The California Public Utilities Commission (CPUC) Thursday unanimously approved the request of its two largest utilities to waive their annual cost-of-capital filings for next year. In avoiding formal proceedings this fall on the subject the CPUC will instead hold a generic workshop on the subject to develop better ways in the future to more accurately determine the private-sector utilities’ capital costs.

At the request of both Pacific Gas and Electric Co. and Southern California Edison Co., the CPUC will hold a financial modeling workshop on cost of capital, according to Commissioner John Bohn, the lead CPUC member on the issue. “They requested the workshop to address the appropriateness and the financial relevance of the models used in the annual cost-of-capital proceeding and appropriateness of using other financial models instead,” Bohn said.

Bohn agrees that it is “time for the CPUC to do some review of the methods it has relied on for this process of setting rates.” He added that the relative financial stability of the utilities “gives us the opportunity to do just that. The financial models we have come to rely on are worthy of respect, but in my view, we can improve the results by reviewing them and considering the degree to which some parts of the process should be brought more up to date.”

The CPUC has not thoroughly examined the issue since 1981 when it used an outside consultant to help analyze the various ways of estimating the cost of equity capital and to explore their use in establishing rates of return for California utilities. “It is time to do this again,” said Bohn, who once headed the Wall Street credit rating agency, Moody’s Investors Service (1989-96).

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