To advance affordability agenda, Calif. governor taps new utilities board head

California Gov. Gavin Newsom recently announced a round of energy leadership changes, tapping John Reynolds as the next president of the California Public Utilities Commission as the administration shifts into what it calls a new phase of efforts to reduce escalating utility bills, tighten oversight of wildfire-related spending, and keep utilities accountable for safe and reliable service.

➤ The appointment of John Reynolds as PUC president signals a shift by California toward stricter oversight of utility spending, especially regarding wildfire safety. Newsom also announced that Christine Harada (D) will be appointed as a PUC commissioner. Harada's appointment is not subject to state Senate confirmation.

➤ The Newsom administration is tying the leadership changes and appointment of a new commissioner to a broader agenda aimed at controlling rising utility bills and improving reliability. The PUC will focus on stronger utility accountability, rate design changes and more competitive clean energy procurement.

➤ California's recent wildfire-liability reforms, such as Senate Bill 254, which injected $18 billion into the state's wildfire fund and clarified cost‑sharing between shareholders and ratepayers, have restored some investor confidence. Regulatory Research Associates has therefore lifted the state's utility‑investor rating back to Average/1 as of  Nov. 30, 2025, even though the underlying inverse‑condemnation liability risk remains.

➤ The California regulatory climate for water utilities is relatively balanced from an investor viewpoint. Pending rate cases for two large water utilities include requests to reinstate full decoupling mechanisms.

John Reynolds will take over leadership of the PUC, the state agency that regulates investor-owned utilities and other providers. The governor's office said Reynolds will focus on lowering customer costs while ensuring wildfire-safety investments deliver "real value," including measures such as burying power lines, strengthening poles and clearing vegetation in high-risk areas.

Reynolds will replace former President Alice Reynolds; the governor appointed Alice Reynolds to the California Independent System Operator Board of Governors, which oversees the operation of much of the state's electric grid. Alice Reynolds is expected to step down from the commission in late February.

Newsom also announced on Feb. 18 that Christine Harada (D) will be appointed as a PUC commissioner. Harada has been Undersecretary of the California Government Operations Agency since 2025. She was senior advisor at the US Office of Management and Budget from 2023 to 2025, and executive director at the Federal Permitting Improvement Steering Council from 2021 to 2023. Harada's appointment is subject to state Senate confirmation.

The Newsom administration tied the appointments to its broader affordability and reliability agenda, which it said is built around three priorities: stronger utility accountability so spending results in safer, more reliable service at reasonable cost; rate design changes intended to reduce cost shifting and protect working families; and more competitive clean energy procurement to meet rising electricity demand while limiting long-term costs.

Other commissioners on the PUC and the dates their terms expire are as follows: Darcie Houck, January 2027; Karen Douglas, January 2029; and Matt Baker, January 2031. John Reynolds' term expires January 2029.

The PUC regulates investor-owned utilities, including PG&E Corp.'s Pacific Gas and Electric Co. (PG&E); Edison International utility Southern California Edison Co. (SCE); Sempra's San Diego Gas & Electric Co. (SDG&E); and Southern California Gas Co. (SCG).

Additionally, the PUC regulates American Water Works Co. Inc. subsidiary California-American Water Co. (Cal-Am); American States Water Co.'s subsidiaries Bear Valley Electric Service Inc. and Golden State Water Co.; California Water Service Group's utility California Water Service Co. (Cal Water); and H2O America subsidiary San Jose Water Co.

The commission is currently overseeing several large rate case proceedings, including one for PG&E, one for Southwest Gas Holdings Inc., one for Bear Valley Electric Service Inc. and one for Liberty Utilities (CalPeco Electric) LLC.

On the water side, Cal-Am and Cal Water each have general rate cases pending. A focus in each proceeding is a request for a full decoupling mechanism that would allow the utilities to recover authorized fixed costs, regardless of sales volume. Until a 2020 decision reversed course, three of the four largest water utilities had been utilizing such a mechanism since 2008.

Calif. energy regulatory environment

Supportive wildfire liability protection measures recently passed by the California State Legislature and potential new ones prompted RRA to raise California's ranking back to Average/1 from Average/2 as of Nov. 30, 2025, indicating that the state remains somewhat constructive from a utility investor perspective.

In June 2025, RRA reduced California's ranking from Average/1 to Average/2 due to uncertainty about utilities' future wildfire liabilities. RRA continues to wait on cause determination of the destructive Los Angeles wildfires that began in January 2025. While no official root cause report by CalFire has been issued, media reports and lawsuits allege that one of the fires — the Eaton fire — was ignited by Southern California Edison Co.'s electrical equipment. Senate Bill 254 removes some uncertainty regarding the liabilities faced by utilities. The legislation, which Gov. Gavin Newsom signed in September 2025, added up to $18 billion to California's approximately $21 billion wildfire fund, which protects utilities from wildfire liabilities. Investor-owned utility shareholders and ratepayers are to split the cost. The bill also directed the fund administrator to deliver a report by April 1, 2026, exploring new approaches to paying for wildfires and other catastrophes by replacing or augmenting the fund. Despite the fund's replenishment, "more durable solutions are needed to socialize the risk of damage from natural catastrophes ... not only with respect to electric utilities but economywide," Newsom said in an executive order launching the next phase of the state's response.

For now, the state's inverse condemnation legal standard for wildfire events involving utility equipment remains in place. Under this principle, if a utility's equipment is found to have been a substantial cause of the damage in an event such as a wildfire, the utility, even if it has followed established inspection and safety rules, may still be liable for damage.

The more traditional aspects of the California regulatory paradigm are relatively constructive for investors. The state operates under a largely traditional, vertically integrated electric regulatory framework, with direct access available for customers of the large electric utilities, subject to certain load caps. Equity return authorizations for major energy utilities are set using cost-of-capital mechanisms, and recent ROE authorizations have been above industry averages when established.

For more, refer to the California commission profile page.

Calif. water regulatory environment

The California regulatory climate for water utilities is relatively balanced from an investor viewpoint. Authorized ROEs have historically been below prevailing industry averages when established. However, currently authorized returns are above the national average. The water cost-of-capital mechanism, which automatically adjusts the authorized ROEs to go up or down to reflect significant changes in the capital markets, provides flexibility to respond to changing financial market dynamics without the need for a full-blown, litigated proceeding.

The use of a forward-looking test year and multiple balancing accounts that reflect variations in operating expenses, including pension expenses and healthcare costs, provides the water utilities a reasonable opportunity to earn their allowed returns. Water utility rate case decisions have frequently been delayed past the date the new rates were expected to take effect, increasing regulatory risk. The use of retroactive effective dates for approved rate changes has minimized the financial impact of these delays.

In a 2020 order, the PUC ruled that the full decoupling mechanism used by the largest (Class A) water utilities since 2008 should be transitioned to one that recognizes only changes in water prices from wholesale water providers and not volumetric fluctuations. The Class A water utilities filed a petition with the California Supreme Court after multiple rehearing requests were denied. In July 2024, the Court issued a unanimous decision voiding the decoupling provisions of the 2020 CPUC decision. As a result, the Class A water utilities submitting general rate case filings are no longer precluded from proposing the use of a full decoupling mechanism in their general rate cases. However, the PUC is under no obligation to authorize such a mechanism.

RRA accords the California regulatory climate an Average/1 rating for water utilities.

Regulatory Research Associates is a group within S&P Global Energy.
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