Utilities Offer Slight Rate of Return Decrease

By Published On: April 27, 2012

In their annual applications to the California Public Utilities Commission, investor-owned utilities offered to take a small cut in their rates of return on investments. The range of high returns on equity investments would decline to about 11 percent from a current high of 11.5 percent if the April 20 utility proposals are accepted by regulators. State regulators admit to pressure to lower utility rates of return. Utilities maintain they require solid returns on investments as they are required by the state to refurbish old infrastructure and start new technology. For instance, San Diego Gas & Electric asserts it “faces significant challenges as it seeks to implement the aggressive renewables portfolio standard goal of 33 percent renewable procurement by 2020 and deploy new technology in the smart grid program while facing the prospect of increasing distributed generation and a growing plug-in vehicle market,” according to Don Widjaja, SDG&E quantitative risk and controls manager. For SoCal Gas, “Infrastructure investments that are required to accommodate customer growth, enhanced pipeline safety standards and the advanced metering infrastructure program. . . entering a period of large capital investment and industry transition, it will require more frequent access to capital markets,” according to written commission testimony. The gas utility expects to invest $5 billion by 2016, much of which would be subject to new investment rates of return. The highest rate of return utilities may receive is for equity in new investments. That borrowing results in returns usually above 11 percent. For common debt, utilities get a rate of return about 9 percent. In filings with the commission, utilities are requesting returns as follows: -SoCal Gas--The Sempra utilities, SoCal Gas and SDG&E, have been on the low side for guaranteed rates of return on investments. This year, SoCal Gas offered ratepayers a return on equity at 10.9 percent, effective 2013. If approved that would be a decline in ratepayer contribution of $1.2 million. -San Diego Gas & Electric--Proposing to cut 0.1 percent off return on equity investments, SDG&E offered an 11 percent rate of return on investments to ratepayers. -Southern California Edison--Offering a 0.25 percent decrease from current rates of return, Edison is floating 11.1 percent for its return on equity investments. The utility stated that would result in a $128 million decrease for ratepayers’ responsibility. -Pacific Gas & Electric--This utility would decrease its rate of return on equity from 11.35 percent to 11 percent. That would be a decrease of $98 million to ratepayers, according to filings.

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