2. Background
Major energy utilities' capital structures and ROE were traditionally addressed in their respective general rate case (GRC) applications.1 However, with the complexity of processing those GRC applications and the Commission's desire to ease a burden of issuing year-end decisions, a rulemaking proceeding, Rulemaking (R.) 87-11-012), was issued on November 13, 1987, to consider changes to the GRC process. That rulemaking resulted in transferring our review of major energy utilities' capital structure and ROE to annual cost of capital applications from GRC applications, effective January 1, 1990.2
In 1996, SDG&E was relieved of its obligation to file annual cost of capital applications upon adoption of a Market Indexed Capital Adjustment Mechanism (MICAM).3 Since that date, SDG&E's MICAM has undergone several modifications, the most recent of which occurred in 2005.4 SDG&E is currently required to file a complete cost of capital application every five years. However, if the difference between the current six-month average Aa bond rate and SDG&E's benchmark exceeds an off-ramp5 of 260-basis points, SDG&E must file a complete cost of capital application in May following that off-ramp event.
While SCE and PG&E are required to file annual cost of capital applications, they have, on occasion, requested waivers from filing their annual cost of capital applications. Waivers were granted for their test years 2004 and 2007 upon a demonstration that financial conditions and associated risks likely to influence their ROEs have not materially changed from their prior year's authorized ROEs.6
SCE, SDG&E, and PG&E filed individual test year 2008 return on equity applications on May 8, 2007. These applications were consolidated into one proceeding at a June 14, 2007 Prehearing Conference (PHC). At that time, this consolidated proceeding was bifurcated. The first phase, addressing test year 2008 returns on equity, was resolved by D.07-12-049 on December 20, 2007. The second phase of the consolidated proceeding is being resolved by this decision.
1 SCE, SDG&E, and PG&E were included in the major energy utilities category.
2 30 CPUC2d 576 at 594 (1989).
3 66 CPUC2d 568 at 573 (1996).
4 D.05-03-023.
5 Off-ramp is a trigger event that suspends the MICAM.
6 See, for example, D.03-08-063 and D.06-08-026.
