Question-and-Answer Session
Operator
(Operator Instructions). Our first question comes from the line of Dan Eggers with Credit Suisse. You may proceed.
Dan Eggers
Hey, good morning. Just can you remind us all how the ROE adjustment mechanism works with the movement in bond yields recently and what we should be watching for in case there needs to be a reset and I guess when is the date, when that would be effective?
Chris Johns
Sure Dan. This is Chris. The way the mechanism works is that it sets a benchmark based on the Moody's AA or AAA bond yield or BBB bond yield and A bond yield marketplace. And basically the way it works is that, if there is a 100 basis point movement up or down over the 12 month period that starts in October through the end of September then we would have two things that would occur if it moves by more than 100 basis. First thing, it would occur is that we would be allowed to adjust our authorized return by half of what ever that movement was. So if it went up 120 basis points we would get a 60 basis point adjustment in our authorized return. In addition it would also automatically adjust our actual cut of debt to be equal to what the actual is. So there would be a true-up of that at that point in time. So the original benchmark was set for the period of October '06 through September '07. When we look back at the period ending September of '08, we saw less than a 50 basis point move in that market mechanism. So there won't be adjustments for 2009.
Dan Eggers
Okay, got it. And then on the tesla decision, you know, that was originally part of the long-term resource plan for your service territory and obviously, the original winner couldn’t get it done. What are the alternatives and do you guys see enough resources adequacy over the next few years if you have to wait longer before final resolution on that capacity coming into market?
Peter Darbee
Yeah Dan, it’s just a point of correction. Tesla was not in the original plan.
Dan Eggers
Okay.
Peter Darbee
In terms of resource adequacy, there were three plants, two of which have been canceled that were on the smaller side and then the Russell City plant that’s owned by Calpine had been delayed. And so in light of this we came up with the Tesla proposal to fill the gap and the response of the commission was, as you will recall, you haven’t followed the procedures that we feel are necessary. The commission together with the ISO has looked at the resource adequacy question and concluded that just the addition of one plant Russell City would be adequate to both meet the needs of the people of California as well as the surplus that would be, should be carried in reserve.
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