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.