Why California regulators have to protect both consumers and company profits

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As California regulates utilities and insurers, officials must not only protect consumers but maintain the profitability of corporations.

From left, California Insurance Comissioner Ricardo Lara and Raul Vargas, CEO of Farmers Insurance, speak during the Global Sustainable Insurance Summit in downtown Los Angeles on April 4, 2024. Photo by Ted Soqui for CalMattersa commentary forum aiming to broaden our understanding of the state and spotlight Californians directly impacted by policy or its absence. Learn more

Farmers’ complaints spawned several efforts to regulate them and finally gave birth in 1911 to the California Railroad Commission. Just a year later, the commission’s rate-setting authority was expanded to natural gas, electric power, telephone and water utilities. In 1946, its name was changed to the California Public Utilities Commission.

In theory, the CPUC is protecting customers of monopolistic utilities. However it also implements policy decrees, such as shifting power generation to renewable sources, and must – in its rate-setting role – ensure that the regulated utilities earn enough profit to maintain access to capital and debt markets.

The measure’s sponsors promised that regulation would maintain a lid on consumer insurance costs and contend that it’s done so. However, unlike electric utilities, insurers are not monopolies and cannot be compelled to do business in California, so the insurance commissioner has the implicit duty to also maintain their profitability so they continue to offer coverage.

 

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Why California regulators have to protect both consumers and company profitsUltimately there’s no free lunch.
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