The governor-elect’s team says the details are still being worked out; under state law, the Public Utilities Commission and the elected insurance commissioner set rates, and the leading insurer group says a freeze would be illegal.
Gov.-elect Xavier Becerra intends to pursue a freeze on utility bills and home insurance premiums, a campaign spokesman, Jonathan Underland, told The Sacramento Bee this week, adding in a text message that the details of the policy were still being formulated. It is the clearest test yet of how far a governor’s authority reaches.
The Inquirer reported Tuesday on the transition and the budget due Jan. 10. The freeze raises a narrower question: who actually sets the prices Mr. Becerra wants to hold down.
What Becerra has promised
Mr. Becerra first called for an immediate freeze in February. In an April CBS News California debate, he said he would declare a state of emergency over high prices, summon the insurance commissioner and industry representatives to urge a freeze, and threaten an investigation if they refused. “I’d be willing to go to court to tell you that I could call that freeze,” he said, according to The Bee.
At an Oct. 30 stop in San Francisco, he put it this way: “We cannot allow — whether it’s the utility companies or the casualty insurance industry — to just keep hiking prices without understanding as families why, and that’s why I called for a freeze of the utility bills and insurance premiums.”
After a Nov. 5 meeting with Senate President pro Tem Monique Limón and Assembly Speaker Robert Rivas, the three leaders’ joint release named “stabilizing energy costs” as a priority but did not mention a freeze.
Utility rates: the commission decides
Rates for customers of PG&E, Southern California Edison and San Diego Gas & Electric are set by the California Public Utilities Commission, whose five members are appointed by the governor and confirmed by the State Senate to staggered six-year terms. A new governor can fill seats as terms expire, but cannot order the sitting commission to rule a particular way. Municipal utilities such as SMUD and the Los Angeles Department of Water and Power set their own rates.
John Reynolds, the commission’s president, questioned in a June interview with Politico how a utility freeze would be carried out, The Bee reported. Chris Micheli, a lobbyist and state constitutional expert, told the paper that any freeze would almost certainly require sign-off from the commission for utilities and from the insurance commissioner for home policies.
PG&E, which put more than $13 million this spring into a committee opposing Mr. Becerra’s primary rival Tom Steyer, said through a spokesman, Mike Gazda, that it shares the governor-elect’s “commitment to making energy more affordable for Californians,” but that “the most urgent need to lower costs for customers and enable continued investment in the energy system is wildfire liability reform.” The Public Utilities Commission’s news office and The Utility Reform Network, a ratepayer advocacy group, did not respond to requests for comment from The Inquirer on Tuesday.
Insurance rates: Proposition 103 and an elected commissioner
Home insurance is governed by Proposition 103, the 1988 ballot measure that requires the elected insurance commissioner to approve property and casualty rates before insurers can charge them. An increase of more than 7 percent for personal lines can trigger a public hearing if one is requested, and consumer groups may intervene in rate cases and recover their costs.
The incoming commissioner, Jane Kim, said in a statement to The Bee that she had not run on a rate freeze and had not discussed one with Mr. Becerra. “But I will explore every idea and leverage every tool necessary to make insurance affordable and available, including freezing rates after a claim is filed so that no homeowner pays a penalty for using the service they paid for,” she said.
The courts have also drawn limits. In 1989, in Calfarm Insurance Co. v. Deukmejian, the California Supreme Court upheld most of Proposition 103, including its initial rollback and freeze, but held that insurers must have a way to obtain relief from rates that deny them a fair return.
What insurers and consumer advocates told The Inquirer
Rex Frazier, president of the Personal Insurance Federation of California, which represents major home and auto insurers, said in an email that the proposal was not legal. “The Governor does not regulate insurance rates (the independently elected Insurance Commissioner does) and the CA Supreme Court has already held (in an insurance case, no less) that market disruptions are not an ’emergency’ that gives the State of California power to waive constitutional protections against confiscation by arbitrarily freezing insurance rates,” he wrote.
Mr. Frazier argued that a freeze would shake insurers’ confidence as the market recovers, and that California’s rates, held down from 2010 to 2021, are catching up. He urged continuing the Sustainable Insurance Strategy of the outgoing commissioner, Ricardo Lara, and said the FAIR Plan, the insurer of last resort, grew by fewer than 1,000 policies a month in the third quarter, versus about 17,000 a month a year earlier.
Carmen Balber, executive director of Consumer Watchdog, the group that wrote Proposition 103, said a freeze “is possible under Proposition 103 in collaboration with the insurance commissioner.” It “would not be a moratorium on rate increases, but a thorough review of what goes into a rate before the commissioner approves new increases,” she wrote.
Ms. Balber said Mr. Lara “enacted multiple regulations that let insurers raise rates with a promise of greater coverage that never materialized.” Her group’s analysis, she said, found that insurers “sought over $500 million in rate hikes but promised to sell just 12,000 new policies,” a fraction of the nearly 700,000 policyholders she said have been pushed onto the FAIR Plan.
What comes next
Mr. Becerra takes office Jan. 4. Neither Consumer Watchdog nor the industry groups The Bee contacted said they had discussed the freeze with his team. Dave Jones, a former insurance commissioner, suggested legislation requiring insurers to credit wildfire-mitigation work when pricing and renewing policies.
For California households, the question is whether the promise becomes an executive order, a request to two independent regulators or a bill. Each path runs through institutions the governor does not directly control.
Graham Ostrowski covers the governor, the Legislature, state agencies and the state budget for the Sacramento Report. More from Graham Ostrowski
