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.

Ultimately, the PD concludes that current capital structures and ROEs remain adequate to support credit quality while protecting ratepayers, and finds no compelling evidence to raise equity ratios or increase returns. The PD also denies PG&E’s proposed yield-spread adjustment and its Department of Energy-loan revenue credit, and rejects SCE’s request for additional carrying-cost treatment.

Comments are due December 4. The earliest the CPUC will consider this item is December 18.

Instant Analysis: This PD shows a preference for stability over recalibration. By maintaining existing equity ratios and rejecting attempts to lift ROEs through ECAPM, ATWACC, or wildfire-risk arguments, the PD places the burden of proof on utilities to justify upward adjustments (and finds the evidence lacking). The result locks-in current capital structures and mid-9% ROEs for another cycle.

AFFORDABILITY

Commissioner Darcie Houck issued a proposed decision updating the CPUC’s multi-year Affordability Framework. After years of testing how affordability metrics function in real proceedings, the PD now narrows their required use, strengthens contextual reporting, and shifts toward a more streamlined, web-based system for ongoing updates.

The PD limits mandatory affordability-metric filings to General Rate Cases, finding GRCs to be the most appropriate venue for evaluating systemwide affordability impacts. When utilities file these metrics, they must now provide clearer context (showing how both rates and revenues have grown relative to statewide inflation and separating operational spending from capital spending to illuminate long-term bill implications).

The PD eliminates the option to file abbreviated Quarterly Revenue Reports in lieu of full Cost and Rate Trackers, and resolves pending confidentiality motions (granting SDG&E’s request and denying SCE’s). Comments are due December 3. The CPUC is scheduled to consider this item on December 18.

Instant Analysis: This PD suggests that, going forward, affordability will be framed through contextual metrics rather than prescriptive cost ceilings. Ultimately the PD aims to make affordability analysis more meaningful in the proceedings where the largest cost drivers sit.

LONG-TERM GAS PLANNING

A new proposed decision in the CPUC's Long-Term Gas Planning docket fulfills Senate Bill 1221’s mandate for the Commission to designate initial priority neighborhood decarbonization zones (i.e., geographic areas where gas utilities may pilot cost-effective electrification projects tied to upcoming gas line replacement work).

After reviewing utility recommendations, stakeholder comments, and public participation, the PD adopts a methodology that focuses on census tracts showing:

• Demonstrated local government or community support;
• A concentration of foreseeable gas distribution line replacement projects; and
• The presence of environmental/social-justice communities.

Using this framework, the PD identifies 142 initial census-tract-level zones across multiple counties, and requires PG&E, SoCalGas, and SDG&E to update their SB 1221 maps within 15 days to include these designations. (A map of initial SB 1221 neighborhood decarbonization zones is appended to the PD.)

The PD also directs all gas utilities to conduct structured outreach, provide fact sheets, solicit feedback, and host at least one public information session in each service area by March 15, 2026, after which the Commission will refine or expand the zones based on improved data and community engagement. Comments on the PD are due December 3. The CPUC is scheduled to consider this item on December 18.

Instant Analysis: This PD marks the CPUC’s first concrete step toward implementing SB 1221’s neighborhood-level gas-to-electric transition pilot. The PD takes a middle-path approach. It rejects the utilities’ push for extremely broad designations but also avoids the narrow targeting urged by Cal Advocates and TURN. Instead, the PD creates a moderately filtered, tract-level map of 142 zones anchored in two practical criteria: (i) communities that want pilot projects, and (ii) areas already facing significant gas main replacement needs, which is the core cost-avoidance opportunity behind SB 1221.

SCE and the 2018 WOOLSEY FIRE

Administrative Law Judge DeAngelis issued a proposed decision approving a major settlement that resolves SCE’s request to recover costs tied to the 2018 Woolsey Fire. SCE had sought recovery of roughly $5.6 billion recorded in its Wildfire Expense Memorandum Account (WEMA) and about $84 million in restoration-related capital and O&M costs recorded in its Catastrophic Event Memorandum Account (CEMA).

After extensive testimony, discovery, and negotiations among SCE, Cal Advocates, the Energy Producers and Users Coalition (EPUC), and the Small Business Utility Advocates, the settlement dramatically reduces the allowable cost recovery. Under the proposal, SCE may collect only 35% of its WEMA balance (about $1.9 billion) and 85% of its CEMA costs (about $71 million), with the remaining and approximate $3.7 billion in wildfire-related claims and legal expenses permanently disallowed. SCE will pursue securitization for the approved WEMA recovery under Public Utilities Code directives, while CEMA recovery will proceed through traditional ratemaking.

The settlement also addresses trailing claims costs, applies a $250 million Administrative Consent Order waiver, and includes SCE’s agreement not to seek recovery of $157 million associated with other pre-2019 wildfires. Wild Tree Foundation opposes the settlement, but the PD rejects its arguments, concluding that Wild Tree applies the wrong standard of review and raises issues already rejected in a related 2025 SCE wildfire recovery decision.

The PD finds the settlement reasonable, lawful, in the public interest, and a prudent compromise. Comments are due December 3. The CPUC is scheduled to consider this item on December 18.

Instant Analysis: This is a major wildfire-cost settlement with unusually deep cuts: the Commission is poised to permanently disallow roughly $3.7 billion (about 65% of SCE’s Woolsey Fire WEMA request) while allowing limited recovery through securitization. For ratepayers, this represents one of the largest wildfire-cost disallowances the CPUC has ever adopted. For SCE, the outcome avoids the risk of full litigation, where Cal Advocates and EPUC were aggressively challenging prudence and utility practices, but still preserves a financing path for a portion of claims costs. The settlement also fully resolves remaining pre-2019 wildfire liabilities through SCE’s additional $157 million recovery waiver.

SDG&E's WILDFIRE MITIGATION PLAN (WMP)

ALJ Larsen issued a proposed decision resolving SDG&E’s request to recover wildfire-mitigation costs recorded in its Wildfire Mitigation Plan Memorandum Accounts (WMPMAs) from May 2019 through 2022.

SDG&E sought recovery of $284 million in O&M and $1.188 billion in capital, reflecting extensive grid-hardening, vegetation management, inspections, situational-awareness tools, and other wildfire-risk-reduction measures pursuant to post-2019 wildfire-mitigation legislation.

• The PD finds some costs reasonable and aligned with mandated wildfire-risk reduction but disallows $192.6 million in O&M and $242.4 million in capital, citing insufficient support, cost-effectiveness concerns, and other deficiencies. The PD ultimately approves $90.6 million in O&M and $945.2 million in capital as just and reasonable.
• The PD also addresses recovery of the undercollected revenue requirement associated with depreciation, taxes, and return on rate base for WMP-related assets through 2027. After subtracting the $289.9 million in interim relief already collected (subject to refund), the PD authorizes $430.9 million in additional revenue requirement, amortized over three years to mitigate bill impacts on residential customers.
• The PD rejects TURN’s request to force SDG&E to refile the application but requires SDG&E to include cost-benefit ratios in future wildfire-cost-recovery filings.

Comments are due December 4. The earliest the CPUC will consider this item is December 18.

Instant Analysis: This PD continues the Commission’s increasingly strict posture on wildfire-mitigation cost recovery: it approves the core of SDG&E’s hardening and risk-reduction portfolio while issuing large disallowances where it says SDG&E failed to substantiate cost-effectiveness, decision-making rigor, or alignment with authorized General Rate Case baselines. The PD explicitly rejects TURN’s attempt to force a refiling but signals that future wildfire-cost applications will face higher evidentiary expectations, including mandatory cost-benefit ratios. The approved amounts indicate that core mitigation work (covered conductor, undergrounding, inspections, Public Safety Power Shutoff-reduction measures) remains recoverable when documented, while the nearly $435 million in combined disallowances and offsets show a willingness to cut deeply when support is considered thin.

PG&E Transmission Costs

A new proposed decision authorizes PG&E to recover $338.2 million in recorded costs from its Transmission Revenue Requirement Reclassification Memorandum Account (TRRRMA), reflecting the shift of certain Common, General, and Intangible plant costs, and two facilities transferred from the CAISO to non-CAISO control.

After reviewing extensive ledger data, sample invoices, and allocation records, the PD finds that PG&E has sufficiently demonstrated the costs were actually incurred, properly recorded, and accurately calculated under the Transmission Owner 18 (TO18) settlement’s labor-allocator method. The authorization is net of a $42.6 million refund to distribution customers for previously misclassified transmission assets, and recovery will begin January 1, 2026.

The PD also requires PG&E to file a Tier 2 advice letter within 120 days to determine whether misclassified transmission assets dating to 2006 resulted in improper charges to distribution customers and to recommend how any historic impacts should be addressed, along with a 45-day compliance report to confirm implementation and FERC refund status.

Comments are due December 4. The earliest the CPUC will consider this item is December 18.

Instant Analysis: This PD gives PG&E a largely clean victory: it authorizes the full TRRRMA recovery on a net basis, accepts PG&E’s sampling-and-ledger evidentiary approach, and declines to impose the stricter invoice-level proof that Cal Advocates pushed for.

RENEWABLES PORTFOLIO STANDARD

A new proposed decision adopts, with select modifications, the 2025 Renewables Portfolio Standard Procurement Plans submitted by California’s retail sellers, covering the investor-owned utilities (PG&E, SCE, SDG&E), small and multi-jurisdictional utilities, community choice aggregators, and electric service providers.

The PD affirms that nearly all retail sellers are on track to satisfy the statutory long-term contracting requirement and emphasizes the need for early, prudent procurement to hedge against project delays, load uncertainty, interconnection backlogs, and increased competition for renewable energy credits.

While the IOUs sought (for the third year in a row) to eliminate Tier 1 Advice Letter review for short-term Renewable Energy Credit (REC) transactions, the Commission again denies this request without prejudice, directing such reforms to the new Integrated Resource Planning rulemaking (R.25-06-019).

The PD grants broad procurement flexibility to the IOUs, including authority to:

• Pursue both long- and short-term RPS-eligible contracts;
• Renegotiate existing agreements;
• Transact bilaterally;
• Participate in other entities’ solicitations;
• Utilize brokers/exchanges; and
• Conduct bundled and unbundled REC sales up to five years forward) while requiring that all long-term contracts still be submitted via Tier 3 Advice Letter and all short-term contracts via Tier 1.

PG&E and SDG&E must correct specific deficiencies in their final plans, while SCE’s plan is deemed complete. The PD also authorizes PG&E and SCE to retire RECs for Low Carbon Fuel Standard credit generation and directs multiple CCAs and ESPs to supplement their plans. Comments are due December 4. The earliest the CPUC will consider this item is December 18.

Instant Analysis: This PD keeps the RPS program on a continuity-first trajectory: it gives the IOUs broad flexibility to procure, renegotiate, buy, sell, and optimize their renewable portfolios, but refuses (again) to loosen oversight of short-term REC transactions. The PD also reinforces early, risk-buffered procurement as the new norm given data-center load growth, interconnection delays, and rising REC competition.