Bill to Close Utilities’ Windfall Profit Loophole Passed the Legislature

SACRAMENTO, CA - Assembly Bill (AB) 2589, by Assemblymember Jacqui Irwin (D-Thousand Oaks), has passed the Legislature and is headed to Governor Gavin Newsom for his consideration. The measure would ensure that savings investor-owned utilities (IOUs) receive from changes in federal tax law, such as H.R. 1, are returned to ratepayers.

"Californians should not pay utility rates based on tax expenses that a utility no longer has to pay," said Assemblymember Irwin. "AB 2589 establishes a straightforward principle: when a change in federal law reduces a utility's tax liability, those savings should flow back to the ratepayers who funded them in the first place."

Investor-owned utilities establish customer rates through general rate cases before the California Public Utilities Commission (CPUC). Those rates are based in part on projections of the utilities' anticipated federal tax liabilities. When federal law changes during an ongoing rate case and reduces a utility's tax liability, its actual costs may fall below the amount customers were authorized to be charged.

AB 2589 would require the CPUC to evaluate changes in an investor-owned utility's federal tax liability during an ongoing general rate case and adjust rates, when appropriate, so that resulting savings are returned to customers rather than retained by the utility.

California has confronted this issue before. Following previous changes to federal tax law, Senator Hill's SB 1028 (2018) forced the IOUs to return more than $1 billion in tax-related savings to ratepayers. AB 2589 builds on that experience by establishing a consistent process for addressing similar federal tax changes during future rate cases.

AB 2589 received bipartisan support throughout the legislative process and did not receive a single "no" vote.

The bill now heads to Governor Newsom for his consideration.