The California Public Utilities Commission (CPUC) has set the cost of capital for the state’s four largest investor-owned energy utilities for 2026-2028. This decision determines the financial guidelines that utilities must follow to secure funding needed to maintain and upgrade California’s electric and natural gas systems.
Utilities use a combination of long-term borrowing, preferred equity, and shareholder investment to pay for infrastructure projects such as poles, wires, substations, and upgrades aimed at improving wildfire safety. The CPUC’s framework helps these companies keep strong credit ratings so they can access capital at reasonable costs for customers.
The commission authorized 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 rates are lower than previous levels and reflect national trends. ROE is the percentage of profit utilities may earn on investments funded by shareholders. The full authorized ROE is only achieved if utilities manage costs effectively, maintain safe operations, and complete projects on schedule and within 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,” according to the commission.
Adjustments to ROE—and the overall rate of return—can affect customer costs over time because these rates apply to the value of utility infrastructure approved by the CPUC. Lowering ROEs reduces potential profits for utilities but may help reduce future rate increases. However, setting them too low could lead investors to expect higher interest rates from utilities in order to offset risk, which might increase borrowing costs that are passed on to customers.
The CPUC continues its role in regulating services and utilities throughout California with a focus on consumer protection and ensuring access to reliable utility infrastructure.
