At its final meeting of the year, the California Public Utilities Commission unanimously approved a small cut in Southern California Edison’s return on its common stock, but increased the amount that San Diego Gas & Electric ratepayers pay for possible financial risks associated with SDG&E’s outstanding common stock. The regulators at their December 20 meeting left Pacific Gas & Electric’s annual 11.35 percent return on equity unchanged. The decision strikes the “right balance,” said Mike Peevey, CPUC president. However, he questioned the wisdom of lowering Edison’s equity income associated with its stock in these “uncertain times.” “The CPUC is out of touch with the national trend toward lower guaranteed profits, and is also out of touch with the struggles many Californians already face to afford essentials like heat, light and hot water,” stated Bob Finkelstein, The Utility Reform Network executive director. He added that the national average for utility return on equity awarded in 2007 was 10.28 percent. PG&E, Edison and SDG&E are allowed 11.35 percent, 11.50 percent, and 11.10 percent, respectively. On a 5-0 vote with little discussion, regulators approved an indefinite horizon for the three utilities’ return on equity. Edison’s return was lowered from 11.60 percent to 11.50 percent, which is estimated to save ratepayers $9.3 million next year. SDG&E’s return on equity was raised from 10.70 percent to 11.10 percent. It is estimated to cost San Diegans $4.3 million in 2008. “It is corporate welfare, plan and simple,” said James Weil, director of Aglet consumer alliance. He noted that the risks that utility shareholders face today are significantly lower because of a far more favorable financial environment for utilities. Thus, the return on common stock, which aims to compensate for possible risks, should be slashed, he said. The CPUC found that 11.50 percent for Edison was “reasonably sufficient to ensure confidence in the financial soundness of the utility, while, at the same time, balance the interests between shareholders and ratepayers.” Under a U.S. Supreme Court 1944 ruling, utilities are allowed “reasonable” returns on the value of their property used for public benefit. Compensation is allowed for real and/or perceived financial risks. The interest rate utilities pay to borrow money to finance projects, for example, is tied to their credit ratings, which is determined by the level of perceived investment risks. And, ratepayers are on the hook for those costs. Utility shareholders, however, not only reap money for risks associated with their common shares but also for those linked to their debt and preferred shares. The latter rates are rarely contested because they are tied to market rates. How long the return on equity rates will be in effect for the three utilities will be determined in a second phase of the proceeding. Briefs from stakeholders are due January 4, 2008 and hearings are expected to begin end of January.