AB2065 - Rates: prohibited cost recovery.

Amended IN Senate August 26, 2026 Amended IN Senate June 30, 2026 Amended IN Senate June 09, 2026 CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION Assembly Bill No. 2065 Introduced by Assembly Member Petrie-Norris (Coauthors: Assembly Members Berman and Harabedian) (Coauthors: Senators McNerney and Rubio) February 18, 2026 An act to add Section 748.4 to the Public Utilities Code, relating to public utilities. LEGISLATIVE COUNSEL'S DIGEST AB 2065, as amended, Petrie-Norris. Rates: prohibited cost recovery. Existing law vests the Public Utilities Commission with regulatory authority over public utilities, including electrical corporations, gas corporations, water corporations, and sewer system corporations, and telephone 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 prohibits a utility from recording to an above-the-line account, as defined, or otherwise recovering from ratepayers specified costs. This bill would require the commission to find that an electrical corporation, gas corporation, water corporation, or sewer system corporation, or telephone corporation has engaged in prohibited cost recovery if the corporation records a cost to a regulator-approved financial account that meets specified criteria, including if and the cost is categorically excluded from ratepayer recovery by statute, commission decision, or commission rule, exceeds the scope of the commission’s authorization for the specific account or application, rule or has already been authorized for recovery through another ratemaking mechanism. The bill would require the commission, upon making a determination that such a corporation has recorded prohibited costs to a ratepayer-funded account in violation of commission rule, tariff, or statute, to disallow recovery of the cost from ratepayers and to impose a financial penalty for prohibited cost recovery equal to the amount of the prohibited cost recovery or 3 times that amount, except as specified. The bill would require each such utility corporation to submit an annual report to the commission identifying all instances in the prior year in which prohibited cost recovery was identified, the actions that were taken in response to the identification, and any actions that were taken by the utility corporation to prevent future occurrences. 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 provisions of this bill would be a part of the act and because a violation of a commission action implementing the bill’s requirements would be a crime, the 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. Digest Key Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: YES Bill Text The people of the State of California do enact as follows: SECTION 1. Section 748.4 is added to the Public Utilities Code, to read: 748.4. (a) For purposes of this section, “utility” means an electrical corporation, gas corporation, water corporation, or sewer system corporation, or telephone corporation. (b) The commission shall find that a utility has engaged in prohibited cost recovery if the utility records a cost to a regulator-approved financial account that meets any either of the following criteria: (1) The cost is categorically excluded from ratepayer recovery by a statute, commission decision, or commission rule. (2) The cost exceeds the scope of the commission’s authorization for the specific account or application. (3) (2) The cost is authorized for recovery through another ratemaking mechanism, including in a prior commission decision. (c) Notwithstanding Section 2107, upon making a determination that a utility has recorded a prohibited cost to a ratepayer-funded account in violation of a commission rule, tariff, or statute, the commission shall do both of the following: (1) Disallow recovery of the cost from ratepayers. (2) Impose a financial penalty, calculated as follows: (A) A financial penalty shall not be imposed if the utility identified the prohibited cost recovery and remediated on its own initiative. The utility shall not be exempt from a penalty under any of the following circumstances: (i) The matter was raised by a party in a commission proceeding. (ii) The matter was raised by commission staff in a communication, notice, citation, or enforcement action, in connection with an audit or other commission inquiry. (iii) The matter was disclosed by the utility in response to an inquiry or discovery request submitted by a party in a commission proceeding. (iv) The matter was otherwise brought to the commission’s attention. (B) The financial penalty shall equal the amount of the prohibited cost recovery if the commission determines the utility engaged in prohibited cost recovery, regardless of whether the prohibited cost recovery was the result of inadvertence, error, lack of reasonable diligence, or other conduct, and the conditions described in subparagraph (A) or (C) do not apply. (C) The financial penalty shall equal three times the amount of the prohibited cost recovery if the commission determines either of the following criteria are satisfied: (i) There have been two or more separate instances of prohibited cost recovery by the same utility within the preceding five-year period. (ii) There has been a sustained practice of prohibited cost recovery by the same utility extending across multiple reporting periods. (d) This section does not limit the commission’s authority under Section 2107 or 2108, Rule 1.1 of the commission’s Rules of Practice and Procedure, as set forth in Section 1.1 of Article 1 of Chapter 1 of Division 1 of Title 20 of the California Code of Regulations, or any other law, to impose additional penalties or remedies for the same or related conduct. (e) Each utility shall submit an annual report to the commission identifying all instances in the prior year in which prohibited cost recovery, pursuant to this section, was identified, the actions that were taken in response to the identification, and any actions that were taken by the utility to prevent future occurrences. SEC. 2. No reimbursement is required by this act pursuant to Section 6 of Article XIII 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 B of the California Constitution.