The California Public Utilities Commission on Thursday trimmed the rates of profit that investor-owned utilities such as San Diego Gas & Electric will make on their energy infrastructure projects — although consumer and environmental groups said the CPUC’s reductions should have cut deeper.

In SDG&E’s case, what’s called the utility’s “return on equity” will drop from 10.23% to 9.93%. The lower percentage will reduce the average residential bill by just under 50 cents per month, according to estimates from SDG&E officials.

Every three years, the commission conducts what’s called a cost of capital proceeding that includes setting a return on equity, or ROE, that tries to find a balance so that utilities can attract investors to finance the replacement and expansion of their facilities while also fulfilling the power companies’ obligations to provide service to their customers.

The CPUC takes into account financial models and estimates of market returns on investments by other companies with similar levels of risk.

Return on equity is important because California utilities earn their money from infrastructure projects they undertake — such as maintaining poles and wires, reducing the risk of wildfires in their respective service territories and carrying out initiatives to help meet California’s climate goals, like building EV charging stations and battery storage facilities.

“We’ve heard from both sides,” said CPUC Commissioner Karen Douglas. “We’ve certainly heard from the utilities saying that they think (the ROE) needs to be higher and we’ve heard from a large number of speakers today wanting it to be lower … and I think (the decision) is coming out in the right place.”

But at 4-1, the vote was not unanimous.

“I don’t disagree with the circumstances described by my colleagues and share their concerns regarding the need for the investor-owned utilities to maintain investment grade ratings and to access capital at the lowest possible cost,” said Commissioner Darcie Houck. “That said, in my opinion, the decision does not quite strike the right balance on the customer side of the pendulum.”

The decision comes amid growing complaints from Californians about high utility rates.

Earlier this year, the Public Advocates Office posted a chart showing that rates have increased substantially since 2014, surpassing inflation by 121% for customers of Pacific Gas & Electric, 88% for SDG&E and 80% for Southern California Edison.

“I want to be clear that reducing the ROEs is a good step,” Katie Ramsey, senior attorney for the Sierra Club, told the Union-Tribune after Thursday’s vote. “It just doesn’t quite meet the moment. Affordability is a crisis in California right now.”

The Sierra Club and The Protect Our Communities Foundation, a San Diego-based environmental group, filed jointly as one party in the proceeding. They wanted the commission to adopt a much lower rate of return — 6.15% for SDG&E.

At the other end, SDG&E had asked for 11.25% for 2026, an increase of almost 1%. The utility argued that if the return is set too low, investors will opt for companies with similar returns in less risky areas. SDG&E added that a lower return increases the chance that its credit rating could fall, which would lead to higher costs for customers in the long run.

“At SDG&E, we remain focused on delivering safe, reliable energy at the lowest possible cost for our customers,” SDG&E spokesperson Anthony Wagner said in an email after the vote. “Energy affordability stays front and center as we reduce wildfire risk, strengthen grid reliability, modernize aging infrastructure and advance California’s clean energy transition.”

Thursday’s decision reduces the return on equity for all investor-owned utilities in California by 30 basis points, or 0.30%.

The original proposed decision called for an across-the-board reduction of 35 basis points. But a late revision was posted Tuesday, after the utilities and other parties submitted comments to the CPUC.

The revised document said “a slight increase in authorized ROE is appropriate” to account for market conditions and risk profiles of each utility so that they can have “capacity to attract capital on reasonable terms” and maintain “investment-grade creditworthiness.”

The Utility Reform Network, a consumer advocacy group based in Oakland that frequently weighs in on CPUC proceedings, wasn’t buying it.

“Revising the cost of capital decision in favor of utility shareholders is more than just buckling under pressure from PG&E and other major utilities,” TURN executive director Mark Toney said.  “It is part of a disturbing pattern of commissioners disregarding proposals to address the affordability crisis issued by their own judges and staff, based upon evidence presented by all parties in ratemaking cases. This is a clear sign that the Legislature needs to take more action to address the affordability crisis, because the CPUC has failed to do so.”

Under the new rate structures approved Thursday, the ROE for each investor-owned utility in the test year 2026 will be:

9.98% for Pacific Gas & Electric 
9.78% for Southern California Gas
10.03% for Southern California Edison, and 
9.93% for San Diego Gas & Electric.