Conclusions of Law
1. This is a ratesetting proceeding.
2. A public hearing is not necessary.
3. The Application should be granted to the extent set forth in the order that follows.
4. The proposed borrowings, pursuant to § 823(c), are for lawful purposes.
5. It is reasonable to exempt Edison from the competitive bidding rule when the transaction (i) exceeds a principal amount of $200 million, and, or (ii) utilizes a variable-rate debt.
6. It is reasonable to allow Edison to secure its debt pursuant to § 851 by (i) a mortgage on Edison's real property, or (ii) a pledge of Edison's accounts receivable.
7. The necessary and still relevant provisions of the prior decision for Edison to finance its short-term borrowing needs are included in the orders of this decision.
8. The prior decision for authority to finance short-term borrowing needs is redundant and should be superseded.
9. Edison should comply with the reporting requirements of General Order 24-B on a quarterly basis.
10. There is a fee of $561,500 due or payable with respect to this Application pursuant to § 1904(b).
11. This decision should be effective upon payment of the fee.
ORDER
IT IS ORDERED that:
1. Southern California Edison Company (Edison) is authorized, pursuant to Pub. Util. Code § 823(c), to issue up to $2,000,000,000 in debt securities to finance Edison's short-term borrowing needs.
2. Edison may secure its debt, pursuant to Pub. Util. Code § 851, by (i) a mortgage on Edison's real property, or (ii) a pledge of Edison's accounts receivable as described in this order.
3. Edison is exempted from the competitive bidding rule when the transaction (i) exceeds a principal amount of $ 200 million, and, or (ii) utilizes a variable-rate debt.
4. On or before the 25th day of the month following each quarter, Edison shall file a report for the preceding quarter showing all receipts and disbursements required by General Order 24.
5. This authority is not effective until Edison pays a $561,500 fee, pursuant to Pub. Util. Code § 1904(b), to the Commission's Fiscal Office.
6. The authority granted to Edison in this decision remains in effect until modified or otherwise changed by a subsequent order of this Commission.
7. Application 08-06-013 is closed.
This order is effective today.
Dated October 2, 2008, at San Francisco, California.
MICHAEL R. PEEVEY
President
DIAN M. GRUENEICH
JOHN A. BOHN
RACHELLE B. CHONG
Commissioners
I will file a dissent.
/s/ TIMOTHY ALAN SIMON
Commissioner
Commissioner Timothy Alan Simon's Dissent to October 2, 2008 Public Agenda 3222, Agenda Items 25 [A08-05-033],
26 [A08-06-012], and 27 [A08-06-013]
I am dissenting on Agenda item 25 because I have some concerns about PG&E's Application6, and about utility requests for exemptions on competitive bidding for debt securities and preferred stock securities offerings in general. My comments are therefore also applicable to Agenda items 26 and 27, respectively, which were filed by Southern California Edison.7 As a professor of law and securities regulation, I recognize that utilities clearly need access to capital to finance operating capital, facilities upgrades, and other critical infrastructure projects. In addition, I do not want to postpone judgment on these matters given the distressed and uncertain state of our financial markets. Nevertheless, my concerns with these Applications are threefold:
First, PG&E's request to issue $4.0 billion in long-term debt and preferred stock is based on a three-year projection of capital expenditure requirements. Locking in non-competitive financing terms for such a large offering request over a lengthy period of time may not be in the best interest of ratepayers when a better deal could be obtained if this large offering was submitted in pieces to take advantage of fluctuating and potentially better market conditions prior to 2011.
This brings me to my second concern. The exemptions granted under the Competitive Bidding Rule in Resolution F-616 require a "conclusive showing by a utility that an exemption would be in the best interest of ratepayers." 3
In their Application, PG&E has not provided sufficient evidence to demonstrate that their negotiated deal is superior to competitive bidding. Rather, PG&E ostensibly assumes that competitive bidding may result in higher costs due to the fragmentation of the investment banking industry into competing syndicates that would face increased risk. While negotiated bids in extraordinary circumstances can be favorable, there is a competing school of thought that competitive bidding should result in the lowest, most efficient market prices and fees for these securities. Furthermore, many of PG&E's concerns with competitive bidding appear to be based not on record evidence or a showing of comparative market data, but on banking industry status quo assumptions that may or may not hold true.
Third, while I am pleased to see PG&E and our other regulated utilities make progress toward achieving our General Order 156 goals, I would like to challenge them to proactively continue to procure financial services from emerging firms, including, but not limited to, WMDVBE or otherwise. Many emerging firms are significant participants on Wall Street and should be given the opportunity to compete for California's regulated utility financial services. I look forward to working together with our regulated utilities to ensure that we rise to this challenge of creating business opportunities for these firms. This is a relevant and timely concern as we find our financial markets highly distressed, with entrenched banks and other major institutions failing or teetering on the edge of collapse. The status quo is clearly not working.
Finally, I understand that it has been Commission practice to routinely grant exemptions to the Competitive Bidding Rule since the adoption of Resolution F-616 on October 1, 1986. This practice calls into question whether this rule is effective or necessary. We have essentially granted one continuous boilerplate exemption since the adoption of this Resolution, which should be reexamined and updated to ensure the best financing terms for ratepayers going forward. We should revisit these issues in a rulemaking with an accompanying workshop before the Commission in order to lend additional clarity and transparency to this process.
Ratepayers deserve the same respect, transparency, and accountability as shareholders. These blanket exemptions without a time constraint or ceiling does not support efficiency in the market, which is driven by competitive pricing. Therefore, I will be filing a written dissent. However, I wish to be clear that my dissenting vote is not a prohibition to financing. Instead, it challenges the perpetual exemptions to the competitive bidding process.
/s/ TIMOTHY ALAN SIMON
Timothy Alan Simon
Commissioner
San Francisco, California
October 2, 2008
6 Application of Pacific Gas and Electric Company to issue, sell, and deliver one or more series of Debt Securities and to guarantee the obligations of others in respect of the issuance of Debt Securities, the total aggregate principal amount of such long-term indebtedness
and guarantees not to exceed $4.0 billion; to execute and deliver one or more indentures; to
sell, lease, assign, mortgage, or otherwise dispose of or encumber utility property; to issue,
sell and deliver in one or more series, cumulative Preferred Stock -- $25 Par Value,
Preferred Stock -- $100 Par Value, Preference Stock or any combination thereof; to utilize
various debt enhancement features; enter into interest rate hedges; and for an exemption from
the Commission's Competitive Bidding Rule (A.08-05-033), May 22, 2008.
7 See Application of Southern California Edison Company (U338-E), a corporation, for
modification of Decision No. 00-10-040, as previously modified by Decision Nos. 01-01-021,
02-01-061, 05-11-013 and 06-11-012 (A.08-06-012), June 10, 2008; Application of Southern California Edison Company for Modification of Decision No. 05-06-020 (A.08-06-013), June 10, 2008.
3 See Resolution No. F-616, Exhibit A: Report on the California Public Utilities Commission's Competitive Bidding Rule for Issuance of Securities, September 5, 1986, at 2.
