California Regulators Approve Excessive Utility Profits as One in Five Customers Can’t Pay Their Bills

Power lines [image from Can Stock Photo]

The California Public Utilities Commission (CPUC) voted (4-1) [last week] to approve profit margins for the state’s utilities that consumer, environmental, and community intervenors agree are unjustifiably high. The approved profit margins range from 9.78% to 10.03% across PG&E, SoCalGas, SCE, and SDG&E. Every non-utility stakeholder to the Commission’s proceeding recommended lower profit margins for the utilities. Commissioner Houck dissented, stating that the proposed decision did not sufficiently consider customer impact.

Though the decision includes a modest decrease from the roughly 10% profit margins utilities currently earn, it falls far short of addressing the electricity affordability crisis. The CPUC had proposed slightly deeper cuts in its November proposed decision but backtracked under utility pressure.

Average electricity rates at PG&E, Southern California Edison, and San Diego Gas & Electric have surged 48% to 67% between 2019 and 2023. One in five customers of California’s for-profit utilities are behind on their utility bills.

In response, consumer, environmental, and community groups issued the following statements: 

“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. 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. The legislature needs to take more action to address the affordability crisis, because the CPUC has failed to do so,” said Mark Toney, executive director of The Utility Reform Network (TURN).

“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,” said Malinda Dickenson, Legal & Executive Director at The Protect Our Communities Foundation.

“We need an energy system that puts affordability and reliability first and reflects real analysis and empathy. Wildfire risk demands transparency, accountability, and rigorous analysis so it drives real risk reduction, not uncertainty that pushes costs onto families. We’re disappointed this decision fails to meet the scale of California’s affordability crisis. We urge the Commission and state leaders to show the courage needed to support families struggling to keep the lights on,” said Jose Torres, Executive Director of the Affordable Energy Campaign.

“The perverse structure of the utility funding system effectively rewards the utilities for being inefficient. The fact that rates are so much lower in public and municipal utilities is abundant evidence of this. As long as the legislature and administration fail to address this built-in bias the CPUC will continue to bow to utility pressure and electricity will become less affordable,” said Jose Torre-Bueno, Executive Director of the Center for Community Energy.

“Right now in California two records are being set: the utilities are announcing all-time record profits, and more ratepayers are unable to pay their bills than at any other time in state history. These two truths are connected and represent a gross failure of the state regulatory body, which has a legal obligation to set rates at the lowest possible level. Parties to the proceeding clearly demonstrated that the cost of capital could be set as low as 6% without damaging the utilities’ credit rating or access to capital, but the commission chose to ignore the evidence in order to protect the interests of wealthy shareholders. [Last week]’s failure to act by the commission offers more evidence that the status quo is broken and larger transformative change is needed,” said Travis Gibrael, Research and Education Organizer, Reclaim Our Power.

“For too long, utility companies have been extracting unreasonable profits from Californians just trying to heat or cool their homes or keep the lights on. While the commission wisely turned down the utilities’ audacious proposals for unjustifiably high returns, the approved rates will still ensure excessive profits for utility shareholders.  As long as CPUC allows such lofty rates of return, it incentivizes power companies to overspend, increasing energy bills for everyone. That’s not how a regulated market should work and it needs to change. Californians deserve fair, reasonable energy bills, and should not be on the hook for excessive profits or utility spending that is not in the public interest,” said Jenn Engstrom, State Director of CALPIRG Education Fund.

“The California Public Utilities Commission has once again proven itself obtuse in its unwillingness to grapple with the sheer magnitude of the costs investor-owned utilities are imposing on residents and businesses in this state. The rate of return decision is premised on the fact that these for-profit monopolies are especially risky and need an inflated rate of return to keep themselves financially sound. Investor-owned utilities will never be satisfied with any rate of return. When asked this week by a San Diego City Councilmember if, in light of their extremely high profits, SDG&E could simply not fight the very modest proposed reduction at CPUC, their executives became evasive. [Last week]’s action gives no meaningful relief to the one in five San Diegans in debt to SDG&E,” said Parke Troutman, Utilities Campaign Manager, SanDiego350.

“The investor-owned utilities are asking for a profit margin that they simply do not deserve. Even a modest reduction of 0.35% was met with the arrogant greed that we have come to expect from the monopoly utilities. After all, these are the same corporations responsible for pushing over 20% of Californians into debt over their energy bills, undermining CCEs all over the state, and greenwashing themselves during CPUC workshops. All while they report record profits and lobby against legislation that would ease the affordability crisis for working people.The Commission should be prioritizing tackling the cost of living crisis by holding investor-owned utilities accountable instead of rubberstamping their demands,” said Tomas Castro, OC Climate Equity Advocate and Organizer, Climate Action Campaign.

“We are extremely disappointed that the CPUC continues to ignore and exacerbate the affordability crisis in California that they had a hand in creating. The CPUC continues to allow utilities to have record profits while Californians are struggling to pay their bills. The CPUC ignored recommendations of expert witnesses to reduce the rate of return and instead continued to accept deeply flawed utility proposals. California deserves a CPUC that does its job and cares for Californians instead of being a rubber stamp for undeserved utility profits,” said John Smigelski, Project Director, California Alliance for Community Energy.