California Small Telephone Companies
Cost of Capital


On September 1, 2015, the ten independent small Telephone Companies filed an Application with the CPUC requesting to establish Cost of Capital rates as directed by the CPUC’s June 2015 Decision. The Cost of Capital is calculated based upon debt cost, a cost of equity (i.e. authorized return on investment), and the percentage of debt and equity that would be reasonable to support utility operations (i.e., capital structure). The Cost of Capital determined in this proceeding will be used in the small Telephone Companies' next General Rate Cases.     

The Telephone Companies' request:   

  • An 18.50% return on equity    
  • A debt-to-equity ratio of 30/70   
  • Individually calculated costs of debt    

Alternatively, the Small Telephone Companies would support an overall Cost of Capital of 14.6% if the CPUC preferred to adopt a single Cost of Capital applicable to all ten telephone companies, based upon an average 5.5% cost of debt.    

Currently, all ten Small Telephone Companies have an authorized Cost of Capital of 10%.      

A CPUC Decision is anticipated for summer 2016.    


Public Advocates Office Position

 The Public Advocates Office has performed an in-depth review of the Small Telephone Companies’ Cost of Capital request and issued its full report via Testimony. The Public Advocates Office’s Testimony shows that much has changed since 1997, when the CPUC last adopted a 10% cost of capital for the ten independent small telephone companies. These changes should be reflected in the costs of capital adopted in this proceeding.  

The CPUC should determine the cost of capital holistically in this proceeding, and not in individual general rate cases. The Public Advocates Office’s recommendations will promote efficiency in the CPUC’s ratesetting processes, as well as reflect reasonable investor expectations.   

The Public Advocates Office recommends the CPUC should:   

  • Approve an 8.79% return on equity (investor return) as appropriate given current market conditions. 


  • Use each company’s actual capital structure, except for those three companies without debt in their capital structure.   
    • For those companies without debt, the CPUC should authorize the average capital structure of the companies with debt (43.18% debt / 56.82% equity), for ratemaking purposes.  
  • Use each company’s current actual cost of debt, except for those companies without debt in their capital structure.   
    • For those companies without debt, the CPUC should use the average cost of debt of those companies with debt(4.53%), for ratemaking purposes.  

The Public Advocates Office’s recommendations would result in savings of over $6 million from current revenue requirements, as compared to the small telephone companies’ request which would result in over $10 million in additional costs. 


See The Public Advocates Office's February 10, 2015 Testimony with its full Analysis of the Cost of Capital Application.

See The Public Advocates Office's October 12, 2015 Protest to the Application. 

CPUC Proceeding Docket 

See the Proceedingdocket for a full record of the case.   

Visit the docket to subscribe to proceeding updates. 


Other Resources

The Public Advocates Office's Telephone Customer Rates Portal