II. Jurisdiction and Background
Applicants are public utilities subject to the jurisdiction of this Commission as defined in Pub. Util. Code § 218.1 PG&E, a California corporation, provides electric and gas services in northern and central California. SCE, a California corporation and wholly owned subsidiary of Edison International, provides electric service principally in southern California. Sierra, a Nevada Corporation qualified to do business in California and wholly owned subsidiary of Sierra Pacific Resources, provides electric service in the Tahoe Basin of California and electric and gas services in other states.2 SDG&E, a California corporation wholly owned by Sempra Energy, provides electric service in a portion of Orange County and electric and gas services in San Diego County.
The utilities filed their respective test year 2003 ROE application pursuant to Decision (D.) 89-01-040.3 PG&E seeks to increase its electric operations ROE to 12.50% from 11.22% and its gas distribution operations ROE to 12.25% from 11.22%, which would result in a $133.5 million increase in its electric revenues and a $22.3 million increase in its gas revenues. SCE seeks to increase its electric operations ROE to 13.00% from 11.60%, which would result in a $128 million increase in its electric revenues. Sierra seeks to increase its California electric operations ROE to 12.50% from 10.80%, which would result in a $362,000 increase in its California electric revenues. SDG&E seeks to increase its electric and gas operations ROE to 12.50% from 10.60%, which would result in a $24.5 million increase in its electric revenues and $6.5 million in its gas revenues.
On June 21, 2002, 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 follow that a uniform ROE should be applied to each of the four 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 first step in determining a fair ROE is to establish a reasonable capital structure.
1 All statutory references are to the Public Utilities Code unless otherwise stated. 2 Sierra's California operations equate to approximately eight percent of its annual electric revenues. 3 30 CPUC2d 576 at 610 (1989).
