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Do PG&E, Edison need higher profits? It's time for California to decide

Sammy Roth, Los Angeles Times on

Published in News & Features

LOS ANGELES -- California's monopoly electric utilities asked state officials to sign off on higher profits earlier this year, saying larger shareholder returns were needed to attract investors who might be scared off by the wildfire liabilities that prompted Pacific Gas & Electric to file for bankruptcy.

Now regulators are poised to reject those pleas.

In a proposal issued last week, staff at the California Public Utilities Commission called for keeping profit margins the same for PG&E, Southern California Edison and San Diego Gas & Electric. Commission staff noted that lawmakers "substantially mitigated wildfire liability exposure" when they passed Assembly Bill 1054, which could give utility companies access to billions of dollars to help pay for damage from fires ignited by their equipment.

"There are no remaining significant unmitigated risks that warrant investor compensation" through a higher return on equity, commission staff wrote.

The proposed decision also calls for profit margins to remain the same at Southern California Gas, which like SDG&E is a subsidiary of San Diego-based Sempra Energy. The five-member Public Utilities Commission could vote on the staff proposal as soon as Dec. 19.

The commission is supposed to allow shareholder returns no higher than is necessary to attract investment so that utilities have enough money to pay for infrastructure projects, safety upgrades and the growing amounts of climate-friendly energy required by state law.

 

Ratepayer advocates say California's investor-owned utilities would do fine making less money.

The Edison Electric Institute, an industry trade group, recently reported that in 2018, utility regulators nationwide approved average returns on equity of 9.51%, "the lowest annual average in our 30 years of data." The industry group attributed the decline in approved profit levels to a "long-term decline in interest rates since the early 1980s."

In California, profit margins would stay level at 10.3% for Southern California Edison, 10.25% for PG&E, 10.2% for SDG&E and 10.05% for SoCalGas under the proposal from state regulators.

That means for every dollar the utilities spend building electric or gas infrastructure, they'd be allowed to charge customers an additional 10 cents or so in profits for their shareholders.

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