SDG&E to Try Adjustment Clause for Cost of Capital

Fortnightly Magazine - October 1 1996
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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.

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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.

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