1. CCPUC Annual Meeting Commission Policy and Wall Street Bill Nusbaum Managing Attorney TURN October 5, 2009

2. 2 Investment needs are large with many new requirements, especially in energy –Energy efficiency; aggressive renewables requirements; smart grid; carbon reduction –Brattle Group Nov. 2008 report estimates overall industry capital investment requirements through 2030 at approximately $1.5 to $2 Trillion, with the western region ranging between $89 and $189 Billion 1 In telecom – fiber investments, especially for video; 4G wireless networks; “broadband for all” –USTelecom estimates that carriers are investing $60 Billion a year 2 Extremely challenging environment

3. 3 Recession is reducing demand Financial crisis resulting in tight credit and higher cost of credit Only 30% of the energy industry companies have a rating of A or better – average rating for IOUs is in Baa range 3 In many states, regulators are continuing to allow lower energy company returns and rates than requested –Edison Electric Institute: the average ROE in 2008 rate cases was 10.34% 4 Extremely challenging environment

4. 4 Need for “clear and supportive” regulation –Stable revenues, earnings and cash flows –“Utilities and regulators must keep financial community trust to attract capital at lowest cost to customers.” 5 “Adequate” ROE is critical to attract capital In telecom, constant refrain is: any regulation has a chilling effect on investment with spill-over impacts on infrastructure, job creation, valuation and stock price Key messages being sent to CPUC

5. 5 CPUC response – minimize risk for energy utilities Higher than average ROEs for investor owned utilities 6 –PG&E 11.35% –SDG&E 11.1% –SCE 11.5% Earnings predictability –Decoupling –Shareholder incentives for EE –Balancing accounts Procurement cost protection – AB 57 (P.U. Code §454.5) No subsequent prudency review for large capital investments so long as the utility does not exceed the forecast amount

6. 6 CPUC response in telecom - deregulate The assumption of “vibrant” competition has led to almost total deregulation Tremendous resistance to any “new” rules that might “deter network investment” –Example: copper retirements rules

7. 7 Ratepayer concerns Is the CPUC too generous? –PG&E, Edison and Sempra have all been rated investment grade with comments from rating agencies such as “reasonable/balanced regulatory environment” (Fitch); “solid regulatory paradigm” (S&P) –Sanford Bernstein analyst Hugh Wynne has called Southern California Edison "perhaps the fastest- growing, most favorably regulated electric utility in the United States.” 7 Is there an over-reliance on credit ratings? “The Street” doesn’t always get it right. How much weight should the CPUC give to investors’ perspectives?

8. 8 Ratepayer concerns Are ROEs too high? Has the balance of risk been shifted too far to ratepayers? Are all the investments necessary and provide tangible benefits to consumers? Will telecom deregulation actually benefit consumers? Who benefits from broadband infrastructure investment and where?

9. 9 1.The Brattle Group “Transforming America’s Power Industry: The Investment Challenge 2010 – 1030, November 2008 2.USTelcom ex parte presentation to the FCC re National Broadband Plan, GN Docket 09-51, September 3, 2009 3.Edison Electric Institute, “2008 Financial Review, Annual Report of the U.S. Shareholder-Owned Electric Utility Industry” 4.Moody’s Investors Service, Florida Municipal Electric Association-Florida Municipal Power Agency Annual Conference – “ The Financial Outlook for Public Power Utilities ”, July 16, 2009, Dan Aschenbach 5.Robert Boada, VP & Treasurer, Southern CA Edison presentation to NARUC July 21, 2009 6.D.07-12-049 7.Barron’s “Boring Beauties With Powerhouse Yields” Sept. 14, 2009 Sources