Ratepayer Parties Meet with Commissioner John Reynolds' Office in Cost of Capital Proceeding

On December 2, the following parties gathered to meet with Commissioner John Reynolds' office at the CPUC.

• Cal Advocates;
• Energy Producers and Users Coalition (EPUC);
• Environmental Defense Fund (EDF);
• Indicated Shippers (IS); and
• TURN

Collectively, the parties argued that the pending proposed decision addressing the investor-owned utilities' 2026 Cost of Capital applications appropriately lowers IOU return on equity levels but fails to address several structural issues that could erode those affordability gains.

EDF emphasized that California IOUs have maintained unusually high ROEs relative to national peers despite declining national averages, and noted that the PD’s reductions (supported by record evidence) would save ratepayers roughly $300 million annually compared to current ROEs and $1.3 billion compared to utility proposals. However, the group warned that these benefits may be offset by other PD elements:

• The continued disconnect between authorized and actual capital structures at PG&E and SCE, which they argue saddles customers with unnecessary “phantom equity” costs;
• PG&E’s Yield Spread Adjustment, which they said lacks adequate explanation and would shift tens of millions in carrying-cost burdens onto ratepayers due to PG&E’s own overleveraged balance sheet; and
• Continuation of the existing Cost of Capital Mechanism without a pathway for ratepayers to challenge automatic ROE increases, even though utilities may contest adjustments that disfavor them.

The parties urged revisions to address these concerns so that affordability improvements from ROE reductions are real rather than illusory.

INSTANT ANALYSIS: This broad-based ex parte intervention shows an unusual level of alignment among parties, indicating that the PD's ROE cuts are widely viewed as credible and directionally correct but also incomplete. The intervenors' key message is that affordability gains will evaporate unless the Commission confronts three pressure points:

• PG&E and SCE’s persistent mismatch between authorized and actual capital structures, which quietly inflates equity costs;
• PG&E’s Yield Spread Adjustment, which could shift tens of millions in financing burdens onto customers due to PG&E’s own leverage problem; and
• A Cost of Capital Mechanism that allows utilities (but not ratepayers) to challenge automatic ROE adjustments.