Existing law vests the Public Utilities Commission with regulatory authority over public utilities, including electrical corporations, gas corporations, water corporations, and sewer system corporations. Existing law authorizes the commission to fix the rates and charges for every public utility and requires that those rates and charges be just and reasonable. Existing law prohibits a utility from recording to an above-the-line account, as defined, or otherwise recovering from ratepayers specified costs.

This bill would require the commission to find that an electrical corporation, gas corporation, water corporation, or sewer system corporation has engaged in prohibited cost recovery if the corporation records a cost to a regulator-approved financial account and the cost is categorically excluded from ratepayer recovery by statute, commission decision, or commission rule or has already been authorized for recovery through another ratemaking mechanism. The bill would require the commission, upon making a determination that such a corporation has recorded prohibited costs to a ratepayer-funded account in violation of commission rule, tariff, or statute, to disallow recovery of the cost from ratepayers and to impose a financial penalty for prohibited cost recovery equal to the amount of the prohibited cost recovery or 3 times that amount, except as specified. The bill would require each such corporation to submit an annual report to the commission identifying all instances in the prior year in which prohibited cost recovery was identified, the actions that were taken in response to the identification, and any actions that were taken by the corporation to prevent future occurrences.

Under existing law, a violation of the Public Utilities Act or any order, decision, rule, direction, demand, or requirement of the commission is a crime.

Because the provisions of this bill would be a part of the act and because a violation of a commission action implementing the bills requirements would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law vests the Public Utilities Commission with regulatory authority over public utilities, including electrical corporations, gas corporations, water corporations, and sewer system corporations. Existing law authorizes the commission to fix the rates and charges for every public utility and requires that those rates and charges be just and reasonable. Existing law prohibits a utility from recording to an above-the-line account, as defined, or otherwise recovering from ratepayers specified costs.

This bill would require the commission to find that an electrical corporation, gas corporation, water corporation, or sewer system corporation has engaged in prohibited cost recovery if the corporation records a cost to a regulator-approved financial account and the cost is categorically excluded from ratepayer recovery by statute, commission decision, or commission rule or has already been authorized for recovery through another ratemaking mechanism. The bill would require the commission, upon making a determination that such a corporation has recorded prohibited costs to a ratepayer-funded account in violation of commission rule, tariff, or statute, to disallow recovery of the cost from ratepayers and to impose a financial penalty for prohibited cost recovery equal to the amount of the prohibited cost recovery or 3 times that amount, except as specified. The bill would require each such corporation to submit an annual report to the commission identifying all instances in the prior year in which prohibited cost recovery was identified, the actions that were taken in response to the identification, and any actions that were taken by the corporation to prevent future occurrences.

Under existing law, a violation of the Public Utilities Act or any order, decision, rule, direction, demand, or requirement of the commission is a crime.

Because the provisions of this bill would be a part of the act and because a violation of a commission action implementing the bills requirements would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law vests the Public Utilities Commission with regulatory authority over public utilities, including electrical corporations, gas corporations, water corporations, and sewer system corporations, and telephone corporations. Existing law authorizes the commission to fix the rates and charges for every public utility and requires that those rates and charges be just and reasonable. Existing law prohibits a utility from recording to an above-the-line account, as defined, or otherwise recovering from ratepayers specified costs.

This bill would require the commission to find that an electrical corporation, gas corporation, water corporation, or sewer system corporation, or telephone corporation has engaged in prohibited cost recovery if the corporation records a cost to a regulator-approved financial account that meets specified criteria, including if and the cost is categorically excluded from ratepayer recovery by statute, commission decision, or commission rule, exceeds the scope of the commissions authorization for the specific account or application, rule or has already been authorized for recovery through another ratemaking mechanism. The bill would require the commission, upon making a determination that such a corporation has recorded prohibited costs to a ratepayer-funded account in violation of commission rule, tariff, or statute, to disallow recovery of the cost from ratepayers and to impose a financial penalty for prohibited cost recovery equal to the amount of the prohibited cost recovery or 3 times that amount, except as specified. The bill would require each such utility corporation to submit an annual report to the commission identifying all instances in the prior year in which prohibited cost recovery was identified, the actions that were taken in response to the identification, and any actions that were taken by the utility corporation to prevent future occurrences.

Under existing law, a violation of the Public Utilities Act or any order, decision, rule, direction, demand, or requirement of the commission is a crime.

Because the provisions of this bill would be a part of the act and because a violation of a commission action implementing the bills requirements would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law vests the Public Utilities Commission with regulatory authority over public utilities, including electrical corporations, gas corporations, water corporations, sewer system corporations, or and telephone corporations. Existing law authorizes the commission to fix the rates and charges for every public utility and requires that those rates and charges be just and reasonable. Existing law prohibits a utility from recording to an above-the-line account, as defined, or otherwise recovering from ratepayers specified costs.

This bill would prohibit require the commission to find that an electrical corporation, gas corporation, water corporation, sewer system corporation, or telephone corporation from engaging in inappropriate has engaged in prohibited cost recovery by recording to an above-the-line account, as defined, if the corporation records a cost to a regulator-approved financial account that meets specified criteria, including if the cost is categorically excluded from ratepayer recovery by statute, commission decision, or commission rule, exceeds the scope of the commissions authorization for the specific account or application, or has already been authorized for recovery through another ratemaking mechanism. The bill would require the commission, upon making a determination that such a corporation has engaged in inappropriate cost recovery, recorded prohibited costs to a ratepayer-funded account in violation of commission rule, tariff, or statute, to disallow recovery of the inappropriate cost from ratepayers and to impose a financial penalty for inappropriate prohibited cost recovery equal to the amount of the inappropriate prohibited cost recovery or 3 times that amount, except as specified. The bill would require each such utility to submit an annual report to the commission identifying all instances in the prior year in which prohibited cost recovery was identified, the actions that were taken in response to the identification, and any actions that were taken by the utility to prevent future occurrences.

Under existing law, a violation of the Public Utilities Act or any order, decision, rule, direction, demand, or requirement of the commission is a crime.

Because the provisions of this bill would be a part of the act and because a violation of a commission action implementing the bills requirements would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law requires the Energy Unit within the Governors Office of Business and Economic Development (GO-Biz), in coordination with certain entities, to establish a Transmission Infrastructure Accelerator (accelerator) and requires the accelerator to, among other things, develop a public-private partnership plan to develop financing options that maximize debt financing to reduce overall capital costs and facilitate public-private partnership development of eligible transmission projects, as defined, to achieve ratepayer savings. Existing law requires the accelerator to submit its public-private partnership plan to the Legislature on or before July 1, 2027.

This bill would extend the deadline to submit that plan to December 1, 2027.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 2065

Author:(Petrie-Norris)

As Amended Ver:August 26, 2026

Majority vote

SUMMARY

Requires the California Public Utilities Commission (CPUC) to financially penalize electrical, gas, water, sewer system corporations that improperly record certain costs in their accounts. Specifically, penalties would apply when a utility records a cost that either a) is prohibited from being recovered from ratepayers, or b) has already been authorized for recovery through a different ratemaking mechanism.

Senate Amendments

1. Remove the entirety of the bill, previously related transmission financing plans.
2. Replace the bill's contents with the present language related to mandated financial penalties on utilities. Specifically:
   1. Requires the CPUC to find that a utility has engaged in prohibited cost recovery, if the utility records a costs to a regulator-approved financial account that meets specified criteria, including if the cost is categorically excluded from ratepayer recovery by statute, CPUC decision, or CPUC rule, or has already been authorized for recovery through another ratemaking mechanism.
   2. Requires the CPUC, upon making a determination that a utility has recorded prohibited costs to a ratepayer-funded account in violation of CPUC rules, tariffs, or statute, to:
      1. Disallow recovery of the cost from ratepayers..
      2. Impose a financial penalty for inappropriate cost recovery equal to the amount that was improperly recorded.
      3. Or impose a financial penalty three times the amount improperly recorded, if the CPUC determines there have been two or more separate instances of prohibited cost recovery by the same utility within the preceding five years or there has been a sustained practice of prohibited cost recovery extending across multiple reporting periods.
3. Requires each utility to submit an annual report to the CPUC identifying all instances in the prior year in which prohibited cost recovery was identified, the actions that were taken in response to the identification, and any actions that were taken by the utility to prevent future occurrences.

COMMENTS

Investor-owned utilities (IOUs) regulated by the CPUC must justify their cost-recovery requests as "just and reasonable" under Public Utilities Code Section 451, with cost review occurring primarily through general rate cases. Additionally, both state statute and federal regulation already bars recovery of certain costs – like election or lobbying activities, executive bonuses under certain conditions, and promotional/political advertising.

Proponents of this bill argue that the current enforcement approach, which mainly disallows improperly recorded costs after the fact, is a "return the money if caught" system that the 2023 State Auditor's report and the Public Advocates Office say has let IOUs record things like lobbying expenses or personal entertainment costs in ratepayer-funded accounts with little real deterrent. They are seeking stronger, more consequential penalties – as proposed under this bill – than the current system often imposes.

Opponents counter that existing law and CPUC penalty authority already cover improperly recorded transactions, that an accounting entry alone does not harm ratepayers until it's actually approved into rates, that the bill's language could chill legitimate utility decision-making and limit flexibility to reprioritize safety or reliability spending.

The policy question put forward by this bill is whether a corrective-only framework – in which a utility that improperly records a cost simply returns it if caught, with the potential to be financially penalized – provides a sufficient incentive for accurate accounting, or whether a more meaningful, mandated financial penalty is needed to deter improper cost recovery in the first place.

According to the Author

"Utility companies have a documented history of charging ratepayers for costs that should have been disallowed. Under current law, this usually means that the utility just gives the money back. That's not accountability. As a deterrent, AB 2065 establishes mandatory automatic penalties, with bigger consequences for repeat offenders. Californians paying some of the most expensive utility bills in the country deserve to know that at least their bills are accurate and fair."

Arguments in Support

This bill is supported by Earthjustice, the Public Advocates Office (PAO), and the Utility Reform Network (TURN). PAO notes that in their work on utility rate cases they have "uncovered numerous instances of utilities actively attempting to recover inappropriate costs from ratepayers. Utilities have attempted to use ratepayer funds for disallowed political activities, luxury items for employees, and costs they have already been reimbursed for." PAO goes on to note, "Current accountability measures are not strong enough to discourage utilities from pursuing inappropriate cost recovery that can unfairly increase rates for customers" and that this bill "will provide the CPUC with the tools it needs to ensure that the state's regulated utilities are not compounding this [affordability] crisis by shifting inappropriate costs onto ratepayers."

Arguments in Opposition

Pacific Gas & Electric and Southern California Edison argue this bill conflates accounting with cost recovery, the language is vague regarding authorized recovery through another ratemaking mechanism, and this bill risks sweeping good-faith disputes over interpretations of existing law and CPUC rules. In general, they argue this bill is not needed and could chill necessary operational decision-making by utilities.

FISCAL COMMENTS

According to the Senate Committee on Appropriations, this bill was determined to not have significant fiscal impact and thus was sent to the Senate Floor pursuant to Senate Rule 28.8.

VOTES:

ASM UTILITIES AND ENERGY: 18-0-0

YES: Petrie-Norris, Patterson, Boerner, Calderon, Chen, Davies, Mark González, Harabedian, Hart, Irwin, Kalra, Papan, Rogers, Schiavo, Schultz, Ta, Wallis, Zbur

ASM APPROPRIATIONS: 15-0-0

YES: Wicks, Hoover, Bauer-Kahan, Calderon, Caloza, Ellis, Fong, Mark González, Krell, Pacheco, Pellerin, Sharp-Collins, Solache, Ta, Tangipa

ASSEMBLY FLOOR: 68-0-12

YES: Addis, Aguiar-Curry, Ahrens, Alanis, Alvarez, Ávila Farías, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Caloza, Carrillo, Castillo, Connolly, Davies, DeMaio, Dixon, Elhawary, Ellis, Flora, Fong, Gallagher, Gipson, Jeff Gonzalez, Mark González, Hadwick, Haney, Harabedian, Hart, Irwin, Jackson, Johnson, Kalra, Krell, Lee, Macedo, McKinnor, Muratsuchi, Nguyen, Ortega, Pacheco, Papan, Patel, Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ransom, Michelle Rodriguez, Rogers, Blanca Rubio, Sanchez, Schiavo, Sharp-Collins, Solache, Soria, Stefani, Ta, Tangipa, Valencia, Wallis, Ward, Zbur, Rivas

ABS, ABST OR NV: Arambula, Chen, Gabriel, Garcia, Hoover, Lackey, Lowenthal, Ramos, Celeste Rodriguez, Schultz, Wicks, Wilson

UPDATED

VERSION: August 26, 2026

CONSULTANT: Laura Shybut / U. & E. / (916) 319-2083 FN: 0004554

 THIRD READING  

Bill No: AB 2065

Author: Petrie-Norris (D)

Amended: 8/26/26 in Senate

Vote: 21

SENATE ENERGY, U. & C. COMMITTEE: 14-2, 6/24/26

AYES: Allen, Archuleta, Arreguín, Becker, Caballero, Dahle, Gonzalez, Hurtado, McNerney, Reyes, Richardson, Rubio, Stern, Wahab

NOES: Ochoa Bogh, Strickland

NO VOTE RECORDED: Grove

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

ASSEMBLY FLOOR: 68-0, 5/21/26 (Consent) - See last page for vote

SUBJECT: Rates: prohibited cost recovery

SOURCE: The Utility Reform Network

DIGEST:

This bill requires the California Public Utilities Commission (CPUC) to assess specified penalties on electrical corporations, gas corporations, water corporations or sewer system corporations if they record costs in financial accounts that are prohibited from being recovered from ratepayers or the cost is already authorized for recovery through another ratemaking mechanism.

Senate Floor Amendments of 08/26/26 remove telephone corporations from this bill and remove one of the three conditions that results in prohibited cost-recovery, specifically that the utility exceeds the scope of the CPUC’s authorization for the specific account or application.

ANALYSIS:

Existing law:

1. Provides, under the Public Utility Regulatory Policies Act, that no electric utility may recover from any person other than the shareholders (or other owners) of the utility any direct or indirect expenditure by such utility for political advertising. This is defined to include advertising intended to influence public opinion with respect to legislative, administrative, or electoral matters, or with respect to any controversial issue of public importance. (16 U.S. Code §2623(b)(5))
2. Establishes and vests the CPUC with regulatory authority over public utilities, including electrical corporations, gas corporations, water corporations, sewer system corporations, and telephone corporations. (Article 12 of the California Constitution)
3. Authorizes the CPUC to fix the rates and charges for every public utility and requires that those rates and charges be just and reasonable. (Public Utilities Code §451)
4. Prohibits a public utility from including any bill for services or commodities furnished by any customer or subscriber any advertising or literature designed or intended (1) to promote the passage or defeat of a measure appearing on the ballot at an election, (2) promote or defeat of a candidate to any public office, (3) to promote or defeat the appointment of any person to any administrative or executive positions in government, or (4) to promote or defeat any change in legislation or regulations. (Public Utilities Code §453 (d))
5. Provides the CPUC with general, broad authority to regulate every public utility in the state. (Public Utilities Code §701)
6. Prohibits an electrical or gas corporation from recovering expenses for compensation (defined to include annual salary, bonus, benefits, or other consideration paid to an officer of the corporation) from ratepayers and requires compensation is paid solely by shareholders of the electrical or gas corporation. (Public Utilities Code §706)
7. Prohibits a utility from recording to an above-the-line account or otherwise recovering from ratepayers specified costs related to promotional advertisements and political influence activities. Defines “above-the-line-account” to mean an account that contains expenses that a utility recovers from ratepayers, including an account that contains expenses that the utility used to calculate a revenue requirement request in its general rate case. (Public Utilities Code §748.3)
8. Authorizes the CPUC to require a public utility to correct any rates, practices, equipment or behavior that is unjust, unreasonable, unsafe, improper, inadequate, or insufficient. (Public Utilities Code §761)
9. Prohibits the CPUC from prescribing a system of accounts and form of accounts, records, and memoranda for corporations subject to the regulatory authority of the United States that is inconsistent with that established and updated by or under the authority of the United States. (Public Utilities Code §793)
10. Provides the CPUC with authority to levy fines against regulated entities for violation of law. Requires penalties to be deposited in the State’s General Fund. (Public Utilities Code §2100 et seq.)
11. Provides any public utility that violates or fails to comply with any provision of the Constitution, order, decision, decree, rule, direction, demand, or requirement of the CPUC, is subject to a penalty of not less than $500, and no more than $100,000, for each offense. (Public Utilities Code §2107)

This bill:

1. Defines “utility” to mean an electrical corporation, gas corporation, water corporation, sewer system corporation, also known as investor-owned utilities (IOUs). The definition no longer includes telephone corporations.
2. Requires the CPUC to find that a utility has engaged in prohibited cost recovery, if the utility records a costs to a regulator-approved financial account that meets specified criteria, specifically if the cost is categorically excluded from ratepayer recovery by statute, CPUC decision, or CPUC rule, or has already been authorized for recovery through another ratemaking mechanism.
3. Requires the CPUC, upon making a determination that such a corporation has recorded prohibited costs to a ratepayer-funded account in violation of CPUC rule, tariff, or statute:
   1. Disallow recovery of the cost from ratepayers.
   2. Impose a financial penalty for inappropriate cost recovery equal to the amount of the prohibited cost recovery or three times that amount if the CPUC determines there have been two or more separate instances of prohibited cost recovery by the same utility with the preceding five years or there has been a sustained practice of prohibited cost recovery extending across multiple reporting periods.
4. Provides that the bill does not limit the CPUC’s authority to assess fines and penalties from existing law and CPUC rules.
5. Requires each such utility to submit an annual report to the CPUC identifying all instances in the prior year in which prohibited cost recovery was identified, the actions that were taken in response to the identification, and any actions that were taken by the utility to prevent future occurrences.

Background

Cost recovery of expenses by IOUs. CPUC-regulated utilities routinely submit requests for cost recovery related to their operations to the CPUC, including expanding their infrastructure, paying for operation expenses, etc. As required by statute in Public Utilities Code §451, the CPUC may only approve a utility’s request for cost recovery that is deemed just and reasonable. Review of utility expenses to ensure they are just and reasonable is the principal purpose of the CPUC’s existence and the primary task of the agency as an economic regulator. Statutory authority also authorizes the CPUC to disallow expenses that are not deemed just and reasonable or prudent. The review of a utility’s expenses is largely, although not exclusively, conducted through the utility’s general rate case (GRC). Most utilities regulated by the CPUC are required to undergo a GRC whereby the utility requests funding for distribution, generation and operation costs associated with their service for the coming years (3-4 years depending on the utility). Usually performed every three (now four) years and conducted over roughly 18+ months, the GRCs are major regulatory proceedings which allow the CPUC and stakeholders to conduct a broad, exhaustive, and detailed review of a utility’s revenues, expenses, and investments in plant and equipment to establish an approved revenue requirement – essentially the amount the utility is authorized to recover from customers in utility rates.

Statute disallows recovery of certain expenses. Statute prohibits IOUs from recovering from ratepayers certain expenses, including activities related to elections of candidates, legislation, bonuses paid to executives of the IOU under specified conditions, activities marketing against community choice aggregators, as well as, any situation where the IOU has failed to sufficiently maintain records to enable the CPUC to completely evaluate any relevant issues related to the prudence of any expense relating to the planning, construction, or operation of the IOU’s plant. Under the requirements of the Federal Public Utility Regulatory Policies Act of 1978 and subsequent state statute, IOUs are also prohibited from recovering from any person other than shareholders direct and indirect expenditures for promotional or political advertising. Additionally, IOUs must abide by CPUC orders.

Federal Energy Regulatory Commission (FERC) accounting and financial reporting. FERC jurisdiction Account 426.4 of the Uniform System of Accounts (USofA) requires that utility shareholders pay for expenditures for the purpose of influencing public opinion or the decisions of public offices. FERC has established regulatory accounting and financial reporting requirements for its jurisdictional entities in the electric, natural gas, and oil pipeline industries. These requirements play a role in FERC’s strategy of setting just and reasonable cost-of-service rates. The foundation of the FERC’s accounting program is the USofA codified in the agency’s regulations. In addition, FERC issues accounting rulings relating to specific transactions and applications through orders and Chief Accountant guidance letters. This body of accounting regulations, orders, and guidance letters comprises the FERC’s accounting and financial reporting requirements which promote consistent, transparent, and decision-useful accounting information for the FERC and other stakeholders. These accounting and financial reporting requirements take into consideration the FERC’s ratemaking policies, past FERC actions, industry trends, and external factors (e.g., economic, environmental, and technological changes, and mandates from other regulatory bodies) that impact the industries under the agency’s jurisdiction. Electric Public Utilities & Licensees, Natural Gas, and Oil Pipeline companies within FERC jurisdiction are required to maintain their books and records in accordance with the USofA. The USofA provides basic account descriptions, instructions, and accounting definitions that are useful in understanding the information reported in the Annual Report.

Comments

Need for this bill. According to the author:

Utility companies have a documented history of charging ratepayers for costs that should have been disallowed. Under current law, this usually means that the utility just gives the money back. That's not accountability. As a deterrent, AB 2065 establishes mandatory automatic penalties, with bigger consequences for repeat offenders. Californians paying some of the most expensive utility bills in the country deserve to know that at least their bills are accurate and fair.

Desire for more consequences. The proponents for this bill contend the existing penalty framework under Public Utilities Code §2107 and 2108, and the CPUC’s Penalty Assessment Methodology adopted in Resolution M-4846, generally treats inappropriate utility cost recovery as a matter for correction rather than deterrence. They allege that when the CPUC or other parties identify costs that should not have been recorded to ratepayer-funded accounts, the typical consequence is disallowance which means the utility simply returns the money or is denied recovery. They point to the California State Auditor’s August 2023 report, Electricity and Natural Gas Rates (Report 2022-115)^[1], which documented that this corrective-only enforcement framework is insufficient. The Auditor identified significant risk that utilities seek recovery of costs that are ineligible, including costs already authorized through another mechanism, and that the CPUC and Public Advocates Office (PAO) have limited capacity to scrutinize the large volume of utility cost recovery requests. The PAO shared recent examples that were IOUs included the recording of lobbying and advocacy expenses in energy efficiency balancing accounts, personal entertainment expenses in ratepayer-funded accounts, and other prohibited expenses. They argue that with the prospect of disallowance and not a meaningful financial penalty, the IOUs’ calculus too often encourages careless or improper accounting. The PAO contends that if the inappropriate cost is detected, the utility simply gives the money back; if is not detected, ratepayers pay.

Opponents raise concern that this bill is too vague, broad, and unnecessary. They believe the existing law and CPUC rules already address the issues regarding prohibited cost recovery by utilities, including penalties. They also contend that accounting entry alone cannot constitute inappropriate cost recovery as the real impact on ratepayers is only once the costs are approved for recovery in rates by the CPUC. They further raise concerns that this bill limits the utility’s ability to reprioritize within an authorized revenue requirement, including necessary safety, reliability, and customer-service work. They contend this bill’s vague language will result in chilling necessary decision-making and would stymy good-faith efforts to address issues by utilities. However, recent floor amendments are an attempt to address these concerns. The small rural telephone corporations, which are the only telephone corporations implicated by this bill, argue that their accounting is unique, as it is governed by Federal Communications Commission requirements, particularly as much of their service costs are funded by federal subsidies. They also contend their lack of reliance on balancing and memorandum accounts means they should not be included in this bill. Recent floor amendments remove telephone corporations from the provisions of this bill in response to the concerns raised by the small rural telephone corporations.

Related/Prior Legislation

SB 327 (McNerney, 2025) prohibits certain political influence activities and expenses by electrical or gas corporations, those related to opposing efforts to municipalize energy utility service, from being recorded in certain accounts and having the costs recovered from ratepayers. The bill is pending before the full Assembly.

AB 1167 (Berman, Chapter 634, Statutes of 2025) prohibited certain political influence activities and advertising expenses by electrical and gas corporations from being recovered from ratepayers and authorizes the CPUC to assess penalties for violations related to the bill’s provisions.

SB 24 (McNerney, 2025) would have included many of the same provisions related to prohibiting recovery of political influence expenses from ratepayers as AB 1167. The bill was vetoed.

SB 938 (Min, 2023) would have expanded the types of activities an electrical or gas corporation is prohibited from recovering in rates by expanding the definitions of political activities and advertising and requires specified reporting of related activities. The bill failed passage in the Senate Energy, Utilities and Communications Committee.

AB 562 (Santiago, Chapter 429, Statutes of 2019) required that any expense incurred by an IOU in assisting or deterring union organizing, as defined, is not recoverable either directly or indirectly in the utility’s rates and is required to be borne exclusively by the shareholders of the IOU.

SB 790 (Leno, Chapter 599, Statutes of 2012) revised and expanded the definition of CCA, requires the CPUC to initiate a Code of Conduct rulemaking, and allows CCAs to receive public purpose funds to administer energy efficiency programs.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

SUPPORT: (Verified 8/27/26)

The Utility Reform Network (Source)

Earthjustice

Public Advocates Office

OPPOSITION: (Verified 8/27/26)

Pacific Gas and Electric Company
Southern California Edison

ARGUMENTS IN SUPPORT: The Public Advocate’s Office states:

Existing law, regulations, and prior CPUC decisions establish clear rules governing which utility expenses ratepayers may be asked to fund. AB 2065 creates meaningful consequences for utilities attempting to recover costs in violation of those rules. One of our Office’s core functions is to review utility cost recovery requests to ensure that rates are appropriate and reasonable. In this work, we have uncovered numerous instances of utilities actively attempting to recover inappropriate costs from ratepayers. Utilities have attempted to use ratepayer funds for disallowed political activities, luxury items for employees, and costs they have already been reimbursed for. Current accountability measures are not strong enough to discourage utilities from pursuing inappropriate cost recovery that can unfairly increase rates for customers. California’s ratepayers are facing an affordability crisis. AB 2065 will provide the CPUC with the tools it needs to ensure that the state’s regulated utilities are not compounding this crisis by shifting inappropriate costs onto ratepayers.

ARGUMENTS IN OPPOSITION: Pacific Gas & Electric and Southern California Edison state the bill is “overly broad and ambiguous in ways that could increase administrative disputes, create operational uncertainty, and ultimately raise costs for customers without providing additional bill relief.” They argue this bill conflates accounting with cost recovery, the scope of authorization is unclear, the language is vague regarding authorized recovery through another ratemaking mechanism, and this bill risks sweeping good-faith disputes over interpretations of existing law and CPUC rules. In general, they argue this bill is not needed and could chill necessary operational decision-making by utilities.

ASSEMBLY FLOOR: 68-0, 5/21/26

AYES: Addis, Aguiar-Curry, Ahrens, Alanis, Alvarez, Ávila Farías, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Caloza, Carrillo, Castillo, Connolly, Davies, DeMaio, Dixon, Elhawary, Ellis, Flora, Fong, Gallagher, Gipson, Jeff Gonzalez, Mark González, Hadwick, Haney, Harabedian, Hart, Irwin, Jackson, Johnson, Kalra, Krell, Lee, Macedo, McKinnor, Muratsuchi, Nguyen, Ortega, Pacheco, Papan, Patel, Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ransom, Michelle Rodriguez, Rogers, Blanca Rubio, Sanchez, Schiavo, Sharp-Collins, Solache, Soria, Stefani, Ta, Tangipa, Valencia, Wallis, Ward, Zbur, Rivas

NO VOTE RECORDED: Arambula, Chen, Gabriel, Garcia, Hoover, Lackey, Lowenthal, Ramos, Celeste Rodriguez, Schultz, Wicks, Wilson

Prepared by: Nidia Bautista / E., U. & C. / (916) 651-4107

8/27/26 22:09:24

**** END ****

1. California State Auditor, Electricity and Natural Gas Rates: The California Public Utilities Commission and Cal Advocates Can Better Ensure That Rate Increases Are Necessary, Report 2022-115 (August 2023), available at https://information.auditor.ca.gov/reports/2022-115/index.html. ↑

 THIRD READING  

Bill No: AB 2065

Author: Petrie-Norris (D)

Amended: 6/30/26 in Senate

Vote: 21

SENATE ENERGY, U. & C. COMMITTEE: 14-2, 6/24/26

AYES: Allen, Archuleta, Arreguín, Becker, Caballero, Dahle, Gonzalez, Hurtado, McNerney, Reyes, Richardson, Rubio, Stern, Wahab

NOES: Ochoa Bogh, Strickland

NO VOTE RECORDED: Grove

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

ASSEMBLY FLOOR: 68-0, 5/21/26 (Consent) - See last page for vote

SUBJECT: Rates: inappropriate cost recovery

SOURCE: The Utility Reform Network

DIGEST:

This bill requires the California Public Utilities Commission (CPUC) to assess specified penalties on electrical corporations, gas corporations, water corporations, sewer system corporations, or telephone corporations if they record costs in financial accounts that are prohibited from being recovered from ratepayers or the cost is already authorized for recovery through another ratemaking mechanism.

ANALYSIS:

Existing law:

1. Provides, under the Public Utility Regulatory Policies Act, that no electric utility may recover from any person other than the shareholders (or other owners) of the utility any direct or indirect expenditure by such utility for political advertising. This is defined to include advertising intended to influence public opinion with respect to legislative, administrative, or electoral matters, or with respect to any controversial issue of public importance. (16 U.S. Code §2623(b)(5))
2. Establishes and vests the CPUC with regulatory authority over public utilities, including electrical corporations, gas corporations, water corporations, sewer system corporations, and telephone corporations. (Article 12 of the California Constitution)
3. Authorizes the CPUC to fix the rates and charges for every public utility and requires that those rates and charges be just and reasonable. (Public Utilities Code §451)
4. Prohibits a public utility from including any bill for services or commodities furnished by any customer or subscriber any advertising or literature designed or intended (1) to promote the passage or defeat of a measure appearing on the ballot at an election, (2) promote or defeat of a candidate to any public office, (3) to promote or defeat the appointment of any person to any administrative or executive positions in government, or (4) to promote or defeat any change in legislation or regulations. (Public Utilities Code §453 (d))
5. Provides the CPUC with general, broad authority to regulate every public utility in the state. (Public Utilities Code §701)
6. Prohibits an electrical or gas corporation from recovering expenses for compensation (defined to include annual salary, bonus, benefits, or other consideration paid to an officer of the corporation) from ratepayers and requires compensation is paid solely by shareholders of the electrical or gas corporation. (Public Utilities Code §706)
7. Prohibits a utility from recording to an above-the-line account or otherwise recovering from ratepayers specified costs related to promotional advertisements and political influence activities. Defines “above-the-line-account” to mean an account that contains expenses that a utility recovers from ratepayers, including an account that contains expenses that the utility used to calculate a revenue requirement request in its general rate case. (Public Utilities Code §748.3)
8. Authorizes the CPUC to require a public utility to correct any rates, practices, equipment or behavior that is unjust, unreasonable, unsafe, improper, inadequate, or insufficient. (Public Utilities Code §761)
9. Prohibits the CPUC from prescribing a system of accounts and form of accounts, records, and memoranda for corporations subject to the regulatory authority of the United States that is inconsistent with that established and updated by or under the authority of the United States. (Public Utilities Code §793)
10. Provides the CPUC with authority to levy fines against regulated entities for violation of law. Requires penalties to be deposited in the State’s General Fund. (Public Utilities Code §2100 et seq.)
11. Provides any public utility that violates or fails to comply with any provision of the Constitution, order, decision, decree, rule, direction, demand, or requirement of the CPUC, is subject to a penalty of not less than $500, and no more than $100,000, for each offense. (Public Utilities Code §2107)

This bill:

1. Defines “utility” to mean an electrical corporation, gas corporation, water corporation, sewer system corporation, or telephone corporation, also known as investor-owned utilities (IOUs).
2. Requires the CPUC to find that a utility has engaged in prohibited cost recovery, if the utility records a costs to a regulator-approved financial account that meets specified criteria, including if the cost is categorically excluded from ratepayer recovery by statute, CPUC decision, or CPUC rule, exceeds the scope of the CPUC’s authorization for the specific account or application, or has already been authorized for recovery through another ratemaking mechanism.
3. Requires the CPUC, upon making a determination that such a corporation has recorded prohibited costs to a ratepayer-funded account in violation of CPUC rule, tariff, or statute:
   1. Disallow recovery of the cost from ratepayers.
   2. Impose a financial penalty for inappropriate cost recovery equal to the amount of the prohibited cost recovery or three times that amount if the CPUC determines there have been two or more separate instances of prohibited cost recovery by the same utility with the preceding five years or there has been a sustained practice of prohibited cost recovery extending across multiple reporting periods.
4. Provides that the bill does not limit the CPUC’s authority to assess fines and penalties from existing law and CPUC rules.
5. Requires each such utility to submit an annual report to the CPUC identifying all instances in the prior year in which prohibited cost recovery was identified, the actions that were taken in response to the identification, and any actions that were taken by the utility to prevent future occurrences.

Background

Cost recovery of expenses by IOUs. CPUC-regulated utilities routinely submit requests for cost recovery related to their operations to the CPUC, including expanding their infrastructure, paying for operation expenses, etc. As required by statute in Public Utilities Code §451, the CPUC may only approve a utility’s request for cost recovery that is deemed just and reasonable. Review of utility expenses to ensure they are just and reasonable is the principal purpose of the CPUC’s existence and the primary task of the agency as an economic regulator. Statutory authority also authorizes the CPUC to disallow expenses that are not deemed just and reasonable or prudent. The review of a utility’s expenses is largely, although not exclusively, conducted through the utility’s general rate case (GRC). Most utilities regulated by the CPUC are required to undergo a GRC whereby the utility requests funding for distribution, generation and operation costs associated with their service for the coming years (3-4 years depending on the utility). Usually performed every three (now four) years and conducted over roughly 18+ months, the GRCs are major regulatory proceedings which allow the CPUC and stakeholders to conduct a broad, exhaustive, and detailed review of a utility’s revenues, expenses, and investments in plant and equipment to establish an approved revenue requirement – essentially the amount the utility is authorized to recover from customers in utility rates.

Statute disallows recovery of certain expenses. Statute prohibits IOUs from recovering from ratepayers certain expenses, including activities related to elections of candidates, legislation, bonuses paid to executives of the IOU under specified conditions, activities marketing against community choice aggregators, as well as, any situation where the IOU has failed to sufficiently maintain records to enable the CPUC to completely evaluate any relevant issues related to the prudence of any expense relating to the planning, construction, or operation of the IOU’s plant. Under the requirements of the Federal Public Utility Regulatory Policies Act of 1978 and subsequent state statute, IOUs are also prohibited from recovering from any person other than shareholders direct and indirect expenditures for promotional or political advertising. Additionally, IOUs must abide by CPUC orders.

Federal Energy Regulatory Commission (FERC) accounting and financial reporting. FERC jurisdiction Account 426.4 of the Uniform System of Accounts (USofA) requires that utility shareholders pay for expenditures for the purpose of influencing public opinion or the decisions of public offices. FERC has established regulatory accounting and financial reporting requirements for its jurisdictional entities in the electric, natural gas, and oil pipeline industries. These requirements play a role in FERC’s strategy of setting just and reasonable cost-of-service rates. The foundation of the FERC’s accounting program is the USofA codified in the agency’s regulations. In addition, FERC issues accounting rulings relating to specific transactions and applications through orders and Chief Accountant guidance letters. This body of accounting regulations, orders, and guidance letters comprises the FERC’s accounting and financial reporting requirements which promote consistent, transparent, and decision-useful accounting information for the FERC and other stakeholders. These accounting and financial reporting requirements take into consideration the FERC’s ratemaking policies, past FERC actions, industry trends, and external factors (e.g., economic, environmental, and technological changes, and mandates from other regulatory bodies) that impact the industries under the agency’s jurisdiction. Electric Public Utilities & Licensees, Natural Gas, and Oil Pipeline companies within FERC jurisdiction are required to maintain their books and records in accordance with the USofA. The USofA provides basic account descriptions, instructions, and accounting definitions that are useful in understanding the information reported in the Annual Report.

Comments

Need for this bill. According to the author:

Utility companies have a documented history of charging ratepayers for costs that should have been disallowed. Under current law, this usually means that the utility just gives the money back. That's not accountability. As a deterrent, AB 2065 establishes mandatory automatic penalties, with bigger consequences for repeat offenders. Californians paying some of the most expensive utility bills in the country deserve to know that at least their bills are accurate and fair.

Desire for more consequences. The proponents for this bill contend the existing penalty framework under Public Utilities Code §2107 and 2108, and the CPUC’s Penalty Assessment Methodology adopted in Resolution M-4846, generally treats inappropriate utility cost recovery as a matter for correction rather than deterrence. They allege that when the CPUC or other parties identify costs that should not have been recorded to ratepayer-funded accounts, the typical consequence is disallowance which means the utility simply returns the money or is denied recovery. They point to the California State Auditor’s August 2023 report, Electricity and Natural Gas Rates (Report 2022-115)^[1], which documented that this corrective-only enforcement framework is insufficient. The Auditor identified significant risk that utilities seek recovery of costs that are ineligible, including costs already authorized through another mechanism, and that the CPUC and Public Advocates Office (PAO) have limited capacity to scrutinize the large volume of utility cost recovery requests. The PAO shared recent examples that were IOUs included the recording of lobbying and advocacy expenses in energy efficiency balancing accounts, personal entertainment expenses in ratepayer-funded accounts, and other prohibited expenses. They argue that with the prospect of disallowance and not a meaningful financial penalty, the IOUs’ calculus too often encourages careless or improper accounting. The PAO contends that if the inappropriate cost is detected, the utility simply gives the money back; if is not detected, ratepayers pay.

Opponents raise concern that this bill is too vague, broad, and unnecessary. They believe the existing law and CPUC rules already address the issues regarding prohibited cost recovery by utilities, including penalties. They also contend that accounting entry alone cannot constitute “inappropriate cost recovery” as the real impact on ratepayers is only once the costs are approved for recovery in rates by the CPUC. They further raise concerns that this bill limits the utility’s ability to reprioritize within an authorized revenue requirement, including necessary safety, reliability, and customer-service work. They contend this bill’s vague language will result in chilling necessary decision-making and would stymy good-faith efforts to address issues by utilities. The small rural telephone corporations, which are the only telephone corporations implicated by this bill, argue that their accounting is unique, as it is governed by Federal Communications Commission requirements, particularly as much of their service costs are funded by federal subsidies. They also contend their lack of reliance on balancing and memorandum accounts means they should not be included in this bill.

Prior/Related Legislation

SB 327 (McNerney, 2025) prohibits certain political influence activities and expenses by electrical or gas corporations, those related to opposing efforts to municipalize energy utility service, from being recorded in certain accounts and having the costs recovered from ratepayers. The bill is pending in the Assembly Appropriations Committee.

AB 1167 (Berman, Chapter 634, Statutes of 2025) prohibited certain political influence activities and advertising expenses by electrical and gas corporations from being recovered from ratepayers and authorizes the CPUC to assess penalties for violations related to the bill’s provisions.

SB 24 (McNerney, 2025) would have included many of the same provisions related to prohibiting recovery of political influence expenses from ratepayers as AB 1167. The bill was vetoed.

SB 938 (Min, 2023) would have expanded the types of activities an electrical or gas corporation is prohibited from recovering in rates by expanding the definitions of political activities and advertising and requires specified reporting of related activities. The bill failed passage in the Senate Energy, Utilities and Communications Committee.

AB 562 (Santiago, Chapter 429, Statutes of 2019) required that any expense incurred by an IOU in assisting or deterring union organizing, as defined, is not recoverable either directly or indirectly in the utility’s rates and is required to be borne exclusively by the shareholders of the IOU.

SB 790 (Leno, Chapter 599, Statutes of 2012) revised and expanded the definition of CCA, requires the CPUC to initiate a Code of Conduct rulemaking, and allows CCAs to receive public purpose funds to administer energy efficiency programs.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

SUPPORT: (Verified 8/10/26)

The Utility Reform Network (Source)

Earthjustice

Public Advocates Office

OPPOSITION: (Verified 8/10/26)

California Communications Association
Pacific Gas and Electric Company
Southern California Edison

ARGUMENTS IN SUPPORT: The Public Advocate’s Office states:

Existing law, regulations, and prior CPUC decisions establish clear rules governing which utility expenses ratepayers may be asked to fund. AB 2065 creates meaningful consequences for utilities attempting to recover costs in violation of those rules. One of our Office’s core functions is to review utility cost recovery requests to ensure that rates are appropriate and reasonable. In this work, we have uncovered numerous instances of utilities actively attempting to recover inappropriate costs from ratepayers. Utilities have attempted to use ratepayer funds for disallowed political activities, luxury items for employees, and costs they have already been reimbursed for. Current accountability measures are not strong enough to discourage utilities from pursuing inappropriate cost recovery that can unfairly increase rates for customers. California’s ratepayers are facing an affordability crisis. AB 2065 will provide the CPUC with the tools it needs to ensure that the state’s regulated utilities are not compounding this crisis by shifting inappropriate costs onto ratepayers.

ARGUMENTS IN OPPOSITION: Pacific Gas & Electric and Southern California Edison state the bill is “overly broad and ambiguous in ways that could increase administrative disputes, create operational uncertainty, and ultimately raise costs for customers without providing additional bill relief.” They argue this bill conflates accounting with cost recovery, the scope of authorization is unclear, the language is vague regarding authorized recovery through another ratemaking mechanism, and this bill risks sweeping good-faith disputes over interpretations of existing law and CPUC rules. In general, they argue this bill is not needed and could chill necessary operational decision-making by utilities.

The California Communications Association (CalCom) raises concerns that this bill appears to be focused on practices by large energy and water utilities who rely on memorandum and balancing accounts. They argue that their rate cases are focused more on forward-looking forecasts, and their small, rural telephone companies are subject to many accounting and ratemaking determinations governed by the Federal Communications Commission. They contend this bill “risks imposing unjustified penalties and creating regulatory “gotchas” for these small, rural-focused utilities if they improve or adjust their accounting over time.”

ASSEMBLY FLOOR: 68-0, 5/21/26

AYES: Addis, Aguiar-Curry, Ahrens, Alanis, Alvarez, Ávila Farías, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Caloza, Carrillo, Castillo, Connolly, Davies, DeMaio, Dixon, Elhawary, Ellis, Flora, Fong, Gallagher, Gipson, Jeff Gonzalez, Mark González, Hadwick, Haney, Harabedian, Hart, Irwin, Jackson, Johnson, Kalra, Krell, Lee, Macedo, McKinnor, Muratsuchi, Nguyen, Ortega, Pacheco, Papan, Patel, Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ransom, Michelle Rodriguez, Rogers, Blanca Rubio, Sanchez, Schiavo, Sharp-Collins, Solache, Soria, Stefani, Ta, Tangipa, Valencia, Wallis, Ward, Zbur, Rivas

NO VOTE RECORDED: Arambula, Chen, Gabriel, Garcia, Hoover, Lackey, Lowenthal, Ramos, Celeste Rodriguez, Schultz, Wicks, Wilson

Prepared by: Nidia Bautista / E., U. & C. / (916) 651-4107

8/12/26 16:18:56

**** END ****

1. California State Auditor, Electricity and Natural Gas Rates: The California Public Utilities Commission and Cal Advocates Can Better Ensure That Rate Increases Are Necessary, Report 2022-115 (August 2023), available at https://information.auditor.ca.gov/reports/2022-115/index.html. ↑

SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS

Senator Benjamin Allen, Chair

2025 - 2026 Regular

Bill No: Hearing Date: 6/24/2026

SUBJECT:

DIGEST: This bill prohibits an electrical corporation, gas corporation, water corporation, sewer system corporation, or telephone corporation from engaging in inappropriate cost recovery by recording to an above-the-line account specified costs and requires the California Public Utilities Commission (CPUC) to assess specified penalties for such violations.

ANALYSIS:

Existing law:

1. Provides, under the Public Utility Regulatory Policies Act, that no electric utility may recover from any person other than the shareholders (or other owners) of the utility any direct or indirect expenditure by such utility for political advertising. This is defined to include advertising intended to influence public opinion with respect to legislative, administrative, or electoral matters, or with respect to any controversial issue of public importance. (16 U.S. Code §2623(b)(5))
2. Establishes and vests the CPUC with regulatory authority over public utilities, including electrical corporations, gas corporations, water corporations, sewer system corporations, or telephone corporations. (Article 12 of the California Constitution)
3. Authorizes the CPUC to fix the rates and charges for every public utility and requires that those rates and charges be just and reasonable. (Public Utilities Code §451)
4. Prohibits a public utility from including any bill for services or commodities furnished by any customer or subscriber any advertising or literature designed or intended (1) to promote the passage or defeat of a measure appearing on the ballot at an election, (2) promote or defeat of a candidate to any public office, (3) to promote or defeat the appointment of any person to any administrative or executive positions in government, or (4) to promote or defeat any change in legislation or regulations. (Public Utilities Code §453 (d))
5. Provides the CPUC with general, broad authority to regulate every public utility in the state. (Public Utilities Code §701)
6. Prohibits an electrical or gas corporation from recovering expenses for compensation (defined to include annual salary, bonus, benefits, or other consideration paid to an officer of the corporation) from ratepayers and requires compensation is paid solely by shareholders of the electrical or gas corporation. (Public Utilities Code §706)
7. Prohibits a utility from recording to an above-the-line account or otherwise recovering from ratepayers specified costs related to promotional advertisements and political influence activities. Defines “above-the-line-account” to mean an account that contains expenses that a utility recovers from ratepayers, including an account that contains expenses that the utility used to calculate a revenue requirement request in its general rate case. (Public Utilities Code §748.3)
8. Authorizes the CPUC to require a public utility to correct any rates, practices, equipment or behavior that is unjust, unreasonable, unsafe, improper, inadequate, or insufficient. (Public Utilities Code §761)
9. Prohibits the CPUC from prescribing a system of accounts and form of accounts, records, and memoranda for corporations subject to the regulatory authority of the United States that is inconsistent with that established and updated by or under the authority of the United States. (Public Utilities Code §793)
10. Requires the CPUC to disallow all expenses for advertising which encourage increased consumption in rates charged by electrical or gas corporations for the services or commodities furnished by the utility. Authorizes the CPUC to include in rates charges for services, expenses for advertising which encourage the more efficient operation of the electric, or gas plant, or for advertising which encourage the more efficient use of electricity or gas, or the conservation of energy or natural resources, or presents accurate information on the economical purchase, maintenance, or effective use of electrical or gas appliances and devices. (Public Utilities Code §796)
11. Provides the CPUC with authority to levy fines against regulated entities for violation of law. Generally, prevents the CPUC from distributing, expending, or encumbering any moneys received by the CPUC as a result of any CPUC proceeding or judicial action until the CPUC has notified the Director of Finance and the Director of Finance provides notice to the chairpersons of the appropriate legislative budget subcommittees, except where statute expressly provides how the monies are to be paid or used. Requires penalties to be deposited in the State’s General Fund. (Public Utilities Code §2100 et seq.)
12. Provides any public utility that violates or fails to comply with any provision of the Constitution of this state or of this part, or that fails or neglects to comply with any part or provision of any order, decision, decree, rule, direction, demand, or requirement of the CPUC, in a case in which a penalty has not otherwise been provided, is subject to a penalty of not less than $500, and no more than $100,000, for each offense. (Public Utilities Code §2107)

This bill:

1. Prohibits an electrical corporation, gas corporation, water corporation, sewer system corporation, or telephone corporation from engaging in inappropriate cost recovery by recording to an above-the-line account specified costs, including if the cost is categorically excluded from ratepayer recovery by statute, CPUC decision, or CPUC rule, exceeds the scope of the CPUC’s authorization for the specific account or application, or has already been authorized for recovery through another ratemaking mechanism.
2. Requires the CPUC, upon making a determination that a corporation has engaged in inappropriate cost recovery, to:
   1. disallow recovery of the inappropriate cost from ratepayers and
   2. to impose a financial penalty for inappropriate cost recovery equal to the amount of the inappropriate cost recovery or three times that amount if the CPUC determines there have been two or more separate instances of inappropriate cost recovery by the same utility with the preceding five years or there has been a sustained practice of inappropriate cost recovery extending across multiple reporting periods.
3. Provides that the bill does not limit the CPUC’s authority to assess fines and penalties from existing law and CPUC rules.

Background

Cost recovery of expenses by investor-owned utilities (IOUs). CPUC-regulated utilities routinely submit requests for cost recovery related to their operations, including expanding their infrastructure, paying for operation expenses, etc. As required by statute in Public Utilities Code §451, the CPUC may only approve a utility’s request for cost recovery that is deemed just and reasonable. Review of utility expenses to ensure they are just and reasonable is the principal purpose of the CPUC’s existence and the main task of the agency as an economic regulator. Statutory authority also authorizes the CPUC to disallow expenses that are not deemed just and reasonable or prudent. The review of a utility’s expenses is largely, although not exclusively, conducted through the utility’s general rate case (GRC). Most utilities regulated by the CPUC are required to undergo a GRC whereby the utility requests funding for distribution, generation and operation costs associated with their service. Usually performed every three (now four) years and conducted over roughly 18+ months, the GRCs are major regulatory proceedings which allow the CPUC and stakeholders to conduct a broad, exhaustive, and detailed review of a utility’s revenues, expenses, and investments in plant and equipment to establish an approved revenue requirement.

Statute disallows recovery of certain expenses. Statute prohibits IOUs from recovering from ratepayers certain expenses, including activities related to elections of candidates, legislation, bonuses paid to executives of the IOU under specified conditions, activities marketing against community choice aggregators, as well as, any situation where the IOU has failed to sufficiently maintain records to enable the CPUC to completely evaluate any relevant issues related to the prudence of any expense relating to the planning, construction, or operation of the IOU’s plant. Under the requirements of the Federal Public Utility Regulatory Policies Act of 1978 and subsequent state statute, IOUs are also prohibited from recovering from any person other than shareholders direct and indirect expenditures for promotional or political advertising. Additionally, IOUs must abide by CPUC orders.

Federal Energy Regulatory Commission (FERC) accounting and financial reporting. FERC jurisdiction Account 426.4 of the Uniform System of Accounts (USofA) requires that utility shareholders pay for expenditures for the purpose of influencing public opinion or the decisions of public offices. FERC has established regulatory accounting and financial reporting requirements for its jurisdictional entities in the electric, natural gas, and oil pipeline industries. These requirements play a role in FERC’s strategy of setting just and reasonable cost-of-service rates. The foundation of the FERC’s accounting program is the USofA codified in the agency’s regulations. In addition, FERC issues accounting rulings relating to specific transactions and applications through orders and Chief Accountant guidance letters. This body of accounting regulations, orders, and guidance letters comprises the FERC’s accounting and financial reporting requirements which promote consistent, transparent, and decision-useful accounting information for the FERC and other stakeholders. These accounting and financial reporting requirements take into consideration the FERC’s ratemaking policies, past FERC actions, industry trends, and external factors (e.g., economic, environmental, and technological changes, and mandates from other regulatory bodies) that impact the industries under the agency’s jurisdiction. Electric Public Utilities & Licensees, Natural Gas, and Oil Pipeline companies within FERC jurisdiction are required to maintain their books and records in accordance with the USofA. The USofA provides basic account descriptions, instructions, and accounting definitions that are useful in understanding the information reported in the Annual Report.

Comments

Need for this bill. According to the author:

Utility companies have a documented history of charging ratepayers for costs that should have been disallowed. Under current law, this usually means that the utility just gives the money back. That's not accountability. As a deterrent, AB 2065 establishes mandatory automatic penalties, with bigger consequences for repeat offenders. Californians paying some of the most expensive utility bills in the country deserve to know that at least their bills are accurate and fair.

Desire for more consequences. The proponents for this bill contend the existing penalty framework under Public Utilities Code §2107 and 2108, and the CPUC’s Penalty Assessment Methodology adopted in Resolution M-4846, generally treats inappropriate utility cost recovery as a matter for correction rather than deterrence. They allege that when the CPUC or other parties identify costs that should not have been recorded to ratepayer-funded accounts, the typical consequence is disallowance which means the utility simply returns the money or is denied recovery. They point to the California State Auditor’s August 2023 report, Electricity and Natural Gas Rates (Report 2022-115)^[1], which documented that this corrective-only enforcement framework is insufficient. The Auditor identified significant risk that utilities seek recovery of costs that are ineligible, including costs already authorized through another mechanism, and that the CPUC and Public Advocates Office have limited capacity to scrutinize the large volume of utility cost recovery requests. The Public Advocates Office shared recent examples have included the recording of lobbying and advocacy expenses in energy efficiency balancing accounts, personal entertainment expenses in ratepayer-funded accounts, and other prohibited expenses. They argue that with the prospect of disallowance and not a meaningful financial penalty, the calculus too often encourages careless or improper accounting: if the inappropriate cost is detected, the utility simply gives the money back; if not, ratepayers pay.

Opponents raise concern that this bill is too vague, broad, and unnecessary. They believe the existing law and CPUC rules already address these issues. They also contend that accounting entry alone cannot constitute “inappropriate cost recovery.” They contend this bill’s vague language will result in chilling necessary decision-making and would stymy good-faith efforts to address issues. The small rural telephone corporations, which are the only telephone corporations implicated by this bill, argue that their accounting is unique, as it is governed by Federal Communications Commission requirements, particularly as much of their service costs are funded by federal subsidies. They also contend their lack of reliance on balancing and memorandum accounts means they should not be included in the bill.

Need for amendments. The proponents agree additional cleanup is necessary to ensure this bill is targeted and clear in requiring penalties for cost recovery that is prohibited. In this regard, the author and committee may wish to amend this bill to:

• Delete all references to “inappropriate” and replace with “prohibited” cost recovery.
• Delete reference to above-the-line-account in order to prevent confusion about accounting limitations.
• Authorize penalties when the CPUC has found a utility has engaged in prohibited cost recovery.
• Authorize the CPUC to refund any prohibited costs previously collected.
• Require utilities to annually report to the CPUC identifying all instances in the prior year where prohibited cost recovery was identified, including all actions taken to remedy and prevent future instances.
• Additional clarifying amendments to conform the bill.

Prior/Related Legislation

SB 327 (McNerney, 2025) prohibits certain political influence activities and expenses by electrical or gas corporations, those related to opposing efforts to municipalize energy utility service, from being recorded in certain accounts and having the costs recovered from ratepayers. The bill is pending in the Assembly Appropriations Committee.

AB 1167 (Berman, Chapter 634, Statutes of 2025) prohibited certain political influence activities and advertising expenses by electrical and gas corporations from being recovered from ratepayers and authorizes the CPUC to assess penalties for violations related to the bill’s provisions.

SB 24 (McNerney, 2025) would have included many of the same provisions related to prohibiting recovery of political influence expenses from ratepayers as AB 1167. The bill was vetoed.

SB 938 (Min, 2023) would have expanded the types of activities an electrical or gas corporation is prohibited from recovering in rates by expanding the definitions of political activities and advertising and requires specified reporting of related activities. The bill also required the CPUC to assess specified civil penalties for any violations of the proposed prohibition and required ¾ of the moneys to be deposited in a new Zero-Emission Equity Fund within the State Treasury. The bill died in this committee.

AB 562 (Santiago, Chapter 429, Statutes of 2019) required that any expense incurred by an IOU in assisting or deterring union organizing, as defined, is not recoverable either directly or indirectly in the utility’s rates and is required to be borne exclusively by the shareholders of the IOU.

AB 874 (Williams, 2013) would have prohibited any expense incurred by an IOU in assisting or deterring union organizing to be recoverable either directly or indirectly in the utility’s rates. The bill died in the Assembly.

SB 790 (Leno, Chapter 599, Statutes of 2012) revised and expanded the definition of CCA, requires the CPUC to initiate a Code of Conduct rulemaking, and allows CCAs to receive public purpose funds to administer energy efficiency programs.

SB 598 (Hueso, Chapter 362, Statutes of 2017) required the CPUC to adopt rules, policies and regulations with the goal of reducing the statewide level of gas and electric utility service disconnections for nonpayment by residential customers and extends special considerations to residential customers who have specified medical conditions or who have a member of the household with those conditions.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT:

Public Advocates Office
The Utility Reform Network

OPPOSITION:

California Communications Association
Pacific Gas and Electric Company
Southern California Edison

ARGUMENTS IN SUPPORT: The Public Advocate’s Office states:

Existing law, regulations, and prior CPUC decisions establish clear rules governing which utility expenses ratepayers may be asked to fund. AB 2065 creates meaningful consequences for utilities attempting to recover costs in violation of those rules. One of our Office’s core functions is to review utility cost recovery requests to ensure that rates are appropriate and reasonable. In this work, we have uncovered numerous instances of utilities actively attempting to recover inappropriate costs from ratepayers. Utilities have attempted to use ratepayer funds for disallowed political activities, luxury items for employees, and costs they have already been reimbursed for. Current accountability measures are not strong enough to discourage utilities from pursuing inappropriate cost recovery that can unfairly increase rates for customers. California’s ratepayers are facing an affordability crisis. AB 2065 will provide the CPUC with the tools it needs to ensure that the state’s regulated utilities are not compounding this crisis by shifting inappropriate costs onto ratepayers.

ARGUMENTS IN OPPOSITION: Pacific Gas & Electric and Southern California Edison state the bill is “overly broad and ambiguous in ways that could increase administrative disputes, create operational uncertainty, and ultimately raise costs for customers without providing additional bill relief.” They argue the bill conflates accounting with cost recovery, the scope of authorization is unclear, the language is vague regarding authorized recovery through another ratemaking mechanism, and the bill risks sweeping good-faith disputes over interpretations of existing law and CPUC rules. In general, they argue the bill is not needed and could chill necessary operational decision-making.

The California Communications Association (CalCom) raises concerns that the bill appears to be focused on practices by large energy and water utilities who rely on memorandum and balancing accounts. They argue that their rate cases are focused more on forward-looking forecasts, and their small, rural telephone companies are subject to many accounting and ratemaking determinations governed by the Federal Communications Commission. They contend the bill “risks imposing unjustified penalties and creating regulatory “gotchas” for these small, rural-focused utilities if they improve or adjust their accounting over time.”

-- END --

1. California State Auditor, Electricity and Natural Gas Rates: The California Public Utilities Commission and Cal Advocates Can Better Ensure That Rate Increases Are Necessary, Report 2022-115 (August 2023), available at https://information.auditor.ca.gov/reports/2022-115/index.html. ↑

Date of Hearing: May 13, 2026

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Buffy Wicks, Chair

ABPCA Bill Id:AB 2065

Author:(Petrie-Norris) – As Introduced Ver:February 18, 2026

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill extends, from July 1, 2027, to December 1, 2027, the deadline by which the Governor’s Office of Business and Economic Development (GO-Biz) is to submit a report to the Legislature on a public-private partnership (P3) plan for the Transmission Infrastructure Accelerator.

FISCAL EFFECT:

No state costs.

COMMENTS:

Last year, the Legislature approved SB 254 (Becker), Chapter 119, Statutes of 2025, which enacted numerous, significant energy-related changes to law. Among those changes was creation of the Transmission Accelerator within the Energy Unit of GO-Biz to develop a financing and development strategy for eligible electricity transmission projects receiving financing from the California Transmission Accelerator and submit the strategy in a report to the Governor and the Legislature by July 1, 2027. The author asserts this deadline should be extended by five months because doing so “will improve the odds of success of one of the most consequential infrastructure undertakings in the state's history.”

Analysis Prepared by: Jay Dickenson / APPR. / (916) 319-2081

Date of Hearing: April 22, 2026

ASSEMBLY COMMITTEE ON UTILITIES AND ENERGY

Cottie Petrie-Norris, Chair

ABPCA Bill Id:AB 2065 (

Author:Petrie-Norris) – As Introduced Ver:February 18, 2026

SUBJECT: Transmission Infrastructure Accelerator: private-public partnership plan

SUMMARY: Extends the deadline by five months – from July to December 2027 – for the Governor’s Office of Business and Economic Development (GO-Biz) to submit a report to the Legislature on a public-private partnership (P3) plan for the Transmission Infrastructure Accelerator.

EXISTING LAW:

1. Directs GO-Biz’s Energy Unit to establish a Transmission Infrastructure Accelerator (Accelerator) to develop financing opportunities for eligible electric transmission projects. Low-cost public financing would be provided to eligible recipients by the California Infrastructure and Economic Development Bank (I-Bank); the recipients would then pay it back to the Accelerator Revolving Fund (Revolving Fund), enabling the financing to be used for other transmission projects. (Government Code §§ 12100.110-12100.111, 63049.71-63050)
2. Authorizes the I-Bank to provide financial assistance under the Revolving Fund Program to any eligible participating party, either directly or to a lending or financial institution, in connection with the financing or refinancing of an accelerator project, in accordance with the provisions of the bill. Projects eligible for financing must meet specified conditions, including (Government Code § 12100.111):
   1. Have at least one interconnection point within the California Independent System Operator (CAISO) balancing authority.
   2. The applicant (or its affiliates) have previously completed a transmission project in the state.
   3. Be a project subject to the competitive solicitation process administered by the CAISO.
   4. Be a project consistent with the state’s reliability and greenhouse gas policy objectives.
   5. Reduce its cost recovery requests by the amount of savings achieved through tax credits received under the provisions of the bill.
   6. Commit to requesting a revenue requirement at the Federal Energy Regulatory Commission (FERC) that reflects only its actual capital structure to minimize ratepayer impacts.
   7. Consistency with state policy.
3. Requires the Accelerator to develop a P3 plan to evaluate the role of the Accelerator to identify and develop P3s and match participating parties with public sponsors prior to the CAISO receiving bids and finalizing the competitive solicitation process. Requires the P3 plan to be submitted to the Legislature by July 1, 2027. (Government Code § 12100.112)
4. Allows a 20% tax credit for 10 years (January 1, 2026, and before January 1, 2036), for qualified expenditures paid or incurred by the eligible transmission project developer, not to exceed $20 million per developer per taxable year. Prohibits the taxpayer from earning a return on equity for the eligible transmission project for the portion of the project for which the credit is claimed. Requires the I-Bank to inform the Franchise Tax Board of any eligible transmission project that the bank approves for financial assistance and to provide any other information the Franchise Tax Board requires for administration of the credits allowed by this bill. (Revenue and Taxation Code §§ 17053.40 and 23640)

FISCAL EFFECT: Unknown. This bill is keyed fiscal and will be referred to the Assembly Committee on Appropriations for its review.

BACKGROUND:

The Transmission Accelerator – Last year, the Legislature passed SB 254 (Becker, Chapter119, Statutes of 2025) which contains extensive policies affecting the regulation and management of, and ratepayer costs arising from, the state’s investor-owned utilities. One such policy was the creation of the Transmission Accelerator at GO-Biz, establishing a new mechanism to finance electrical transmission projects with public debt. The logic behind the Accelerator policy is straightforward: public financing lowers borrowing costs, eliminates profit, and reduces federal and state tax burdens, which together can significantly reduce the overall cost of building transmission infrastructure. Given that CAISO, in its 2024 20-year Outlook, ^[1] estimated total transmission development costs of $45.8–$63.2 billion to meet the state’s 2045 clean energy goals, even modest savings on individual projects could add up to significant savings when applied across multiple projects over time.

SB 254 directs the GO-Biz Energy Unit to establish the Accelerator to provide low-cost public financing to eligible electric transmission projects through the I-Bank, with repayments flowing into a revolving fund to finance future projects. The Energy Unit is required to coordinate with the CPUC, CEC, CAISO, I-Bank, and other parties to develop a financing and development strategy by December 31, 2026, consistent with CAISO procedures. The Accelerator and Revolving Fund are available for a range of qualified public sponsors whose projects meet specified criteria, and once a project is selected, the Accelerator is directed to expedite its development and deployment to generate ratepayer savings, though statute provides limited guidance on how that expediting should occur in practice. As a result, the Accelerator must also develop a P3 plan by July 1, 2027, to evaluate its role in managing and matching public sponsors with private parties.

COMMENTS:

1. Author’s Statement. According to the author, “AB 2065 gives GO-Biz an additional five months to deliver its Transmission Accelerator implementation plan to the Legislature to help California finance and deliver transmission projects faster and more affordably. This small extension will improve the odds of success of one of the most consequential infrastructure undertakings in the state's history.”
2. Purpose of Bill. Under existing law, GO-Biz is required to deliver its Accelerator P3 plan to the Legislature by July 2027. This bill would extend that deadline by five months. The extension is intended to provide GO-Biz additional time to develop a more complete plan for a program designed to help California finance and deliver transmission projects more efficiently. The Accelerator program addresses a significant infrastructure undertaking, and the author has indicated that the additional time is expected to improve the quality and readiness of the resulting plan. Given the Newsom Administration has proposed amendments to the Accelerator’s recently-passed statute,^[2] the additional time called for by this bill for the P3 report may be warranted to allow this nascent program to get underway.
3. Related Legislation.

AB 2396 (Irwin, 2026) authorizes Community Choice Aggregators (CCAs) to own, operate, and maintain – among other powers – eligible projects under the GO-Biz Transmission Accelerator, regardless of whether the electrical transmission lines convey electricity to the CCA’s customer. Status: pending hearing – Assembly Committee on Appropriations.

Trailer Bill RN 26 10689,^[3] makes a number of changes to the statute governing the California Transmission Infrastructure Accelerator, including clarifying the responsibilities of the Accelerator relative to the I-Bank; specifying I-Bank’s autonomy and funding obligations as separate and distinct from the Accelerator’s; and specifying that transmission projects eligible for Accelerator financing are those that have selected for construction a prime contractor that has served as such for at least two transmission infrastructure projects in the state during the past 10 years, and for any contracted out maintenance, the owner of the project employs a contractor that has frequently performed electrical transmission work. Status: open item in the Senate and Assembly Committees on Budget.

1. Prior Legislation.

SB 254 (Becker), among its many provisions, establishes the California Transmission Infrastructure Accelerator, which created a new mechanism to finance electrical transmission projects with public debt. Status: Chapter 119, Statutes of 2025.

AB 3264 (Petrie-Norris) requires multiple studies and reports on ratepayer cost drivers, including a study of ratepayer cost reductions associated with expanding the state’s electrical grid; this study includes changes to financing and ownership models of transmission. Status: Chapter 762, Statutes of 2024.

REGISTERED SUPPORT / OPPOSITION:

Support

None on file.

Opposition

None on file.

Analysis Prepared by: Laura Shybut / U. & E. / (916) 319-2083

1. CAISO, “2024 20-Year Transmission Outlook,” July 31, 2024; https://www.caiso.com/documents/2024-20-year-transmission-outlook-jul-31-2024.pdf ↑

2. https://trailerbill.dof.ca.gov/public/trailerBill/pdf/1401 ↑

3. https://trailerbill.dof.ca.gov/public/trailerBill/pdf/1401 ↑