Assembly BillChaptered/SignedPublic Utilities
AB 2463: Public Utilities Commission: rates: cost of capital proceeding: authorized return on equity.
What AB 2463 does, verified October 2, 2026
<p>The bill requires the Public Utilities Commission (PUC) to include specific information in decisions regarding authorized returns on equity (ROE) for electrical and gas corporations, starting January 1, 2028. This includes details about financial models used and an analysis of how a corporation's credit quality affects its ROE. If the PUC changes its methodology for determining ROE from previous decisions, it must explain any significant differences.</p> <p>The bill also mandates that the PUC initiate rulemaking to update cost-of-capital determinations and consider long-term plans related to these requirements. Additionally, the PUC is required to include an analysis of trends in California corporation credit ratings in its annual report to the legislature.</p> <p>Violating the commission's actions implementing this bill would be considered a crime under existing law.</p>
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Last action: Chaptered by Secretary of State - Chapter 943, Statutes of 2026. (2026-09-30)Alert me
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| Sep. 30, 2026 | Chaptered by Secretary of State - Chapter 943, Statutes of 2026. |
| Sep. 30, 2026 | Approved by the Governor. |
| Sep. 03, 2026 | Enrolled and presented to the Governor at 4 p.m. |
| Aug. 26, 2026 | Senate amendments concurred in. To Engrossing and Enrolling. (Ayes 79. Noes 0. Page 6583.). |
| Aug. 25, 2026 | In Assembly. Concurrence in Senate amendments pending. |
Latest bill textChaptered version, September 30, 2026 · 1,792 words
Assembly Bill No. 2463
CHAPTER 943
An act to add Sections 753 and 910.10 to the Public Utilities Code, relating to the Public Utilities Commission.
[ Approved by Governor September 30, 2026. Filed with Secretary of State September 30, 2026. ]
LEGISLATIVE COUNSEL'S DIGEST
AB 2463, Petrie-Norris. Public Utilities Commission: rates: cost of capital proceeding: authorized return on equity.
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.
This bill would require the commission, in any proceeding in which the commission considers and determines the authorized return on equity for an electrical corporation or gas corporation, to be known as a cost of capital proceeding, that results in a decision issued on or after December 31, 2030, to include its own assessment of the proposals submitted by the parties and specified information, including, among other things, an identification of each financial model the commission relied upon in determining the authorized return on equity and an analysis of the relationship between the credit quality of the electrical corporation or gas corporation and the authorized return on equity. If, in any cost of capital proceeding, the commission adopts a methodology for determining the authorized return on equity that differs in any material respect from the methodology disclosed in the most recent prior decision in which the commission determined an authorized return on equity for the same electrical corporation or gas corporation, the bill would require the commission to identify each material departure from the prior methodology and provide a reasoned explanation for each material departure.
Existing law requires the commission to develop, publish, and annually update a report containing specified information, including the commission’s annual work plan and a summary of deenergization event trends, as specified. Existing law requires the commission to post the report in a conspicuous area of its internet website.
This bill would require the commission to include the analysis of the trends in the California corporation credit ratings described above in that annual report to the Legislature, as provided.
Under existing law, a violation of an order, decision, rule, direction, demand, or requirement of the commission is a crime.
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.
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.
This bill would provide that no reimbursement is required by this act for a specified reason.
The people of the State of California do enact as follows:
SECTION 1.
The Legislature finds and declares all of the following:(a) The Public Utilities Commission determines the authorized rate of return for investor-owned utilities by weighing competing financial models and analyses of investment risk submitted by the utilities and other parties. This determination is known as the cost of capital or return on equity, represents billions of dollars, and applies to the utilities’ capital investments.
(b) Commission decisions in cost of capital proceedings typically summarize the parties’ positions and state a conclusion. Those decisions do not consistently disclose the specific financial models, inputs, assumptions, or weighting on which the commission relied. This limits the ability of ratepayers, the Legislature, and other stakeholders to evaluate the analytical basis for the commission’s determinations.
(c) The commission’s determination of a fair rate of return, including the authorized return on equity, is governed by the constitutional standards established by the United States Supreme Court in Federal Power Commission v. Hope Natural Gas Co. (1944) 320 U.S. 591 and Bluefield Waterworks & Imp. Co. v. Public Service Commission of W. Va. (1923) 262 U.S. 679.
(d) The Federal Energy Regulatory Commission has adopted a more structured and reproducible analytical framework for determining the authorized return on equity for the utilities it regulates. That framework includes defined financial model weighting and enhanced disclosure of its analytical methods.
(e) As California electrifies transportation, buildings, and industrial processes, a growing share of the state’s economy will depend on the cost of electricity. The authorized return on equity will therefore represent an increasing share of the rates paid by residential, commercial, and industrial customers.
(f) Requiring the commission to disclose its analytical methodology, to maintain consistency across proceedings or explain any departures from prior methodology, will promote accountability, predictability, and public confidence in the ratemaking process.
SEC. 2.
Section 753 is added to the Public Utilities Code, to read:753.
(a) For purposes of this section, all of the following definitions apply:(1) “Authorized return on equity” means the return on common equity authorized by the commission for an electrical corporation or gas corporation in a cost of capital proceeding or through an automatic adjustment mechanism adopted in connection with a cost of capital proceeding.
(2) “Cost of capital proceeding” means a proceeding in which the commission considers and determines the authorized return on equity for an electrical corporation or gas corporation.
(3) “Financial model” means a quantitative method used to estimate the cost of equity capital, including, but not limited to, a discounted cash flow model, capital asset pricing model, risk premium analysis, and comparable earnings analysis.
(b) In a cost of capital proceeding, the commission shall include its own assessment of the proposals submitted by the parties. This assessment shall include all of the following:
(1) An identification of each financial model the commission relied upon in determining the authorized return on equity.
(2) The commission’s analysis, based on the record and separate and apart from the positions or analyses submitted by the parties.
(3) For each financial model identified pursuant to paragraph (1), a specification of the key inputs and assumptions used, including, but not limited to, the proxy group of companies, growth rate estimates, risk-free rate benchmarks, equity risk premiums, beta estimates, and any other material analytical inputs.
(4) The data sources for each material input to each financial model relied upon by the commission.
(5) The relative weight assigned to each financial model in arriving at the authorized return on equity, expressed in quantitative terms.
(6) A mathematical derivation demonstrating how the authorized return on equity follows from the models, inputs, and weights specified pursuant to paragraphs (1) to (5), inclusive, so that a person with expertise in utility finance could independently reproduce the result from the information contained in the decision.
(7) A description of any qualitative adjustments made to the result produced by the financial models, including the direction and magnitude of each adjustment and the specific basis for each adjustment.
(8) The complete calculations underlying the authorized return on equity, presented in a structured format that permits independent verification.
(9) (A) If the commission relied upon a range of results from a financial model, the full range and the basis for selecting a point estimate within that range.
(B) If the commission relied upon a settlement from the parties to adopt an authorized rate of return, the settling parties shall furnish sufficient information to enable the commission to make a finding in subparagraph (A) that the amount agreed upon in the settlement is just and reasonable.
(10) A comparison of the authorized return on equity to the results produced by each individual financial model before weighting or qualitative adjustment.
(11) An identification of the peer group of similarly situated electrical corporations or gas corporations used in the commission’s analysis, the most recently authorized return on equity for each member of the peer group, and an explanation of where the authorized return on equity for the subject electrical corporation or gas corporation falls relative to the range of authorized returns on equity for the peer group, including the basis for any material deviation from the central tendency of the peer group if it is understood and knowable by the commission.
(12) An analysis of the relationship between the credit quality of the electrical corporation or gas corporation and the authorized return on equity, including a discussion of how changes in the corporation’s credit ratings or other credit market indicators informed the commission’s determination.
(c) If, in any cost of capital proceeding, the commission adopts a methodology for determining the authorized return on equity that differs in any material respect from the methodology disclosed in the most recent prior decision in which the commission determined an authorized return on equity for the same electrical corporation or gas corporation, the commission shall, in addition to the requirements of subdivision (b), do both of the following:
(1) Identify each material departure from the prior methodology, including any change in the financial models used, the weighting of models, the categories of inputs relied upon, or the approach to qualitative adjustments.
(2) Provide a reasoned explanation for each material departure, including an explanation of why the prior methodology was inadequate or why changed circumstances warranted adoption of a different methodology.
(d) This section does not prescribe or limit the financial models, inputs, or methods that the commission may use in determining the authorized return on equity. The commission retains full discretion to select and apply the analytical methods it determines to be appropriate, subject to the disclosure and consistency requirements of this section.
(e) (1) This section applies to any cost of capital proceeding that results in a decision issued on or after December 31, 2030.
(2) This section applies regardless of whether the decision described in paragraph (1) results in a decrease or increase in rates or in a change to a rate schedule.
SEC. 3.
Section 910.10 is added to the Public Utilities Code, immediately following Section 910.8, to read:910.10.
The commission shall annually provide to the Legislature an analysis of the trends in the California corporation credit ratings based on the analysis required by paragraph (12) of subdivision (b) of Section 753, updated as necessary to reflect current credit rating information in years when no decision determining an authorized return on equity is issued. The commission shall provide this analysis as part of its annual report published pursuant to Section 910.SEC. 4.
No reimbursement is required by this act pursuant to Section 6 of Article XIII 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 B of the California Constitution.Text of AB 2463 as chaptered, from the official record. Connect Plus keeps every version and highlights what changed.Compare versions