CPUC Sets Cost of Capital for State’s Largest Energy Utilities
SAN FRANCISCO– The California Public Utilities Commission (CPUC) today established the 2026-2028 Cost of Capital for the state’s four largest energy investor-owned utilities, setting the financial parameters that guide how utilities secure funding to maintain and modernize California’s electric and natural gas systems.
Supporting Reliable Investment While Protecting Customers
Utilities rely on a mix of long-term borrowing, preferred equity, and shareholder investment to fund infrastructure such as poles, wires, substations, and wildfire safety upgrades. The CPUC’s Cost of Capital framework determines how utilities balance these funding sources to maintain healthy credit ratings in order to access capital at reasonable cost to ratepayers.
Return on Equity: Lower Than Current Levels
The CPUC authorized Returns on Equity (ROEs) just under 10 percent for Pacific Gas and Electric Company, Southern California Gas Company, and San Diego Gas & Electric, and slightly over 10 percent for Southern California Edison. These authorized ROEs are below current levels and consistent with national trends. ROE represents the percentage of profit utilities may earn on shareholder-funded investments. Returns are not guaranteed; utilities earn the full authorized ROE only when they effectively manage costs, maintain safe operations, and deliver projects on time and on budget. The CPUC’s decision also maintains the existing Cost of Capital Mechanism, which allows for automatic ROE adjustments between Cost of Capital proceedings, if bond markets change substantially in either direction.
Potential Impacts on Customer Costs
Changes to ROE (and to the overall rate of return (ROR), of which ROE is one component) can influence customer costs over time because ROR is applied to the rate base, which is the value of long-term utility infrastructure approved by the CPUC. A lower ROE reduces the profit utilities may earn on these investments, potentially easing upward pressure on future rates. Setting ROEs too low may result in the market expecting higher interest rates from utilities, which can translate into higher borrowing costs that remain in utility rates for many years.
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About the California Public Utilities Commission
The CPUC regulates services and utilities, protects consumers, safeguards the environment, and assures
Californians access to safe and reliable utility infrastructure and services. Visit www.cpuc.ca.gov for
more information.