Chair Pedro Nava on Utility Economics, Hidden Costs, and Protecting Californians from Rising Energy Burdens

Chair Nava joins VX News to unpack the findings of the Little Hoover Commission’s review of California’s electricity rates—and now the emerging impacts of data centers and AI. Addressing how ratepayers are not simply paying for electricity itself, he details how profit structures compound California’s affordability challenges, and turning to the Commission’s new study on AI data centers, he warns of significant water demands, siting decisions, and cost-recovery models that could shift costs onto vulnerable communities and undermine equity without careful oversight. Chair Nava underscores the importance of pragmatic, evidence-based policymaking as essential to protecting ratepayers and California’s long-term economic and energy competitiveness.

 “California now pays the nation’s second-highest electricity rates…and one in five households is behind on their utility bills—a staggering reality for one of the world’s largest economies.” – Chair Nava, Little Hoover Commission

Chair Nava, let’s begin with an introduction for our readers—the path you took to become Chair of the Little Hoover Commission, which starts with elective office and your legal career. Bring us up to date.

As you’ve contextualized, it was a long and winding road. I was fortunate enough to be elected to the Assembly way back in 2004. While in the Assembly, I served on and chaired different committees—Banking, Emergency Services, Transportation, Appropriations, Insurance, Education, Judiciary, Business and Professions, Joint Legislative Audit, and the Ocean Protection Council. It helped me by providing broad exposure to various areas of government.

In the early ’90s, I was appointed by then–Speaker Cruz Bustamante to the California Coastal Commission. I served on that for about eight years, so I got to see governance from that perspective. Even when I was in the Legislature, I was one of the legislative representatives to the Little Hoover Commission. Over time, people have seen that I focus a lot more on policy instead of politics, because I’m convinced you can get good ideas from both sides of the aisle. The important thing is to bring those ideas together to improve services.

I was appointed to the Commission by then–Speaker John Pérez. After his term, Speaker Rendon decided to keep me, and I’ve been most recently reappointed by Speaker Rivas, so I’ve been asked to serve by three different Speakers of the California Assembly.

For readers less familiar with the Commission, outline its mission and how you determine which issues merit a full study.

We call it the Little Hoover Commission because it’s easier to remember, but the actual name is the Milton Marks Commission, based on Senator Milton Marks’ Commission on California State Government Organization and Economy. You can understand why “Little Hoover Commission” is the preferred way to characterize it…

Our responsibility is executive-branch operations. We’re charged with evaluating policy and making recommendations to improve service delivery and government operations overall. 

Commissioners are appointed by the Governor and by legislative leaders. Of the 13 Commissioners, most are members of the public, but four are sitting members of the Legislature. By law, we’re nonpartisan. No party can control more than five of the public seats, for example, and the Chair and the Vice Chair can’t be from the same political party. We’re also independent. We don’t work for the Governor or the Legislature – we’re an independent agency – and we select our own topics for study.

As for the topics we take on, they can come from anywhere—members of the public, legislators, the administration, and commissioners all make suggestions. Once an idea bubbles up for discussion, commissioners talk about whether it affects a broad enough area of California government and services. We then ask staff to prepare what’s called a “scoping memo” to give the issue some initial architecture.

Then we talk about it again to decide whether it’s something we still want to pursue. Once we agree it’s appropriate, we conduct hearings; staff review all the literature, reports, and studies; and then the Commission adopts a report. We hold public meetings to ensure people have access to participate, and we’ve found that, because of COVID and a change in the law allowing remote meetings, public participation has actually increased.

Once we issue reports, we support legislation that implements our recommendations, which means we’re actively advocating for real policy change. As an example, in the last legislative year, eight of our recommendations made it into law. Legislators liked what we had to say and thought it made sense. We’ve influenced wildfire issues, insurance, intimate-partner violence, public safety, technology, cybersecurity, government transparency, and public access.

Most recently, the Commission published its study on California’s high electricity rates. What prompted that review, how did the Commission conduct it, and what were your key findings?

With respect to the cost of electricity, it really is heartbreaking. California now pays the second-highest rates for electricity in the country. Hawaii costs more, but after that, it’s California. This issue was prompted by the Legislature and by Commission members, and we examined affordability before it became the byword everyone uses. Affordability is a critical issue. One in five households in California is behind on their utility bills—a staggering reality for one of the world’s largest economies.

We held four hearings and heard from experts, consumer representatives, environmentalists, and industry officials. I don’t think this is widely understood, but we found that it isn’t just the electricity itself that makes it so expensive. Utilities don’t increase their actual costs per kilowatt-hour; whatever they buy it for, they pay for, and they pass that on to ratepayers. Put simply, electricity costs so much because we’re paying for more than electricity. 

We’re paying for the infrastructure to deliver it, and to harden the system against wildfires, among other extreme weather events, which are both enormous drivers of ratepayer costs. We’re paying a larger share of the fixed costs of operating the grid because more people are generating their own power through rooftop solar. They pay less into the system, but the system’s fixed costs don’t go away. It still takes the same amount of money to keep the wires up, keep the towers up, keep the equipment running.

Additionally, the investor-owned utilities, such as PG&E or Southern California Edison, have a guaranteed rate of return. Their profits are calculated and approved by California’s Public Utilities Commission (CPUC). Generally speaking, this rate of return is close to 10% after taxes. Most people would love a post-tax 10% return, and for the utilities, it’s challenging to obtain. The bottom line is that utilities are profitable. PG&E, for example, reported $2.4 billion in profits in 2024, and Southern California Edison earned $1.6 billion in 2025.

Unfortunately, there’s no silver bullet to reduce electricity rates. That’s why we held the hearings: to examine why electricity costs so much, how rates are calculated through current profit structures, and what can realistically be done to bring costs down.

Following up, did the Commission consider whether existing policy unintentionally disincentivizes the scaling of distributed energy and rooftop solar, which many argue should remain core environmental priorities for California?

You know, one of the interesting things we found—and consumer groups particularly raised this—is that, given the way investor-owned utilities generate profit, which is then paid back to their shareholders, it largely comes through the construction of infrastructure.

Remember, they’re not going to charge you more than what they pay for a kilowatt of electricity. If they pay 17 cents, they charge 17 cents. Where they make their money is in building the towers, hanging the wires, and creating the system to get the energy to you.

There have been recommendations from consumer groups that investor-owned utilities should look at two things: first, whether there ought to be a different way to finance construction; and second, whether all of that construction is actually necessary. One of the witnesses at our hearing presented a chart showing an analysis of the utilities, their infrastructure, and what they call capacity, or in other words, how much power you can cram through the wires. I’ll make it as simple as I can so even I understand it: the more power you can jam through, the more you get from generation to users.

In this study, our subject expert indicated that across the systems, there was anywhere from 30% to 40% more capacity. If that’s accurate, then why build more towers and string more wires? Because, in part, that’s how utilities make their profits.

What really ought to happen, I think, is a third-party audit of the systems. You don’t want the utilities—who have a financial interest in building infrastructure—evaluating themselves. You need an independent third party to examine whether the systems already have sufficient capacity to carry more power, so we aren’t building unnecessarily.

I ask that question in the name of Bob Foster, who just recently passed away, but given the uncertainty surrounding future demand and climate impacts, how much confidence can policymakers place in today’s long-term load forecasts, climate targets, and cost trajectories?

Well, I like to say you can’t manage what you don’t measure, and uncertainty adds risk. On one hand, we know there’s going to be significant demand for additional electricity based on the construction of artificial-intelligence centers. It’s coming. If California wants to maintain its position as a leader in industry and technology, we’re going to have to meet that demand.

But we don’t know what the wildfire situation will be in the future, so as best we can, we need to plan for that eventuality. We don’t know how many more people will purchase electric vehicles and appliances, and as I said, AI-related developments are going to add much more demand. Still, you've got to be careful you don’t overbuild the system. There might be sufficient capacity for now, but you also have to balance that with what happens if you don’t. You don’t want to miss the bus that takes you toward increased economic activity and prosperity. As the fourth-largest economy in the world, we have to conduct ourselves that way.

There are challenges, but again: you can’t manage what you don’t measure. We need additional data collection from the various interests involved. Although people don’t always like it, we need responsible regulation of the industries driving these changes. We have to keep hammering out responsible policies so that all consumers benefit from moving forward. That’s part of our responsibility, and why we generated these recommendations on electricity costs.

The Commission is now conducting a separate, ongoing study addressing data center growth and electricity policy. Elaborate on the intent of a rather timely study.

Yes. We are currently conducting a study on the growth of data centers and related infrastructure. We’ve had one hearing this past November, and we’re holding another in late December. Even at this early stage, we’re discovering significant issues associated with data centers.

One of the things we have to be concerned about, and this is just my own perspective, is this whole notion of “abundance” that has, pardon me, intoxicated everyone. There’s either the abundance bandwagon or the abundance clown car. I’m sure I’ll be criticized for my characterization, but when a whole lot of people are pushing in the same direction, when so many questions are outstanding…I’m a bit of a skeptic.

Data centers are important, but they have to be done responsibly, and in a way where individual residential ratepayers are not bearing a disproportionate burden for what it’s going to take to get there.

The other part that has received insufficient attention is the impact on water and land use. Let me explain: it takes about five gallons of water to generate one kilowatt of energy. Most people don’t think about the water–energy nexus—you just flick the switch, and the light goes on. But there’s much more to it. PG&E, for example, has in its plans a proposal for 9.6 gigawatts of new energy because these centers require enormous power. Well, 9.6 gigawatts translates into roughly 50 billion gallons of water, which is about the same as 166 million households.

So the water impacts of these centers have to be taken into consideration if we’re going to do this in a way that doesn’t leave somebody shortchanged. And if a data center requires additional infrastructure—more towers, more wires, more transformers—who should pay for that? 

Most people don’t realize that the residential rate calculation differs significantly from that of an industrial customer. If you're a big business, we want you in California, so you pay less per kilowatt. And you don’t pay some of the charges that are included in a residential bill. That’s simply how the system has been structured. Should that be reformed? Maybe it should…That’s part of what we’re aiming to examine in this study.

Data centers and AI are part of this emerging technology industry, and they’re critical if California wants to maintain leadership. Still, we must ensure we’re not creating artificial barriers to development while also addressing potential burdens for people already struggling with their electricity bills.

You’ve noted that the recent hearings featured expert testimony on reliability, system planning, and rate structures, with little mention of environmental goals—priorities that, until recently, often led California’s energy policy. Have the state’s policy priorities been reordered?

Again, this is my perspective, and why I referenced the “abundance” catchall phrase so many people have embraced. We have to be careful that it doesn’t become an excuse to ignore the consequences that flow in the wake of these decisions.

I had a contracts teacher at UC Davis, Daniel Fessler, who used that phrase all the time: the consequences that flow from the decision. When we look at AI and data centers, we have numerous consequences that flow from the decisions being made for people and resource management: Where will you house them? What land will you use? How will you ensure sufficient energy delivery? How will you ensure enough water? How will you impact neighborhoods where these data centers are placed?

Environmental review, in my experience, has the greatest impact on people who have the least influence. If these centers are placed in low-income neighborhoods, it will be harder for those communities to marshal the resources needed to express their concerns about the consequences that flow from those siting decisions. 

I think the Little Hoover Commission will be very conscious and deliberate in its review, not only regarding the cost issues, but also recognizing that there’s much more to this than affordability.

Well said. Turning to past Commission work, the friction between fast-moving private innovation and slower, risk-averse oversight structures. Speak to how this manifests in the Commission’s review and decision-making.

If you’re an industry seeking to expand, one of the things I’ve always been conscious of, particularly after my legal education, is that there is inherent friction between those who want to maximize profits as a fiduciary duty and the impacts on people who are not your shareholders but are still part of your community. Businesses have a legal obligation to their shareholders, a fiduciary duty, and it’s a high standard. This often conflicts with considerations that impact the broader community: quality of life, neighborhood impacts, county and state impacts. That requires a sensitive and nuanced balance of competing interests. 

The members of our Commission are extraordinarily practical. We’ve come to understand that creating a report that’s essentially a blue-sky wish list doesn’t help anyone, and we’re continuously emphasizing that one size never fits all. A responsible way of evaluating growth, development, and prosperity requires providing a reasonable return on investment without causing harm to people who aren’t shareholders, but are still affected by these decisions.

On one hand, regulators and legislators must ensure the greatest benefit for constituents by avoiding harm, while also understanding the perspective of businesses and industry. A balance must be struck, and not everyone will be happy. Businesses often want to be, as the term goes, “unleashed.” They can be myopic about their objectives, and that will conflict with people in the community who are being left out or left behind. The Commission routinely evaluates the information we receive to determine a practical pathway, considering how recommendations can realistically lead to regulatory change or legislation. We aim for a happy balance.

Because of time and space: What approach does the Commission take in informing and communicating its serious deliberations and findings to the public? And what should our readers stay tuned for?

Well, we’ve been fortunate the last few years that many of our staff are younger than I am. I remember when we first got faxes and when I had a Rolodex on my desk. The benefit of current thinking, not just youth, but current thinking, is that they’re very familiar with social media. In my time as Chair, we’ve expanded from traditional communication like op-eds or press releases to having a YouTube channel. Our meetings are on Zoom. We have newsletter bulletins. We use every available means, yet I don’t think we’re on TikTok just yet.

When we issue our reports, staff schedule meetings with legislators or the chief consultants in the relevant committees to brief them on our conclusions. That has been very helpful in ensuring our primary audience, the Legislature, understands what we’re working on. Presently, we’re often asked by legislative staff, “What are you working on? What’s coming next?” 

The answer is always that we’re working on multiple topics at the same time. For example, we expect to issue a report shortly on how to improve the state’s contracting with nonprofits. We held hearings this fall about how the state can better respond to financial scams and, as we’ve been discussing, how data centers will impact the state’s electrical system. We expect to issue reports with recommendations on those topics in early 2026. And we’re already planning hearings on a whole set of new study topics: how the state responded to our earlier recommendations regarding care for people with developmental disabilities, how the state should address certain kinds of student debt, and how to improve the management of IT projects in state government. So our work always deals with a shifting array of policy areas, all with the ultimate aim of improving the lives of Californians.

Chair, I want to thank you very much.