3. Petition to Modify

California American's petition to modify D.09-05-019 requests that the temporary interest rate balancing account recognize the high cost of debt issued late in 2008 before the adopted base year of 2009.¹ In its May 1, 2008 application, California American estimated what it then believed was a reasonable estimate of 6.95% for its debt interest rate. (Petition at 2.) In fact, on November 26, 2008, the financing affiliate of California American issued $75 million in senior, unsecured thirty-year bonds, with an option to call in the fifth year. The interest rate was 10%. Authority to issue the debt was granted in D.08-11-025 in California American's financing application, Application 08-08-025, which did not cite a forecast interest rate. As a result of the upheaval of the financial markets, the interest rate for this financing at 10% was substantially higher than the 6.95% forecast interest rate that California American had included in its cost of capital application.

¹ The petition was filed on August 3, 2009 and appeared on the Commission's Daily Calendar on August 6, 2009.