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<ns0:Id>20250AB__246399INT</ns0:Id>
<ns0:VersionNum>99</ns0:VersionNum>
<ns0:History>
<ns0:Action>
<ns0:ActionText>INTRODUCED</ns0:ActionText>
<ns0:ActionDate>2026-02-20</ns0:ActionDate>
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<ns0:SessionYear>2025</ns0:SessionYear>
<ns0:SessionNum>0</ns0:SessionNum>
<ns0:MeasureType>AB</ns0:MeasureType>
<ns0:MeasureNum>2463</ns0:MeasureNum>
<ns0:MeasureState>INT</ns0:MeasureState>
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<ns0:AuthorText authorType="LEAD_AUTHOR">Introduced by Assembly Member Petrie-Norris</ns0:AuthorText>
<ns0:Authors>
<ns0:Legislator>
<ns0:Contribution>LEAD_AUTHOR</ns0:Contribution>
<ns0:House>ASSEMBLY</ns0:House>
<ns0:Name>Petrie-Norris</ns0:Name>
</ns0:Legislator>
</ns0:Authors>
<ns0:Title> An act to add Sections 759.5, 759.6, 759.7, 759.8, 759.9, and 759.10 to the Public Utilities Code, relating to the Public Utilities Commission. </ns0:Title>
<ns0:RelatingClause>the Public Utilities Commission</ns0:RelatingClause>
<ns0:GeneralSubject>
<ns0:Subject>Public Utilities Commission: rates: baseline capital-market risk framework: returns on equity.</ns0:Subject>
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<ns0:DigestText>
<html:p>Existing law vests the Public Utilities Commission with regulatory authority over public utilities, including electrical corporations and gas corporations. Existing law authorizes the commission to fix the rates and charges for every public utility and requires that those rates and charges be just and reasonable.</html:p>
<html:p>This bill would require the commission, on or before April 1, 2027, to open a rulemaking to conduct a systemwide review of the methodologies used to determine the cost of capital and authorized return on equity for each electrical corporation and gas corporation. The bill would require the commission to establish and apply a baseline capital-market risk framework to serve as the analytical foundation for determining authorized returns on equity for electrical corporations and gas corporations, as provided. The bill would require the
commission to develop and adopt a strategy for adjusting authorized returns on equity for each electrical corporation and gas corporation based on specified load growth or sales volume thresholds. The bill would require the commission to conduct a comprehensive review of the cost of capital adjustment mechanism applicable to each electrical corporation and gas corporation, evaluate the authorized return on equity applicable to each electrical corporation’s infrastructure that serves transmission-level customers, and to evaluate alternative incentive-based return models that link a portion of shareholder earnings to performance outcomes, as provided.</html:p>
<html:p>Under existing law, a violation of an order, decision, rule, direction, demand, or requirement of the commission is a crime.</html:p>
<html:p>Because a violation of a commission action implementing this bill’s requirements would be a crime, the bill would impose a state-mandated local
program.</html:p>
<html:p>The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.</html:p>
<html:p>This bill would provide that no reimbursement is required by this act for a specified reason.</html:p>
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<ns0:DigestKey>
<ns0:VoteRequired>MAJORITY</ns0:VoteRequired>
<ns0:Appropriation>NO</ns0:Appropriation>
<ns0:FiscalCommittee>YES</ns0:FiscalCommittee>
<ns0:LocalProgram>YES</ns0:LocalProgram>
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<ns0:MeasureIndicators>
<ns0:ImmediateEffect>NO</ns0:ImmediateEffect>
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<ns0:Urgency>NO</ns0:Urgency>
<ns0:TaxLevy>NO</ns0:TaxLevy>
<ns0:Election>NO</ns0:Election>
<ns0:UsualCurrentExpenses>NO</ns0:UsualCurrentExpenses>
<ns0:BudgetBill>NO</ns0:BudgetBill>
<ns0:Prop25TrailerBill>NO</ns0:Prop25TrailerBill>
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<ns0:Bill id="bill">
<ns0:Preamble>The people of the State of California do enact as follows:</ns0:Preamble>
<ns0:BillSection id="id_C959167F-262F-40A7-BBD0-B122ADD16654">
<ns0:Num>SECTION 1.</ns0:Num>
<ns0:Content>
<html:p>The Legislature finds and declares all of the following:</html:p>
<html:p>
(a)
<html:span class="EnSpace"/>
Electrical corporations and gas corporations are entitled to a reasonable opportunity to earn a fair return on their invested capital, but ratepayers should not bear costs that exceed the level necessary to attract capital under prevailing market conditions.
</html:p>
<html:p>
(b)
<html:span class="EnSpace"/>
Rapid load growth, including from electrification and large transmission-level customers, can materially increase utility sale volumes, reduce per-unit revenue risk, and change the risk profile associated with authorized returns on equity.
</html:p>
<html:p>
(c)
<html:span class="EnSpace"/>
Gas and electrical utility operations are
subject to materially different long-term demand trajectories, regulatory risks, and asset lives, and therefore should not be compensated using a uniform equity return.
</html:p>
<html:p>
(d)
<html:span class="EnSpace"/>
The cost of capital adjustment mechanism was designed to reflect changing capital market conditions but has not consistently produced downward adjustments when market conditions would support those reductions.
</html:p>
<html:p>
(e)
<html:span class="EnSpace"/>
Ratepayers should not pay full equity returns on infrastructure investments for which their utility did not provide initial capital or bear comparable financial risk.
</html:p>
<html:p>
(f)
<html:span class="EnSpace"/>
Aligning shareholder earnings with performance outcomes can better protect ratepayers while preserving safe and reliable utility service and can improve delivery of outcomes such as timely interconnections, cost containment, and risk mitigation.
</html:p>
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<ns0:BillSection id="id_88B2D2BB-1011-4C55-B7E0-FA5789BCEDC5">
<ns0:Num>SEC. 2.</ns0:Num>
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Section 759.5 is added to the
<ns0:DocName>Public Utilities Code</ns0:DocName>
, to read:
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<ns0:LawSection id="id_FD506A92-66D8-4593-9D3F-756F43FF484E">
<ns0:Num>759.5.</ns0:Num>
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<html:p>
(a)
<html:span class="EnSpace"/>
On or before April 1, 2027, the commission shall open rulemaking to conduct a systemwide review of the methodologies used to determine the cost of capital and authorized return on equity for each electrical corporation and gas corporation.
</html:p>
<html:p>
(b)
<html:span class="EnSpace"/>
The rulemaking shall be a quasi-legislative proceeding and shall be scoped to consider broader structural reforms to cost of capital calculations, anchored by the establishment and application of a baseline capital-market risk framework, including all matters described in Sections 759.6 to 759.10, inclusive.
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<ns0:Num>SEC. 3.</ns0:Num>
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Section 759.6 is added to the
<ns0:DocName>Public Utilities Code</ns0:DocName>
, to read:
</ns0:ActionLine>
<ns0:Fragment>
<ns0:LawSection id="id_E61C6198-5CC8-4EEA-8D57-29E30CB03EE4">
<ns0:Num>759.6.</ns0:Num>
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<ns0:Content>
<html:p>
(a)
<html:span class="EnSpace"/>
In the rulemaking opened pursuant to Section 759.5, the commission shall establish and apply a baseline capital-market risk framework to serve as the analytical foundation for determining authorized returns on equity for each electrical corporation and gas corporation.
</html:p>
<html:p>
(b)
<html:span class="EnSpace"/>
The framework shall identify the baseline business, financial, and regulatory risks faced by each electrical corporation and gas corporation, considering risk-mitigating features of cost-of-service regulation, including authorized cost recovery mechanisms, revenue stabilization tools, and regulatory oversight.
</html:p>
<html:p>
(c)
<html:span class="EnSpace"/>
The baseline capital-market risk framework shall be rebuttable only upon a showing by an
electrical corporation or gas corporation that the electrical corporation or gas corporation faces materially greater risk than that reflected in the framework.
</html:p>
<html:p>
(d)
<html:span class="EnSpace"/>
A showing shall not be required for the commission to authorize a return on equity at or below the level indicated by the baseline capital-market risk framework based on evidence on the record.
</html:p>
<html:p>
(e)
<html:span class="EnSpace"/>
The commission shall use the baseline capital-market risk framework as the required analytical reference point for implementing Sections 759.5 and 759.7.
</html:p>
<html:p>
(f)
<html:span class="EnSpace"/>
Any upward departure from the baseline capital-market risk framework shall be supported by express findings, based on substantial evidence, demonstrating that the electrical corporation or gas corporation faces materially greater risk than that reflected in the
framework.
</html:p>
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<ns0:BillSection id="id_413E28D3-EBE3-4EDC-8A6A-C91B2C0B4E85">
<ns0:Num>SEC. 4.</ns0:Num>
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Section 759.7 is added to the
<ns0:DocName>Public Utilities Code</ns0:DocName>
, to read:
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<ns0:Fragment>
<ns0:LawSection id="id_09BEE1A9-C18F-4995-B3FA-3DA7BEC550E5">
<ns0:Num>759.7.</ns0:Num>
<ns0:LawSectionVersion id="id_D4F766EF-4222-47FD-A434-14D185D5482F">
<ns0:Content>
<html:p>
(a)
<html:span class="EnSpace"/>
Applying the baseline capital-market risk framework established pursuant to Section 759.6, the commission shall develop and adopt a strategy for adjusting the authorized return on equity for each electrical corporation and gas corporation based on specified load growth or sales volume thresholds.
</html:p>
<html:p>
(b)
<html:span class="EnSpace"/>
The strategy shall recognize that sustained load growth may reduce per-unit revenue risk and shall include clear, prospective triggers that result in downward adjustments to an authorized return on equity when those thresholds are met.
</html:p>
<html:p>
(c)
<html:span class="EnSpace"/>
A strategy adopted pursuant to this section shall be transparent, predictable, and designed to balance ratepayer interests with the continued
ability of an electrical corporation or gas corporation to attract capital.
</html:p>
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<ns0:Num>SEC. 5.</ns0:Num>
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Section 759.8 is added to the
<ns0:DocName>Public Utilities Code</ns0:DocName>
, to read:
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<ns0:Fragment>
<ns0:LawSection id="id_A6F06C3F-F22A-4AB3-8BE6-BD9BAF6AD691">
<ns0:Num>759.8.</ns0:Num>
<ns0:LawSectionVersion id="id_E10907B7-424A-4176-AB20-4B862F7FC990">
<ns0:Content>
<html:p>
(a)
<html:span class="EnSpace"/>
Applying the baseline capital-market risk framework established pursuant to Section 759.6, the commission shall conduct a comprehensive review of the cost of capital adjustment mechanism applicable to each electrical corporation and gas corporation.
</html:p>
<html:p>
(b)
<html:span class="EnSpace"/>
The review shall evaluate whether the mechanism has operated symmetrically to reflect changes in capital market conditions in both upward and downward directions.
</html:p>
<html:p>
(c)
<html:span class="EnSpace"/>
The commission shall evaluate the ratepayer and shareholder impacts associated with the mechanism.
</html:p>
<html:p>
(d)
<html:span class="EnSpace"/>
The commission shall evaluate past instances in which the mechanism was not triggered or was
suspended despite market conditions that would have supported a reduction in the authorized return on equity.
</html:p>
<html:p>
(e)
<html:span class="EnSpace"/>
The commission shall adopt any modifications necessary to improve the objectivity and credibility of the mechanism.
</html:p>
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<ns0:Num>SEC. 6.</ns0:Num>
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Section 759.9 is added to the
<ns0:DocName>Public Utilities Code</ns0:DocName>
, to read:
</ns0:ActionLine>
<ns0:Fragment>
<ns0:LawSection id="id_487EA6E8-ACBD-4EE7-901F-E198C0F375E3">
<ns0:Num>759.9.</ns0:Num>
<ns0:LawSectionVersion id="id_99DD0E2A-6090-456E-B2CE-4437C5E9F19E">
<ns0:Content>
<html:p>
(a)
<html:span class="EnSpace"/>
Applying the baseline capital-market risk framework established pursuant to Section 759.6, the commission shall evaluate the authorized return on equity applicable to each electrical corporation’s infrastructure that serves transmission-level customers.
</html:p>
<html:p>
(b)
<html:span class="EnSpace"/>
The evaluation shall apply to infrastructure projects in which the initial capital is provided, in whole or in part, by a transmission-level customer or other entity, other than an electrical corporation, including through advances, prepayments, or similar financing arrangements.
</html:p>
<html:p>
(c)
<html:span class="EnSpace"/>
For infrastructure projects described in subdivision (b), the commission shall ensure that the authorized return on equity reflects the
electrical corporation’s actual capital at risk and financial exposure.
</html:p>
<html:p>
(d)
<html:span class="EnSpace"/>
The commission shall not authorize the same return on equity for infrastructure projects described in subdivision (b) as for the electrical corporation-financed infrastructure unless it makes express findings that the electrical corporation has borne comparable financial risk.
</html:p>
<html:p>
(e)
<html:span class="EnSpace"/>
In implementing this section, the commission shall consider mechanisms to remove disincentives for timely interconnection or project delivery.
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<ns0:Num>SEC. 7.</ns0:Num>
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Section 759.10 is added to the
<ns0:DocName>Public Utilities Code</ns0:DocName>
, to read:
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<ns0:Fragment>
<ns0:LawSection id="id_09CAD42B-5452-4512-B896-D3672BB8BFE6">
<ns0:Num>759.10.</ns0:Num>
<ns0:LawSectionVersion id="id_7E72F771-1924-4B93-98B7-E3CACA46F2C7">
<ns0:Content>
<html:p>
(a)
<html:span class="EnSpace"/>
Applying the baseline capital-market risk framework established pursuant to Section 759.6, the commission shall evaluate alternative incentive-based return models that link a portion of shareholder earnings to performance outcomes.
</html:p>
<html:p>
(b)
<html:span class="EnSpace"/>
The commission may implement pilot programs, phased approaches, or incorporate incentive-based return models into its ratemaking determinations.
</html:p>
<html:p>
(c)
<html:span class="EnSpace"/>
For purposes of this section, the term “performance outcomes” includes, but is not limited to, cost control, timely interconnection, reliability, safety, and risk reduction.
</html:p>
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<ns0:BillSection id="id_1FD8D7D8-2727-459A-A6AA-2C37A4160B28">
<ns0:Num>SEC. 8.</ns0:Num>
<ns0:Content>
<html:p>The provisions of this act are severable. If any provision of this act or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.</html:p>
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<ns0:Num>SEC. 9.</ns0:Num>
<ns0:Content>
<html:p>
No reimbursement is required by this act pursuant to Section 6 of Article XIII
<html:span class="ThinSpace"/>
B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII
<html:span class="ThinSpace"/>
B of the California Constitution.
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