A Broken System: The More Utilities Spend the More They Profit

California's electric bills keep rising - and it's because of a broken system.

The three major investor-owned power companies have a perverse incentive to spend as much money as possible on misguided infrastructure plans, because the way the system works, they get a guaranteed return on such spending. 

For example, if a for-profit utility like Pacific Gas & Electric (PG&E) invests $1 billion in building new infrastructure, the way the system is rigged currently, they’ll get a roughly 10 percent return – in this case an eye-watering $100 million – on that spending. It means the Big Utilities spend like it’s going out of fashion on outdated infrastructure. There are over 100 of these investor- owned utility monopolies across the country, and it is extremely problematic that California has the distinction of allowing the highest rates of return.

 

“The thing that they want is the thing that’s going to make them profit the most and that is the most expensive thing that they can build,” says David Pomerantz, executive director of the watchdog organization Energy and Policy Institute.

And who pays for these massive spending sprees? The millions of captive ratepayers who are seeing no end in sight to massive monthly electricity bills.

Regulators and politicians should be stepping up to defend customers and fix the broken system, but they’re failing to act. That’s why Re-Volt.org is stepping up to fight for change, calling for an overhaul that could help bring rates – and bills – down.

“Californians’ utility bills are so unbelievably expensive because the state and its regulators have fallen down on the job of protecting customers,” says Pomerantz.

Cheaper solutions exist

The vast majority of Americans pay their monthly electric or gas bills to for-profit, investor owned companies – often among the most profitable businesses in the world. In California, these utilities are Pacific Gas and Electric, Southern California Edison and San Diego Gas and Electric.

“And those companies a little over 100 years ago they basically worked out what turned out to be a pretty sweet deal for themselves – they would get monopolies so they would not have to suffer from the competitive pressures that most companies have to deal with,” says Pomerantz. This leaves them free to craft wasteful spending plans that will ensure a good return for their investors, while stinging ratepayers with runaway bills.

“There are cheaper solutions, solutions that will save customers money, they’re not going to want those on the table,” he adds, and this explains why rates keep soaring.

“All investor-owned utilities are trying to do one thing at their core which is maximize their profits,” he adds. “The antidote to that was supposed to be these public utility commissions, regulators that would be armed with a state government that would prevent the utilities from price gouging.”

Fixing the system

The California Public Utilities Commission, or CPUC, “is meant to be really the first, last and only line of defense for customers to avoid being ripped off,” says Pomerantz.

Its five members are appointed by Gov. Gavin Newsom and, along with the Public Advocates Office within the CPUC, they should act as regulators of the Big Utilities. Instead, they’re acting as a rubber stamp, okaying rate increases with minimal or no pushback.

Newsom “has not been willing to challenge the utilities even when he’s had moments when Californians broadly across the political spectrum, really every part of the state, every type of customer have been furious at the utilities for different reasons,” says Pomerantz.

This is a broken system, where PG&E and the others effectively get whatever they want, no matter the financial consequences and other harms to Californians. 

As a result, the monopoly utilities “have set half the state on fire, they have blown up gas pipelines that have taken peoples’ lives through their own negligence as determined by courts of law, and they have charged unbelievably high, eye-watering high electric bills compared to every other part of the country,” he adds.

Although Governor Newsom appears to think that it’s better to side with utilities than hardworking Californians, re-Volt.org disagrees. 

We’re bringing together a diverse coalition to tell the CPUC, the governor, the utilities and lawmakers in Sacramento that enough is enough. It’s time to fix and transform the system to cut energy bills and end utility corruption.

TAKE ACTION

Call Governor Newsom

Let him know that we demand action from the CPUC to stop utility corruption.

(916) 445-2841

HERE’S A SCRIPT:

Governor Newsom - Enough is enough. The five commissioners that you appointed to the Public Utilities Commission have sacrificed the interests of millions of Californians to preserve the profits of investor-owned utilities and their shareholders.

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