AMENDED IN ASSEMBLY AUGUST 20, 2026

AMENDED IN ASSEMBLY JUNE 29, 2026

AMENDED IN SENATE MARCH 24, 2026

CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION

96

Introduced by Senator Pérez

February 13, 2026

An act to add Section 457 to the Public Utilities Code, relating to public utilities.

Vote: majority   Appropriation: no   Fiscal committee: yes   Local program: yes

LEGISLATIVE COUNSEL’S DIGEST

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.

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 when necessary to address costs that cannot reasonably be forecasted in the general rate case process, as provided. The bill would require each memorandum account or balancing account authorized by statute, or by the commission, before January 1, 2027, to be included and reviewed in the subsequent general rate case proceeding, and would require the commission, during its review, to consider assigning an expiration date to each memorandum account or balancing account, as provided. The bill would authorize the commission to establish exceptions to those principles and requirements for categories of costs not reviewed pursuant to that requirement, as provided. The bill would further require that the ratemaking treatment of memorandum accounts or balancing accounts that are in effect on January 1, 2027, remain unchanged until the commission reviews the account pursuant to that requirement.

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 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.

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.

The people of the State of California do enact as follows:

SECTION 1.

The Legislature finds and declares all of the following:

(a) California faces an affordability crisis in energy utility rates.

(b) 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.

(c) 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.

(d) 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 outside the general rate case process.

(e) 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 previously had been mandatory.

SEC. 2.

Section 457 is added to the Public Utilities Code, to read:

457.

(a) For purposes of this section, both of the following definitions apply:

(1) “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 or for ratepayers to receive credits for costs below authorized amounts.

(2) “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.

(b) 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.

(c) In exercising its ratemaking authority, the commission shall adhere to the following principles and requirements:

(1) Forecast-based ratemaking shall be the default approach for establishing revenue requirements and cost recovery mechanisms.

(2) A memorandum account or balancing account shall be authorized and maintained only when necessary to address costs that cannot reasonably be forecasted in the general rate case process. The commission shall make a written finding explaining why such an that account is necessary and why the relevant costs cannot be adequately forecasted.

(3) 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.

(4) When the commission decides to authorize the creation or continuation of a memorandum account or balancing account, the commission shall, at the same time, consider taking the following actions:

(A) Pursuant to existing commission authority, adopting cost-sharing mechanisms for costs recovered through the memorandum account, and costs above authorized amounts recovered through the balancing account, as applicable.

(B) Adopting 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.

(C) Assigning an expiration date to the memorandum account or balancing account.

(d) Each memorandum account or balancing account authorized by statute or by the commission before January 1, 2027, shall be included and reviewed in the subsequent general rate case proceeding. During its review, the commission shall consider assigning an expiration date to each memorandum account or balancing account.

(e) The commission may establish exceptions to the principles and requirements of subdivision (c) for categories of costs not reviewed pursuant to subdivision (d), including, but not limited to, 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.

(f) 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.

(g) The ratemaking treatment of a memorandum account or balancing account that is in effect on January 1, 2027, shall remain unchanged until the commission reviews the memorandum account or balancing account pursuant to subdivision (d).

SEC. 3.

No reimbursement is required by this act pursuant to Section 6 of Article XIIIB 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 XIIIB of the California Constitution.