By Malena Carollo, CalMatters
This story was originally published by CalMatters. Sign up for their newsletters.
With California electric rates stuck at nearly the highest in the nation, the state’s utility regulator is poised to lower the payout shareholders can receive from California’s three large investor-owned power companies.
In a proposed decision, the California Public Utilities Commission recommended dropping the “return on equity” by 0.35% each for Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric. If approved, shareholders of all three companies would see a potential return next year of just under 10%. Such returns for PG&E and Edison haven’t dipped below double digits in at least 20 years.
Utilities said the decline would affect their ability to bring in needed investment for their work. Critics of the decision said that the decline is too small to meaningfully impact ratepayers’ bills, even if it’s a step in the right direction.
“California and other [public utility commissions] authorize rates of return that are far in excess of the statutory requirement,” said Mark Ellis, former chief economist at Sempra, which owns San Diego Gas & Electric.
The California Public Utility Commission is expected to vote on the decision in December.
Californians pay the second-highest electric rates in the U.S. after Hawaii, according to the most recent figures from the U.S. Energy Information Administration. A number of factors go into those rates, including wildfire mitigation costs. PG&E in particular has attracted the ire of California customers for its frequent rate hikes within the last year.
Baked into those bills is the return on equity, money meant to compensate shareholders for the risk of doing business. These shareholder return rates are set by each state’s utility regulators and hover nationally around 10%. If approved, PG&E’s rate would be 9.93% (down from 10.28%), Edison would be 9.98% (down from 10.33%), and San Diego Gas & Electric would be 9.88% (down from 10.23%). These rates are not automatically guaranteed – utilities can fall short of this return if they don’t keep down costs, such as project overruns or unexpected lawsuit fees.
A small change in this rate can be a difference of millions of dollars for ratepayers. The return is a percentage of the rate base, the total value of a utility’s assets it can earn a return on; this includes projects such as building a new power plant, for example. The rate bases for California’s three large investor-owned utilities have steadily grown each year as they add new customers and projects, increasing the amount that shareholders can receive.
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