to sufficiently protect the ratepayers or they’re shirking their duty to do so,” San Diego City Councilmember Joe LaCava said.
SDG&E sent the following statement to NBC 7 in response to the meeting and report:
"We appreciate the State Auditor’s report bringing more transparency to the complex process used to establish energy rates in California. The report recognizes many of the critical trends that are driving rate increases for all utilities in the state, such as an increase in natural gas prices, declining electricity sales, and ongoing investments in the power grid to help prevent wildfires. Energy affordability is a critical issue as utilities like SDG&E implement state clean energy policies, and we remain focused on delivering best-in-class reliability, customer service and wildfire safety to our customers."
The report outlines several recommendations for the CPUC and CalAdvocates that they will either have to implement or explain why they do not plan to implement fully. In the meantime, the Environment Committee will also be drafting their resolution on the local level.
