Investor owned utilities (IOUs) have often presented concerns that the public development and financing of critical energy infrastructure such as transmission would weaken their financial position resulting in higher customer costs. IOUs often argue that increasing the percentage of debt on their books or lowering their potential rate base will harm their credit ratings resulting in a higher cost of capital. In this research note, we examine these claims in the context of IOU objections to California Assembly Bill 825, which seeks to establish a financing facility for publicly developed transmission lines. We argue that IOU concerns about the negative financial impact from AB 825’s public transmission development provisions are overwrought. It is unlikely that AB 825 would significantly change IOU’s cost of capital. Moreover, any potential impact due to AB 825 would be small enough that any negative impact on rate payer bills from changes to the utility costs of capital would be swamped by the savings incurred from replacing more of high cost utility equity with lower cost public financing.
Research note: Evaluating the impacts from reducing equity in investor-owned utility capital stacks in California
