Utilities’ Interest Rate Regulation Unified

By Published On: May 2, 2008

Under a proposed decision by the California Public Utilities Commission, investor-owned utilities would have a mechanism for determining their interest rates. Traditionally, they had long-running hearings every three years to determine how much payback they get individually for their investments–known as “cost of capital.” According to a PG&E filing at the Securities & Exchange Commission, the mechanism would utilize an interest rate index, the 12-month October through September average of the Moody’s Investors Service, to trigger changes in the authorized cost of debt, preferred stock, and equity. The proposed decision states that in any year in which the current index increases or decreases by more than 100 basis points from the benchmark, the cost of equity would be adjusted by one-half of the difference between the benchmark and the current index. Utilities want a five-year run on the new mechanism before having to file the traditional three-year docket. The Division of Ratepayer Advocates, the state’s consumer advocate, wants to limit it to two years. The proposal splits the difference to offer a run for three years.

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