Sempra Energy CEO Don Felsinger said Tuesday California offers several regulatory advantages to utilities, such as Sempra’s two in Southern California — rates not dependent on ever-increasing sales volumes, and return on equity (ROE) that is relatively generous.

He made the statement in concluding a panel discussion on natural gas-fired generation at the Goldman Sachs Eighth Annual Power and Utility Conference in New York City. The context for the remarks came when other panelists such as Gale Klappa, CEO of Wisconsin Energy, said more separation of the rate coverage from volume levels, so-called “decoupling,” was needed in the post-carbon regulatory arena, in which utilities will place more emphasis on energy efficiency and energy saving. Many states have rate structures that penalize the utilities if gas and electric use drops significantly.

“In California we are completely decoupled,” Felsinger said. “Utilities have no exposure to the price of the commodity, so we pass through the price of natural gas and electricity, and we have no volume exposure.” In addition, he said, “we have very attractive returns [11-12% ROE].”

Felsinger said Sempra’s two utilities — San Diego Gas and Electric Co. and Southern California Gas Co. — are in the lowest threshold for returns in the state, but they are still at 11% ROEs, and the utilities don’t have the price/volume exposure. “We are getting rewarded for carrying out the state’s policies on renewable energy and demand-side management.

“We are basically [the politicians’] instruments for carrying out political agendas. It is a great investment, but how long it will last, I don’t know.”

Klappa said he thinks that increasingly natural gas distribution utilities will become “the policy arms of state’s political leaders. It is a very, very effective way to promote energy conservation.”

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