California regulators on Thursday approved only a slight reduction to the profits that shareholders of the state’s three major investor-owned utilities (IOUs) can earn. The decision lowered the allowable return on equity (ROE) by 0.3%, bringing Pacific Gas & Electric’s return just below double digits for the first time in at least 20 years. A proposal last month had suggested a slightly larger cut of 0.35%.
All three utilities had requested returns above 10%. The small reduction is unlikely to significantly affect customer bills, which are already the second-highest in the nation after Hawaii.
Darcie Houck was the lone dissenting vote on the California Public Utilities Commission (CPUC), arguing the decision failed to fully account for the financial strain on ratepayers.
“Every economic indicator tells us that we’re living in a time of extreme precarity for working Californians,” Houck said. “I do not think the decision threads the needle sufficiently to consider the full impact to the customer interest.”
Utilities defend high returns
Utilities say higher potential returns are necessary to attract funding for infrastructure projects. These projects are typically financed upfront by investors and bonds, with costs later reimbursed by ratepayers. Shareholder returns are considered compensation for the risk of doing business, though the rates are baked into customers’ bills and not listed separately.
The CPUC set 2026 potential returns at:
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PG&E: 9.98%
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Edison: 10.03%
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San Diego Gas & Electric: 9.93%
These returns are not guaranteed and may fall if a utility has cost overruns. Historically, only SDG&E achieves its full shareholder return, while PG&E and Edison often fall short.
For decades, California IOU returns have hovered around 10%, roughly matching the national average for utilities, and often exceeding it. Critics note that utilities are low-risk since rates are set by regulators and income is largely predictable. By comparison, U.S. 10-year Treasury bonds yield about half the approved ROE. Utilities counter that wildfire risks increase the industry’s danger.
Pushback from both sides
Utilities argued that lower ROEs would further strain ratepayers’ bills. The California Public Advocates Office disputed this, calling the claims “entirely without merit” and stating the utilities’ methods would produce unreasonably high rates.
“Reduction from current ROEs doesn’t reflect the unique risk environment facing California IOUs and their investors,” said Edison spokesperson David Eisenhauer. PG&E also expressed disappointment, emphasizing the need to attract investment for energy system improvements. SDG&E focused on cost management and customer support without directly addressing the ROE decision.
Rising rate bases continue to boost profits
Shareholder profits are calculated as a percentage of a utility’s rate base—the total value of assets like power plants. While returns fluctuate, the rate bases for California IOUs continue to grow, producing hundreds of millions in potential profit annually even if a utility doesn’t reach the full ROE.
For example, in 2023, Edison’s rate base was $29.7 billion, allowing $198 million in shareholder returns. Even with a one-point lower return, shareholders would still earn $178 million. Edison ultimately earned $91 million that year from ratepayer-funded returns.
Houck noted that the utilities’ rate bases, including SoCalGas, are expected to rise about 10% annually, pushing combined potential returns nearly $1 billion above 2025 levels. She recommended that regulators review returns yearly rather than every three years.
California ratepayers continue to face an affordability crisis, driven by wildfire recovery, infrastructure hardening, and rising shareholder profits linked to growing utility rate bases.
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