Edison, PG&E Forgo Interest Rate Proceedings

By Published On: August 25, 2006

California Public Utilities Commission member John Bohn called on his fellow regulators to update the quarter-century-old financial parameters used to evaluate utility rate setting. His comments at the August 24 business meeting came shortly before the commission unanimously approved his proposal adopting requests by Pacific Gas & Electric and Southern California Edison to waive the 2007 cost-of-capital review. The two utilities sought the waiver because interest rates have not varied significantly from last year’s levels. Bohn pointed out that the financial models used to assess the cost of utility equity investments were developed in 1981. “It’s time to review the methods used for rate setting and to do a better job,” he said. Edison had complained that the analytical tools used in cost-of-capital proceedings made it difficult to examine technical issues. Waiving the annual test-year cost-of-capital applications will allow the issue to be “fully explored in workshops” instead of litigated, Bohn said. CPUC president Mike Peevey expressed surprise at the two investor-owned utilities’ willingness to forgo a cost-of-capital review even though they could have seen an increase in their return because of a slight rise in interest rates. He also remarked on PG&E’s announcement that it was offering a rate credit for bills that shot up during the heat wave. “The behavior is upsetting my preconceived notion of the industry,” he remarked.

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