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2013 Energy Cost of Capital


In April 2012, the four largest Investor-owned Utilities (IOUs) in California – PG&E, Edison, SDG&E, SoCalGas – each filed a Cost of Capital application, requesting CPUC approval to update its Return on Equity (ROE) that will ultimately impact its Rate of Return and its total revenue requirement that can be collected from ratepayers. Evidentiary Hearings were held at the CPUC on September 14, 21, 24, October 2 & 3, 2012. Public Participation Hearings were held in each utility service territory in October 2012.  See Table comparing utility requests. 

In December 2012, the CPUC adopted a Final Decision for the ROE, capital structure, and cost of long-term debt and preferred stock with slight modifications that reduced the amount of ROE requested by each utility: 10.45% for Edison, 10.4% for PG&E, 10.30% for SDG&E, and 10.10% for SoCalGas.  The final decision also adopted the requested capital structures and updated cost of long term debt and preferred equity. See a summary Table of the CPUC's decision compared with utilities' request.

At the October 2, 2012 Phase 1 Evidientiary Hearing, the CPUC established Phase 2 of the proceeding to determine the Cost of Capital Adjustment Mechanism (CCM). The CCM allows for adjustment of energy utilities’ ROE and cost of long-term debt and preferred stock based on the movement of a market index. In December 2012, the CPUC issued a Ruling on Phase 2.


The Public Advocates Office’s (the Office) Policy Position 

PHASE 1:  The Office supported the CPUC’s December 2012 Decision to adopt reduced ROE’s, capital structure, and cost of long-term debt and preferred stock as being fair and reasonable. The Office did not oppose the utilities’ proposed capital structures or forecasted costs of long-term debt of the utilities.  While the Office’s analysis and recommendations were lower ROEs than adopted, the CPUC has made a significant downward adjustment  that are more in line with the current market and will allow utility customers to benefit from sharing in the declining Cost of Capital rates. 

See the Office’s August 6, 2012 Testimony on the Cost of Capital for Test Year 2013 and its Revenue Protection.

PHASE 2: The Office supports the continuation of the Cost of Capital Adjustment Mechanism (CCM) with these modifications:

  • The range of change in interest rates, without triggering a change in the cost of capital, (the Deadband) should be 1.25% instead of 1%.
  • SDG&E and SoCalGas’ recommendation of an inclusion of an off-ramp provision should be rejected.
  • PG&E’s recommendation to modify the Deadband to .75% and a six-month measurement period should be rejected.

See the Office’s November 30, 2012 Phase 2 Testimony


Current Proceeding Status 

See the proceeding docket.


Other Resources

See a Summary of the CPUC’s original proposed ROEs by utility.

The Office's August 7, 2012 press release on Cost of Capital for: