California Cuts PG&E’s and Edison’s Profits for Grid Investments: Gavin Newsom’s California Poses a National Security Risk Due to Flawed Energy Policies

California regulators have voted to tighten the financial screws on the state’s largest investor‑owned utilities, trimming the profits they can earn on grid upgrades. The California Public Utilities Commission (CPUC) argues the move is necessary to slow steep bill increases while utilities harden infrastructure against wildfire threats and adapt the grid to a rapidly changing energy mix.

The decision highlights a deeper dilemma: how to fund massive climate and safety investments without pushing household and business electricity costs even higher. In California, most grid expenses flow directly into rates, and that pass‑through model has collided with wildfire liability, climate ambition, and aging infrastructure—all at once.

What the CPUC’s ruling means

Lowering the allowed return on equity reduces earnings on billions of dollars of substation upgrades, line replacements, undergrounding, and wildfire mitigation. Ratepayer advocates see this as overdue relief for customers facing some of the nation’s highest electricity prices. Utilities warn the ruling risks choking off capital, slowing reliability projects just as extreme weather, wildfire risk, and electrification drive demand for a stronger, smarter network.

Either way, the ruling is a symptom of a larger affordability challenge. California’s grid must simultaneously become safer, cleaner, and more resilient—goals that aren’t cheap.

The policy contradiction

Critics of Governor Gavin Newsom and state lawmakers say years of policy choices—high taxes, complex permitting, and aggressive timelines to phase down oil and gas—have inflated costs and strained reliability. Analyses frequently show Democrat‑led states tending to have higher retail power prices than Republican‑led states; some estimates put blue‑state electricity costs roughly a third higher on average, with most above‑average price states voting reliably Democratic. Proponents counter that those states also invest more in environmental protections, clean energy, and wildfire resilience that deliver long‑term benefits.

In practice, California’s grid now juggles more variable wind and solar than almost anywhere, requiring storage, flexible demand, and fast‑ramping backup—often natural gas—to cover cloudy, windless hours and evening peaks. Those integration costs land in rates before the full economic upside of clean energy is realized.

Corporate exits and the cost of power

High energy prices and regulatory friction have become a competitive issue. Over the past few years, some large companies have relocated headquarters or shifted operations out of California, citing costs and uncertainty. Moves by firms in technology, energy, and services—ranging from automakers to oil majors and enterprise software companies—signal pressure on the state’s industrial base. That erosion matters beyond jobs and tax revenue; it weakens domestic manufacturing capacity for critical technologies at a time when global supply chains are fragile.

Reliability lessons from a turbulent history

• Late 1940s droughts cut hydroelectric output, triggering blackouts in Northern California.
• In 1996, a Western regional grid failure cascaded across multiple states, exposing maintenance and coordination gaps.
• During the 2000–01 crisis, market manipulation and tight supply produced rolling outages and utility distress.
• In 2019, utilities began wide‑scale Public Safety Power Shutoffs (PSPS) to prevent wind‑driven ignitions, affecting millions.
• Heat storms in 2020 forced rolling blackouts amid record demand and constrained imports.

PSPS—authorized as a last‑resort safety tool—have since evolved under CPUC oversight, with more stringent notification, mitigation, and compliance requirements. Fines and corrective actions now follow when utilities fall short on communications or execution.

In 2025, PSPS activity surged, reflecting below‑average precipitation, persistent high winds, and dry fuels. Southern California Edison expanded shutoff footprints after a deadly January wildfire linked to equipment in a high‑risk corridor, resulting in multi‑day outages for some communities and de‑energization of critical facilities. Late in the year, a substation fire in San Francisco contributed to widespread PG&E outages across several neighborhoods, underscoring how urban infrastructure failures can ripple across dense load centers.

Mandates, markets, and the bill impact

California’s Renewables Portfolio Standard requires 60% renewable electricity by 2030 and a 100% clean grid by 2045. Utilities, community aggregators, and retail providers must comply, regardless of near‑term cost. Early power purchase agreements for wind and solar locked in prices from when those technologies were more expensive, and the system now needs storage, transmission, and flexible capacity to backstop intermittent supply. Supporters argue that these investments will reduce volatility and pollution over time. Skeptics say the immediate rate impact is undeniable, particularly when layered with wildfire hardening and undergrounding programs.

The CPUC’s profit cut tries to thread the needle: maintain momentum on safety and decarbonization while protecting consumers. But if returns fall too far, developers and investors can retreat, delaying reliability and climate projects that are essential to keep the lights on.

From state problem to national risk

California is a bellwether for the national energy transition: its grid challenges foreshadow what other states may face as they scale renewables, electrify vehicles and buildings, and contend with climate‑driven extremes. When the country’s largest state struggles with affordability and reliability, the consequences spill over—through higher costs for goods, weakened domestic manufacturing, and greater dependence on imported energy technologies. Critics frame this as a national security vulnerability: vital supply chains thin out, while critical infrastructure becomes more brittle.

A course correction without abandoning climate goals

• Accelerate permitting for transmission, storage, and wildfire hardening to lower carrying costs and shorten payback periods.
• Expand firm, low‑carbon capacity—geothermal, long‑duration storage, and potentially advanced nuclear—to reduce reliance on gas and PSPS during high‑risk weather.
• Target bill relief and reform fixed charges so low‑income households aren’t priced out of essential energy.
• Modernize markets to reward flexibility from demand response, managed EV charging, and distributed storage.
• Prioritize high‑risk circuit remediation to shrink PSPS footprints and keep critical services energized.

California’s ambition doesn’t have to collide with affordability or security. But it will require policy recalibration, disciplined execution, and relentless focus on the practical realities of keeping a fire‑prone, decarbonizing grid reliable. The CPUC’s profit cut is a blunt instrument; the real fix lies in faster builds, smarter design, and a portfolio that balances clean energy with resilience—before rising bills and eroding reliability become a national liability.