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Regulators on Thursday approved a slight reduction to the profits shareholders are allowed to receive from California’s three major investor-owned utilities.

The decision dropped all three major investor-owned power companies’ returns by 0.3%, bringing the shareholder return for Pacific Gas & Electric to just below double digits for the first time in at least two decades. A decision proposed last month would have imposed a slightly larger profit cut of 0.35%.

All of the utilities asked for a return of more than 10%. The decision is unlikely to significantly impact customer bills, which remain the second-highest in the nation after Hawaii.

Darcie Houck was the only “no” vote on the California Public Utilities Commission, saying the decision did not properly take into account the cost to ratepayers.

“Every economic indicator tells us that we’re living in a time of extreme precarity for working Californians,” she said. “I do not think the decision threads the needle sufficiently to consider the full impact to the customer interest.”

Utilities say that a high potential rate of return for shareholders is important to bring in needed funding for infrastructure projects, which are typically paid for up front by investors and bonds and later reimbursed by ratepayers once regulators approve costs. This return is considered compensation for the risk of doing business.

The returns are not listed specifically on customers’ bills, instead baked into the rate customers pay.

The decision set 2026 potential shareholder returns for PG&E at 9.98%, Edison at 10.03%, and San Diego Gas & Electric at 9.93%. These returns are not guaranteed and can be affected by a utility’s financial performance throughout the year, going down if a utility has cost overruns. Historically, only San Diego Gas & Electric achieves its full shareholder return, while PG&E and Edison typically fall short of the full amount.

The three utilities’ approved returns have hovered around 10% for decades, which is also the national average for utility shareholder returns, often going above that. Academics and ratepayer advocates have argued for years that this is a problem because a higher return rate is meant to compensate for risk, but utilities are a historically low-risk industry. Their rates are set by regulators and their income is largely predictable and effectively guaranteed by ratepayers, who will continue needing services like electricity. U.S. 10-year Treasury bonds, which are considered the baseline for a risk-free investment, are about half of the utilities’ approved rate. Utilities regularly push back on this point, saying that wildfires in particular have made their industry more risky.

Utilities criticized the proposed drop in shareholder rates, saying it would exacerbate already high bills for ratepayers. The California Public Advocates Office, which advocates for ratepayers before the commission, pushed back on this, saying that claim is “entirely without merit.”

“The evidentiary record shows the [utilities’] claims for increasing their respective [returns] are based on flawed methods and would inevitably result in unreasonably high customer rates,” it said in a December response to utilities’ comments.

The utilities said the decision isn’t an accurate reflection of the risks their industry faces in the state.

“We think the reduction from current ROEs doesn’t reflect the unique risk environment facing California IOUs and their investors,” David Eisenhauer, spokesperson for Edison, said.

Similarly, PG&E was “disappointed that the final decision fails to acknowledge current elevated risks to help attract the needed investment for California’s energy systems,” Mike Gazda, PG&E spokesperson, said. “We will keep working with regulators and state leaders to ensure adequate funding needs and reasonable long-term rates for customers, so we can continue stabilizing our energy prices and funding critical energy system improvements for customers.”

Anthony Wagner, spokesperson for SDG&E, did not address the regulators’ decision directly, saying the company is “working every day to manage our costs responsibly while continuing to provide the essential service our communities depend on – offering tools and resources to ensure every customer has access to the support they need.”

The shareholder profits are a percentage of a utility’s “rate base” – the total value of its assets that it can earn a return on. This includes things such as power plants. While a utility’s approved shareholder returns fluctuate, the rate bases for California’s three utilities steadily rise. Each utility’s rate base is billions of dollars, earning hundreds of millions for shareholders even if a utility doesn’t reach its full shareholder return.

In 2023, for example, Edison had a rate base of $29.7 billion, and it was allowed to earn $198 million for shareholders that year. If its approved return was one percentage point lower, it would still have been allowed to earn $178 million for shareholders. Though it came in far short of this that year, it still brought shareholders $91 million from ratepayers.

In Houck’s dissent, she noted that the rate bases for the utilities, including Edison’s natural gas arm, are expected to go up by about 10% each year, with the combined authorized potential returns approaching $1 billion more than 2025. Her analysis for this included Edison’s natural gas arm, SoCalGas.

Houck recommended that regulators revisit this issue annually instead of every three years. California ratepayers are facing an affordability crisis for power bills because of factors such as wildfire recovery and hardening. Shareholder profits, which impact bills, have also risen in recent years because of utilities’ growing rate bases.