The California Public Utilities Commission (CPUC) has set the 2026-2028 cost of capital for the state’s four largest investor-owned energy utilities. This decision establishes the financial guidelines that determine how these utilities can secure funding 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 fund projects such as infrastructure improvements and wildfire safety measures. The CPUC’s cost of capital framework helps ensure that utilities can access capital at reasonable rates while maintaining healthy credit ratings.
For Pacific Gas and Electric Company, Southern California Gas Company, and San Diego Gas & Electric, the CPUC authorized returns on equity (ROEs) just under 10 percent. Southern California Edison received an ROE slightly above 10 percent. These figures are lower than current levels and reflect national trends. According to the CPUC, “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 commission also decided to keep its existing Cost of Capital Mechanism in place, which allows for automatic adjustments if there are significant changes in bond markets between formal cost of capital proceedings.
Adjustments to ROE—and by extension the overall rate of return—can affect customer bills over time because these rates are applied to the value of approved utility infrastructure investments. A reduction in ROE means utilities may earn less profit from their investments, which could help moderate future rate increases for customers. However, setting ROEs too low could prompt investors to expect higher interest rates from utilities, potentially raising borrowing costs that would be reflected in utility rates for years.
The CPUC regulates services and utilities across California with a focus on consumer protection, environmental safeguards, and ensuring access to reliable utility infrastructure.
