Utility Model:
A Safe, Reliable, Affordable, and Clean Grid
Why does Southern California Edison (SCE) encourage customers to conserve energy and become more energy efficient? Doesn't it eat into their profits?

C ontrary to popular belief, customers using less electricity or generating their own power (from rooftop solar, for instance) does not hurt SCE’s business. SCE has been promoting energy efficiency for decades, and to date has connected about 250,000 solar customers to the grid. Thus, SCE encourages customers to use less electricity.

This e-communication explains how SCE makes money (hint – it’s not by selling electricity) and tells how the company invests each dollar it receives from its customers, and why. 
SCE's Business Model
SCE doesn't follow the typical business model of making a profit from the sale of its products and services. For example, SCE makes no profit from the electricity it purchases (about 83 percent of the power delivered) from other parties. That energy is passed on to customers "at cost," with no markup.

Instead, SCE makes its money through a Return on Assets model . Here's why: The state of California, through the California Public Utilities Commission (CPUC), encourages customers to conserve power, and wants investor-owned utilities like SCE to continue investing in the electrical system infrastructure ("the grid") to keep it safe and reliable.

It wouldn't serve the public if SCE provided electricity simply to increase sales, or to generate electricity that goes unused. That's why the Return on Assets model severs any link between electricity sales and profit.

For a company like SCE, which provides a basic service critical to the everyday lives of millions of people, the Return on Assets model incentivizes us to build, operate, maintain, strengthen, and improve the grid so that we can provide customers with electric service that is safe, reliable, affordable, and clean.
Earning a Rate of Return
Through careful analysis and planning, SCE projects what it requires for current and future energy needs and gets upfront funding from investors and long-term debt. The company then recovers these costs through customer rates over the life of the assets, including an authorized return on these investments, approved by the California Public Utilities Commission (CPUC).

What SCE is authorized to spend, and the maximum return we're authorized to collect through customer rates, gets decided every three years by the CPUC, primarily through lengthy and rigorous proceedings called the General Rate Case. These proceedings take into consideration the company's ability to implement and complete projects on time and within budget.

After all of SCE’s expenses are paid — since SCE is an investor-owned utility (with parent company Edison International listed on the stock market as EIX) — a return is then paid to the people and investors who own equity in the company, our shareholders.

Here's a two-minute video to explain it all.
Investing in the Grid and California
SCE's main investment is maintaining its local electrical distribution system. The company is also upgrading many transmission lines to bring in renewable energy resources from the desert and other distant places. We are upgrading the electric grid so it can accommodate the many new technologies that our customers desire, such as solar energy and electric vehicles.

Our investments also support state policies. We help the state meet its ambitious clean air goals and reduce greenhouse gas emissions by electrifying key economic sectors. SCE realizes that it has a big role in climate change and air quality improvement.
How Is the Money Distributed?
  • Generation: Generating power from SCE-owned facilities (about 17 percent of the energy delivered to customers) or purchasing power from third parties (about 83 percent), and the labor associated with it.
  • Transmission: High-voltage power lines, towers, substations, etc., which transmit bulk electricity from generation sites, and the labor associated with it.
  • Distribution: The reduced-voltage lines, poles, substations, underground and above-ground vaults, etc., which deliver power in usable amounts to homes and businesses, and the labor associated with it.
  • Public Policy: State-mandated programs, including incentives for energy efficiency and for low-income customers.

See the dollar bill graphic below for details.
The Bottom Line
SCE helps the state of California to achieve its many policy goals related to clean air and a greener environment. The fixed return we receive supports our capital investments, made for the reliability and future of our region’s power grid — the infrastructure you see every day in your communities, such as poles, wires, substations, power plants and more. Thus, SCE earns revenue by building, operating, and maintaining the electric grid that serves customers throughout its 50,000-square-mile service territory.
To learn more about how SCE makes money ...
Southern California Edison   |  Visit us at www.sce.com