2013 Energy Cost of Capital
In April 2012, the four largest Investor-owned
Utilities (IOUs) in California – PG&E,
– each filed a Cost of Capital application, requesting CPUC approval to update
its Return on Equity (ROE) that will ultimately impact its Rate of Return and
its total revenue requirement that can be collected from ratepayers. Evidentiary
Hearings were held at the CPUC on September 14, 21, 24, October 2 & 3, 2012.
Public Participation Hearings were held in each utility service territory in
October 2012. See Table
comparing utility requests.
In December 2012, the CPUC adopted a Final
Decision for the ROE, capital structure, and cost of long-term debt and
preferred stock with slight modifications that reduced the amount of ROE
requested by each utility: 10.45% for Edison, 10.4% for PG&E, 10.30% for SDG&E,
and 10.10% for SoCalGas. The final decision also adopted the requested
capital structures and updated cost of long term debt and preferred equity. See
a summary Table
of the CPUC's decision compared with utilities' request.
At the October 2, 2012 Phase 1 Evidientiary
Hearing, the CPUC established Phase 2 of the proceeding to determine the Cost of
Capital Adjustment Mechanism (CCM). The CCM allows for adjustment of energy
utilities’ ROE and cost of long-term debt and preferred stock based on the
movement of a market index. In December 2012, the CPUC issued a Ruling
on Phase 2.
ORA’s Policy Position
1: ORA supported the CPUC’s December 2012 Decision to
adopt reduced ROE’s, capital structure, and cost of long-term debt and
preferred stock as being fair and reasonable. ORA did not oppose the
utilities’ proposed capital structures or forecasted costs of long-term debt
of the utilities. While ORA’s analysis and recommendations were lower
ROEs than adopted, the CPUC has made a significant downward adjustment
that are more in line with the current market and will allow utility customers
to benefit from sharing in the declining Cost of Capital rates.
See ORA’s August 6, 2012 Testimony on the Cost
of Capital for Test Year 2013 and its Revenue
2: ORA supports the continuation of the Cost of Capital Adjustment Mechanism
(CCM) with these modifications:
- The range of change in interest rates, without triggering a change in the
cost of capital, (the Deadband) should be 1.25% instead of 1%.
- SDG&E and SoCalGas’ recommendation of an inclusion of an off-ramp
provision should be rejected.
- PG&E’s recommendation to modify the Deadband to .75% and a six-month
measurement period should be rejected.
See ORA’s November 30, 2012 Phase 2 Testimony.
Current Proceeding Status
See the proceeding docket.
See a Summary
of the CPUC’s original proposed ROEs by utility.
ORA's August 7, 2012 press release on Cost
of Capital for: