Utilities Cite Stability to Extend Investment Returns

The state’s investor-owned utilities, with Division of Ratepayer Advocates backing, requested an extension of their current payback on investments. “It provides stability and predictability,” Ted Craver, Edison International chief executive officer said during the latest earnings report. At issue is what is called the private utilities “cost-of-capital.” It involves a mechanism to trigger returns on utility investments that climb over 11 percent developed by the California Public Utilities Commission. Each utility has a different maximum return. Edison, for instance, tops out at 11.5 percent. The trigger is a complex algorithm involving the nation’s ratings agencies and the separation in basis point interest that could be gained by utilities. The utilities in their August 14 regulatory filing all ask that the current mechanisms be extended for two years, through 2012. In exchange, utilities say they are giving up the ability to hike up returns on investment paid by ratepayers. According to the utilities, the extension gives them stability and avoids lengthy regulatory hearings to reset rates of return on equity and common stock for two more years. The current mechanism expires next year. The mechanism--based on ratings agency evaluations--did not trigger a higher rate-of-return last year in Pacific Gas & Electric’s territory. It would, however, account for $120 million in extra income for the utility in the past year, according to the company if it applied the triggering mechanism.

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Utilities Cite Stability to Extend Investment Returns

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