California Regulators Adjust Utility Profit Margins Amid Rising Bills

On December 14, 2025, the California Public Utilities Commission (CPUC) approved a minor reduction in the profit margins for the state's major investor-owned utilities—Pacific Gas and Electric (PG&E), Southern California Edison, and San Diego Gas & Electric (SDG&E). The decision lowered the allowed return on equity (ROE) by 0.3%, setting PG&E's potential return at 9.98%, Edison at 10.03%, and SDG&E at 9.93%. This marks the first time in two decades that PG&E's return has dipped below double digits.

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The reduction comes as California grapples with soaring electricity bills, which are the second-highest in the nation after Hawaii. Utilities had requested returns exceeding 10%, arguing that higher profit margins are necessary to attract investment for infrastructure projects. These projects are crucial for maintaining and upgrading the state's energy grid, which has faced challenges, including catastrophic wildfires. However, critics argue that the utilities' claims of risk are overstated, given the predictable nature of their income, which is largely guaranteed by ratepayers.

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Darcie Houck, the sole dissenting vote on the CPUC, expressed concern that the decision did not adequately consider the impact on ratepayers. She noted that the utilities' rate bases are expected to increase by approximately 10% annually, potentially leading to higher bills despite the profit reduction. The California Public Advocates Office, which represents ratepayers, countered utility claims that the profit cut would exacerbate costs, stating that the utilities' methods for justifying higher returns were flawed.

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Utilities have voiced disappointment over the CPUC's decision. PG&E spokesperson Mike Gazda emphasized that the ruling fails to recognize the elevated risks associated with California's energy landscape. Similarly, Edison representative David Eisenhauer stated that the reduction does not reflect the unique challenges faced by investor-owned utilities in the state. Both companies indicated their intention to continue working with regulators to secure necessary funding for energy system improvements.

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Despite the slight reduction in profit margins, the approved returns remain above the national average of approximately 9.72%. The utilities' rate bases, which represent the total value of their assets, continue to rise, allowing them to earn substantial profits even if they do not achieve their full authorized returns. For instance, in 2023, Edison had a rate base of $29.7 billion, which allowed for a potential profit of $198 million, despite falling short of this target.

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As California faces an ongoing affordability crisis regarding electricity bills, the CPUC's decision reflects a balancing act between ensuring utility profitability and protecting consumer interests. Houck has suggested that the commission revisit these profit margins annually rather than every three years to better address the evolving financial landscape for both utilities and ratepayers. The implications of this decision will continue to unfold as California navigates its energy challenges in the coming years.

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• “I do not think the decision threads the needle sufficiently to consider the full impact to the customer interest.” — Darcie Houck, CPUC Commissioner

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• “We think the reduction from current ROEs doesn’t reflect the unique risk environment facing California IOUs and their investors,” — David Eisenhauer, Edison Spokesperson

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• “We will keep working with regulators and state leaders to ensure adequate funding needs and reasonable long-term rates for customers, so we can continue stabilizing our energy prices and funding critical energy system improvements for customers.” — Mike Gazda, PG&E Spokesperson

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• “The evidentiary record shows the [utilities’] claims for increasing their respective [returns] are based on flawed methods and would inevitably result in unreasonably high customer rates,” — California Public Advocates Office

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