11. Assignment of Proceeding
Michael R. Peevey is the assigned Commissioner and Seaneen M. Wilson is the assigned Administrative Law Judge in this proceeding.
1. Based on SCE's forecast of uses adjusted for compliance with Pub. Util. Code § 817, the forecast of funds needed by SCE over the period 2010-2012 is $13.743 billion. Of this need, $2.510 billion will be provided from current financing authority, $350 million will be provided by short-term debt, $500 million equity from the parent, $7.081 billion from cash from operations, $2.49 billion from new Debt Securities, and $811 million from new Preferred Equity.
2. Of its request for new financing, $2.49 billion of new Debt Securities is for capital expenditures and construction, $439 million of new Preferred Equity is for capital expenditures and construction, and $372 million of new Preferred Equity is for retirement/refinancing of previously issued securities.
3. SCE has existing authorization to issue approximately $2.58 billion of Debt Securities and $950 million of Preferred Equity, totaling approximately $3.53 billion of existing authority.
4. Of its approximately $3.53 billion of existing authority, SCE is authorized to use approximately $2.11 billion for the acquisition of property or for construction, completion, extension, improvement, or maintenance of facilities, and approximately $1.42 billion for retirement/refinancing of existing debt and equity securities.
5. The proposed new financing specified in the column titled "2010 Request" of Table 2 of this decision, appears necessary to provide the balance of external financing required to meet SCE's projected cash requirements through 2012.
6. The proposed new financing specified in the column titled "2010 Request" of Table 2 of this decision and the associated money, property, or labor to be procured or paid for with the proceeds of this proposed new financing, are, pursuant to Pub. Util. Code §§ 817 and 818, reasonably required for proper purposes, which purposes are not, in whole or in part, reasonably chargeable to operating expenses or to income.
7. New securities used to retire previously issued securities are excluded from the Commission's fee calculation pursuant to Pub. Util. Code §§ 1904(b) and 1904.1.
8. Resolution F-616 requires utilities to issue debt using competitive bids but provides for exemptions from the CBR for debt issues in excess of $200 million and debt that must be obtained on a negotiated basis such as variable-rate debt.
9. SCE has employed nine DBE firms who participated in offerings that totaled $2.65 billion.
10. Determinations that SCE's construction budget and capital structure are necessary or reasonable for ratemaking purposes are normally reviewed and authorized in general rate case or cost of capital proceedings.
11. GO 24-B requires utilities to submit a monthly report to the Commission that contains, among other things: (a) the amount of debt issued by the utility during the previous month; (b) the total amount of debt outstanding at the end of the prior month; (c) the purposes for which the utility expended the proceeds realized from the issuance of debt during the prior month; and (d) a monthly statement of the separate bank account that the utility is required to maintain for all receipts and disbursements of money obtained from the issuance of debt.
12. The Commission has frequently authorized utilities to report on a quarterly basis the information required by GO 24-B in order to reduce the utilities' administrative and compliance costs.
13. This application does not propose any specific new construction or changes in use of existing assets and facilities.
14. Notice of A.10-01-011 appeared in the Commission's Daily Calendar on January 15, 2010, and no protests were filed.
15. In Resolution ALJ 176-3247, the Commission preliminarily determined that A.10-01-011 should be categorized as ratesetting and that a hearing would not be necessary.
1. SCE should be granted authority to issue new Debt Securities of $2.49 billion for capital expenditures and construction and new Preferred Equity in the amount of $811 million, of which $439 million of new Preferred Equity is for capital expenditures and construction, and $372 million of new Preferred Equity is for retirement/refinancing of previously issued securities, all of which are for proper purposes and consistent with the requirements of Pub. Util. Code §§ 817 and 818.
2. Pursuant to Pub. Util. Code § 817, the proper purposes for financing include acquisition of property, construction, completion, extension, improvement, or maintenance of facilities, retirement/refunding of previously issued securities, and/or reimbursement of the utility for money expended from income or its treasury funds. All other purposes, such as payment of preferred dividends and net funding of decommissioning trusts, must be funded through other sources.
3. Pursuant to Pub. Util. Code § 817, SCE's revised forecast of Sources and Uses should be adjusted to remove payment of preferred dividends and net funding of nuclear decommission trusts from Uses totaling $850 million, and the same amount of Cash from Operations from Sources.
4. SCE should be granted authority to issue new Debt Securities in the form of accounts receivable financing, unsecured senior debt, unsecured subordinated debt, hybrid securities, overseas indebtedness, foreign currency denomination securities, medium-term notes, direct loans, commercial paper and extendible commercial notes, first and refunding mortgage bonds, fixed rate bonds and debentures, trust preferred securities transactions, notes sold through a placement agent, and other floating rate debt.
5. SCE should be granted authority to issue new Preferred Equity in the form of cumulative preferred stock--$25 par value, cumulative preferred stock--$100 par value, and preference stock.
6. SCE should be granted authority to determine the method of sale, price, dividend rate, voting rights, liquidation preferences and other rights, preferences, privileges, and restrictions of Preferred Equity issuances authorized herein.
7. SCE should be granted authority to include restrictive redemption provisions, dividend rates that may be fixed, floating, adjustable, or set by a market auction procedure, or mandatory sinking funds in issuances of Preferred Equity authorized herein.
8. Pursuant to Pub. Util. Code § 851, SCE should be granted authority to sell, lease, assign, mortgage, or otherwise dispose of or encumber its utility property and accounts receivable to secure Debt Securities and Preferred Equity,, authorized herein.
9. SCE should be granted authority to guarantee, or to pledge its assets on behalf of a regulated affiliate or regulated subsidiary of SCE, pursuant to § 701.5. A regulated subsidiary may be created solely for the purpose of issuing securities to the public or privately to support SCE's operations or service in which case, SCE should have 100% ownership and control of the subsidiary.
10. SCE's request to guarantee the securities or other obligations of regulated direct or indirect subsidiaries or regulated affiliates of SCE is also subject to Affiliate Transaction Rule IX C of D.06-12-029, which ensures that the utility has sufficient ring-fencing around it to prevent the utility from being pulled into the bankruptcy of its holding company.
11. SCE should be granted authority to issue Debt Securities through a governmental body, political subdivision or other conduit issuer to obtain tax-exempt status for the securities, authorized herein. This authority will be used whenever SCE's facilities qualify for tax-exempt financing under federal or state law. In this structured financing, SCE may unconditionally guaranty or otherwise secure the issuer's obligations to its debt holders. As a means of securing the issuer's obligations, SCE may issue and pledge or deliver bonds in an equal principal amount to the issuer or a trustee.
12. SCE should be granted authority to use the following kinds of debt enhancements to improve the terms and conditions of its Debt Securities authorized herein, and to lower the overall cost of money for the benefit of the ratepayers: credit enhancements; redemption provision/call options; put options; sinking funds; tax-exemptions; and warrants.
13. SCE should be granted authority to use the following kinds of swaps and hedges to manage interest rate risk of Debt Securities authorized herein: interest rate cap agreements; interest rate floor agreements; interest rate collar agreements; interest rate swap agreements; forward starting swaps; Treasury locks; caps; and collars.
14. SCE should be granted authority to exclude the swaps and hedges authorized herein for purposes of calculating its total financing authorization authorized in this decision.
15. Authority to enter into these swap and hedging contracts should be granted to SCE, only in connection with actual, pending or planned issues of Debt Securities authorized herein.
16. SCE should comply with the following restrictions regarding swap and hedging transactions authorized herein, including:
a. Separately report all interest income and expense arising from all swaps and hedging transactions in its regular report to the Commission.
b. Swap and hedging transactions should not exceed at any time 20% of SCE's total long-term debt outstanding.
c. All costs associated with hedging transactions should be subject to review in SCE's cost of capital proceedings.
d. Hedging transactions carrying potential counterparty risk should have counterparties with investment grade credit ratings.
e. If SCE elects to terminate a swap or hedging transaction before the original maturity or the swap or hedging partner terminates the agreement, all costs associated with the termination should be subject to review in SCE's next cost of capital proceeding.
f. SCE should provide the following to Commission staff within 30 days of a request: (i) all terms, conditions, and other details of swap and hedge transactions; (ii) rationale for the swap and hedge transactions; (iii) estimated costs for the "alternative" or un-hedged transactions; and (iv) copy of the swap and hedge agreements and associated documentation.
17. SCE should be granted an exemption from the CBR for all issuances of loans, variable or floating rate Debt Securities, subordinated Debt Securities such as hybrid securities, Debt Securities including hybrid securities, trust preferred securities transactions, debts secured by a pledge of accounts receivables, overseas indebtedness, foreign currency securities, and notes and tax-exempt securities, and for all issuances in excess of $200 million.
18. Consistent with the CBR, SCE must use the CBR for all issuances of fixed rate Debt Securities in the form of first and refunding mortgage, intermediate and long-term notes and debentures (fixed rate bonds and debentures) of $200 million or less in principal amount (other than tax-exempt securities) that are sold publicly in the domestic market, through competitive bidding.
19. SCE may employ the following procedures for those situations where the CBR remains applicable:
a. To shorten the time between the issuance of an invitation for bids and the scheduled receipt of bids to a period which is the shortest time reasonably required to obtaining a sufficient number of bids from underwriters or purchasers or groups thereof (which time period may be as short as a few hours).
b. To accelerate, postpone, or cancel the scheduled date and time for receipt of bids.
c. To reject all bids submitted.
d. To request the resubmission of bids.
e. To reschedule subsequent receipt of bids.
f. To vary the amount, terms, and conditions of the Debt Securities submitted for bids.
g. To waive the requirement for newspaper publication of the above items.
20. A granting of financial authority to a utility does not obligate the Commission to approve any capital projects.
21. Review of the reasonableness of capital projects occur as needed through the regulatory process applicable to each capital project.
22. Approval of this financing request does not prejudge any of SCE's forecasted capital projects for the period 2010 through 2012.
23. The authority granted by this Decision should not become effective until SCE has paid the fees prescribed by §§ 1904(b) and 1904.1.
24. Pursuant to Pub. Util. Code §§ 1904(b) and 1904.1, SCE should not pay a fee on $372 million of new Preferred Equity financing earmarked for the retirement/refinancing/refund of securities previously issued.
25. Southern California Edison Company should be authorized to use any of the $372 million of Preferred Equity earmarked for retirement/refinancing of previously issued securities for proper purposes other than the retirement/refinancing of previously issued securities, if it first notifies the Commission in writing and pays the corresponding fee. It should identify in its next Securities report after issuance regarding how it used the Preferred Equity earmarked to replace existing securities.
26. Pursuant to Pub. Util. Code §§ 1904(b) and 1904.1, SCE should pay a fee on $2.49 billion of new Debt Securities and $439 million of new Preferred Equity of $1,470,500, to the Commission's Fiscal Office.
27. The order herein is not a finding of the reasonableness of SCE's proposed construction plan or expenditures, the resulting plant balances in rate base, the capital structure, or the cost of money, nor does it indicate approval of matter s subject to review in a general rate case or other proceedings.
28. SCE should not use the proceeds from the debt authorized by this decision to fund its capital projects until SCE has obtained any required Commission approvals for the projects, including any required environmental review under CEQA.
29. The authority granted SCE herein is in compliance with Pub. Util. Code §§ 701.5, 816, 817, 818, 824, and 851.
30. Once SCE pays its fees pursuant to Pub. Util. Code §§ 1904(b) and 1904.1, the Decision should be effective so that SCE may issue the securities authorized herein as soon as necessary.
IT IS ORDERED that:
1. Southern California Edison Company is granted authority to issue new Debt Securities in the amount of $2.49 billion for capital expenditures and construction, and new Preferred Equity in the amount of $811 million, of which $439 million of new Preferred Equity is for capital expenditures and construction and $372 million of new Preferred Equity is for retirement/refinancing of previously issued securities, Southern California Edison Company is granted authority to issue new Debt Securities and Preferred Equity, in compliance with Public Utilities Code §§ 701.5, 816, 817, 818, 824, and 851.
2. Southern California Edison Company is granted authority to issue new Debt Securities in the form of accounts receivable financing, unsecured senior debt, unsecured subordinated debt, hybrid securities, overseas indebtedness, foreign currency denomination securities, medium-term notes, direct loans, commercial paper and extendible commercial notes, first and refunding mortgage bonds, fixed rate bonds and debentures, trust preferred securities transactions, notes sold through a placement agent, and other floating rate debt.
3. Southern California Edison Company is granted authority to issue new Preferred Equity in the form of cumulative preferred stock--$25 par value, cumulative preferred stock--$100 par value, and preference stock.
4. Southern California Edison Company is granted authority to determine the method of sale, price, dividend rate, voting rights, liquidation preferences and other rights, preferences, privileges, and restrictions of Preferred Equity issuances authorized herein.
5. Southern California Edison is granted authority to include restrictive redemption provisions, dividend rates that may be fixed, floating, adjustable, or set by a market auction procedure, or mandatory sinking funds in issuances of Preferred Equity authorized herein.
6. Pursuant to Public Utilities Code § 851, Southern California Edison Company is granted authority to sell, lease, assign, mortgage, or otherwise dispose of or encumber its utility property and accounts receivable to secure the Debt Securities and Preferred Equity authorized herein.
7. Southern California Edison Company is granted authority to guarantee, or to pledge its assets on behalf of a regulated affiliate or regulated subsidiary of Southern California Edison Company, pursuant to § 701.5. Southern California Edison Company may create a subsidiary solely for the purpose of issuing securities to the public or privately to support Southern California Edison Company's operations or service in which case, Southern California Edison Company must have 100% ownership and control of the subsidiary.
8. Southern California Edison Company is granted authority to issue Debt Securities through a governmental body, political subdivision or other conduit issuer to obtain tax-exempt status for the securities. This must only be used whenever Southern California Edison Company's facilities qualify for tax-exempt financing under federal or state law. In this structured financing, Southern California Edison Company may unconditionally guaranty or otherwise secure the issuer's obligations to its debt holders. As a means of securing the issuer's obligations, Southern California Edison Company may issue and pledge or deliver bonds in an equal principal amount to the issuer or a trustee.
9. Southern California Edison Company is granted authority to use the following kinds of debt enhancements to improve the terms and conditions of its Debt Securities and to lower the overall cost of money for the benefit of the ratepayers: credit enhancements; redemption provision/call options; put options; sinking funds; tax-exemptions; and warrants.
10. Southern California Edison Company is granted authority to use the following kinds of swaps and hedges to manage interest rate risk, including interest rate cap agreements, interest rate floor agreements, interest rate collar agreements, interest rate swap agreements, forward starting swaps, Treasury locks, caps, and collars.
11. Southern California Edison Company is granted authority to exclude the swaps and hedges authorized in this decision as separate debt for purposes of calculating its financing authorization.
12. Southern California Edison Company is granted authority to enter into the swap and hedging contracts authorized herein only in connection with actual, pending or planned issues of authorized Debt Securities.
13. If Southern California Edison Company enters into swap and hedging transactions, it must comply with the following restrictions:
a. Southern California Edison Company must separately report all interest income and expense arising from all swaps and hedging transactions in its regular report to the Commission.
b. Swap and hedging transactions must not exceed at any time 20% of Southern California Edison Company's total long-term debt outstanding.
c. All costs associated with hedging transactions must be subject to review in Southern California Edison Company's cost of capital proceedings.
d. Hedging transactions carrying potential counterparty risk must have counterparties with investment grade credit ratings.
e. If Southern California Edison Company elects to terminate a swap or hedging transaction before the original maturity or the swap or hedging partner terminates the agreement, all costs associated with the termination must be subject to review in Southern California Edison Company's next cost of capital proceeding.
f. Southern California Edison Company must provide the following to Commission staff within 30 days of a request: (i) all terms, conditions, and other details of swap and hedge transactions; (ii) rationale for the swap and hedge transactions; (iii) estimated costs for the "alternative" or un-hedged transactions; and (iv) copy of the swap and hedge agreements and associated documentation.
14. Southern California Edison Company is granted an exemption from the Competitive Bidding Rule for all issuances of loans, variable or floating rate Debt Securities, subordinated Debt Securities such as hybrid securities, Debt Securities including hybrid securities, trust preferred securities transactions, debts secured by a pledge of accounts receivables, overseas indebtedness, foreign currency securities, and notes and tax-exempt securities, and for all issuances in excess of $200 million.
15. Consistent with the Competitive Bidding Rule, Southern California Edison Company must use the Competitive Bidding Rule for all issuances of fixed rate Debt Securities in the form of first and refunding mortgage, intermediate and long-term notes and debentures (fixed rate bonds and debentures) of $200 million or less in principal amount (other than tax-exempt securities) that are sold publicly in the domestic market, through competitive bidding.
16. Southern California Edison Company may utilize the following procedures for those situations where the Competitive Bidding Rule remains applicable:
a. To shorten the time between the issuance of an invitation for bids and the scheduled receipt of bids to a period which is the shortest time reasonably required to obtaining a sufficient number of bids from underwriters or purchasers or groups thereof (which time period may be as short as a few hours).
b. To accelerate, postpone, or cancel the scheduled date and time for receipt of bids.
c. To reject all bids submitted.
d. To request the resubmission of bids.
e. To reschedule subsequent receipt of bids.
f. To vary the amount, terms, and conditions of the Debt Securities submitted for bids.
g. To waive the requirement for newspaper publication of the above items.
17. Southern California Edison Company must not use the proceeds from the debt authorized by this decision to fund its capital projects until Southern California Edison Company has obtained any required Commission approvals for the projects, including any required environmental review under California Environmental Quality Act.
18. Southern California Edison must report on a quarterly basis all the information required by General Order 24-B with respect to debt issued pursuant to this Order. However, Southern California Edison Company shall report this information on a monthly basis if directed to do so by the Commission staff.
19. Southern California Edison Company must remit a check for $1,470,500 as required by §§ 1904(b) and 1904.1 of the Public Utilities Code, to the Commission's Fiscal Office at 505 Van Ness Avenue, Room 3000, San Francisco, CA 94102. The number of this Decision shall appear on the face of the check. The authority granted by this Decision is effective once Southern California Edison Company has paid the fees prescribed by § 1904(b).
20. Southern California Edison Company is authorized to use any of the $372 million of Preferred Equity earmarked for retirement/refinancing of previously issued securities, for proper purposes other than the retirement/refinancing of previously issued securities, if it first notifies the Commission in writing and pays the corresponding fee. It must identify in its next Securities report after issuance regarding how it used the Preferred Equity earmarked to replace existing securities.
21. Southern California Edison Company must comply with all applicable environmental laws and regulations when planning and implementing any capital expenditure programs financed, in whole or in part, with the proceeds from the debt authorized by this Decision.
22. Application 10-01-011 is closed.
This order is effective today.
Dated August 12, 2010, at San Francisco, California.
MICHAEL R. PEEVEY
President
DIAN M. GRUENEICH
JOHN A. BOHN
TIMOTHY ALAN SIMON
NANCY E. RYAN
Commissioners
