XV. Test Year 2002 Cost of Capital Application

PG&E proposes to file a 2002 cost of capital application limited in scope to consider only unbundling-related issues and their impact on the cost of capital for the distribution utility. No party objects to addressing PG&E's unbundled costs of capital for its distribution services in PG&E's test year 2002 cost of capital proceeding.

In Edison's performance-based ratemaking decision, we said "As part of our unbundling proceeding in electric restructuring and with coordination in the cost of capital proceeding, we intend to order separate and distinct authorized equity returns for the generation, transmission and distribution operations."¹⁹ Subsequently, in PG&E's 1999 cost of capital proceeding, we said, "... it would be appropriate to reevaluate the risk associated with the UDC (domestic stand-alone electric utility distribution companies) no later than the 2002 cost of capital.²⁰

Consistent with the Commission's intention expressed in D.99-06-057, PG&E's next cost of capital proceeding should revisit the limited issue of PG&E's unbundled costs of capital for its distribution services. Pursuant to the annual cost of capital schedule adopted in the Commission's rate case plan proceeding, PG&E's next scheduled cost of capital application is due on May 8, 2001.²¹ However, given the recent turmoil in the California energy market, deterioration of PG&E's financial position and downgrading of PG&E's credit rating to below investment grade, it would be difficult, if not impossible, for PG&E to prepare a meaningful cost of capital application in the next few months. Hence, we defer PG&E's next cost of capital filing until the earlier of May 8, 2002 or upon the assigned Commissioner directing PG&E to file.