Assembly Standing Committee on Utilities and Energy

Good morning. Good morning. And welcome to today's hearing of the Assembly Committee on Utilities and Energy. Before we move on to our agenda, I have a few housekeeping announcements to go over. Number one, as is customary, I will maintain decorum throughout today's hearing in order to hear as much from the public.

Within the limits of our time, we will not permit conduct that disrupts or otherwise impedes the orderly conduct of legislative proceedings. Any individual who is disruptive may be removed from the room. Today we have two measures on the agenda.

As a reminder, testimony is limited to two witnesses in support, two witnesses in opposition providing testimony of two minutes each. For any additional witnesses on a measure, please state your name, position and affiliation, if any. All right, I think we have a quorum, so, Madam Secretary, please call the roll.

[Roll Call]

All right, we'll go ahead and begin. File item number one, AB 745 by Assemblymember Irwin, the floor is yours. You're off to a great start, Assemblymember.

I am off to a great start. Dr. Meng did fly from Santa Barbara, so we will give him a moment even though the Bill has been moved. Good morning, colleagues. As we move forward, reauthorizing Cap and Trade, affordability remains a top priority, and restructuring the California Climate Credit is critical to an affordability focused reauthorization.

This credit is derived from free allowances from the Cap and Trade program that are given to utilities, which must save and use the majority of the proceeds to lower ratepayer bills. The credit is currently distributed as a lump sum on utility bills during April and October. Most Californians are not even aware that the Climate Credit exists.

The current structure of the Climate Credit was developed more than a decade ago and reflects the policy priorities of that time to provide rebates to ratepayers while maintaining a strong price signal to encourage energy conservation. In 2025, we're in a completely different situation for electricity affordability.

Many California Californians are struggling to pay their utility bills, particularly in the summer months when extreme heat makes high AC usage an issue of protecting public health rather than a question of energy conservation. AB 745 would update the Climate Credit to address the issues we are facing today by making two key changes.

First, this Bill would change it from a lump sum to instead directly reduce volumetric electricity rates. Second, it would shift the timing of the distribution to the summer when the bills are the highest and people need it the most.

Rather than receiving a flat on Bill credit in off peak months, our constituents would pay noticeably less per kilowatt hour for electricity during the high demand summer months. If we made just these two changes, we could meaningfully reduce electricity rates for all Californians in IOU territory during the summer every year going forward

With me today to testify about the Bill is Dr. Kyle Meng, Professor in the Economics Department at UC Santa Barbara and formerly a Senior Economist on the White House Council of Economic Advisers in the Biden Administration. Dr. Meng.

Great, thank you very much. Thank you Chair Petrie-Norris and your colleagues on the Committee for this opportunity. And then thank you Assemblymember Irwin for introducing AB 745. As many of you know, we're in a critical juncture for climate policy.

With all the current turmoil at the federal level, it is California's moment to once again lead the nation with ambitious and smart policies. And many of you know, one of the biggest headwinds we have in these efforts is our too high electricity prices.

Too high even after accounting for all the damages from greenhouse gas emissions and air pollution. These high costs make it harder for people to afford their energy bills and discourage to switch to cleaner options like electric cars, heat pumps and other electric-electrified appliances.

Reauthorization of the Cap and Trade program, besides allowing the state to meet its climate goals cost effectively, also provides an opportunity to lower electricity prices. One possibility is to reconfigure the California Climate Credit for electricity, which in 2023 distributed over $1.2 billion to over 11 million households through lump sum payments.

These two lump sum payments, these revenues instead could be used in a more targeted manner by directly reducing electricity rates as proposed in Assemblymember Irwin's AB 745.

For example, a recent analysis by my research group, the Environmental Markets Lab at UC Santa Barbara, finds that if this 1.2 billion were used to reduce rates for all households served by PG&E, SCE and SDG&E for just the summer months when electricity bills are highest, electricity rates will lower by 13 to 19 percent, allowing households, particularly those exposed to extreme heat, the ability to run their air conditioner longer and cooler.

Other forms are possible. You can also imagine targeting low income households who spend a larger share of their incomes on electricity bills. Our analysis finds that if the current Climate Credit were targeted care households year round, electricity prices would fall by 27 to 44%.

Or if they were just applied to all households year round, electricity rates will fall by 4 to 7%. And of course, these rate reductions will be larger with more funding either from additional Cap and Trade revenue or from other state funds.

So in summary, AB 745 and the reauthorization of the Cap and Trade program more broadly provides an opportunity for California to double down on our world leading climate policy while also simultaneously addressing our energy affordability concerns. Thank you.

Thank you. We'll now open it up for additional testimony in support. If you'd like to testify in support of AB 745, please approach the microphone.

Thank you, Michele Canales with Union of Concerned Scientists. Support in concept, applying climate credit to volumetric rates and would encourage the redirection of the gas climate credit to further reduce electric rates. Thank you.

Thank you. Joe Gardas with NRDC. Support if amended to apply the climate credit volumetrically through all months. We would also ask the Legislature to consider redirecting the Gas Climate Credit. Thank you.

Good morning. Brandon Ebeck, Pacific Gas Electric. We don't have position on the Bill. We're still reviewing it. Look forward to working with the author. This is one of the recommendations that we provided as a response to the Bill that we're here next. Thank you.

Hello, good morning. Laura Parra, on behalf of Southern California Edison, I want to make sure to work with the author to address the low income portion that she's discussing and work with Assemblymember Rick Zbur on a similar Bill that he has. Thank you.

Scott Wetch on behalf of the California Coalition of Utility Employees and State Association of Electrical Workers. Support if amended, the Bill still would allow NEM 1.0 customers to receive the Climate Credit because most do not have batteries, so they still pull from the grid. And remember, they're already getting 50 cents a kilowatt hour.

And every time the IOU gets a rate increase, they get like PG&E's last 14.4% increase meant that all those NEM 1.0 customers got a 14.4% increase. They don't need this climate credit. Let's give it to the Care customers.

Thank you. All right. Do we have any? I don't think we have a primary witness in opposition seeing none. We'll open it up for any opposition testimony from folks in the room. If you'd like to testify in opposition to this measure. Approach the microphone. Okay. Seeing and hearing none. We'll bring it back to the Committee. Assembly Members of Zbur.

So thank you for bringing the Bill. I think it's a great Bill. Obviously, we had one that was very similar on pieces of it that included the Natural Gas Climate Credit as well. And I know that this is a vehicle.

The other Bill, just for the Members of the public that are out there, was crafted really narrowly to not intrude into the work that Assemblymember Irwin was doing in the cap and trade program and was, of course, more narrow so that we didn't include the volumetric issue because we felt that that was part of the purview of the Cap and Trade working group.

And so all that other Bill did was actually move the Climate Credit into the higher utility months for both the electricity and the natural gas. There were some other things in the other Bill, which is actually already in the Senate, that were the product of stakeholder input.

And I've already spoken to the author, and of course, she's receptive on considering those other bills. So with that, I'm supporting the Bill today. I think it's a great move forward.

I think that there are other things that we can do with the Climate Credit to lower affordability, which we were not looking at because we wanted to make sure that we were honoring the leadership of Assemblymember Irwin and the Cap and Trade group in terms of the additional things beyond just sort of moving the credit.

So I just want sort of the public to understand that the other Bill was a much narrower Bill so that we could actually have the climate, the cap and trade group look at some other things that can be done with the climate credit. And I know that this is the vehicle to do that.

So with that, I'd be supporting the Bill today.

Thank you. All right. Seeing no other Committee Members with questions, Assemblymember Irwin, would you like to close?

I just respectfully ask for your aye vote.

All right, we have a motion and a second. Madam Secretary, please call the roll.

Motion is due. Pass to the floor. Petrie Norris.

Aye.

Petrie Norris. Aye. Patterson. Berner. Calderon.

Calderon, aye. Chen.

Aye.

Aye.

Chen, aye. Davies. Davies, aye. Gonzalez.

Aye.

Gonzalez, aye. Harabedian. Harabedian, aye. Hart. Hart, aye. Irwin. Irwin, aye. Kalra.

Aye.

Kalra, aye. Papan. Rogers.

Aye.

Rogers, aye. Schiavo. Schultz.

Aye.

Schultz, aye. Ta.

Aye.

Ta, aye. Wallis.

Wallis, aye. Zabur. Zabur, aye.

Aye.

It has.

Okay, 14-0, that Bill is out. And we'll leave the role open for absent Members to add on. Thank you.

Okay, moving on to file item number two, AB 825, which is by yours truly. So I am going to pass the gavel to Assemblymember Calderon.

Madam Chair, whenever you're ready to present AB 825.

Thank you. Members, pleased to present AB 825 today. As we all know, cost of living is the number one thing that Californians are worried about today. From gas to groceries, from rent to utility bills, too many families are struggling right now.

And as we have often discussed in this Committee room, California has the second highest electric rates in the nation. Most Californians have seen their rates double over the last 10 years. This is simply not sustainable.

Our constituents expect us to take a hard look at their monthly bills and identify every possible opportunity to lower them. And that is the goal of this measure - AB 825. AB 825 proposes a suite of policies to address rising electric utility bills.

These include strategies to address the primary cost drivers of soaring electricity rates, including wildfire mitigation costs, transmission infrastructure investments, and project permitting delays.

So let me briefly outline the provisions of the Bill, starting with the measures to address wildfire mitigation costs. Wildfire spending has been the single biggest driver of rising utility rates.

We're really experiencing something of a perfect storm where we're both paying for the ravages of the climate crisis at the same time that we are making historic investments to prevent the crisis from getting worse and from getting even more expensive. But the collective total of that is enormous investments right now to combat wildfire risks.

And these enormous investments actually end up costing ratepayers more than you might expect. So every $1 billion in capital expenses turns into more than $3 billion that ends up being collected from ratepayers.

So confronted with those realities, the really critical question that we have to ask ourselves is how do we make these very necessary investments more cost effective? And so AB 825 includes 3 provisions.

Number one, securitization for undergrounding expenses, which will make projects less expensive for ratepayers. Securitization allows for reduced costs to ratepayers because it provides a bond financing mechanism rather than the traditional financing method of corporate equity or debt.

Number two, removing the first $15 billion in undergrounding capital investments from the utility rate base from purposes of earning an equity return.

And number three, establishing stronger oversight of wildfire mitigation activities. This Bill revises utility wildfire mitigation plans to consider cost efficiencies, to align with the timing of the utility rate cases, and to ensure that the budget established for wildfire mitigation is actually reflected and spent in the final plan in the actual activities.

The this approach appropriately balances the need for safe utility infrastructure while containing costs. The second area that we are looking at with this Bill is related to transmission infrastructure investments.

So as we are aware and as we've discussed at length in this Committee, California has ambitious clean energy goals that require a monumental scale up of our transmission capacity. It is imperative for California to explore alternative financing strategy to mitigate ratepayer costs.

And I'm joined today by an expert, Matt Freedman, who will take a bit of a deeper dive into the financing model in AB 825 that will provide significant savings to ratepayers.

But big picture, high level - AB 825 creates a public transmission program that can utilize the $325 million in Proposition 4 funds that were authorized by voters in 2024 in order to fund efforts to lower the cost of future transmission projects.

This fund, along with additional financing provided by IBank, would be available for the purpose of supporting public-private partnerships for transmission projects that are developed by investor-owned utilities.

This optional program authorizes public-private partnerships for transmission projects where an investor owned utility has the primary responsibility for construction and ownership.

This public private model will allow any excess revenues realized from the portion of the project that is publicly owned to be credited against transmission rates or returned to ratepayers in the form of a bill credit.

The third area that we are looking at with this proposal is related to permitting delays. So over the next decade, in order to achieve our clean energy goals, California needs to site over 19 gigawatts of solar, 7 gigawatts of of terrestrial wind and over 15 gigawatts of storage to meet our goals.

The burden to deliver on these goals and on these promises has historically fallen on California cities and counties who are largely on their own when it comes to permitting and citing clean energy projects. When new technologies emerge, cities and counties struggle to quickly adapt their permitting and planning to meet the new opportunity.

And so we often find ourselves in a situation where many local governments in local communities reflexively are saying no. But if California is going to successfully transition to a clean energy economy, we need to provide support that cities and counties need in order to facilitate the transition.

And our goal with AB 825 is to deploy SRUP funds that have been approved by the Legislature in previous budget years in order to provide resources and support for local agencies and to help them get to yes on these critical infrastructure projects.

Lastly, AB 825 will complete a Value for Money Review of ratepayer funded programs that was initiated last year with AB 3264. Building on that proposal, AB 825 will establish a task force with the mandate and authority to act on the analysis and assessment that will be completed and by the end of 2026.

The bottom line is when it comes to ratepayer funded programs, we've got to look in the rearview mirror in order to ensure that energy programs are implemented effectively and responsibly. Like everyone in this room, affordability has been a top priority for me both as a Member of this body as well as the Chair of this Committee.

We know that many of our constituents and many California families are struggling. We need to deliver real savings. I believe that the proposals in this Bill will deliver real relief for California families and I am pleased to be joined by Matt Freedman from the Utility Reform Network to provide some additional testimony.

Thank you Madam Chair. Members of the Committee, I'm Matt Freedman, a Staff Attorney with The Utility Reform Network and we're here in strong support of AB 825. This Bill contains meaningful steps to address the crisis of affordability facing electric ratepayers.

I specifically want to address the portions of the Bill that support public financing of transmission and a requirement for the utilities to securitize $15 billion of future undergrounding capital expense. This Bill contains critical elements to support public financing of electric transmission projects.

This includes all authorizing the establishment of a public transmission financing program that would be administered by the Infrastructure bank to support the financing of transmission projects involving a public owner.

Making the the amendments also make the financing program available to a range of public sponsors including state agencies, local public agencies, tribal organizations and joint powers authorities.

And the new amendments that came in yesterday expand the scope of transmission projects that can be supported by under this program to include large projects subject to competitive solicitation requirements at the California ISO, utility owned projects and third party owned lines.

The ratepayer benefits of public financing of transmission are significant. By relying on low cost debt, including tax exempt debt, public entities can achieve large savings, long term savings in excess of 50% compared to private ownership.

To understand this you need to unpack how these how these projects are financed. Investor owned utilities typically realize an after tax return of about 10% on their shareholder equity.

Ratepayers are forced to pay not only for that return but also for the taxes that the utilities owe on those returns, which means that ratepayers effectively pay around 14% for shareholder equity.

By comparison, long term 30 year municipal bonds currently yielding about 5%. Applying the difference between these two costs to financing a portion of new transmission investment would produce massive long term ratepayer savings.

And these savings would accrue for any portion of a utility project also that would be owned by a public entity. The California ISO has a 20 year transmission plan. They see the need for $63 billion in new transmission expenditures through 2045 to connect resources needed to meet the SB 100 goals.

Total ratepayer savings from public ownership of that new transmission build could amount to $3 billion per year. And under ABA 25, retail customers would benefit from these savings either through lower transmission rates or direct Bill credits.

To achieve these savings, the state also needs to empower an agency or an entity that can serve as the lead sponsor for publicly owned transmission. There's currently no agency equipped to serve this role.

So the Bill would revitalize the California Power Authority which was originally created in 2001, which ensures the existence of a state agency sponsor for transmission projects that can do financing and ownership.

And other states have done something similar. New York, New Mexico, Colorado, they all have transmission infrastructure authorities. It's time for California to take this step. There are very few options available that can result in the same amount of grid investment at half the cost.

Empowering the power authority offers a strategy to yield huge ratepayer savings. The second issue is the is the securitization of $15 billion in future capital expenditures related to undergrounding.

Substituting low cost bonds for high cost utility capital would eliminate unnecessary profits on these expenditures and could reduce long term ratepayer costs by about a third.

AB 825 would use low cost securitization for its best and highest purpose: to offset a portion of investor owned utility capital spending. This provides short term and long term benefits. And it's appropriate in response to the massive increase in capital expenditures forecasted by the investor-owned utilities.

Let's put it in perspective. Between 2025 and 2028, the investor owned utilities are forecasting approximately $90 billion in new capital expenditures. That's just over a four year period. It would increase their rate base by 50%.

The $15 billion in this Bill of securitization represents only about 15% of that amount. It would still leave the utilities with about $75 billion in new capital expenditures they can add to their rate base. Putting $15 billion into utility rate base. It costs ratepayers about $38 billion over 30 years.

Securitizing the same amount would save about $8 billion and almost all of those savings would be front loaded to customers. Ratepayers would save about $7.5 billion in the first decade alone and that could mean savings for customers of the utilities, by residential customer, of 4 to 5 dollars a month.

This mechanism has already been used in AB 1054 for wildfire spending, for PG&E to finance its wildfire liability, and historically for rate reduction bonds and the Department of Water Resources Energy crisis costs so the Legislature has an opportunity to use securitization to bend the curve of future costs and substitute lower cost alternative financing.

Given the affordability challenges caused by rapidly rising electricity rates, the Legislature needs to prioritize strategies that can lower the cost of future transmission development and reduce the cost of capital investments associated with undergrounding work. So we ask for your aye vote on this Bill. Thank you.

Thank you. Do we have any additional support in the room? Please come forward.

Chair and Members, Nate Solov on behalf of Net-Zero California and support. Thank you so much.

Michael Boccadoro on behalf of the Agricultural Energy Consumers in support. We haven't taken a formal position, but we like the direction the Bill is moving. We appreciate the leadership of the Chair. Long overdue issue. Thank you.

Can I create the tweener category to get that going? Okay.

Emily Pappas on behalf of MCE, one of the CCAs. We appreciate the Chair's leadership on affordability and a lot of these important subject matters. We care deeply about energy efficiency, affordability. These are important affordability programs for our customers. We look forward to working with you and your office on that Section 4 part of the Bill. Thanks.

Good morning. Tiffany Phan, also with Niemela Pappas & Associates, but on behalf of the California Efficiency and Demand Management Council or SEDMC. No official position on the Bill at this time due to the late amendments. We are reviewing specifically Section 4 of the Bill.

We want to make sure we work with the author and the Committee and her staff to make sure we don't inhibit the lowest cost resource, which is energy efficiency, which provides eight times the savings for repairs. Thank you.

Hi. Edson Perez with Advanced Energy United, also with the tweener position. We were previously supportive of the prior version of the Bill about public financing of transmission and we still continue to be strongly supportive of that. But similar to my colleagues, we're concerned about the task force reviewing energy efficiency and demand response programs.

It seems to be granted with very sweeping powers to shut down energy efficiency and demand response programs regardless of whether they're repair funded or not. So looking forward to continue to working with the chair on this.

Thank you. Do we have any main opposition witnesses? Please come forward.

Madam Chair and Members, Scott Wetch with the California Coalition of Utility Employees. We have been constructively working with the author since, I don't, five or six months on, on the public financing, bond financing of, of transmission and other infrastructure.

It still needs refinement. We're going to continue to work with the author on that. There's still a lot of unanswered questions, particularly the issue of liability.

Right. If you have public, you know, non-utilities, you have public agencies that assume some public ownership of this infrastructure, inverse condemnation, strict liability applies to them. Utilities can seek, you know, bankruptcy protection. It's a lot more difficult for a city or a JPA or somebody else.

It authorizes tribal ownership. Can't sue a tribe in state court. So if, you know, a transmission line owned by a tribal organization burns down a city, where do the victims go for how does this impact the Wildfire Fund? What's the cost of, of participation in that?

But our biggest concern isn't specifically to this Bill. It's to the cumulative impact of all these bills in the Legislature. There are a dozen bills that would affect the rate of return, you know, close to $40 billion of the investor owned utilities.

And I don't know that anybody in this building really has a grasp of how the financial markets will grasp what the threshold level is. And this is starting to become eerily reminiscent of 1996 when this Legislature dramatically changed the investor utility model and we had an energy crisis within three years.

So I just think we have to really look at this very, very carefully. We all talk, you know, there's several bills talking about securitization. What is securitization? It's just creating an investment vehicle. What is the investor community appetite on Wall Street for all this securitization?

When Governor Schwarzenegger took a serious look at securitizing the State Lottery during the budget crisis when he was Governor, we went out and brought in investment bankers to do an in-depth analysis of exactly what are the costs of securitization, how much appetite is there?

You know, how does Wall Street view the risk of these utilities at this time? You know, I've got 55,000 members whose livelihoods and tens of thousands of retirees whose livelihoods are tied up with investor-owned utilities.

So I'm more concerned about the cumulative impact of all these bills and what are we going to do to the whole investor owned utility model and are we destabilizing it?

And that should give everybody pause. So we know the Bill is going to move forward today. We're going to continue to work productively with the author. But I think everyone has to be top of mind about that. Thank you.

Good morning Madam Chair. Kent Kauss on behalf of SDGE. We are opposed to AB 825 as recently amended yesterday. We've been working on affordability for well over a decade and we have proposed numerous ideas, none of which have been adopted, that would provide immediate relief to customers.

I would note in the opening testimony there was discussion about the cost drivers. One that was missing is net energy metering. That is a very significant cost shift as well.

We need to do something about as it relates to the $15 billion collective investment that utilities would make without a return, our allocation or our expected allocation would save about a dollar a year for customers. Guggenheim did an analysis of this last year. In the first year, 4 cents a month in savings.

We do have to do something on affordability. We don't think this is the right answer, excuse me. On public financing, the chair carried a Bill last year 3264. We are very open to public financing. We think there's real potential there for savings.

In Assembly Budget Subcommitee hearing just a couple of months ago, the PUC reported that they are on time to issue a report July 1st of this year. We think we should wait and see what that does. But that is somewhat promising as it relates to provisions on transmission planning.

We've been working on expediting the transmission siting process for a couple of years. The PUC recently adopted changes to GEO 131d. Assemblymember Zbur carried a Bill for us on it that was held up this year. Had a Bill last year. We are making progress. Unclear if this Bill helps any of that process along.

Big concern and question about bringing in the DIG board into the planning and design work for undergrounding. Not really sure what is driving that. And then finally with time allotted, the Wildfire provisions that were just added yesterday.

Very open and we we need to have a discussion about the Wildfire Fund and look forward to continuing those discussions as Bill moves forward.

Thank you. Do we have any additional opposition in the room? If so, please come forward.

Good morning. Brandon Ebeck, Pacific Gas & Electric. We issued an opposed letter to the Friday version of the Bill. We are still reviewing the new language from yesterday morning. Our Fund, we have some early concerns but thank you.

Laura Parr on behalf of Southern California Edison and opposition.

John Kendrick on behalf of the California Chamber of Commerce and opposition.

Okay, thank you. We're going to bring it back to the Committee for questions. Assemblyman Rogers, thank you so much.

I'd like to be added as a co author and I'll move to bill.

Thank you, Assemblymember. Appreciate it.

Assemblyman Harabedian.

I'll second the bill question on the 15 billion where how do we come to that number? On the I'm more focused on the underground and obviously with my district having just been through the wildfires and underground and being an extremely timely topic, we, we don't want to disincentivize any of the IOUs from undergrounding.

We want to do the opposite. I think that, you know, there is a concern here that if you are setting a limitation on their returns, they just won't do it.

And you know, with 1054, for example, the Holden Bill, I think arguably that might have prevented certain wildfire mitigation steps to be taken because there wasn't that return on investment.

So we don't want that same thing happening here and we want every incentive for the IOUs to actually underground because I think that is a clear path towards wildfire mitigation. Where did the $15 billion figure come from? Is that a scientific kind of number or is it just something that we're working through?

Well, I appreciate the question and I'll start by saying that I'm very mindful and cognizant of unintended consequences and ensuring that what we advance the benefit of that is not worse than the unintended consequences. Understand the need for us to craft this proposal and others with an eye to ensuring the stability of the financial markets.

But I guess what I would say is, and I'll start by saying I think utility health is important for California, important for Californians. But that's different than ensuring that profits are maximized for utilities, in my view.

And we are in a situation right now where we need to make historic investments both, as we said, to combat the ravages of the climate crisis and also to stave off the worst impacts. So we are spending money like, you know, tenfold over what we have historically.

And I think the sort of central point of tension is that this is not even, this is not meant to be a value judgment. It's just a statement of fact. The utilities are incentivized to deliver this infrastructure in the most expensive possible way.

And that is a fundamentally misaligned incentive with the people of California So my view is that, And I think Mr. Friedman said over the next 10 years the utilities are going to need to be spending something like $70 billion in $90 billion in capex.

So a modest portion of that that is then not eligible for rate of return still positions them to earn historic profits and historic returns.

So you know, it's 90, it's, you know, was what, 3% of our, my God, my math is not, is not serving me whatever it is, you know, so certain percent of that 90 that would still position them to, in my view, earn more money than they ever have and not disrupt the stability of the capital markets.

So I don't know if you want to further comment if I can. Not you. My witness can ask the Chair.

I just echo the comments of the Chair that the utilities are undergoing historic massive capital spending spree. I think there's no evidence to suggest that the securitization of wildfire mitigation costs and AB 1054 caused the utilities to pause their investments.

In fact, they blew through that money pretty quickly and, and have already posted significant new capital expenditures on wildfire mitigation. That's just a bottomless hole of spending for them. And undergrounding really is in a similar category. The scale of money involved in undergrounding is mind boggling. This doesn't even really make a dent in the long run.

In the short run, it does provide rate relief for customers because it's about sharing the sources of financing that we're going to use for this massive amount of expenditures on the grid. So we don't see any, any likelihood that this would have any effect on the pace of undergrounding.

And we see the utilities as constantly coming up with new ways to spend money on capital, which is what I spend most of my time on is fighting a lot of those proposals in front of the PUC.

Okay. I think the opposition wants to respond to. Mr.

Yeah. Just to note that agreement on the 5 billion, we actually supported that 5 billion as part of 1054 as part of a much broader deal and agreed that did not inhibit us from making those investments. We did those early and quickly as Mr. Friedman noted.

So, and I'll just end here, I, I would love to hear that this $15 billion figure will also not inhibit any efforts to underground. I will note that there isn't any requirement for the I use to actually underground.

And it seems hard to think that by changing this model it wouldn't at some point make them pause and think do I actually want to dump as much money in undergrounding as we should if we're not getting the return on investment.

And I think for our ratepayers, for our residents who are in high wildfire zones, anything we're doing to inhibit the IOUs to underground, I think we have to think very strongly on that.

I understand the hypothetical savings that we would all potentially receive through this, but if it in any way pauses undergrounding efforts, I don't think that's good because obviously the more we underground the better. And I do think that there is a financial kind of give and take here that we should be mindful of.

And I would just love to hear you respond as to whether you think that $15 billion mark will actually inhibit efforts to underground. Thank you very much.

Yeah, we are very open to a number. We don't know what the number is. We don't know if it's 15 or if it's 10. But we're very open to discussions on additional skin in the game like we were with maybe 1054. I can only speak for our own for SDG and E, but we're very open to that.

We recognize the affordability problems. Just a blanket. You can't earn a return with no other impacts. Like 1054 was a much broader deal that dealt with other issues for financial health of the utility.

We've already seen downgrades in the last six months with two utilities in the state and think that has to, if, if we are downgraded, our cost of borrowing goes up and that is to the detriment of customers. So finding that balance is important.

Assemblyman Zbur.

So far I want to thank the author. Obviously we know that our Chair has been laser focused on affordability this year, which is of course the, one of the mandates that the Assembly Democrats have had.

You know, I have some concerns about the Bill not because it's necessarily embraces something that's bad, but bad, but I don't know that necessarily it doesn't have unintended consequences that justify the various components in it.

You know, I do think that as we move forward we really do need to have a really an assessment from the financial markets on how this would be responded to. I worry about what this will do with the long term borrowing costs that could have ratepayer impacts.

I know that, that this is a vehicle to include a package of things on affordability and I think there's some other, some, some parts of it that I think are really that I have less of a concern about or that I think are good.

I would hope that maybe we could revive some of the, one of the main cost drivers which this doesn't deal with, which is the impact of the long and expensive entitlement process for transmission.

Had a bill that was broadly supported where we actually had of support from the environmental community, the IOUs labor that was stopped in appropriations this year based on an estimate from the PUC that was I think six times greater in terms of cost than a bill which was, you know, we had a bill last year, Mr.

Garcia, that was this big. Our bill was this big and the cost increased by six fold. Because the PUC does not want to do things to accelerate or change anything on infrastructure cost. I would.

That is a huge cost driver that we're missing and I'm hoping that we can actually delve into the cost of the infrastructure entitlement and potentially pull that back into this bill. I think the last thing is I do care about the financial stability of the IOUSs and I think we have to be very careful about it.

I think, you know, we do need to make sure that, that, that the cost of capital is one that's attractive.

I think we tend to often look at these big entities and think of the, look at the, the, the aggregate amount of profits and not understand sometimes that what we're doing is, is they're competing for capital out in the markets. And we need to make sure that that are the IOUs are healthy.

And the reason why I care about that is because I think we want to make sure that we have the ability to have them do the things that we need to do to respond to the climate crisis. And we have to be careful about the impacts that it actually has on our workers and our labor force.

So I just want to thank you for bringing the bill. Hopeful that it will be. There will be some opportunities to look at some alternatives. They're not in the bill. And really also focus on what the, what the assessment of the financial markets are on the, the wildfire cost securitization elements of the bill. Thank you.

So thank you for those comments. Yes, absolutely. Committed as I said, to understanding, you know, what the consequences are going to be or potentially going to be for the financial markets. I share your belief and as I said, that utility health is important for California. It's important for Californians, it's important for rate payers.

And I'm also glad that you brought up the point around project timelines, these protracted delays. We all know that time is money and so I think that that is a very important piece. So look forward to continuing that part of the conversation with you as well.

Assembly Member Irwin.

Thank you very much.

Thank you very much. And I want to thank the chair for bringing this forward. I know it's a really complicated issue. Nobody likes to disturb the status qu and we have to if we're going to be looking at lowering bills for our constituents. I want to also echo what Assemblymember Harabedian said.

I think it is very important that the utilities are incentivized to underground as quickly as possible in the most cost effective way. And when you represent these fire prone areas, I think that that's critical. I would urge you also to look at balancing account reform because I think there is some potential there for savings.

But the thing that I was most interested in is the public financing. And so I heard you talk about public private partnerships. I heard Mr. Friedman talk about public ownership. And then I heard Mr. Kaust talk about you are open to public financing. So I guess the question is the utilities keep bringing up liabilities.

So maybe you could talk about how with the public entity you would be able to address address that issue. And then after that, if you could talk about what you envision for public financing. What does the public get out of public financing? Some of the infrastructure for the utilities happy to address those issues.

With respect to Wildfire liability, which I know was brought up by one of the opposition witnesses, the amendments that were put into the bill yesterday actually specifically address this. And they say that any project that receives public financing and support from the state would be required to participate in the Wildfire Fund that was created several years back.

And participation in the fund means that the owner, the public owner would need to contribute financially to the fund on the same basis that the utilities contribute. They would need to have their own insurance. They would need to submit Wildfire mitigation plans.

Basically they would need to do all the things that the utilities do to be part of that fund. And this is a way to ensure that new publicly owned projects would be part of that shared risk pool. So the amendments really specifically address that.

Okay. And I just. Obviously the utilities or the consumers have already paid into the Wildfire Fund. And I think the utilities are very reluctant to have these public entities join in, especially at this later date. Would you also consider a separate fund or you think that it should be part of the existing fund?

Well, I think the idea is that we're trying to share the risk to create a risk pool that is diverse and broad. But the public owners under this bill would be required to financially contribute to the fund. So they would help to capitalize the Fund the same way that the utilities have done.

And in my view, that's the fair way to go about this. Creating a separate fund just for one or two public owners doesn't seem to really make sense. That's more just like self insurance, which is certainly an option. But Wildfire liability risks are statewide.

And the more entities that you have participating in the pool that contribute financially, that's probably the way to best address this concern in my view. And then the other question you asked about the different types of projects that involve public ownership. There's different flavors of public participation and transmission.

So there's one model where a public entity would become a minority owner in a utility line.

In fact, SDG and E has already done that with a non profit entity called Citizens Energy where they've essentially sold 49% of a line to a nonprofit that then is able to provide lower cost financing and some of those benefits are passed on to consumers.

This is attempting to scale up that approach by having a public owner play that minority role. But there's other categories of transmission like competitively bid lines from the California ISO where the public entity could be the sole owner and there the savings would be much larger.

And those are lines where the utilities have no right to to build them. Their lines were simply there's a competition and the utilities may win, another private owner may win or the public owner might win that competition.

All right, thank you.

I don't know if I have much.

I don't know if I have much to add. Agree with what Mr. Friedman said. We already do that today. We're looking at cheaper ways of financing. If we can partner with another entity to get cheaper financing, we're open to that. On the competitively bid projects, Some of those we end up doing more work on.

Even if in cases where we lost the bid.

Okay, and. But you are opposed to pure public ownership?

Not necessarily.

As long as the liability issue is taken care of.

Liability is a huge issue. And the Wildfire Fund, some entities that had the opportunity to get in before tried last year. We think there should be a differentiation between the funds and have more hands in that pot for going forward is a problem we're discussing now. Uncertainty and viability of that Fund as exists today.

You get more folks involved in that, that creates even bigger issues. S and P and Moody's were in Sacramento three weeks ago trying to talk to Members about all of this. They didn't get too many meetings. But all of these issues have consequences. So.

All Right. Thank you, Mr. Zbur had a comment.

I just, just very quickly just wanted to raise it. I also have concerns about sort of the Wildfire Fund and the participation in it.

I just think that it need, we need to look at the equity issues about those, the who's paid into it already, those investments and make sure that there's not a windfall on new participants that are sort of coming in. So I'm hoping that that'll be something. 100%. Yeah, 100%.

Assemblywoman Schiavo, thank you.

I want to thank the Chair for this big, ambitious bill and I, you know, I really appreciate all of your work to address affordability.

It's such a challenging issue and one of the things that I talk to my constituents about is how policymaking in this space, you feel like you pull a string and then it unravels in a completely different area because of that.

And so I know, I know it's complicated and this is the start of a conversation that needs to continue through this process. I especially really love the DSM task force though, to really get us the information that we need on what programs are working and what are not.

There's been, you know, since I've been here, I think we've been talking about some of these programs. We don't know if they're working. Is it an efficient use of funding and why don't we, you know, put more towards the ones that really do work.

And so I appreciate that you're really trying to dial down on that, that and I just wanted to circle back to the conversation around undergrounding.

And I think, you know, we've had so many conversations about this in this Committee and appreciate especially those Members coming from the fire torn communities in LA that, you know, with all of the rebuilding there, it does seem to make a lot of sense to invest in the undergrounding piece.

But I think we've, you know, all mostly come to a place of we cannot afford to underground throughout the State of California. It's far too expensive. The ratepayers cannot afford that.

And so, you know, I think it's critical that we find a balance in our policymaking and pressure points that are put through our policymaking on that piece to make sure.

There are other, I think, as Chern has talked about before, other things that are nearly as safe and way less costly, like, you know, the Covid conductors or the rapid shut offs that, that some utilities are really utilizing. And so, you know, so I think we need to be aware of the concerns of not.

Deincentivizing that too much. But Also make sure that it's just not affordable for us to think that we can underground throughout the State of California and really making sure that we're investing in other solutions that make a huge difference and reduce that fire safety or fire risk as well.

So I'm happy to support it today and see how it progresses and really appreciate your ambition with this bill to make things change and really that ratepayers really feel an impact of that.

Thank you,

Assemblyman Patterson.

Great. Thank you. Spent some time reading it last night after session.

Good bed. Try and read.

Yes. Which I didn't get sleep very much, so I'm grumpy. So, you know, I appreciate there are a lot of components in it. I think that should definitely be considered. Well, are being considered, but are worth conversation. You know, I supported, you know, discussion around public financing.

I mean, before I was even a Legislator, I said that was something that we should consider. But I think, you know, the reason why I think we want public financing is to bring down borrowing costs. Right. You know, I mean, obviously there's the argument about whether we should be paying a rate of return on basically everything.

I know that's a whole separate argument. But the general thought around public financing is that it's cheaper for us or a public agency to borrow than a utility. So I think that that's fair. I wonder if there are ways to help the. So the utilities aren't borrowing. The borrowing cost isn't so much like. Are there ways.

I don't know. Actually, maybe this question for you. Are there ways to bring down how much interest is paid on borrowing costs from. From the utilities?

The biggest way is our credit rating, correct?

Yeah. Yeah.

And when we get downgraded or we're on negative watch. That is something that is considered in our cost of borrowing.

Has there ever been reference, you know, I don't know, in earnings reports or something like that about decisions we make here in the capital that impact your financing costs?

Yes. Really? In the early 2000s, it was almost every time they wrote something and it was regulatory or statutory instability. It's more regulatory instability. More recent, though, the uncertainty there have been. I'm not remembering exactly, but I can get those reports to you. They talk about that a lot.

And that was the whole point of S and P and Moody's coming on their own to Sacramento is concerns about the regulatory uncertainty.

All right, I'm still. You took your opportunity to mention NEM being the most expensive cost driver. You never forget that opportunity every time you're here. $5 billion. But you know, part of that discussion was how much are people going to save? You know, if we were to get rid of, you know, the cost shift? What.

We never really got an answer around that. I've just, you know, just. I know that's not built, but I got the same question for the chair on this Bill. How much are customers going to save if it were to pass?

So the estimate that we have is that this is likely to save if all of the elements are included, $2 billion a year for California ratepayers. That could potentially be higher depending on how many projects are actually utilizing the public financing element. But that is our, our working estimate right now, like on my Bill.

Yeah, it's like $4.

Let's 2. No, so 2.

That sounded like Avery CARBish answer by the way.

So that is. What is that? That's like $100 a year per customer.

Right. Right. Now, last thing about the public financing and liability, we've talked about that a little bit. But what exactly how is that going to be resolved at some point? You know, if there is a public financing?

You know, I sat on a local government, I'm now a state Legislator, you know, if any government agency finances and there's a fires result or something like that. How is. Are there conversations around liability?

I'm not exactly sure what you're asking, but yes, we need to have those conversations as part of the legislative process and, and make some decisions about how we're going to manage the liability risk. So as Mr.

Friedman said, the structure of the bill right now would propose that the public owners of a transmission line would invest in the Wildfire Fund at a proportionate amount to their level of risk.

And I think we need to have conversations about how do you ensure that the sort of legacy Wildfire Fund participants, which include, by the way, I mean, it's all us. It's all us that they're not disadvantaged by any changes that we'd make.

So I think that there's a way, and I don't think it's that complicated to ensure that you've got participation at a level that fairly reflects the risk of your asset and recognize that would be change from what we're doing. It's a change from what we're doing today.

But I think as we've tried to dig into these issues in this Committee, without making some really foundational changes, we're just going to be nibbling around the edges.

But I am confident that we can land that liability and Wildfire Fund piece as part of the conversations we have through this process to ensure that there's sufficient clarity and certainty about how that would unfold.

Okay, last question for your witness, if that's all right. You mentioned the taxes that the IOUs have to pay for investments that they make. And, you know, you get the guaranteed rate of return, you know, you said, or whatever was 11% or 10%, whatever you're saying. And then 4%, I think, is what you attributed to taxes.

Is that correct?

Yeah, the tax gross up. It's called tax gross up. And regulatory Lingo. It's about 40% on top of the. The cost of equity.

And ratepayers are paying that.

That's right.

Let's cut taxes. Let's just cut the tax. That will save people immediately. Then 4% on all the billions of dollars invested.

Well, a big chunk of that is federal taxation, so. A big chunk of that is federal taxes.

Well, state taxes. So you support cutting state taxes?

Not really within the scope of the bill.

Just trying to get rate payers to not be on the hook for taxes. More taxes. All right, well, we will dig into that.

There are no bad ideas. Mr. Vice Chair.

Assembly Woman Davies.

Thank you. Thank you so much for bringing the bill up. Just a couple questions, and I mean, I really appreciate the fact that in this bill we would have oversight of the different committees out there to really see, you know, are they working, are they not, what is the cost?

But also I would like us to add something into going back to all of the bills that have been passed over the years and looking at what the repercussions have been and what the costs have been, because I find that a lot of times you don't need to always have new policy.

If you go back and look at what really caused the cost to go up, you can actually undo that without putting more mandates, more regulations out there. And obviously, our Members here have some concerns and questions.

And for me, one of the biggest things is, you know, this Bill is coming at this time right now, which means odds are it's gotta be passed, you know, before us within this week, a couple days.

And when I listen to the different concerns and issues, my question is, are you gonna be able to answer all of them when they come to the floor? Because I think that's what's important.

I've sat here for years and not just here in any room where it's like, you know, you know, like we'll be working and just be working on it, but then when it comes to the floor, nothing's done. And so right now I'm going to hold off. I'm going to abstain on this.

But I really think it's important that we just don't get this on the floor and everyone says, zero, let's get this over to the Senate. It's our responsibility here in the Assembly to make sure that there aren't repercussions and that these answers are given to us before we give it over to the other House.

So I'm looking forward to hearing them. I appreciate it. Thank you. Thank you.

And yes, would be happy to follow up with you offline if there's specific questions that you would like to answer in advance of the floor vote.

And I will also note that while the bill itself was amended Friday and then yesterday, the proposals in there, it's largely a consolidation of proposals that we have been discussing and debating throughout the course of this legislative session and previously in 2024. So I think that's important context as well.

Assemblyman Wallis.

Thank you, Madam Chair.

Thanks for bringing the bill forward. I really appreciate what you're trying to do. I understand that affordability is obviously top of all of our minds here. One of the things I'm trying to better understand is I don't really understand how you forecast securitization without like an investment bank analysis. I think someone brought that up earlier.

No one really knows what the market is for this after LA wildfires. And could someone speak to that or help me better understand?

Mr. Wech, he's back. He's back.

Scott Wetch, on behalf of the California Coalition of utility employees, Mr. Wallis, you're, you're absolutely correct.

The process is if this Bill passes and you direct utilities, the Puc, to securitize this and everything else that's being asked to securitize is an investment bank will be assigned, will be brought in to create that security and sell that security, which is what this whole thing is based upon.

And so you don't know what the market is for those securities unless you ask the experts who are going to be the ones that have to go and sell that to Wall Street.

And what we've been told from my trust Fund and from labor's perspective, who we talk to, is that the landscape since Palisades fire and the Eden fire has completely changed the outlook of how investment owned utilities are viewed as an investment, as a safe investment. So this isn't a criticism of the Bill.

It's that there's all these proposals to securitize and how can you make that leap until you ask the people who, if we're selling state bonds, you'd bring Fiona Ma over and ask her what's the market for, you know, for bonds today? If we do this right, we need that sort of analysis. So we the ramifications.

Okay. Wow. Robust discussion. Madam Chair, would you like to close?

All right, well, thank you Members, for, as my acting chair said, the very robust discussion. Appreciate your engagement on this proposal.

Appreciate the engagement of this Committee as we really have made every effort to take a very hard look at customer utility bills and identify opportunities for us to save our constituents money in both the short and the long term.

Look forward to continuing these conversations and working with everyone in the room to land a proposal that is going to deliver the most savings to the most Californians possible. So with that, I respectfully ask for your aye vote.

Okay, Madam Secretary, please call the roll.

The motion is due. Pass to the floor. Petrie-Norris. [Roll Call]

That Bill is out. Thank you. All right, we'll see.

Alright, Madam Secretary, let's reopen the roll on file item number one so that we may allow absent members to add on.

File item 1, AB 745. Assemblymember Irwin. The motion is due. Pass to the floor. Chair voting aye. Absent members. [roll call]

Okay, that is 18, 0. So AB 745 is out. Let's reopen the roll on file item 825.

Motion is due. Pass to the floor. Absent members. [roll call]

Okay 13, 0. AB 825 is out. And that concludes the business of today's hearing of the Assembly Committee on Utilities and Energy. We are adjourned.