MONDAY AGGREGATE: Cost of Capital; Affordability; Senate Bill 1221

Welcome to a jam-packed week of November regulatory activity. Today's slate has the CPUC navigating competing pressures through controlled incrementalism:

• Maintaining financial stability for utilities while tightening evidentiary standards for cost recovery;
• Expanding program flexibility without loosening oversight; and
• Advancing legislative mandates through provisional first steps rather than comprehensive overhauls.

The seven proposed decisions below span utility finance, wildfire costs, gas transition, and renewable procurement but share a common regulatory philosophy: the burden of proof sits with utilities, continuity trumps recalibration, and ratepayer protection means scrutinizing billions in requested recovery while preserving credit quality.

Also, please see our preview of the November 20 CPUC voting meeting here, which we will provide same-day analysis and results for on Thursday.

COST of CAPITAL

Administrative Law Judge Lakey issued a proposed decision establishing the 2026 cost of capital for PG&E, SoCalGas, SCE, and SDG&E by setting each company’s authorized capital structure, long-term debt costs, preferred equity costs, return on equity, and overall rate of return.

• The PD opts for continuity, rejecting nearly all utility and intervenor proposals to shift capital structures and instead maintains the existing equity ratios for each utility. For all four companies, the PD assigns a 52% common-equity layer, modest preferred-equity shares, and the remainder as long-term debt. The PD then authorizes utility-specific embedded debt costs, adopts uncontested preferred-equity costs, and sets ROEs ranging from 9.73% to 9.98% across the utilities.
• The PD navigates extensive debates over whether California’s wildfire exposure, clean-energy mandates, regulatory lag, and macroeconomic conditions warrant higher ROEs or increased equity layers. The utilities argued that rising capital needs, wildfire liability exposure, and cash-flow pressures justify upward adjustments. Intervenors countered that risks are not unique relative to national peers, that California utilities benefit from substantial statutory protections (including Assembly Bill 1054), and that high equity layers impose unnecessary costs on ratepayers.
• After reviewing varying financial model results (Discounted Cash Flow, Capital Asset Pricing Model, and Risk Premium), the PD gives the greatest weight to Discounted Cash Flow-based ranges and rejects the utilities’ use of Empirical Capital Asset Pricing Model (ECAPM) and After-Tax Weighted Average Cost of Capital (ATWACC) adders.