How PG&E Makes Money

We don't make higher profits by selling extra energy. The amount of profit our regulators allow us to earn is largely separated from the amount of gas and electricity we sell. This process is called Decoupling.

Our profits come primarily from "rates of return" that are authorized by our regulators on the investments we make in PG&E's energy infrastructure and from incentives earned by achieving energy efficiency targets. If energy usage and revenues turn out to be higher than needed to recover authorized costs plus the allowed return on investments, nearly all of that "extra" revenue will be used to reduce rates in the following year.

Since PG&E's profits do not generally depend on how much energy we sell, we have no reason to encourage customers to use more. In fact, the California Public Utilities Commission rewards us with financial incentives for implementing programs that succeed in encouraging our customers to use less energy.

Learn more about decoupling, and how energy efficiency and conservation benefit PG&E and our customers.

Revenues and Customers

The revenue that PG&E is allowed to collect from its electric and natural gas customers can be divided into three general categories:

  • Fixed revenues recovering operating costs that do not change with the amount of energy sold such as investment in infrastructure and the rate of return on investments made by PG&E shareholders.
  • Variable revenues recovering the costs of procuring gas and electricity for customers.
  • Other revenues that include the costs of complying with regulatory mandates.

To learn more about revenues, please visit the website of PG&E’s parent company, PG&E Corp., to find financial filings that detail the utility’s quarterly and annual revenue collections.

The following chart shows what components make up PG&E's electric and natural gas revenues as of the first quarter 2011.

Current electric and gas revenues

Revenues and Profits

PG&E does not make higher profits by selling more energy, which makes PG&E and other investor-owned utilities in California distinctly different than most companies that make profits by selling more product. As a regulated company, PG&E’s profits are determined by the California Public Utilities Commission (CPUC). The profit the CPUC allows PG&E to earn is separated from the amount of natural gas and electricity it sells and the cost of operations, a design called “decoupling” that is mandated by state law.

PG&E’s profits come from rates of return that are authorized by the CPUC on the investments made in the utility’s energy infrastructure such as natural gas pipelines, power plants, and electric transmission wires that are key to safe and reliable service. Rates of return also come from incentives earned by achieving energy efficiency targets set by the CPUC.

Shareholders invest in PG&E because the utility is allowed a rate of return that in turn allows for dividend distributions and supports the value of its shares. Ensuring shareholder interest in PG&E is a critical to ensure there is enough capital investment to spend on operations that provide safe and reliable service at reasonable rates. Shareholders invest with an expectation of a return, similar to when a bank loans money with the expectation that the principal will be paid back with interest over time. Without this return, shareholders would not invest in PG&E.

 

Related Terms

  • Decoupling:
    A process wherein the amount of profit the California Public Utilities Commission allows PG&E to make is separated from the amount of gas and electricity sold.

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