California’s investor-owned utilities are urging state regulators to authorize bigger profits for shareholders. On Tuesday, Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric are expected to tell the California Public Utilities Commission (CPUC) that investors — spooked by the utilities’ liabilities from sparking recent wildfires — demand more incentive to hold stock in the companies.
Ratepayers would get hit with higher bills if the CPUC greenlights the boosted profit payouts, known in finance as the “return on equity.”
After asking for significantly higher payouts in April, in recent weeks the utilities have scaled back their profit proposals. Those revisions come in the wake of Assembly Bill 1054, which lawmakers passed on an urgent basis this summer. The law establishes a wildfire fund paid for by both ratepayers and shareholders.
PG&E, California’s largest investor-owned utility, had initially asked the CPUC to let it hike its return on equity from the current 10.25% to 16%. But with AB 1054, PG&E argues that investors are likely to accept a smaller bump in profits.
“Because of the leadership of the Governor and the Legislature in creating a statewide fund to cover the costs of future wildfires in California, PG&E is able to reduce its proposed return on equity from 16% to 12%,” a PG&E spokeswoman told KQED in a statement.
She said the change would support investments in its infrastructure and service reliability. PG&E has been in bankruptcy protection since January, shortly after its equipment sparked the 2018 Camp Fire, the deadliest and most destructive fire in state history.
Critics argue that the CPUC shouldn’t agree to the utilities’ proposals because of how AB 1054 weakens the standard for holding the companies accountable when their equipment causes fires.
“AB 1054 gives away the whole store to the utilities financially,” said Loretta Lynch, former president of the CPUC. “They’re playing a shell game with financial concepts, using the guise of wildfire risks to pump up their profits.”
In testimony submitted on its behalf ahead of Tuesday’s CPUC hearing (see below), PG&E acknowledges that AB 1054 “improv[es] the credit quality and risk perception of PG&E in connection with wildfires.”
But PG&E also maintains that uncertainty for investors remains, including the possibility that the wildfire fund could run out of money.
PG&E’s request for a higher return on equity is part of the CPUC’s “cost of capital” proceeding, which comes as the utility is embroiled in another fight to hike rates in its General Rate Case, or GRC. California utilities are required to submit a GRC every three years to justify the rates they plan to charge consumers.
