MONDAY AGGREGATE: Sempra Utilities' Cost of Capital Updates; SoCalGas Microgrid Optional Tariff; SDG&E Wildfire Costs

Today's aggregate includes:

• The Sempra Utilities' updated Cost of Capital Mechanism advice-letter filings;
• An ex parte communication involving SoCalGas's Microgrid Optional Tariff;
• An ex parte communication involving the CPUC's General Rate Case Track 2 review of SDG&E’s wildfire mitigation costs from 2019–2022;
• SoCalGas's energy-efficiency Independent Evaluator report assessing third-party EE solicitation activities; and
• Another challenge to the CPUC's December 2025 Diablo Canyon cost-recovery decision.

Cost of Capital

SoCalGas and SDG&E both filed advice letters to update their Cost of Capital Mechanisms to conform to the CPUC’s Test Year 2026 Cost of Capital decision, D.25-12-043.

Recall that D.25-12-043 adopted new capital cost parameters effective January 1, 2026 through December 31, 2028 and directed utilities to continue applying the CCM during the 2026 cycle. (See our summary of the Cost of Capital decision here; excerpts from the commissioners' D.25-12-043 discussion are available here.)

SoCalGas’s AL 6590-G (available here) resets its CCM benchmark to 5.747%, based on the October 2024-September 2025 average of the Moody’s A-rated utility bond index. No changes are proposed to the CCM structure, trigger, or adjustment formula.

SDG&E’s AL 4787-E and AL 3489-G (available here) make parallel updates to reference D.25-12-043 and reset the CCM benchmark to 5.937%, reflecting the same period average of the Moody’s Baa-rated utility bond index.

Protests to all three filings are due February 2.

INSTANT ANALYSIS: These advice letters implement the mechanical follow-on from the CPUC's 2026 Cost of Capital decision and do not reopen Cost of Capital policy. The only practical change is the reset of CCM benchmarks to reflect recent Moody’s bond averages by utility credit rating. Unless bond spreads move enough to breach the CCM deadband, these filings are unlikely to produce near-term rate impacts or draw dispute.

Microgrids

SoCalGas recently conducted ex parte communications with advisors to Commissioners John Reynolds and Matt Baker regarding SoCalGas’s pending A.25-04-006 for a Microgrid Optional Tariff (MOT), alongside a presentation detailing the proposal.

SoCalGas characterized the MOT as a voluntary, behind-the-meter microgrid service for non-residential customers that would be fully shareholder-funded, with all project costs recovered solely from participating customers and no subsidies or risk borne by other ratepayers.

SoCalGas pointed to its Hydrogen Innovation Experience (H2IE) microgrid demonstration (featuring solar, battery storage, an electrolyzer, a fuel cell, and hydrogen storage in an integrated configuration) as evidence of its operational capability to deliver the service.

SoCalGas emphasized that the tariff:

• Is technology- and fuel-agnostic;
• Supports grid reliability, new load energization, resilience, and affordability; and
• Aligns with state policy under Senate Bill 1339 by reducing barriers to microgrid deployment while maintaining Commission oversight.

SoCalGas argued that a tariffed approach is preferable to creating an affiliate, citing prior CPUC precedent approving similar shareholder-funded tariffs. In particular, SoCalGas referenced a 2012 decision (D.12-12-037), in which the CPUC found that SoCalGas did not have a competitive advantage from customer relationships or access to customer data.

Additionally, SoCalGas asserted that competitive neutrality safeguards (e.g., neutral marketing, no bill inserts, no tying of services, disclosure of alternative providers, and use of previously approved ratemaking methodologies) address market power concerns.

The materials also pointed to balancing accounts, tracking of embedded costs, and credit requirements as ratepayer protections, and highlighted broad stakeholder support from local governments, educational institutions, industrial customers, and technology providers as evidence that approval of the MOT would be reasonable and in the public interest.

INSTANT ANALYSIS: SoCalGas is urging the CPUC to treat the Microgrid Optional Tariff as a direct extension of previously approved shareholder-funded service models, not a new category of utility expansion. The ex parte communication focuses on two main points: that all costs and risks remain with participating customers, and that the tariff offers a near-term way to support load growth, reliability, and resilience without creating an affiliate structure. The proceeding's outcome is likely to turn on whether the Commission is satisfied that the proposed safeguards and cost-tracking measures are sufficient to address market power and cross-subsidy concerns under existing policy and precedent.

SDG&E Ex Parte Communication

In early January 2026, SoCalGas/SDG&E met with staff from Commissioner John Reynolds’ and Commissioner Darcie Houck’s offices to discuss a pending proposed decision involving a General Rate Case Track 2 review of SDG&E’s wildfire mitigation costs from 2019–2022. (The PD is set for consideration at the CPUC's January 15 voting meeting; see our preview here.)

SDG&E focused on what it views as an improper and overly stringent standard of review applied to cost recovery, arguing that the PD departs from established CPUC reasonableness review practice despite a detailed evidentiary record.

The utility drew a direct comparison to SCE's wildfire cost recovery proceeding (A.22-06-003), where a 2024 decision (D.24-03-008) approved nearly all of SCE's request using a "portfolio approach" to determine incrementality, arguing that SDG&E's evidentiary showing meets or exceeds what SCE provided.

SDG&E walked commissioners' staff through areas where it believes the PD made factual or analytical errors, including disallowances tied to:

• The Drone Investigation Assessment and Repair program;
• Stakeholder cooperation and Public Safety Power Shutoff communications costs;
• Data governance expenses; and
• Fuels management costs, which SDG&E notes were uncontested by parties but nonetheless denied in the PD based on what the utility argues is a flawed unit cost comparison.

SDG&E maintained that these activities were approved through prior Wildfire Mitigation Plans, were required to comply with CPUC and Energy Safety mandates, and were supported by extensive discovery responses, workpapers, and testimony already in the record.

The discussion was framed as an effort to correct misunderstandings in the PD and to clarify how the documented costs align with Commission-approved programs and statutory obligations.

INSTANT ANALYSIS: This ex parte communication focuses on whether the PD departs from the Commission’s established reasonableness review for wildfire cost recovery and instead applies a more demanding, hindsight-based test. SDG&E is positioning the record to show that the PD misreads prior precedent, overlooks evidence already produced in discovery and testimony, and disallows costs tied to programs the CPUC and Energy Safety required the utility to implement. If the Commission accepts that perspective, revisions could narrow or reverse key disallowances; if not, the issue is preserved for a potential application for rehearing or petition for modification.

Energy Efficiency

SoCalGas filed its semi-annual Independent Evaluator report in the CPUC’s new Energy Efficiency oversight rulemaking (R.25-04-010), assessing the company's third-party EE solicitation activities from April through September 2025. (We summarized SCE's equivalent filing here.)

The Independent Evaluators find that SoCalGas largely followed fair, transparent, and well-structured solicitation processes. The utility incorporated prior CPUC and Procurement Review Group guidance, including greater reliance on Total System Benefits, Normalized Metered Energy Consumption-based savings measurement, and pay-for-performance compensation models.

The report credits SoCalGas with improving bidder communications, scoring calibration, and individualized debriefings. Evaluators also note earlier independent evaluator involvement in implementation plan review and clearer internal documentation.

At the same time, the report identifies persistent weaknesses. These include:

• Long delays between proposal selection and contract execution;
• Internal approval bottlenecks; and
• Ongoing bidder confusion around evaluation criteria and program scope.

Stakeholder feedback from CPUC workshops generally supports the direction of the program. Participants praised innovation pathways like IDEEA 365 (SoCalGas’s year-round, rolling energy efficiency solicitation) but raised concerns about risk allocation, cross-IOU consistency, and tension between cost-effectiveness metrics and Total System Benefits.

Since 2018, SoCalGas has executed $302.3 million in third-party EE contracts, with 27.91% allocated to Diverse Business Enterprises (though workshop participants noted that financial and insurance requirements continue to disadvantage smaller firms).

INSTANT ANALYSIS: This filing shows SoCalGas continuing to professionalize its third-party EE procurement, with clearer processes and stronger evaluator oversight, but without meaningful gains in speed. Normalized Metered Energy Consumption and pay-for-performance are now firmly embedded, aligning with CPUC direction while shifting more performance risk onto implementers. IDEEA 365 remains the most credible innovation pathway, lowering entry barriers and keeping a live pipeline of new concepts. The persistent weakness is execution rather than policy, as contracting and internal approvals continue to slow delivery. The takeaway for stakeholders is stability, not acceleration: the framework is maturing, but pace remains the binding constraint.

Diablo Canyon

Last week we reported on a January 8 application for rehearing filed by Californians for Renewable Energy (CARE) that challenged the CPUC’s December 2025 decision approving PG&E’s 2026 cost recovery for extended operation of the Diablo Canyon Power Plant (D.25-12-007). Separately, another group, San Luis Obispo Mothers for Peace (Mothers for Peace), also filed an application for rehearing of D.25-12-007.

Mothers for Peace argue that the Commission committed legal error by excluding core, material issues (prudency, cost-effectiveness, and the ongoing need for Diablo Canyon) from the scope of the proceeding, in violation of Public Utilities Code §§ 1705 and 451.

Mothers for Peace contend that before authorizing cost recovery, the Commission is legally required to apply the prudent manager standard and make explicit findings supported by the record, which D.25-12-007 failed to do. The application further argues that the Commission’s interpretation of Senate Bill 846 unlawfully narrows its statutory obligations, effectively repealing by implication long-standing duties to evaluate whether extended plant operations remain prudent, cost-effective, and necessary for reliability.

Mothers for Peace maintain that SB 846 expressly contemplates continuous review of these factors and allows termination of extended operations if they are found imprudent or uneconomic. The filing requests rehearing and oral argument, asserting that the issues raise questions of major legal and public importance because the decision departs from Commission precedent and weakens statutory protections for ratepayers against unjust and unreasonable costs.

INSTANT ANALYSIS: Compared to CARE’s rehearing application, which argues that D.25-12-007 misapplies SB 846 by allowing barred pre-extension O&M costs and misusing Volumetric Performance Fees, San Luis Obispo Mothers for Peace challenges the decision at a more foundational level. Mothers for Peace argue the CPUC approved PG&E’s 2026 cost recovery without making required findings on prudency, cost-effectiveness, or continued need for Diablo Canyon under the Public Utilities Code, effectively excluding those issues from scope. Taken together, CARE alleges the Commission reached the wrong results under the statute, while Mothers for Peace argues the Commission skipped mandatory analysis altogether, leaving the decision exposed both substantively and procedurally, and increasing the risk of modification if rehearing is granted.