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California Utility Regulator Proposes Cut to Shareholder Returns as Electric Rates Remain High
California’s utility regulator is taking steps to lower the profits that shareholders can receive from the state’s three major investor-owned utilities, as Californians continue to face some of the highest electricity rates in the nation.
In a proposed decision, the California Public Utilities Commission (CPUC) recommended reducing the “return on equity” by 0.35 percentage points for Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric. If approved in December, shareholders at all three companies would see potential returns drop just below 10% next year, marking the first time in at least two decades that PG&E and Edison returns would fall below double digits.
California residents currently pay the second-highest electric rates in the United States after Hawaii, according to the U.S. Energy Information Administration. Multiple factors contribute to these elevated costs, including extensive wildfire mitigation expenses. PG&E, in particular, has faced considerable consumer backlash for implementing frequent rate hikes over the past year.
The return on equity represents money intended to compensate shareholders for the risk of doing business in the utility sector. These rates, established by state utility regulators, hover around 10% nationally. Under the proposed changes, PG&E’s rate would decrease from 10.28% to 9.93%, Edison’s from 10.33% to 9.98%, and San Diego Gas & Electric’s from 10.23% to 9.88%.
Even small adjustments in these rates can translate to millions of dollars for ratepayers. The return percentage applies to a utility’s “rate base” – the total value of assets on which it can earn a return, such as power plants and infrastructure. As California’s utilities continually expand their customer base and undertake new projects, their rate bases grow annually, increasing potential shareholder returns.
For perspective, PG&E had a 10% shareholder return in 2023, amounting to a possible return of approximately $125 million. Had that rate been just one percentage point lower, shareholders would have received $12.5 million less.
The utilities have expressed concern about the proposed reductions. Southern California Edison spokesperson Jeff Monford said the decision “needs refinement to better reflect California’s unique risks and market realities.” PG&E spokesperson Jennifer Robison argued the decision “fails to acknowledge current elevated risks to help attract the needed investment for California’s energy systems.”
San Diego Gas & Electric’s Anthony Wagner emphasized that accurate risk assessment is “essential to enabling investments that reduce wildfire risk, strengthen reliability, replace aging infrastructure and advance California’s clean energy transition.”
Utilities routinely advocate for higher rates, as these figures significantly influence their credit ratings and the interest they pay on infrastructure loans. However, critics, including consumer advocates and industry experts, point to a growing disconnect between the utility industry’s relatively low-risk profile and the comparatively high shareholder returns. U.S. 10-year treasury bonds, considered benchmark risk-free investments, carry rates approximately half of the national average for approved utility shareholder returns.
This discrepancy costs utility ratepayers across the country as much as $7 billion annually, according to academic research.
Mark Ellis, former chief economist at Sempra (San Diego Gas & Electric’s parent company), suggests there are alternative approaches to maintaining utility credit ratings while keeping customer bills in check. Ellis argues that the commission should explore changing the balance of debt and equity each utility maintains, rather than relying primarily on high shareholder returns to support credit ratings.
While the CPUC has the authority to adjust debt-equity balances when determining shareholder returns, it left these ratios unchanged in the proposed decision for 2026. According to Ellis, this approach unnecessarily burdens ratepayers while maintaining artificially high returns for shareholders.
The California Public Utility Commission is expected to vote on the final decision in December, potentially setting new precedent for utility shareholder returns in the state.
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10 Comments
This proposal to limit utility profits is an interesting policy lever. I’m curious to see if it leads to any operational changes or efficiency improvements at the utilities, or if the impact will be more symbolic than substantive for ratepayers.
That’s a good point. Reducing shareholder returns could incentivize utilities to find ways to cut costs, but the regulator will need to closely monitor how this plays out in practice.
California has some of the highest electricity rates in the country, driven by wildfire mitigation costs and other factors. Reducing shareholder returns seems like an attempt to provide some relief, but it’s unclear how much this will actually lower customer bills.
Agreed, the impact on customer bills is the key question. Cutting shareholder profits may not be enough to significantly reduce high electricity prices in California.
Lowering the shareholder returns of California’s major utilities is a bold move, but the impact on customer bills remains uncertain. I wonder if this is part of a broader strategy to reform the state’s electricity sector and drive down costs for residents and businesses.
That’s a good question. If this profit cut is just one piece of a larger electricity policy overhaul in California, it could be more impactful. The regulator’s broader objectives will be important to watch.
It’s encouraging to see California’s regulator taking steps to address high electricity rates, even if the proposed profit cuts may not translate to major savings for consumers. Addressing the root causes of elevated costs, like wildfire mitigation, could be a more impactful approach.
That’s a fair assessment. Tackling the underlying drivers of high rates, rather than just tweaking utility profits, may be a more holistic solution for California ratepayers.
Interesting move by California to cut utility shareholder profits. It’s a delicate balance – keeping rates affordable for consumers while also maintaining investment incentives for the utilities. I wonder if this will lead to any changes in utility management or operations.
You’re right, it’s a tricky balance. Lowering shareholder returns could pressure utilities to find cost savings, but the impact on consumers may be limited if other factors keep rates high.