ML19347D276

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Addl Prepared Testimony of Dt Gardner Re General Rate Increase Proceeding
ML19347D276
Person / Time
Site: San Onofre  Southern California Edison icon.png
Issue date: 11/18/1980
From: Gardner D
SOUTHERN CALIFORNIA EDISON CO.
To:
Shared Package
ML13302A498 List:
References
59351, NUDOCS 8103110718
Download: ML19347D276 (7)
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Application No.

59351 F.xhibi t No.

/91-llh Witness D.

Gardner Commissioner L. Grimes.

Adm. Law Judge J.Haley l

California Publi~c Utilities Commission Revenue Requirements Division Rate of "eturn Unit I

a ADDITIONAL PREPARED TESTIMONY OF DANA T, GARDNER 1

Application No. 59351 Southern California Edison Company San Francisco, California November 18, 1980 i

810411 oys he

Additional Prepared Testimony of Dana T. Gardner

.Q.1 Have you previously testified in this proceedina?

A.1 Yes, I have.

I sponsored Exhibit 55, entitled Study of the Cost of Capital and Rate of Return for Southern California Edison Company.

Q.2 What is the purpose of your additional testimony?

A.2 The purpose of my testimony is to revise the recommended rate of return for Southern California Edison Company (Edison) to recog-

~

nize changes in the costs of long-term debt and preferred stock v

which have occurred since my March 18, 1980 study..

Q.3 What is your revised recommendation?

A.3 I am recommending that the Commission authorize Edison a return on rate base of 10.54% for the test year 1981 and that the return be adjusted upward in 1982 by 24 basis ooints to of fset the effects of financial attrition.

The followina tabulation compares my original recommendation, which appears in Exhibit 55, with my revised recommendation.

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Revised Rate of Return Recommendation

Capital :

Cost

Weighted :

Component

Ratios
Factors :

Costs Average Year 1981 Long-Term Debt 47.00%

8. 6.1 %

4.06%

Preferred Stock 13.00 8.03 1.04 Common Stock Equity 40.00 13.60 5.44 Total J00.00%

La.1_4.%

Average Year 1982 Long-Term Debt 47.00%

9.07%

4.26%

Preferred Stock 13.00 8.28 1.08 Common Stock Equity 40.00 13.60

5. 4 4 Total 100.00%

j_QJB %

Exhibit 55 Rate of Return Recommendation Average Year 1981 Long-Term Debt 47.00%

8.29%

3.90%

Preferred Stock 13.00 7.98 1.04 Common Stock Equity 40.00 13.60 5.44 Total TDE.00%

.10.38%

Average Year 1982 Long-Term Debt 47.00%

8.51%

4.00%

Preferred Stock 13.00 8.12 1.06 Common Stock Equity 40.00 13.60 5.44 Total 100.00%

10.50%

9

.~

Both recommendations are based on the company's target and a return on common capital structure, average capital costs,

' stock equity of 13.60%.

The difference results from my recogni-tion of Edison's recorded 1980 financing costs and the assumption that higher interest and dividend rates will continue throughout the test period.

The effect of these higher rates on the utility's embedded costs of long-term debt and preferred stock are shown in 5 and 7 of Tables Nos. 1 and 2, which correspond to Tables Nos.

Edison's final 1980 bond financing is scheduled for Exhibit 55.

1980.

Although sale through competitive bidding on November 19, I

I have estimated a rate of 14.00% on the $150 million issue, recommend that the Commission take official notice of the actual costs as reported in the G.O. 24-B filing in determining the authorized rate of return.

Edison's gross How does your revised recommendation affect 0.4.

revenue requirements?

The 16 basis point increase in the rate of return recommended A.4.

for 1981 results in an increase in revenue requirements of The higher financial attrition approximately $7.2 million.

allowance recommended for 1982 will require an additional

$7.5 million.

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how do In view of the recent volatility in interest rates, Q.5.

you recommend the commission protect ratepayers from an over-estimation df future interest rates, or vice versa, compensate investors if you have substantially underestimated the cost of new securities? -

s A.5.

If the Commission adopts a step rate procedure to recognize the operational and financial attrition likely to occur in 1981, I recommend that the Rate of Return staff be required to review Edison's 1981 financing costs before incremental rates are put into effect.

At that time the allowance would be adjusted for any differential between the adopted interest rates and recorded results.

Such a procedure would ensure that ratepayers would be protected if capital markets improved and interest rates declined and conversely the utility would be able to. recover current interest and dividend costs prior to the end of the two-year regulatory cycle.

Q.6.

Does this conclude your testimony?

A.6.

Yes, it does..

TABLE NO. 1 SOUTHE'I CALIFOR' IIA EDISON 00!GA'!?

Effective Interest Rate en Icng-Tere Dett Estimated as of December 31,1980,1981 and 1982 Far lie;

Annual :Mie tive:

Rat e Description Value

Proceeds
Charce (a)

(b)

(c)

(d)

Outstanding, December 31, 1979

$2,782,652 12,757,195

$204,000 7.LCG 1980 Bond Issues Series Il. - 9.62%

50,030 49,500 L,889 9.88 Series NN - 15 l 200,000 196,741 30,380 15.LL Series NNA Id g.

150,000 150,000 21,03D IL.00 Maturing Debt Cal. Elect. 2.87 % Series (6,000 (5,890 (176) 2.99 (74,902 (76,057 (2,264 2.98 Debentures (3.630)

(3,501

( 27 2 7.70 Promissory Note Outstanding, December 31, 1980 3,098,111 3,067,9L9 257,557 8.40 1981 Planned Bond Issue Series 00 - 137 300,000 300,000 39,000 13 00 Maturing Debt (40,000 39,157' 1,L80) 3.79 Series G 91217 9.36 Series EE:

(100,000 98,L77

( 3. 561 (3,L5L)

( 266)_

7.70 Promissory Note Outstanding, Dece ber 31, 1981 3,254,550 3,226,861 285,590 8.85 1232 Planned Bond Issue Series PP 1$

300,000 300,000 36,000 12.00 i

Maturing Debt (37,500)

(37,101)

(1,610)

L.34 Series H 40,000 39,789) 1,909)

L.80 Series I 40,000 40,016 1.949 L.87 Series J l

(3,522 (3,L16 (263_

7.70 Promissory Note Outstanding, December 31, 1982

$3,L33,528

$3,t06,539

$315,859 9.2%

J/ Estimated Rates.

TAELE fl0..

SOUTHDUJ CALIIM :IA ED'SO : 0)t:PA:.

Effrctive Dividend hate on Prefer * <:d v.d Prefer:. ce - St. c r Estimated as of Dece ncer 31,190.], 1981, and 1997 Far 1.e t A2.u -

r

-"c:

Dercrintion Value

Proceed:
Charce Eate :

(a)

(b)

(c)

(d)

(! M )

Cu. standing, Decem1er 31, 1979

$812,1,M t @5,06:

159,579 7.1.#,

1900 Stcck Issue 12.007 Seriec 75,U o 7-),975 9,000 12.17 Conversions Convertible Series 5.20%

( I r,in-0

( 11,71 p)

( e pi,)

5.33 Outstanding, December 31, 1980 875,150 867,326 67,955 7.c3 1981 Planned Stock Isgue 12.00% Series '

75,000 75,a4 9,003 1.;. m Conversions Convertible Series 5.20%

(1?,0U.)

(11,71l (G?/:)

5.12 Out standing, December 31, 1981 938,150 930,01/,

76,331 H. E 19 0 F.:cmed Stock Isjc -

11.00% Series' 50,0W 50,VA 5,500 11.9 >

Canyersions Convertib1e Serica 5.20%

(l,m s)

( /,,77,^ )

(pSr;)

i s '.: 1.. L:uiding,, Decemler 31, 1982 90,:";'.

97'>, R V R1, 57/.

r '. < / ,

1, Estimated Rates.

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