California regulators are considering a proposal to reduce the profits that shareholders of the state’s three largest investor-owned utilities—Pacific Gas & Electric (PG&E), Southern California Edison, and San Diego Gas & Electric—can earn. The California Public Utilities Commission has recommended lowering the “return on equity” for these companies by 0.35%. If approved, this would bring their potential returns to just under 10%, a level not seen in at least two decades for PG&E and Edison.
The commission is expected to vote on the proposal in December. The move comes as Californians face some of the highest electricity rates in the country, second only to Hawaii according to recent data from the U.S. Energy Information Administration. Factors such as wildfire mitigation costs contribute to these high rates, with PG&E drawing criticism for frequent rate increases over the past year.
“California and other [public utility commissions] authorize rates of return that are far in excess of the statutory requirement,” said Mark Ellis, former chief economist at Sempra, which owns San Diego Gas & Electric.
The proposed reduction would set PG&E’s shareholder return at 9.93% (down from 10.28%), Edison’s at 9.98% (down from 10.33%), and San Diego Gas & Electric’s at 9.88% (down from 10.23%). These returns are not guaranteed; they depend on each utility’s ability to control costs.
A small adjustment in these rates can mean millions of dollars in difference for both shareholders and customers. For example, PG&E had a possible $125 million shareholder return last year with a 10% rate; if it had been one percentage point lower, that figure would have dropped by $12.5 million.
Despite this proposed cut, critics argue it will do little to significantly lower customer bills but acknowledge it as progress toward addressing high returns for utilities considered low-risk investments nationwide.
“The proposed cost of capital decision needs refinement to better reflect California’s unique risks and market realities,” said Edison spokesperson Jeff Monford. “Making those refinements in the final decision will enhance SCE’s ability to finance essential infrastructure projects for a more reliable, resilient and ready electric grid.”
PG&E spokesperson Jennifer Robison also expressed concern: “The decision fails to acknowledge current elevated risks to help attract the needed investment for California’s energy systems.”
Anthony Wagner of San Diego Gas & Electric added: “A decision that accurately reflects these realities is essential to enabling investments that reduce wildfire risk, strengthen reliability, replace aging infrastructure and advance California’s clean energy transition for the benefit of the communities we serve.”
Utilities often seek higher allowed returns because these figures affect their credit ratings and borrowing costs for new projects. However, experts note that average approved utility shareholder returns nationally remain about double those of benchmark U.S. Treasury bonds—a gap costing American utility customers billions annually.
Ellis suggested another way forward: adjusting how much debt versus equity utilities carry could allow for lower shareholder returns without harming credit ratings or raising customer bills—a strategy he says regulators have yet to fully consider.
“You really need to understand credit,” Ellis said. “This is where they’re going to get you.”
