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SDGE Asking for Excessive Profits, Say Ratepayer Advocates

The Division of Ratepayer Advocates, a California Public Utilities Commission operation that represents consumers, says San Diego Gas & Electric (SDGE) is asking for a vastly excessive return on equity in the utility's current rate case. SDGE wants an 11% return on equity, or money that stockholders can expect to receive on their investment. The Division of Ratepayer Advocates says the rate should be 8.5%. Such a rate would result in a $50 million annual savings to SDGE customers.

One reason SDGE's request is unreasonable is that interest rates are very low, so the cost of capital has declined greatly since the last rate hearing in 2007. The division compared SDGE's request to the median return on equity of 34 utilities. That median is 9.9% -- well below SDGE's request. "It is unwarranted for [SDGE] to charge its customers a rate of return for its investors that is out of line with current market conditions," says Joe Como, acting director of the Division of Ratepayer Advocates.

The question is whether the commission, which is pro-utility shareholder and anti-consumer, will listen to the Division of Ratepayer Advocates.

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The Division of Ratepayer Advocates, a California Public Utilities Commission operation that represents consumers, says San Diego Gas & Electric (SDGE) is asking for a vastly excessive return on equity in the utility's current rate case. SDGE wants an 11% return on equity, or money that stockholders can expect to receive on their investment. The Division of Ratepayer Advocates says the rate should be 8.5%. Such a rate would result in a $50 million annual savings to SDGE customers.

One reason SDGE's request is unreasonable is that interest rates are very low, so the cost of capital has declined greatly since the last rate hearing in 2007. The division compared SDGE's request to the median return on equity of 34 utilities. That median is 9.9% -- well below SDGE's request. "It is unwarranted for [SDGE] to charge its customers a rate of return for its investors that is out of line with current market conditions," says Joe Como, acting director of the Division of Ratepayer Advocates.

The question is whether the commission, which is pro-utility shareholder and anti-consumer, will listen to the Division of Ratepayer Advocates.

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Comments
2

It might be worth noting that some business school types have created all sorts of complicated calculations to measure cost of capital. Oh, you thought it is the cost to borrow some money? No, the profs have to make it into some sort of cosmic calculation that takes into account risk factors and industry averages and . . . the list goes on. The bottom line is that their determinations can have a company claiming that its cost of capital is three or more times the cost to just get a bank loan or to issue some bonds. So, I'm sure that if the CPUC wants to listen to a bunch of BS from Sempra, they'll agree that an 11% return is reasonable, necessary, and required.

Aug. 7, 2012

Sempra will probably hire some of those deluded profs as they present SDGE's case to the CPUC. But the determining factor will not be truth: it will be the pro-utility shareholder bias of the current commission. Best, Don Bauder

Aug. 7, 2012

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