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<ns0:Id>20250SB__109898AMD</ns0:Id>
<ns0:VersionNum>98</ns0:VersionNum>
<ns0:History>
<ns0:Action>
<ns0:ActionText>INTRODUCED</ns0:ActionText>
<ns0:ActionDate>2026-02-13</ns0:ActionDate>
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<ns0:Action>
<ns0:ActionText>AMENDED_SENATE</ns0:ActionText>
<ns0:ActionDate>2026-03-24</ns0:ActionDate>
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<ns0:SessionYear>2025</ns0:SessionYear>
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<ns0:MeasureType>SB</ns0:MeasureType>
<ns0:MeasureNum>1098</ns0:MeasureNum>
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<ns0:AuthorText authorType="LEAD_AUTHOR">Introduced by Senator Pérez</ns0:AuthorText>
<ns0:Authors>
<ns0:Legislator>
<ns0:Contribution>LEAD_AUTHOR</ns0:Contribution>
<ns0:House>SENATE</ns0:House>
<ns0:Name>Pérez</ns0:Name>
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<ns0:Title> An act to add Section 457 to the Public Utilities Code, relating to public utilities. </ns0:Title>
<ns0:RelatingClause>public utilities</ns0:RelatingClause>
<ns0:GeneralSubject>
<ns0:Subject>Public utilities: forecast-based ratemaking.</ns0:Subject>
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<ns0:DigestText>
<html:p>Existing law vests the Public Utilities Commission with regulatory authority over public utilities, including electrical corporations and gas 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 requires the commission, whenever the commission authorizes a change in rates reflecting and passing through to customers specific changes in costs, to require a public utility to establish and maintain a balancing account to reflect the balance between the related costs and revenues. Existing law further directs the commission to authorize public utilities to establish catastrophic event memorandum accounts, as provided. Existing law authorizes each electrical corporation to
establish a memorandum account to track costs incurred for wildfire risk mitigation that are unforeseen and incremental to the wildfire risk mitigation programs and activities authorized in the electrical corporation’s revenue requirements, as specified.</html:p>
<html:p>This bill would provide that it is the policy of the state that forecast-based ratemaking through the regularly scheduled general rate case process is the preferred and primary method of establishing authorized revenue requirements for electrical corporations and gas corporations. The bill would require the commission, in exercising its ratemaking authority over all public utilities, to adhere to specified principles and requirements, including requirements that forecast-based ratemaking be the default approach for establishing revenue requirements and cost recovery mechanisms and that memorandum accounts and
balancing accounts, as defined, be authorized and maintained only under exceptional circumstances. The bill would require each memorandum account or balancing account authorized by statute or by the commission to include an expiration date. The bill would authorize the commission to establish exceptions to those principles and requirements for categories of costs not reviewed in a general rate case, as provided.</html:p>
<html:p>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.</html:p>
<html:p>Because the above requirements would be a part of the act, and a violation of a commission action implementing those requirements would be a crime, this bill would impose a state-mandated local program.</html:p>
<html:p>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.</html:p>
<html:p>This bill would provide that no reimbursement is required by this act for a specified reason.</html:p>
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<ns0:DigestKey>
<ns0:VoteRequired>MAJORITY</ns0:VoteRequired>
<ns0:Appropriation>NO</ns0:Appropriation>
<ns0:FiscalCommittee>YES</ns0:FiscalCommittee>
<ns0:LocalProgram>YES</ns0:LocalProgram>
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<ns0:ImmediateEffect>NO</ns0:ImmediateEffect>
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<ns0:Urgency>NO</ns0:Urgency>
<ns0:TaxLevy>NO</ns0:TaxLevy>
<ns0:Election>NO</ns0:Election>
<ns0:UsualCurrentExpenses>NO</ns0:UsualCurrentExpenses>
<ns0:BudgetBill>NO</ns0:BudgetBill>
<ns0:Prop25TrailerBill>NO</ns0:Prop25TrailerBill>
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<ns0:Preamble>The people of the State of California do enact as follows:</ns0:Preamble>
<ns0:BillSection id="id_2F792B60-9D7D-4651-BC16-0CCB67CF1501">
<ns0:Num>SECTION 1.</ns0:Num>
<ns0:Content>
<html:p>The Legislature finds and declares all of the following:</html:p>
<html:p>
(a)
<html:span class="EnSpace"/>
California faces an affordability crisis in energy utility rates that has been exacerbated by a shift away from forecast-based ratemaking through the general rate case process and toward retrospective recovery of recorded costs through memorandum and balancing accounts.
</html:p>
<html:p>
(b)
<html:span class="EnSpace"/>
The general rate case process, under which the Public Utilities Commission adopts forward-looking forecasts and ties cost recovery to utility
management performance within those forecasts, provides essential incentives for cost containment and efficiency.
</html:p>
<html:p>
(c)
<html:span class="EnSpace"/>
Memorandum and balancing accounts are utility ratemaking mechanisms that provide an opportunity for a utility to seek recovery of incurred costs beyond amounts previously authorized by the Public Utilities Commission.
</html:p>
<html:p>
(d)
<html:span class="EnSpace"/>
The expansion of memorandum accounts and balancing accounts, particularly following the enactment of Senate Bill 901 of the 2017–2018 Regular Session (Chapter 626 of the Statutes of 2018), has enabled utilities to recover tens of billions of dollars in expenditures above authorized forecasts, reducing the incentive to control costs and contributing to rate increases.
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<html:p>
(e)
<html:span class="EnSpace"/>
Senate Bill 254 of the 2025–2026 Regular Session (Chapter 119 of the Statutes of 2025) gave the Public Utilities
Commission the discretion to permit electrical utilities to establish memorandum accounts to record incremental and unforeseen wildfire mitigation costs not authorized in their general rate cases, whereas the establishment of those memorandum accounts had been mandatory.
</html:p>
<html:p>
(f)
<html:span class="EnSpace"/>
Restoring forecast-based ratemaking and limiting reliance on memorandum accounts and balancing accounts will better align utility incentives with affordability and ratepayer protection.
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<ns0:BillSection id="id_6AE5917D-EEE0-4207-985A-E23CCD9F7B91">
<ns0:Num>SEC. 2.</ns0:Num>
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Section 457 is added to the
<ns0:DocName>Public Utilities Code</ns0:DocName>
, to read:
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<ns0:LawSection id="id_A6C60BB4-62F9-4A6E-ABB5-31EB0AFC2E8F">
<ns0:Num>457.</ns0:Num>
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<html:p>
(a)
<html:span class="EnSpace"/>
For purposes of this section, both of the following definitions apply:
</html:p>
<html:p>
(1)
<html:span class="EnSpace"/>
“Balancing account” means a utility regulatory accounting mechanism that tracks specific costs incurred by a utility for comparison to the level of authorized costs and may provide an opportunity for the utility to seek recovery of costs above authorized amounts.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
“Memorandum account” means a utility regulatory accounting mechanism that tracks specific unanticipated costs incurred by a utility that have not been authorized by the commission and provides an opportunity for the utility to seek recovery of tracked costs.
</html:p>
<html:p>
(b)
<html:span class="EnSpace"/>
It is the
policy of the State of California that forecast-based ratemaking through the regularly scheduled general rate case process is the preferred and primary method of establishing authorized revenue requirements for electrical corporations and gas corporations because it promotes greater oversight, transparency, and protection for ratepayers.
</html:p>
<html:p>
(c)
<html:span class="EnSpace"/>
In exercising its ratemaking authority, the commission shall adhere to the following principles and requirements:
</html:p>
<html:p>
(1)
<html:span class="EnSpace"/>
Forecast-based ratemaking shall be the default approach for establishing revenue requirements and cost recovery mechanisms.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
A memorandum account or balancing account shall be authorized and maintained only under exceptional circumstances.
</html:p>
<html:p>
(3)
<html:span class="EnSpace"/>
If a memorandum account or balancing account is
authorized for a specific activity or program, the activity or program shall be transitioned to forecast-based ratemaking at the earliest opportunity once sufficient historical data exists to support forecast-based ratemaking.
</html:p>
<html:p>
(4)
<html:span class="EnSpace"/>
If the commission authorizes the creation or continuation of a memorandum account or balancing account, the commission shall do one of the following:
</html:p>
<html:p>
(A)
<html:span class="EnSpace"/>
Pursuant to existing commission authority, adopt cost-sharing mechanisms for costs recovered through the memorandum account, and costs above authorized amounts recovered through the balancing account, as applicable.
</html:p>
<html:p>
(B)
<html:span class="EnSpace"/>
Adopt a rate of return that is lower than the utility’s authorized rate of return on capital costs recovered through the memorandum account, and on capital costs above authorized amounts recovered through the balancing
account, as applicable, to encourage the utility to rely less on the account and more on forecast-based ratemaking.
</html:p>
<html:p>
(d)
<html:span class="EnSpace"/>
Each memorandum account or balancing account authorized by statute or by the commission shall include a specified expiration date.
</html:p>
<html:p>
(e)
<html:span class="EnSpace"/>
The commission may establish exceptions to the principles and requirements of subdivision (c) for categories of costs not reviewed in a general rate case, such as low-income rate discounts, or if the explicit purpose of the balancing account or memorandum account is to reduce the utility’s incentive to disconnect customers for nonpayment.
</html:p>
<html:p>
(f)
<html:span class="EnSpace"/>
This section does not limit the commission’s authority to ensure just and reasonable rates pursuant to Section 451 or to implement a memorandum account or balancing account expressly required by
statute.
</html:p>
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<ns0:BillSection id="id_E4EE91C4-7A7B-4EA6-8D51-5F3042511E74">
<ns0:Num>SEC. 3.</ns0:Num>
<ns0:Content>
<html:p>
No reimbursement is required by this act pursuant to Section 6 of Article XIII
<html:span class="ThinSpace"/>
B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII
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B of the California Constitution.
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