The California Public Utilities Commission (CPUC) has set the cost of capital for the state’s four largest investor-owned energy utilities for the years 2026 to 2028. This decision establishes the financial guidelines that will determine how these companies fund ongoing maintenance and modernization of California’s electric and natural gas infrastructure.
Investor-owned utilities use a combination of long-term borrowing, preferred equity, and shareholder investment to pay for system upgrades such as poles, wires, substations, and wildfire safety improvements. The CPUC’s framework is designed to help these companies maintain solid credit ratings so they can borrow money at reasonable rates for consumers.
The commission approved Returns on Equity (ROEs) just under 10 percent for Pacific Gas and Electric Company, Southern California Gas Company, and San Diego Gas & Electric. Southern California Edison received an ROE slightly above 10 percent. These figures are lower than previous levels and are in line with national patterns. The ROE represents the profit percentage utilities can earn on investments funded by shareholders. Utilities only receive the full authorized ROE if they manage costs effectively, operate safely, and complete projects within budget and schedule.
The decision also keeps in place the current Cost of Capital Mechanism. This mechanism allows automatic adjustments to ROEs between regular proceedings if there are significant changes in bond markets.
Changes to ROE—and overall rate of return—can affect customer bills over time because these rates apply to the value of utility infrastructure approved by regulators. A lower ROE limits utility profits from these investments, which could reduce future rate increases. However, setting ROEs too low might lead investors to expect higher interest rates from utilities, increasing their borrowing costs—a factor that could remain part of customer rates for many years.
“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,” according to the commission.
“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,” stated the CPUC.
