Will California OK lower utility company profits? How a pending vote could affect your electric bill

State regulators are poised to vote on how much profit utility companies can make, a decision with big implications for Californians’ bills and the aging power grid.

The California Public Utilities Commission, which regulates privately owned utilities in the state, will vote on a proposed decision to lower the payout to shareholders from the state’s investor-owned utilities — Southern California Edison, San Diego Gas & Electric, Southern California Gas Co. and Pacific Gas & Electric.

Unlike public utilities, such as the L.A. Department of Water and Power, investor-owned utilities are private companies that operate as government-regulated monopolies.

California’s electricity rates are the second-highest in the nation, behind only Hawai’i. As the state works to transition to a cleaner energy economy that runs largely on electricity, those high bills threaten to derail progress.

Keep up with LAist.

If you're enjoying this article, you'll love our daily newsletter, The LA Report. Each weekday, catch up on the 5 most pressing stories to start your morning in 3 minutes or less.

Subscribe

Experts say lowering utility profits is just one piece, albeit a big one, in the puzzle to address energy affordability.

The background

Every three years,  the CPUC, which is made up of five commissioners appointed by the governor, oversees applications from the state’s private utilities during which they ask for a certain “rate of return” — essentially their amount of expected profits above the cost of operations — to attract the capital they say they need to make necessary investments in California’s aging power grid. That includes building new power plants, transmission lines and other infrastructure.

These profits are also important to ensure the utilities don’t go into bankruptcy and can maintain reliable service.

Over the last two decades, the amount of profits allowed has only gone up — it hovers at a little over 10% for the state’s big three investor-owned electric utilities, which is slightly higher than the industry average across the nation.

Mark Ellis — a former executive at Sempra Energy (the parent company of SoCal Gas and SDG&E) turned ratepayer advocate — estimates that profit, plus income taxes on profit, which are passed through to ratepayers, accounts for about one-quarter of Californians’ utility bills.

The CPUC is expected to vote on whether to approve a slight decrease to those returns at a meeting Thursday.

What the proposal says

The proposed decision would lower the return on equity for each utility by about 0.35% — even such a small change can mean millions of dollars in reductions for ratepayers.

If approved, SoCal Edison’s maximum return on equity would be 9.98%, down from 10.33%, and San Diego Gas & Electric would be 9.88%, down from 10.23%.

What critics say

Some stakeholders say the return percentage should be far lower. Ellis, who provided testimony in the proceeding on behalf of the Sierra Club and Protect Our Communities Foundation, argues the return should be as low as 6%. He estimates that could reduce Californians’ electric bills by as much as 10%.

“There's no other industry that really has that type of return that's virtually guaranteed,” Ellis said. “We haven't touched their profits for decades, and what has it gotten us? It's gotten us really expensive electricity and a very brittle system.”

He says current returns on equity incentivize the state’s monopoly utilities to overinvest, raising rates for customers and the expense of the energy transition.

“So I'm saying, the first step is, get the incentives right and see how they behave,” Ellis said.

The Little Hoover Commission, the state’s independent watchdog agency, cited Ellis’ work in a recent report on lowering electricity rates, as well as two UC Berkeley studies showing how “utility regulators often approve profit levels that exceed what is truly needed to attract investment.”

In the report, the commission recommends shifting the initial proposal of the rate of return on equity to the state Treasurer’s Office, instead of the utilities themselves. The report also calls for an audit of California Public Utilities Commission staffing to assess whether the agency has enough capacity to provide rigorous oversight of these proceedings.

“We want to make sure that the rate of return isn't so high that this is just a cash grab from everyday customers and rate payers to big corporate interests,” said Katherine Ramsay, a senior attorney with the Sierra Club. “You want to make sure the number is no more and no less than what is necessary for the utilities to remain financially healthy.”

What the utilities say

The utilities had asked to increase or maintain their current rates of return. They’ve called on the commissioners to reject the proposed reduction.

They argue that their return on equity has to be competitive with nationwide utilities or else investors will go elsewhere, which could slow long-term investments in public infrastructure to improve wildfire safety and boost clean energy and hurt the companies’ credit.

And, especially since the 2025 L.A. wildfires and other catastrophic fires in the last decade, they say California electric utilities are seen as riskier, increasing costs of equity.

“We are disappointed that the proposed decision does not fully reflect current market conditions or the unique risks California utilities face,” a spokesperson for SDG&E wrote to LAist.

David Eisenhauer, a spokesperson for Southern California Edison told LAist that “when investors view the rate established by the CPUC as not commensurate with the risk, that impacts investor willingness to invest in California, which then drives up the cost of capital and increases customer costs over time.”

In their latest comments to the commission, Edison said the company has already not been meeting the return approved by the CPUC “since at least 2017, with 2024 actual earnings at 6.38% as compared to 10.75% authorized, in part due to financing of wildfire claims and SCE’s contributions to the Wildfire Fund.”

“The commission’s objective is not to maximize customer savings by setting the authorized [return on equity] as low as possible,” they write, but rather to set a rate “commensurate with market returns on investments” so that company can attract investors to finance infrastructure and “fulfill its public utility service obligation.”

How to share your comments ahead of the vote

The CPUC is expected to vote Thursday. You can submit a comment by calling into the meeting, or submitting one online ahead of time. To submit online, you’ll have to enter the proceeding’s docket number, which is A2503010, then click the tab that says “Add public comment.”