4. SDG&E's MICAM
SDG&E testified that its MICAM has met its original objectives in a cost effective manner and has proven to be a mechanism that is simple, utilizes readily available historical data, does not produce frequent or abrupt changes, and provides timely, transparent ratemaking information for numerous stakeholders. That is because it not only contains an automatic safeguard in the form of an off-ramp provision that protects against extreme changes in interest rates, but it also gives the Commission latitude to suspend the entire mechanism and invite SDG&E to participate in a full cost of capital proceeding at any time within a regular five-year period.
Under the MICAM, SDG&E's ROE increases, decreases, or remains unchanged depending on movements in utility bond yields. Each September, SDG&E compares the March through August average of Mergent's Aa utility bond yield to a benchmark. The benchmark represents, depending on recent events, either (a) the March through August Aa bond yield average of the year SDG&E last participated in a cost of capital proceeding, or (b) the March through August Aa bond yield average of the year that a MICAM trigger event occurred. In any year in which the difference between the current six-month average and the benchmark exceeds 100-basis points, SDG&E's ROE is automatically adjusted as follows:
1. ROE is adjusted by one-half of the difference between the Aa utility bond average and the benchmark.
2. Long-term debt and preferred stock costs are updated to reflect actual August month-end embedded costs in that year.
3. There is no adjustment to the authorized capital structure.
4. On September 15 of such year, an advice letter is filed that updates the ROE and related rate adjustments to become effective on January 1 of the following year.
5. Any year that the six-month average triggers an automatic adjustment, that average becomes the new benchmark.
Irrespective of its requirement to participate in a full ROE proceeding once every five years, it actively participated in each of the last four annual cost of capital proceedings, test years 2003, 2005, 2006 and 2008.7 It is not known whether SDG&E would have participated in test year 2004 and 2007 ROE proceedings because those proceedings were waived pursuant to the major energy utilities showing that risk had not materially changed in those test years. However, SDG&E also requested a waiver of a test year 2007 ROE filing.8
Although SDG&E sought to continue with its current MICAM, it acquiesced in its opening brief that if the Commission determines it necessary to adopt a single, standardized approach, that its MICAM should be the approach adopted and have a duration period of not less than three years.9 A comparison of SDG&E's MICAM to the proposals of SCE, PG&E, ATU, and DRA show that the proposals are generally comparable to each other.
We find it appropriate to establish a uniform CCM for SCE, PG&E, and SDG&E that balances the interests of SCE, SDG&E and PG&E's shareholders and ratepayers while simplifying and reducing ROE proceedings, workload requirements, and regulatory costs.
7 See D.02-11-027, D.04-12-047, D.05-12-043, and D.07-12-049.
8 See D.06-10-031.
9 SDG&E Opening Brief, p. 7.
