II. Background

Individual cost of capital applications were filed by Southern California Edison Company (SCE) and Pacific Gas and Electric Company (PG&E). SCE requested authority to maintain its 11.60% Return on Equity (ROE) for its test year 2005. PG&E requested authority to true up its 2004 capital structure in conformance with its adopted Chapter 11 exit financing plan while maintaining its interim 11.22% ROE and authority to increase that ROE to 11.60% for its test year 2005.

SCE and PG&E included in their respective applications a request for the Commission's recognition and mitigation of debt equivalence, which is risk purportedly associated with long-term non-debt obligations such as capacity payments for purchased power contracts. San Diego Gas & Electric Company (SDG&E) intervened into this consolidated proceeding for the purpose of addressing debt equivalence as it related to SDG&E.

By D.04-12-047, a test year 2005 ROE of 11.40% for SCE, a true up year 2004 and test year 2005 ROE of 11.22% for PG&E, and a debt equivalence process for SCE, PG&E, and SDG&E were adopted.

SCE, PG&E, SDG&E, the Office of Ratepayer Advocates (ORA), Aglet-TURN, the Cogeneration Association of California (CAC), and Calpine Corporation actively participated in this proceeding. Only Aglet-TURN requested compensation.