California regulators approved a three-step rate adjustment for Southern California Edison Co. that is much lower than the utility sought and makes deep cuts to its requests for capital spending to modernize its grid.

Relative to SCE's present rates, the Public Utilities Commission on May 16 adopted a cumulative revenue increase for the Edison International subsidiary of 3.94% for a partially retroactive rate period covering 2018 through 2020. SCE had asked for a 14.7% cumulative increase through 2020.

The utility also requested authority to make significant capital investments over the three-year rate period, including investments to modernize its electric system. SCE said infrastructure upgrades to modernize its grid must be made to enable implementing California's ambitious clean energy policies. Intervening customer groups argued that SCE's approach was either unnecessary at this time or too costly.

The PUC set SCE's 2018 revenue at $5.1 billion, cutting the utility's final updated 2018 revenue request of $5.53 billion by about $430 million. Even if the company had obtained the full request for that year, it would have represented a $22 million decrease from SCE's current rates.

SCE also sought a $431 million revenue increase for 2019 and $503 million increase for 2020. The PUC instead approved increases of $335 million for 2019 and $410 million for 2020.

A significant component of SCE's request was for approval of capital expenditures of $4.7 billion during 2018 alone. The PUC approved $3.98 billion instead, saying SCE did not show the rest of its expenditures were just and reasonable.

Since the commission took almost three years to review SCE's rate application, Commissioner Genevieve Shiroma noted, the utility is due to file its next rate case this fall.

PUC President Michael Picker said the authorized capital expenditures are needed to keep SCE's aging system reliable by replacing outdated equipment and taking other steps to modernize the grid, such as by developing a foundation for integrating distributed generation. Moreover, noting that voltage is too low at more than 25% of SCE's circuits to reliably serve customers, Picker cited plans to replace 4-kV and lower circuits and substations with higher voltages.

Commissioner Martha Guzman Aceves acknowledged public comments of several utility workers who urged the commissioners to fund SCE's efforts to make transmission and distribution equipment more resilient to high winds and less prone to sparking wildfires. She noted that most initiatives to prevent wildfire are the subjects of other rate-making proceedings because the Legislature passed a law requiring those efforts after SCE filed the current rate case.

When SCE's application was filed Sept. 1, 2016, the utility originally sought an authorized base revenue requirement of nearly $5.89 billion, effective Jan. 1, 2018, representing an increase of $221 million over currently authorized levels. SCE requested further increases in 2019 and 2020 of $533 million and $570 million, respectively. However, the utility subsequently updated its application, addressing the impact of the federal Tax Cuts and Jobs Act, which saved the utility millions of dollars in income taxes.