California Voice: Cut electric rates 25%? Don’t hold your breath

Silicon Valley billionaire Tom Steyer wants to be the next governor of California, and he has vowed to “break up the monopolistic power of utilities” so that California no longer has “the second-highest electricity rates in the country.”

In the context of current California politics, and past failures to make our energy cheaper, Steyer’s campaign pledge is not surprising or particularly original. What is, however, is Steyer’s promise of huge rate relief.

“A lot of people have thought about this,” said Severin Borenstein, a professor of business administration and public policy for the University of California at Berkeley and a long-time participant in electricity policy discussions in the state.

Affordability is the bipartisan buzzword among politicians in Sacramento, and Californians are justifiably outraged at the cost of just about everything in this state, from housing to gasoline to insurance to electricity.

But at this point, Steyer doesn’t have all the necessary details available for how he would accomplish a 25% reduction in utility rates.

What we do know is that making electricity dramatically cheaper is easier said than done.

Gray Davis was the last California governor to oversee a dramatic transition in the state’s electricity market in the name of lowering costs, and the ensuing chaos led to Davis being recalled by voters and the rise of Arnold Schwarzenegger.

Ever since, antipathy toward big utilities like PG&E has only grown, and it’s no wonder that Californians want them to simply go away. But it doesn’t sound as if Steyer is proposing to completely break up the utilities that Californians hate.

Rather, spokesperson Kevin Liao points to “breaking up the monopoly of power supply/generation.”

On this score, Steyer is barking up a short tree.

The state’s three investor-owned utilities (PG&E, Southern California Edison and San Diego Gas & Electric) spent about $7.9 billion to buy electricity in 2024. But that pales in comparison to their $97 billion in overall costs, according to an annual state report. Cutting these generation costs by half, as an example, would only cut bills by 4%.

The big costs are in distributing power locally (about 67% of total costs) and transmitting it long distances (25%). Are there huge savings that regulators and governors have been missing for years? The real “breaking up” scenario is to take over these monopolies. And that would be very expensive.

The transmission and distribution systems are private property. Government can’t simply confiscate them. The assets must be purchased, most likely through a court process known as eminent domain.

PG&E assets have an official book value of about $130 billion. This, by comparison, is about half the annual general fund spending of the entire California state budget.

So buying PG&E with cash on hand isn’t a possibility. If we wanted to borrow the money, California would skyrocket the general fund debt, and maybe a whole lot more. And, remember, this is just one of three investor-owned utilities in the state.

“The utilities would say ‘we are worth more than just the book value of the assets,’” Borenstein said. “The utilities say they’re worth a huge amount.”

Regulators could cut electricity bills by an estimated 14%, according to a study by the California Chamber of Commerce, by getting rid of a single incentive program, those subsidies that go to the millions of owners of solar rooftops. It’s shocking to think that this one program appears to cost ratepayers more than the actual energy that the utilities purchase.

Steyer has not suggested this in a recent missive to the California Public Utilities Commission, and for good political reason. This program is wildly popular with the voters receiving its benefits. And while scaling back a subsidy like this is good policy, it’s horrible politics.

The other big cost drivers, said Borenstein, are to address wildfire risk and paying for past and future wildfires. California is largely paying for these climate impacts on the backs of ratepayers. And given the projected deficits in the coming state budget, that isn’t likely to change any time soon.

Steyer is making this pledge to cut electricity rates by 25% with “competition,” in a new 30-second ad. And with Steyer’s ability to self-finance a barrage of television ads in the coming months, I expect to get quite accustomed to his raspy voice.

It’s one thing for a candidate to tell the voters what they want to hear. It’s entirely another to succeed. So far Steyer is nowhere close to backing up this electricity pledge with a credible plan. But it sure sounds great.

Tom Philp is a columnist for the Sacramento Bee. Distributed by the Tribune Content Agency.