III. Jurisdiction and Background
Applicants are public utilities subject to the jurisdiction of this Commission as defined in Pub. Util. Code § 218.3 SCE, a California corporation and wholly owned subsidiary of Edison International, provides electric service principally in southern California. PG&E, a California corporation, provides electric and gas services in northern and central California.
The utilities filed their respective test year 2005 ROE applications pursuant to Decision (D.) 89-01-040.4 PG&E also filed its application pursuant to D.03-10-074, which required PG&E to file an application to true up its year 2004 capital structure and ROE upon its implementation of a financing plan approved by the Bankruptcy Court.
SCE seeks to maintain its 11.60% ROE, which would result in a $28.2 million reduction in its electric revenues. PG&E seeks 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 for its true up year 2004. PG&E also seeks to increase its authorized ROE to 11.60% from 11.22% for test year 2005. Approval of PG&E's true up year 2004 capital structure and requested test year ROE would result in a net $2 million electric revenue decrease and a net $1 million gas revenue requirement increase for test year 2005.
SCE and PG&E included in their respective applications a request for the Commission's recognition and mitigation of debt equivalence, risk associated with long term (three years or more) non-debt obligations such as capacity payments for purchased power contracts. This issue was included in their applications pursuant to the Commission's direction in the procurement proceeding (R.01-10-024) that the appropriate forum to address debt equivalence is the cost of capital proceeding for each utility.5
On June 29, 2004, the applications were consolidated into one proceeding, pursuant to Rule 55 of the Commission's Rules of Practice and Procedure. The consolidation of these applications does not necessarily mean that a uniform ROE should be applied to each of the utilities. This is because each of these utilities has unique factors and differences that need to be considered in arriving at a reasonable return. These unique factors and differences encompass three distinct areas: capital structure, long-term debt and preferred stock costs, and return on common equity. The debt equivalence issue will be addressed prior to determining a fair ROE for SCE and PG&E.
