"[O]ne of the biggest challenges facing regulators is to encourage the benefits of competition while protecting electric consumers from excessive rates that produce windfall profits for shareholders."
"For example, over the past few years, California lOUs have asked for a higher allowed return on common equity (ROE) to compensate shareholders for the additional risk associated with competition in the electric generation sector."
The Independent Energy Producers Association (IEP) had asked the California Public Utility Commission (CPUC) to consider a new approach to regulating the cost of capital for California electric utilities. Susan Stratton Morse testified on behalf of the IEP. The IEP offered this premise: Unless utilities disaggregate the risks of providing unbundled services, along with rates and the allowed shareholder returns, customers of investor-owned utility companies (lOUs) will end up overpaying for certain services, such as T&D, while underpaying for others, such as generation. Moreover, utility generation services would gain an unfair advantage over generation-only competitors. In a November 1994 decision, the CPUC agreed the IEP and stated that any future unbundling of services should consider an unbundling of the ROE and rates for such services.