Anxious to clear its agenda and get ready for a Holiday lull, the California Public Utilities Commission Thursday cranked out more than a half-dozen energy actions, including the acceleration of a critical power transmission line project, the continuation of a $125 million distributed generation incentive program, and the setting of 11%-plus returns-on-equity (ROEs) for the state’s two major utilities.

Sempra Energy’s San Diego Gas and Electric utility received approval to modify its already-approved construction plans for the new Miguel-Mission transmission line project to allow the temporary installation of a 230 kV line using existing poles as means of reducing congestion by this coming September on the state grid in the southern-most end, while the permanent long-term new line is worked on.

SDG&E’s David Geier, vice president of electric distribution/transmission, said the utility is pleased that the CPUC “recognized the importance of moving ahead as quickly as possible on vital infrastructurre improvements that will enhance overall reliability of the system and provide immediate cost-savings to customers ($8-$13 million savings).”

Last July, the CPUC approved a new 230 kV electric transmission line along SDG&E’s existing right-of-way from its Miguel substation in the southeast region of San Diego County to its Mission substation in Mission Valley, with an original in-service target date of June 2006; in September, the utility asked the regulators for a modification to allow portions of the upgraded facility to be operated 10 months earlier.

In another action, the CPUC unanimously approved continuing through 2007 the state’s incentive program for self-generation, but it did not follow the regulatory judge’s decision to more than double the annual funds in the program, and it lowered the per-watt credits for solar to $3.50/watt. The program, geared toward peak-shaving, was created two years ago by a new state law (AB 1685), but the regulators expressed concerns that they might be driving up the cost of solar and other renewables by setting the credits too high.

To address this concern the regulators set the $3.50/watt level (from $4.50) for 2005, and dropped it farther to $3/watt for 2006 and 07. The decision also directs an industry working group to “propose a schedule for declining rebates to phase out subsidies over time as technological developments and costs from economies-of-scale come into play.”

The program’s funding level was kept at the current $125 million annual total. “We will still take comments from parties as to whether we should increase this total in the future — particularly for renewable self-generation projects,” said CPUC President Michael Peevey.

Commissioner Geoffrey Brown said he supported the overall goal of the program, but he had some concerns that the regulators need to identify limits to “the amounts that ratepayers ought to pay to subsidize the installations.” He said the fact that the current year’s $4.50/watt subsidy level is “over-subscribed” with customers is an indicator “the subsidy is too high.”

“For far less than $3/watt, utilities could build or buy almost any kind of power plant. In most cases, traditional power plants — even peakers — are less than $1/watt,” said Brown, who longer term thinks California needs to thoroughly review alternatives to the program to make sure the state is getting the maximum bang-for-its-buck.

Finally, on the usual split 3-2 vote basis, the CPUC adopted new ROEs for both Pacific Gas and Electric and Southern California Edison, with the dissenting commissioners finding the amounts too high, reflecting the higher range the commission staff’s analysis showed as appropriate. However, the majority agreed that higher interest rates and increasing risks call for giving Edison an 11.40% ROE, and PG&E’s utility, 11.22%, which is the minimum amount allowed under the utility’s bankruptcy settlement that became final when it emerged from Chapter 11 last April.

The Edison ROE was left higher because the regulators view the utility as facing more risk and uncertainty than the PG&E utility, but both levels are above the ROE for Sempra Energy’s SDG&E (10.9%). In the latter case, the regulators pointed out that the Sempra utility never faced the financial turmoil of bankruptcy and near-bankruptcy that the PG&E and Edison utilities did, respectively.

Peevey said lowering ROEs does not seem logical at a time when the Federal Reserve has had five straight quarter-point interest rate increases since June, and in the midst of what he called “a massive federal budget deficit.” As a rejoinder to the two commissioners opposing the approved levels, he said, “I think Alan Greenspan (chair of the Federal Reserve) is a little better source of reality than either of my two colleagues. To support a lowering of the returns in such an environment seems to me to take leave of their economic senses, although it may be politically attractive.”

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