Lately I'm reading up on the new Telecommunications Act. Last week I printed a copy from the Internet and stuffed it in my briefcase. Each night on the train I give it a go and skim a few sections...
SDG&E to Try Adjustment Clause for Cost of Capital
The California Public Utilities Commission (CPUC) has approved a proposal by San Diego Gas & Electric Co. (SDG&E) to switch to an automatic adjustment mechanism to determine cost of capital (em a move that could save the utility approximately $100,000 per year in regulatory costs. The CPUC said the new method would also make SDG&E's cost-of-capital determinations more predictable by eliminating reliance on interest-rate forecasts or the assumed perceptions of investors and financial markets.
Under current regulations, the CPUC updates cost of capital and overall rates of return each year for all of the state's major investor-owned energy utilities. Under the new approach, SDG&E instead will employ a "Market-Indexed Capital Adjustment Mechanism" to set cost of capital and corresponding revenue requirement.
The new method tracks year-to-year changes in utility bond rates, starting with an initial benchmark equal to the six-month average of single-A-rated utility bond rates for April through September 1996. The method will produce an automatic adjustment to cost of capital in any year in which the difference between the current six-month average and the benchmark exceeds 100 basis points. Re San Diego Gas & Elec. Co., Appl. 95-10-035, Dec. 96-06-055, June 19, 1996 (Cal.P.U.C.).
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