Electric Rates

What does the California Public Utilities Commission do?
The California Public Utilities Commission, or CPUC, regulates a variety of private sector companies that provide critical services to the public, such as electricity, natural gas, water, telephone and transportation services.

Utility companies provide critical services for daily life. The CPUC regulates these utilities as directed by state law. The CPUC’s authority varies, depending on the amount of competition in the industry and whether the entity has its own elected governing board.

Some key services involve multiple providers that compete with each other for customers, such as the telecommunications industry. In these industries, the CPUC primarily oversees safety and consumer protection, similar to what other government entities do for other industries (e.g., local public health agencies that oversee restaurant safety).

Other key services are provided only by a single company in a given geographic area. This is true for energy and water infrastructure because building multiple redundant powerlines or pipelines would be inefficient, expensive and unsafe. This is also often true for telephone services in rural areas, where it is more costly to operate. In these cases, the CPUC also regulates the prices companies can charge for their services. In this way, regulation serves as a substitute for competition, driving companies to improve quality and constrain prices.

The CPUC regulates each industry as outlined by statutes passed by the California Legislature and signed by the Governor, and within legal constraints set by state and federal law. The CPUC also develops and implements its regulation through transparent public processes and proceedings.

What is a public utility? What is an investor-owned utility? A publicly owned utility?
Here are definitions of each:

• Public utility/utility: A public entity or private corporation that provides services to the public, such as electricity, natural gas or water. For a list of utilities under California law, see Public Utilities Code at Section 216.
• Investor-owned utility: A rate-regulated corporation owned by its shareholders, like Pacific Gas and Electric Company and Southern California Edison. The CPUC regulates California investor-owned utilities for safety, reliability and other state mandates.
• Publicly owned utility/municipal utility: A publicly owned utility or municipal utility is owned and operated by the government, such as by a city. Examples of California publicly owned utilities include the Los Angeles Department of Water and Power and the Sacramento Municipal Utility District. The CPUC provides safety oversight of publicly owned utilities but does not regulate their rates.

What are the similarities and differences between investor-owned utilities and publicly owned utilities?

There are a number of similarities between investor-owned utilities and publicly owned utilities:

• Both provide a utility service, like electricity, water. or natural gas, to the public.
• Both finance their electricity and natural gas delivery infrastructure through selling bonds that attract investment from capital markets, and both recover the cost of the investment over time through customer bill payments.
• Fiscal soundness is important to both. Government and private sector utilities obtain lower interest rates on the bonds and loans they must repay when they are fiscally healthy.

They differ in ownership, scale, regulation, state-level mandates and risk.

• Ownership: Investor-owned utilities are private companies. They are owned by shareholders who invest in the company to earn a capped return on the capital they invest in. They also raise capital through issuance of bonds. In contrast, publicly owned utilities are managed and operated by local governments and their capital investments are obtained from investors in bonds who earn a return on those bonds.
• Scale: In California, investor-owned utilities cover much larger service areas than publicly owned utilities. For example, Pacific Gas and Electric Company’s service area covers about 70,000 square miles. Southern California Edison’s service area covers about 50,000 square miles. Service areas for publicly owned utilities in California generally cover a city and perhaps some area around it. For example, the Sacramento Municipal Utility District’s service area is about 900 square miles.
• Scale of capital needs: The difference in scale means a difference in the amount of capital needs. Investor-owned utilities must raise many times the amount of capital that publicly owned utilities must raise in order to serve their customers and implement CPUC and state law mandates.
• Regulation: Investor-owned utilities in California are regulated by the CPUC. Publicly owned utilities are regulated by their local governing board.
• State-level mandates: Overall, state law applies more mandates to investor-owned utilities, especially in the areas of clean energy, wildfire safety and electrification.
• Risk: Because of the scale of their service territories, investor-owned utilities face a larger scale of risks from the climate change that California is experiencing. They are responsible for safe service at all times at a larger scale. This means they must forecast, mitigate risk and restore service after wildfires, severe storms, extreme heat and other events over multiple thousands of square miles in all kinds of landscapes.

Does the CPUC regulate investor-owned utilities?

Yes. The CPUC sets and enforces safety and reliability requirements for investor-owned utilities. This includes approving the rates the utilities charge their customers to achieve these requirements. The CPUC sets rates through a transparent and public process that scrutinizes the utility’s revenue needs and sets rates to recover the cost of service.

Does the CPUC regulate publicly owned utilities?

The CPUC provides safety oversight of publicly owned utility infrastructure. For the rest of their rates and operations, publicly owned utilities, such as the Los Angeles Department of Water and Power or Sacramento Municipal Utility District, are governed locally.

Why do we have investor-owned, or for-profit, utilities?

Investor-owned or for-profit utilities are prevalent in California and in the U.S. because, starting in the early 20^th Century, private companies built the original infrastructure to deliver the first sources of electricity and natural gas, and people began to pay them for the service. These companies grew in scale, ultimately delivering a product and service, serving customers with electricity and natural gas, across a large, diverse topography in California. These two factors of scale and topography, plus the impact of climate change, mean that the business of electricity and gas service is inherently risky, and investor-owned utilities often are more positioned to take on that risk. Most people in the U.S. are served by an investor-owned utility.

In California, the Legislature has retained the overall model of investor-owned utilities for more than a century and has continued to set policy and mandates for the CPUC to achieve in its regulation of the utilities. Examples include achieving universal service for all communities across the state, transitioning to clean energy, and supporting electrification for buildings and vehicles. 

California today is the fourth largest economy in the world. The expectations on the state’s electric utilities, spanning some of the nation’s largest cities, most productive agricultural lands and the rugged terrain of the Sierra Nevada Mountains, are significant and require extensive investment in infrastructure. Investor-owned utilities leverage private capital, bringing investment into California to build and upgrade infrastructure projects across large territories.

Why do we have monopolies in electricity and natural gas today?

Publicly owned and investor-owned utilities are all monopolies because of our need for essential services, electricity and natural gas, which require large upfront investments in infrastructure, are costly to replicate and benefit from economies of scale. The Los Angeles Department of Water and Power and Sacramento Municipal Utility District are monopolies in their service territories, as are Pacific Gas and Electric Company, Southern California Edison, and San Diego Gas & Electric.

Due to the fact that they are large monopolies covering much of our state, investor-owned utilities in California are extensively regulated. The opportunity to serve customers is granted through the CPUC’s approval of a Certificate of Public Convenience and Necessity, or CPCN. With a CPCN, the investor-owned utility can serve customers by charging only the cost of service, with the opportunity to collect a capped and not guaranteed rate of return on capital investments. They have an obligation to provide service to every customer in their service territory safely and meet high standards for reliability.

Investor-owned utilities must also meet many public policy goals, including providing discounts to low-income customers, procuring clean energy to meet California’s 2045 zero-carbon target and building infrastructure to support electrification.

What are utility rates?

Utility rates are the prices charged to customers for electric, natural gas, and water service. That sounds simple, but in California, utility rates reflect the cost of providing services in our large, richly diverse state, and of achieving many public policy goals.

Rates can include volumetric charges, which vary based on usage, and charges for the fixed cost of the grid. Unlike most states, in California, residential electric rates have historically been almost entirely volumetric, meaning you pay according to how much electricity you use.

California’s experience has shown that bills based primarily on volumetric rates are not fair to everyone, because they do not capture an accurate per person allocation of the fixed costs of maintaining or improving utility infrastructure, such as the poles and wires that send power to and from one’s home or business.

Recent state law required the CPUC to create a new billing structure that includes a separate line item on customer bills for a portion of the utility’s fixed grid costs, called a Base Services Charge. This way, all customers contribute to the costs of the grid. Pacific Gas and Electric Company, Southern California Edison, and San Diego Gas & Electric are implementing this new billing structure. 

What is included in investor-owned utility rates?

California law requires that utility rates allow the utility to recover two broad buckets of costs.

The first bucket is the full, reasonable cost of service. These costs are required to be straight pass-throughs, which means the utility must charge customers at cost without profit. Examples include:

• Energy procurement (like solar, wind, and storage resources) to meet reliability and clean energy requirements.
• Wildfire risk mitigation such as vegetation management.
• Public programs mandated by law, such as energy efficiency, low-income customer support, and rooftop solar initiatives.
• Utility operational expenses, such as labor, grid and pipeline maintenance, and customer service.

  The second bucket covers infrastructure costs, which include the opportunity to earn a capped return on capital investment. This opportunity to earn a capped return on infrastructure investment is necessary to attract private investors to invest their money in the utility, allowing the utility to continue to finance infrastructure projects for California. It is not a guarantee of positive overall earnings. Investor-owned utilities and their investors bear the risk of losses whenever costs and liabilities exceed the revenues that the utilities are allowed to recover.

  Examples of infrastructure costs include:

• Infrastructure investment to maintain the electric grid and natural gas system, such as transmission, distribution, substations, and pipelines.
• Wildfire risk mitigation through infrastructure, like undergrounding and covered conductor.
• Electric grid and natural gas system safety investments.
• Investments to modernize the electric grid for electrification of transportation, buildings, and more.

What is the CPUC’s role in setting investor-owned utility rates?
An investor-owned utility must get CPUC approval before charging customers for its costs. The CPUC reviews those charges through a transparent process that includes public input and participation.

Most costs are approved on a four-year cycle in a General Rate Case. The process begins with a utility application, which includes financial evidence and an accounting of what the utility forecasts it will cost to serve its customers over the next four years. Other entities and people who wish to participate can then present testimony and evidence on whether current costs and cost forecasts are appropriate. This includes the Public Advocates Office, an independent government office dedicated to advocating for the lowest possible bills for utility customers in balance with safety, reliability and the state’s climate goals. A CPUC Commissioner and an Administrative Law Judge oversee the case.

The CPUC issues a decision after thorough analysis and based on the full evidence presented. See How the CPUC Processes a General Rate Case. By California law, the CPUC approves the charges if they are just and reasonable. If approved, the investor-owned utility may include the charges in rates, typically by modifying the volumetric rate to allow recovery of costs.

Who regulates electric transmission costs?
Electric transmission costs are mostly regulated federally by the Federal Energy Regulatory Commission (FERC). FERC reviews and approves cost recovery for the construction, operation and maintenance of the transmission grid and sets a rate of return. The CPUC participates in FERC proceedings to represent the interests of California ratepayers.

How do investor-owned utilities earn profit?
An investor-owned utility has two different opportunities to earn a profit. In both cases, an overall net profit is not guaranteed. An overall net profit can only be earned after a utility has covered all of the costs that it has incurred to operate its business. The utility’s business includes all of the work that the CPUC reviews and orders through public processes such as the four-year General Rate Case process.

Importantly, utilities do not earn a profit on the commodity cost of the electricity, natural gas, or water provided to customers. Commodity costs are unregulated and are passed through directly to customers.

The two ways a utility has the opportunity to earn a profit are by building infrastructure and by managing costs.

1. By Building Infrastructure: Utilities have the opportunity to earn a profit in the form of a capped or fixed rate of return on investments through building the physical infrastructure that provides electricity, natural gas, or water services to customers (called “return on equity”). Infrastructure typically requires substantial funding to be available before work can start in order to assure suppliers and workers that they will be paid. To raise that funding, investor-owned utilities can sell shares. In order to attract investors to buy those shares and finance the infrastructure needed to serve California customers and achieve California’s clean energy, safety, and reliability goals, utilities must offer to pay investors a return on their investment. This return must compensate investors for what the investors perceive as the risk that they will lose money on their investment. Otherwise, the investors could choose to invest in other companies and projects. The rate of return on investments in infrastructure is set through a transparent, public process in which financial evidence and evidence about risk is presented.

    

2. By Managing Costs: Utilities forecast the costs necessary to operate their systems over a four-year period. If the utility manages costs better than they forecasted, they may earn a profit. If a utility’s costs are higher than expected or if operations are not managed efficiently, profits could be negative. This provides a direct incentive for the utility to efficiently manage their operating costs.

Both of the above opportunities for utilities to earn a profit are tracked through different indicators. A utility’s overall rate of return is made up of several elements and can fluctuate from year to year. 

What utilities can do with profit is addressed below.

What is the “cost of capital” for investor-owned utilities and how do ratepayers pay for utility profits?
Investor-owned utilities like Pacific Gas and Electric Company, and Southern California Edison initially pay for their infrastructure and equipment by raising money from investors (equity holders) and by selling bonds that attract investment from capital markets.

The cost of capital sets the financial parameters, such as long-term debt, preferred equity, and common equity used to fund safety, reliability, wildfire mitigation, and clean energy investments. 

The CPUC determines and caps the investor-owned utilities’ cost of capital, or what it costs to finance their capital investments, every four years through a public process. When the CPUC sets the cost of capital, it is set at a level to make sure that customers aren’t charged more than necessary, and utilities can raise enough money to keep their systems safe, reliable, and growing for consumers 

A key factor for determining the utility’s cost of capital is the return on equity, which compensates the utility and its investors for the risk of doing business and helps the utility maintain a credit rating that reflects the opportunities and risks it has in delivering utility services to California customers. Federal law requires the CPUC to set the return on equity at a level generally equal to other businesses facing similar risks.

Setting an appropriate and capped cost of capital can also help ratepayers. Financially healthy utilities can attract investment at terms that are more advantageous for customers. In contrast, investors’ view of a utility’s financial health and the risks they face can lead to higher borrowing and equity costs, which are passed on to ratepayers in higher rates.

What do investor-owned utilities do with profit? 
Utilities first use customer payments to cover the cost of service and repay the bond and equity holders for the investments made in infrastructure. 

Utilities are held accountable to demonstrate how they have used customer payments to operate their business for reliable, safe and clean service in multiple formal proceedings at the CPUC that are all open to the public.

If there are remaining funds, or profits, after delivering electric and natural gas service to customers and repaying loans, investor-owned utilities have choices about how they can use them. These profits belong to shareholders and by law are spent according to the direction of shareholders’ representatives on the Board of Directors. Shareholder funds may be used for a range of corporate purposes:

• Capital reinvestment in infrastructure to improve safety and reliability
• Interest payments on corporate debt
• Dividends to shareholders
• Executive compensation, which is fully paid by shareholders
• Penalties for violations of CPUC rules or state law, ordered by the CPUC
• Lobbying
• Advertising
• Charitable contributions

By law, the CPUC does not regulate how investor-owned utilities use profit.

To provide an example of a utility decision about how to use profit, in 2024, Pacific Gas and Electric Company reported $2.6 billion in net income and distributed only $85.5 million of it (less than 4 percent) in dividends to shareholders. PG&E invested approximately $2.5 billion to support ongoing capital investment and system upgrades.

To provide an example of CPUC orders requiring shareholder payments, in 2020 the CPUC penalized Pacific Gas and Electric Company $1.937 billion for its role in the catastrophic wildfires in 2017-2018. Of that amount, the CPUC ordered $1.823 billion to be paid by PG&E shareholders.

Who are typical shareholders of investor-owned utilities?

Investor-owned utility shareholders are typically institutional investors such as asset management companies, mutual funds, pension funds, and insurance companies that manage capital for millions of individual clients and public-sector workers. Shareholder lists are available on each utility’s corporate website.

Why are electric rates and bills high in California?

At the direction of Governors Newsom, Brown, and Schwarzenegger, and at the direction of the Legislature and the CPUC, California’s investor-owned utilities are investing in transforming our state’s energy system to meet an ambitious goal: 100 percent clean energy by 2045. The utilities are also investing in the grid to mitigate the risk of wildfires and other impacts of climate change. In addition, they are required to implement rates and investments to achieve public policy goals.

In this context, electric rates and bills have increased in California, and the reasons include:

• Wildfire Risk Mitigation and Grid Hardening: Utilities have made major investments to reduce wildfire risk, including undergrounding lines, installing weather monitoring systems, expanding vegetation management, and self-insuring because of insufficient and high-priced commercial insurance. These efforts are essential for safety but are also expensive.
• Aging Infrastructure and Capital Investment: Much of California’s electric grid was built decades ago and continuously requires modernization to operate safely and to achieve today’s goals, such as electrification of transportation and buildings. Utilities are making large-scale capital investments, which are recovered through customer rates over time.
• Fixed Costs Spread Over Fewer Customers: California is a leader in rooftop solar adoption.Under the current structure, as customers adopt rooftop solar, total electricity consumption decreases across the electricity system and, especially, for those customers with rooftop solar, but the fixed utility costs, like maintaining the grid, still remain and are relied upon by all customers. Due to the fact that rooftop solar customers use less electricity and, therefore, pay less in rates, customers without rooftop solar are covering more of the fixed costs of the electricity system and their rates currently are higher.
• Public Policy Costs in Rates: Many state-mandated programs, such as energy efficiency, low-income customer assistance, and electrification incentives, are funded through electric rates.
• Higher Financing Costs: Operating in California comes with many elements of compliance and risk, because of the extensive state law mandates and the climate change-driven risk present in our state. As a result, California’s investor-owned utilities face higher financing costs than public utilities.

California’s electric bills reflect the cost of building a safer, cleaner, and more resilient energy system in a state that is also experiencing extreme weather, heightened wildfire risk, and a major energy transition. While these investments are vital, they also contribute to higher electricity costs for consumers.

How have wildfire risk mitigation costs affected electric rates?

Wildfire risk mitigation costs have climbed over the past five years and are projected to continue their upward trend. This is due to wildfires we have already experienced, from which we need to recover and rebuild, as well as managing the climate change-induced risk of wildfire going forward. These costs show the scale of the problem California is facing: stronger storms, hotter temperatures, drier vegetation, and conditions that increase the risk of catastrophic wildfire. In addition, many people reside in areas of high-fire risk, where forest management and community and home hardening to prevent fires have not kept pace with climate change.

The investment in utility infrastructure to reduce wildfire risk, such as undergrounding and vegetation management across rugged and dispersed landscapes, has cost investor-owned utilities hundreds of millions of dollars over the past several years. The utilities have also incurred expenses from post-wildfire mitigation efforts, infrastructure upgrades, equipment inspections and maintenance, wildfire insurance, and liability claims. As of 2024, wildfire-related expenses accounted for a greater share of utilities’ total system costs:

Pacific Gas and Electric Company: 27 percent

• Southern California Edison: 17 percent
• San Diego Gas & Electric: 17 percent

For residential customers, this has translated to average bill increases of about $250 to $490 annually.

For more detailed information on these costs, please see the CPUC’s Senate ill 695 report.

In addition, more information and recommendations from the CPUC on utility wildfire costs are included in the Senate Bill 254 Information and Recommendations report from January 30, 2026.

Why has rooftop solar increased electric rates overall?

California has more rooftop solar systems than any other state. The CPUC has partially reduced the generous subsidy for this technology, but the program continues to contribute to rising electricity rates.

Here’s why: California’s rooftop solar program (the iterations are called Net Energy Metering or NEM 1.0, NEM 2.0, and the Net Billing Tariff) increases electricity bills in two ways:  

• Customers pay for the generation that is exported to the grid from another customer’s rooftop solar system at a higher rate than other available generation  
• During the times that solar systems are supplying electricity to a customer’s home or business, the rooftop solar program allows these customers to bypass their share of fixed costs to maintain the electric grid, which other customers without rooftop solar end up paying

These factors make the rooftop solar program the other largest single contributor, alongside wildfire costs, to rising electricity rates. Data shows that rooftop solar program costs in 2024 resulted in about $7 billion shifted to customers without rooftop solar. This cost estimate accounts for between 12 percent and 19 percent of the electricity bill of non-participating customers, depending on the investor-owned utility, which translates to an average annual cost of roughly $230 to $380 for customers without rooftop solar.

The CPUC has taken action to reduce the rooftop solar program’s impact on rates. The CPUC adopted the Net Billing Tariff (NBT) in 2022 and discontinued the NEM 2.0 tariff for new customers. This slightly reduced the growth of future cost shifts by more closely aligning the amount paid to rooftop solar customers for excess generation with the value that excess generation provides. The new tariff also incentivizes customers to pair rooftop solar with batteries.

Rooftop solar presents a public policy issue on which the CPUC has presented ideas and solutions. Solar energy is key to California’s clean energy goals, but rooftop solar systems, especially when paired with batteries, continue to be more expensive than available clean energy from other sources, and net-metering, as well as the net billing tariff, is an inequitable cross-subsidy from one group of ratepayers to another increasing both rates and bills. Costs from rooftop solar customers to other customers place an ongoing and increasing burden on customers without rooftop solar.

Why did Pacific Gas and Electric Company have six rate changes in 2024?

In 2024, Pacific Gas and Electric Company had six rate changes. Five were increases, and one was a rate decrease. Rate changes occur as new costs are approved for recovery or other costs roll off rates, which can happen multiple times each year.

The CPUC does not mandate the exact timing of rate changes, because utilities must make business decisions that maintain fiscal soundness as they collect customer payments for their costs. Pacific Gas and Electric Company’s rate increases in 2024 were due to its approved General Rate Case that occurred through a transparent public process and in which the company received approval to make investments in wildfire mitigation. These investments included undergrounding over 1,200 miles of power lines in high wildfire-risk areas.

However, as Pacific Gas and Electric Company has paid down other wildfire mitigation costs over the past year, rates overall have gone down 11 percent since January of 2024.

For more information on rate changes, see Electric Rate Advisories for each California regulated utility.

In addition, it’s important to note that national trends show electric utilities across the country are experiencing increased rates.

How much have rates increased in past decade? How does this compare to inflation? 

The chart below illustrates the average rate trends of the three major investor-owned utilities. Starting in 2021, rate increases began to outpace inflation.

This chart is from the CPUC’s annual report on rates and trends.

What is the CPUC doing to help mitigate rate increases?

The CPUC is working to help mitigate rate increases with specific measures to try and control rising costs, and through directives to distribute costs more fairly and advance climate goals at least cost.

Specific examples include:

• Using General Rate Cases to reduce costs for utility services.
• Enacting spending caps on costs utilities spend for vegetation management.
• Approving utilities to use more cost-effective self-insurance instead of passing the high market costs of insurance on to ratepayers.
• Only approving costs for the undergrounding of power lines in the highest-threat wildfire areas and not for aesthetic purposes.
• Continually adjusting rate structures for fairness, such as instituting a Base Services Charge so that all customers pay for the fixed costs of the grid, or revising the rooftop solar program to reduce inequity for customers who do not have rooftop solar.

The CPUC responded to Governor Newsom’s Executive Order on Affordability by providing ideas the California Legislature could take up going forward. Some of these ideas became law in 2025, and will help address rates going forward. For example, wildfire costs will now be considered in context of all other costs in the transparent, public proceedings considering each utility’s General Rate Case. The CPUC will also lead a public process to examine reallocating the California Climate Credit to households that need it the most.

To learn more about the drivers of rates today, the CPUC’s annual Senate Bill 695 Report to the Legislature provides an analysis of rates and forecasts of rate trends.

What is a "baseline" of electricity use?
A "baseline" of electricity use is a basic amount of power - in kilowatt hours (kWh) - that meets a significant amount of the "reasonable" energy needs of the average residential ratepayer. The 1976 Warren-Miller Lifeline Act established the baseline statute (CAL PUC Code § 739) in response to the energy price spikes of the late 70s. The baseline statute is meant to provide an energy allowance for basic energy needs at a lower rate and sets baseline amounts between 50-70% of average household consumption.

Does my baseline cost less than other energy I use?
Yes, by state law the baseline quantity must be priced lower on a per kWh basis than other energy you use during the month.

How are baselines determined?

Baselines are usually adjusted every three years during a utility's general rate case.

How many kWh of baseline energy am I entitled to?
This largely depends on where you live. California has a diverse array of climates, and therefore the "reasonable" energy needs of a Californian changes depending on whether they live by the coast, in the mountains or in the Central Valley. Baseline is set between 50-70% of average household consumption within a given climate zone. Baselines also vary by season, with generally smaller amounts in the winter due to decreased need for air conditioning.

CARE
California Alternative Rates for Energy or CARE is a program established by the California Legislature in 1988* to provide financial assistance to the California utilities' low-income residential gas and electric customers to help them afford essential utility services. In 1993, the program was also expanded to 'eligible facilities' where low income ratepayers are located, this program is colloquially called 'Expanded CARE.'

CARE provides a discount of between 30-35% off a customer's total bill, subject to eligibility requirements. The range of the CARE discount is set by the California Legislature. Funding for CARE is collected on an equal cents/kWh basis from all customer classes except street lighting.

Medical Baseline
Medical baseline was established in the same Baseline Act of 1976 which authorized baseline for all customers. The act directed the Commission to provide larger quantities of power at the baseline rate to residential customers who have special medical needs and/or are dependent on life-support equipment. A list of conditions and devices are specified in statute.