ALJ/MFG/hkr Mailed 11/12/2002

Decision 02-11-027 November 7, 2002

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Pacific Gas and Electric Company for Authority to Establish Its Authorized rates of return on Common Equity for Electric Utility Operations and Gas Distribution for Test Year 2003. (U 39 M)	Application 02-05-022 (Filed May 8, 2002)
And Related Matters.	Application 02-05-025 (Filed May 8, 2002) Application 02-05-026 (Filed May 8, 2002) Application 02-05-031 (Filed May 8, 2002)

(See Appendix B for appearances.)

INTERIM OPINION ON RATES OF RETURN
ON EQUITY FOR TEST YEAR 2003

TABLE OF CONTENTS

Title Page

INTERIM OPINION ON RATES OF RETURN ON EQUITY
FOR TEST YEAR 2003 22

I. Summary 22

II. Jurisdiction and Background 22

III. Capital Structure 44

A. Optimum Structure 44

B. PG&E 77

C. SCE 1010

D. Sierra 1010

E. SDG&E 1111

F. Conclusion 1111

IV. Long-Term Debt and Preferred Stock Costs 1212

A. Investigation 1212

B. PG&E 1414

C. SCE 1414

D. Sierra 1414

E. SDG&E 1515

F. Conclusion 1515

V. Return on Common Equity 1616

A. Financial Models 1717

B. Risk Factors 1818

C. Discussion 1919

D. Fair and Reasonable ROEs 2323

VI. Implementation 2727

VII. Pending Motion 2828

VIII. Assignment of Proceeding and Procedural Matters 3030

Findings of Fact 3131

Conclusions of Law 3434

INTERIM ORDER 3636

APPENDIX A

APPENDIX B

INTERIM OPINION ON RATES OF RETURN
ON EQUITY FOR TEST YEAR 2003

I. Summary

This interim decision establishes the 2003 ratemaking return on common equity (ROE) for Pacific Gas and Electric Company (PG&E), Southern California Edison Company (SCE), Sierra Pacific Power Company (Sierra), and San Diego Gas & Electric Company (SDG&E). This proceeding remains open for PG&E to true up its test year capital structure and ROE upon its implementation of a financing plan approved by the Bankruptcy Court that enables it to emerge from Chapter 11 of the Bankruptcy Code. The overall ROE and return on rate base is as follows.

Common Return on

Utility Equity Rate Base

PG&E - Electric 11.22% 9.24%

- Gas 11.22% 9.24%

SCE 11.60% 9.75%

Sierra 10.90% 9.04%

SDG&E - Electric 10.90% 8.77%

- Gas 10.90% 8.77%