PG&E's Cost of Capital Application and What it Means for Customers

Today, PG&E, SCE, SoCal Gas and SDG&E submitted their 2026 Cost of Capital applications. 

The utilities are required to submit Cost of Capital applications every three years. 

These applications set the utilities’ financial return expected by people who provide money to utilities for upfront funding (capital) for essential energy system improvements, such as wildfire mitigation, and gas and electric safety and reliability projects.  

Investors expect to be compensated for the risk they take when providing that funding.

Current risks include:

• Inflation and supply chain disruption that can impact prices and interest rates 

• Recent federal government actions that could impact costs

• Impacts from climate change such as extreme weather events 

• California’s policy of inverse condemnation that makes utilities strictly liable for damages caused by their equipment

PG&E seeks to adequately compensate investors for these risks, consistent with other companies with similar risk levels across the country. 

The application includes testimony from a third-party expert showing that based on PG&E’s risks, its proposed 11.3% return on equity investment is reasonable.  By setting the return at this level, the company is not guaranteed to recover it.  This application just provides the opportunity to do so. 

PG&E pays the lowest dividend in the utility industry, and as a result PG&E reinvests 97% of what it earns back into the company. This includes programs that make the system safer for customers.

If approved, PG&E’s proposal would increase residential customer bills by approximately $5.50 per month reflecting a higher interest rate environment. The change would not take effect until Jan. 1, 2026, at the earliest. PG&E expects average annual bill increases still will be limited to 2%-4%, through 2026, without sacrificing safety.

The CPUC will determine the reasonable Cost of Capital in an open, transparent and public process.