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Regulators on Thursday approved a slight reduction to the profits shareholders are allowed to receive from California’s three major investor-owned utilities.
The decision dropped all three major investor-owned power companies’ returns by 0.3%, bringing the shareholder return for Pacific Gas & Electric to just below double digits for the first time in at least two decades. A decision proposed last month would have imposed a slightly larger profit cut of 0.35%.
All of the utilities asked for a return of more than 10%. The decision is unlikely to significantly impact customer bills, which remain the second-highest in the nation after Hawaii.
Darcie Houck was the only “no” vote on the California Public Utilities Commission, saying the decision did not properly take into account the cost to ratepayers.
“Every economic indicator tells us that we’re living in a time of extreme precarity for working Californians,” she said. “I do not think the decision threads the needle sufficiently to consider the full impact to the customer interest.”
Utilities say that a high potential rate of return for shareholders is important to bring in needed funding for infrastructure projects, which are typically paid for up front by investors and bonds and later reimbursed by ratepayers once regulators approve costs. This return is considered compensation for the risk of doing business.
The returns are not listed specifically on customers’ bills, instead baked into the rate customers pay.
The decision set 2026 potential shareholder returns for PG&E at 9.98%, Edison at 10.03%, and San Diego Gas & Electric at 9.93%. These returns are not guaranteed and can be affected by a utility’s financial performance throughout the year, going down if a utility has cost overruns. Historically, only San Diego Gas & Electric achieves its full shareholder return, while PG&E and Edison typically fall short of the full amount.
The three utilities’ approved returns have hovered around 10% for decades, which is also the national average for utility shareholder returns, often going above that. Academics and ratepayer advocates have argued for years that this is a problem because a higher return rate is meant to compensate for risk, but utilities are a historically low-risk industry. Their rates are set by regulators and their income is largely predictable and effectively guaranteed by ratepayers, who will continue needing services like electricity. U.S. 10-year Treasury bonds, which are considered the baseline for a risk-free investment, are about half of the utilities’ approved rate. Utilities regularly push back on this point, saying that wildfires in particular have made their industry more risky.
Utilities criticized the proposed drop in shareholder rates, saying it would exacerbate already high bills for ratepayers. The California Public Advocates Office, which advocates for ratepayers before the commission, pushed back on this, saying that claim is “entirely without merit.”
