PG&E Granted 11.22 Percent Return on Investments

By Published On: December 19, 2004

Turning an annual accounting matter into an acrimonious debate, the California Public Utilities Commission locked horns December 16 over how much return on equity Pacific Gas & Electric and Southern California Edison will be able to earn in 2005. By a 3-2 vote, the CPUC approved an administrative law judge?s proposed decision authorizing an 11.22 percent return on equity for PG&E and 11.4 percent for Southern California Edison, but not before several commissioners took swipes at each other?s understanding of economics. Commissioner Loretta Lynch, who voted against the decision, noted that the administrative law judge determined that a lower rate of return ranging from 10.1 percent to 11.01 percent was ?just and reasonable? for PG&E but revised it to 11.22 percent to comply with the utility?s bankruptcy settlement. The judge concluded that risks and rising interest rates facing PG&E and Edison warranted the CPUC adopting returns on equity at the upper range. ?Here is a case where a ?just and reasonable? standard is warranted but not available because the commission signed on to PG&E?s bankruptcy settlement,? Lynch charged. Lynch also found Edison?s rate of return too high and chastised the Office of Ratepayer Advocates. She argued that ORA failed to consider ratepayers? interest in allowing the utility to set an 11.7 percent trigger in 1998 when interest rates were much higher than today. Edison?s rate of return should be 10.9 percent, the same as San Diego Gas & Electric?s, she argued. Commissioner Carl Wood, who joined Lynch in opposing the decision, agreed that both utilities were allowed to earn excessive profits for their shareholders. ?Southern California Edison is being given a windfall that is unjustified,? he said. CPUC president Mike Peevey lost his patience with his two departing colleagues and accused both Lynch and Wood of ignoring the realities of a failing economy, a massive federal deficit, and higher interest rates. Holding up a newspaper article about the Federal Reserve raising interest rates yesterday for the fifth time this year, Peevey proclaimed, ?Alan Greenspan is certainly a better judge of economic reality than my colleagues!? Peevey maintained that without the higher rates of return, it would cost utilities more to borrow money for investing. The change for PG&E is expected to result in a $1.2 million increase in electric revenues and an $8.3 million reduction in gas revenues next year, according to CPUC spokesperson Terrie Prosper. For Edison, she said, the change will equate to a $43.6 million reduction in revenues for 2005. The decision requires SDG&E, as well as Edison and PG&E, to file a test-year return on equity by May 9, 2005. Regulators also directed the three utilities to include recommendations for improving and maintaining their credit ratings in their annual cost-of-capital applications.

Share this story

Not a member yet?

Subscribe Now