ALJ/MFG/jva Mailed 12/16/2005

Decision 05-12-043 December 15, 2005

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Pacific Gas and Electric Company for Authority to Establish Its Authorized Rate of Return on Common Equity for Electric Utility Generation and Distribution Operations and Gas Distribution for Test Year 2006. (U 39 M)	Application 05-05-006 (Filed May 9, 2005)
Application of Southern California Edison Company (U 338-E) for Authorized Capital Structure, Rate of Return on Common Equity, Embedded Cost of Debt and Preferred Stock, and Overall Rate of Return for Utility Operations for 2006.	Application 05-05-011 (Filed May 9, 2005)
Application of San Diego Gas & Electric Company (U 902-M) for Authority to: (i) Increase its Authorized Return on Common Equity, (ii) Adjust its Authorized Capital Structure, (iii) Adjust its Authorized Embedded Costs of Debt and Preferred Stock, (iv) Increase its Overall Rate of Return, and (v) Revise its Electric Distribution and Gas Rates Accordingly, and for Related Substantive and Procedural Relief.	Application 05-05-012 (Filed May 9, 2005)

Shirley Woo, Attorney at Law, for Pacific Gas and Electric Company;

William Davis Harn, Attorney at Law, and Paul D. Hunt, for
Southern California Edison Company; Sempra Energy, by
Kelly M. Morton, Attorney at Law, and Lee Schavrien, for
San Diego Gas & Electric Company, applicants.

Department of the Navy, by Norman J. Furuta, Attorney at Law, for Federal Executive Agencies; Aglet Consumer Alliance by James Weil, for Aglet Consumer Alliance, The Utility Reform Network and Utility Consumers' Action Network; and Hayley Goodson, Attorney at Law, for The Utility Reform Network, interested parties.

Diana L. Lee, Attorney at Law, for the Office of Ratepayer Advocates.

TABLE OF CONTENTS

Title Pages

OPINION ON TEST YEAR 2006 RETURN ON EQUITY FOR THE MAJOR ENERGY UTILITIES 2

I. Summary 2

II. Jurisdiction and Background 2

III. Procedural Matters 3

IV. Capital Structure 4

A. PG&E 4

B. SCE 5

C. SDG&E 5

1. SDG&E's Position 6

2. Interested Parties' Position 6

3. Discussion 8

D. Conclusion 11

V. Long-Term Debt and Preferred Stock Costs 12

A. PG&E 13

B. SCE 13

C. SDG&E 14

D. Discussion 15

VI. Return on Common Equity 15

A. PG&E's Return on Equity 17

1. PG&E's Position 17

2. ORA's Positions 18

3. FEA's Position 19

4. ATU's Position 19

5. Discussion 21

B. SCE's Return on Equity 27

1. SCE's Position 27

2. Interested Parties' Positions 28

3. Discussion 29

C. SDG&E's Return on Equity 34

1. SDG&E's Position 34

2. Interested Parties' Positions 35

3. Discussion 36

VII. Implementation 39

VIII. Comments on Proposed Decision 40

IX. Assignment of Proceeding 40

Title Pages

Findings of Fact 41

Conclusions of Law 43

ORDER 44

OPINION ON TEST YEAR 2006 RETURN ON EQUITY
FOR THE MAJOR ENERGY UTILITIES

I. Summary

This decision establishes the 2006 ratemaking return on common equity (ROE) for Pacific Gas and Electric Company (PG&E), Southern California Edison Company (SCE) and San Diego Gas and Electric Company (SDG&E). The test year 2006 ROE for PG&E is 11.35%, which results in a corresponding 8.79% return on rate base (ROR). This ROR is two basis points¹ higher than its currently authorized 8.77% ROR and results in a revenue requirement increase of approximately $4.3 million ($3.3 million electric and $1.0 million gas). The test year 2006 ROE for SCE is 11.60% which results in a corresponding 8.77% ROR. This ROR is 30 basis points lower than its currently authorized 9.07% ROR and results in a revenue requirement decrease of approximately $26.4 million. The test year 2006 ROE for SDG&E is 10.70%, which results in a corresponding 8.23% ROR. This ROR is 5 basis points higher than its currently authorized ROR and results in a nominal change in its revenue requirement.

¹ One basis point equals 0.01%.