Public Utilities Commission: rates: cost of capital proceeding: authorized return on equity.

The definition of 'cost of capital proceeding' was narrowed from covering proceedings that determine the full authorized cost of capital (including return on equity, cost of long-term debt, and capital structure) and automatic adjustment mechanisms, to only proceedings in which the commission determines the authorized return on equity.

Subdivision (f) of Section 753 was removed entirely. This provision had required the commission to initiate a rulemaking proceeding to update its cost of capital determinations and to consider a long-term plan that would revise financial models for large demand growth between 2030 and 2045 and analyze whether model selection aligns with gas corporation investments.

In Section 753(b)(2), the phrase 'independent analysis' was changed to simply 'analysis,' removing the word 'independent.'

The effective date is confirmed as December 31, 2030 (the Senate had previously moved it from January 1, 2028). The enrolled version removes the drafting artifact showing both dates.

The effective date for compliance was pushed back from January 1, 2028 to December 31, 2030, giving the Public Utilities Commission roughly three additional years before the new disclosure requirements take effect.

The bill's scope was broadened from decisions determining an 'authorized return on equity' to all 'cost of capital proceedings,' which is a defined term covering any proceeding where the commission considers and determines the authorized cost of capital, including return on equity, cost of long-term debt, and capital structure.

A new requirement was added in subdivision (b) requiring the commission to include 'its own assessment of the proposals submitted by the parties' as part of its decision. This is a distinct obligation beyond the existing disclosure requirements.

The language requiring the commission's 'independent analytical basis' was softened to simply 'analytical basis' in the introductory clause of subdivision (b), though the requirement for an independent analysis separate from party positions remains in paragraph (2).

Subdivision (b)(2) was modified to require the commission's independent analysis to be 'based on the record,' adding a new constraint that ties the analysis to the formal proceeding record.

A new legislative finding (c) was added citing the constitutional standards established in Federal Power Commission v. Hope Natural Gas Co. (1944) and Bluefield Waterworks & Imp. Co. v. Public Service Commission of W. Va. (1923), grounding the bill's transparency requirements in existing constitutional rate-making doctrine.

The definition of 'cost of capital proceeding' was clarified to say the commission 'considers and determines the authorized cost of capital' rather than 'the authorized return on equity cost of capital,' making the defined term more internally consistent with its name.

Sections 759.5 through 759.10 were entirely deleted. These sections had required the commission to open a systemwide rulemaking by April 1, 2027, establish a baseline capital-market risk framework as the analytical foundation for returns on equity, develop a strategy for adjusting returns based on load growth or sales volume thresholds, review the cost of capital adjustment mechanism for symmetry, evaluate returns on infrastructure funded by transmission-level customers, and explore incentive-based return models linking shareholder earnings to performance outcomes.

Section 753(b) now includes a new requirement (paragraph 2) that the commission's decision must include its independent analysis, separate and apart from the positions or analyses submitted by the parties. This is a stronger transparency obligation than the prior version, which only required the decision to reflect the commission's independent analytical basis.

Section 753(b)(11) (peer group analysis) now includes the qualifier 'if it is understood and knowable by the commission,' softening the obligation to identify peer group comparisons when that information is not available.

Section 910.10 was updated to specifically reference paragraph (12) of subdivision (b) of Section 753 for the credit ratings analysis, and adds a requirement that the commission update the analysis in years when no new decision determining an authorized return on equity is issued.

The definition of 'cost of capital proceeding' in Section 753(a)(2) was expanded to explicitly include 'the cost of long-term debt, and the capital structure,' broadening what types of proceedings trigger the disclosure requirements.

New Section 753 requires the CPUC to include in every ROE decision: identification of each financial model used, key inputs and assumptions (proxy group, growth rates, risk-free rate, equity risk premiums, beta), data sources, quantitative weighting of models, a full mathematical derivation, description of qualitative adjustments, complete calculations, comparison to individual model outputs, peer group analysis, and credit quality analysis. The decision must reflect the commission's independent analytical basis and cannot consist solely of selecting from party positions.

Section 753(c) requires that if the commission adopts a methodology materially different from its prior decision for the same utility, it must identify each material departure (changes in models, weighting, input categories, or qualitative adjustment approach) and provide a reasoned explanation for why the prior methodology was inadequate or circumstances changed.

Section 753(f) requires the commission to initiate a rulemaking to update its cost of capital determinations to conform with the new disclosure requirements. The proceeding must consider a long-term plan that revises financial models for electrical corporations to accommodate large demand growth between 2030 and 2045, and analyzes whether model selection aligns with gas corporation investments and changing natural gas demand.

New Section 910.10 requires the commission to annually provide to the Legislature an analysis of trends in California corporation credit ratings, based on the credit quality analysis required by Section 753, as part of its existing annual report under Section 910.

Section 753(b)(8)(B) requires that if the commission relies on a party settlement to adopt an ROE, the settling parties must furnish sufficient information to enable the commission to find the agreed amount is just and reasonable.

Section 753 applies to any ROE decision issued on or after January 1, 2028, regardless of whether the decision results in a rate increase or decrease.

The bill's scope expanded from structural reforms to how ROE is calculated (baseline risk framework, load-growth triggers, cost-of-capital mechanism review, transmission-level customer evaluation, incentive-based models) to also include procedural transparency and accountability requirements for all future ROE decisions plus an annual legislative reporting obligation.

Section 753(a) adds definitions for 'authorized return on equity,' 'cost of capital proceeding,' and 'financial model' (including discounted cash flow, CAPM, risk premium analysis, and comparable earnings analysis).