Pacific Gas and Electric Company is asking California regulators to approve an increased rate of return for 2026, citing both uncertainty around the Trump administration and the risk of wildfire damage.
In a recent filing with the California Public Utilities Commission, PG&E laid out a request to up its rate of return to 8.3% next year, up from 7.66% in 2025. That hike, the utility said, is needed in order to attract investors for large-scale infrastructure projects, which are riskier now thanks in part to increasingly frequent extreme weather events, made worse by climate change. PG&E is also requesting an 11.3% return on equity, which it acknowledges in the filing “is at the top of the zone of reasonableness to address this risk.”
Approving the overall increase on rate of return, the filing adds, “will support investor confidence in PG&E’s financial soundness and minimize long-term debt costs, factors which in turn are reflected in the rates paid by customers.”
PG&E also argued that higher returns would help offset certain Trump administration policies, including those that “could have very substantial and adverse consequences for price levels and supply chains,” such as tariffs on imports from Canada, China, and Mexico.
“The uncertainty of how these policies may impact the economy and the energy industry in particular cannot be overstated, and as a result market risks will likely increase until those policies are well defined, and their impacts are understood.”
The utility also pointed out another impact of the federal chaos that could impact ratepayers: PG&E has a final commitment from the Biden administration for a $15 billion loan to help it build out a portfolio of projects including hydropower, battery storage, virtual power plants, and transmission upgrades including reconductoring and grid enhancing technologies.
That loan would have an interest rate that’s significantly below the market rate. But while the Trump DOE has the legal responsibility to see through the commitments of its predecessor, whether it follows through remains to be seen.
As PG&E put it in its filing: “At this time PG&E has not drawn down on any DOE loans and there is substantial uncertainty around when or if those loans will be made.”
The loan could save PG&E customers over $100 million annually thanks to those low interest rates, PG&E said, but given the uncertainty, the utility is excluding those savings from its cost of capital calculations. Instead, it’s proposing an increase in its cost of long-term debt from 4.8% to 5.05%, reflecting today’s higher interest rates. In other words, if the Trump administration reneges on the deal it is PG&E’s customers who will ultimately pay.
In the event that the loan does come through, PG&E proposes a mechanism to pass any realized savings directly to customers starting in 2026.
Mounting wildfire risks
PG&E also points to devastating wildfires in Southern California earlier this year as an example of the immense financial exposure utilities face in the state; PG&E estimates that the fires caused $54 billion in property damages. Those fires weren’t in PG&E’s territory, but the risk has nonetheless spooked investors for all of the state’s utilities, the filings argue.
“The market’s immediate reaction has been predictable — a lower stock price and higher interest rates for PG&E,” the utility wrote. “But the longer-term impacts on California utilities [cost of capital] and access to capital are highly uncertain at this time.”
Until the state reaches a solution to the potential depletion of its Wildfire Fund — which provides financial protection for utility companies against claims arising from wildfires caused by their equipment — investors will require higher returns to compensate “for the risk of investing in California energy utilities,” PG&E argued.
PG&E expects to fund around $63 billion in “essential energy infrastructure investments” between 2024 and 2028, including projects focused on wildfire mitigation, which is a key focus area for the utility after the fallout of transmission line-caused wildfires led it to file for Chapter 11 bankruptcy protection in 2019.
The proposed cost of capital will increase revenue for PG&E’s electric generation and distribution operations by $297 million, and for its gas distribution operations by $105 million from present rates. Revenues for its gas transmission and storage operations will increase by $79 million.
These increases will inevitably “place continuing upward pressure on customer rates,” the filings acknowledge. Key to bringing those rates down is reducing financing costs, PG&E added. The company’s credit ratings will improve “as we move closer to our goal of eliminating wildfires ignited by our equipment.”
Editor’s note: This story was updated on March 28 to correct the characterization of PG&E’s loan from DOE’s LPO. The loan has been finalized, it’s not conditional.
