CPUC Streamlines Utilities’ Investment Return

By Published On: May 30, 2008

The California Public Utilities Commission made a major change in the way utilities are paid back for capital investments May 29. Instead of filing a full cost of capital review each year, an automatic mechanism was put in place for “cost of capital” adjustments. At present, utilities are allowed more than an 11 percent rate of return on investments, such as new power plants and transmission lines. This mechanism would automatically adjust that amount if the bond index moves by 1 percent or more. “This decision will help us to closely monitor and control the authorized returns of the utilities without the expense and use of so many resources we usually devote to our cost of capital proceedings,” said commissioner John Bohn. In the event of an extraordinary or catastrophic event that impacts their costs of capital and/or capital structure, affecting them differently from the overall financial markets, utilities can file a cost of capital application outside of the cost of capital mechanism process. Currently, the state’s utilities have plans to invest at least $44 billion in infrastructure over the next six years. Also at its May 29 meeting, the commission approved two Southern California Edison renewable energy contracts: California Sunrise I, a new solar photovoltaic facility; and a Sanitation Districts of Los Angeles County gas-to-energy project. California Sunrise I, located in Kern County, is Edison’s first photovoltaic project under the CPUC’s renewables portfolio standard program, which requires investor-owned utilities, energy service providers, and community choice aggregators in the state to get 20 percent of their retail sales from renewable sources by 2010. Edison expects the 2.3 GWh California Sunrise I energy facility to be on line by the end of 2008. The Sanitation Districts project, located in Rolling Hills Estates, is set to replace an existing steam power plant and landfill gas flare with microturbines, a fuel cell, and an ultra low emission flare, likely resulting in lower overall emissions at the facility. The 12.6 GWh energy project is anticipated to be on line by the end of 2009. The Commission also approved a 10-year contract between Edison and Blythe Energy, under which up to 490 MW of expected capacity will be connected to Edison’s service territory via a new 67-mile transmission line from an existing power plant. Edison and Blythe estimate that the project could be on line by August 2010.

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