Missed Opportunity: California Regulators Slightly Reduce Utility Profits Instead of Prioritizing Ratepayers

Sacramento, Calif. - Today, the California Public Utilities Commission (CPUC) voted 4:1 to approve new levels for how much profit the state's largest monopoly corporate utilities can extract from their ratepayers.

While California households struggle to pay bills, the CPUC's decision on this year's Cost of Capitalproceeding gives utilities a return on equity between 9.78% and 10.03% - a tiny reduction of just .30% from already too high 2025 levels. This cut is not nearly enough of a decrease to help ratepayers during California's affordability crisis. Evidence presented by Sierra Club and The Protect Our Communities Foundationproves that returns on equity of ~6% would balance consumer and utility needs, saving California customers $6.1 billion each year, or $440 per household compared to the utilities' proposals.

"We presented clear evidence showing that utilities are inflating their cost-of-capital estimates and that authorized returns should be significantly lower to reflect actual market conditions. The Commission ignored that record, split the difference, and moved on. While this reduction is better than nothing, in the middle of an affordability crisis, Californians deserve more than a performative gesture-they deserve leadership. The Commission failed to provide it today," said Julia Dowell, Senior Organizer at Sierra Club.

"Once again, the CPUC has approved a rate of return that allows California's investor-owned utilities to earn profits far in excess of what they are allowed to make under California law. The predictable result is that Californians pay some of the highest electricity rates in the nation while California utilities make record profits. This decision shifts billions of dollars each year from everyday ratepayers to utility shareholders and executives," said Malinda Dickenson, Legal & Executive Director at The Protect Our Communities Foundation.

One of the biggest issues with the Commission's decision today is that it did not reflect the significant body of the evidence shared by various intervenors and did not explain its rationale for only modestly reducing the utility returns. Sierra Club, The Protect Our Communities Foundation, and multiple other stakeholders presented detailed testimony showing how utilities inflate their cost of capital, and the Commission declined to engage or explain how it determines the final rates of return.

The Commission missed an important opportunity to protect ratepayers from corporate greed today by caving to utility pressure and even backtracking on the already-modest profit cuts they proposed in November. After months of testimony and individualized utility recommendations, the blanket 0.30% cut across all utilities approved today marks a backpedaling from their originally proposed 0.35% reduction. This one-size-fits-all approach doesn't make sense.

We agree with Commissioner Houck, who voted no, that the final decision did not strike the right balance between shareholder interests and ratepayer interests. We appreciate Commissioner Houck's analysis of the decision and statement that consumer interests need to be considered when determining the ROE for utilities. The Commission must do better to rigorously oversee the utilities as they are legally required to do and as ratepayers deserve.

About the Sierra Club

The Sierra Club is America's largest and most influential grassroots environmental organization, with millions of members and supporters. In addition to protecting every person's right to get outdoors and access the healing power of nature, the Sierra Club works to promote clean energy, safeguard the health of our communities, protect wildlife, and preserve our remaining wild places through grassroots activism, public education, lobbying, and legal action. For more information, visit https://www.sierraclub.org.