The California Public Utilities Commission (CPUC) has set the cost of capital for the state’s four largest investor-owned energy utilities for 2026 through 2028. This decision establishes financial guidelines that affect how these companies raise funds to maintain and improve California’s electric and natural gas infrastructure.
Utilities use a combination of long-term borrowing, preferred equity, and shareholder investment to pay for projects such as poles, wires, substations, and wildfire safety measures. The CPUC’s cost of capital framework is designed to help utilities keep healthy credit ratings so they can access funding 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 figures are lower than current levels and align with national trends. According to the CPUC: “Return on Equity 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 existing Cost of Capital Mechanism will remain in place, allowing automatic ROE adjustments if there are significant changes in bond markets between proceedings.
Adjustments to ROE—and by extension the overall rate of return—can impact customer bills over time because these rates apply to the value of approved utility infrastructure. A lower ROE means less profit for utilities from these investments, which could reduce pressure on future rates. However, setting ROEs too low could lead investors to expect higher interest rates from utilities in the future, potentially increasing borrowing costs that would be reflected in customer rates over many years.
The CPUC regulates utility services across California with a focus on consumer protection and reliable infrastructure.
