Excerpts from Proposition 103 Testimony (Statement)

Total Return Ratemaking. A basic principle of the methodologies I propose is that they involve consideration of an insurer's total return on equity or surplus. The reason for this is that such methodologies look at an overall picture of a company. They do not arbitrarily exclude a portion of the insurers' business, although certain items may be excluded to assure efficiency, prevent over-capitalization, and protect ratepayers from improper expenses. The use of a total return method does not imply that all costs or all revenues must be counted in the formula no matter how unreasonable those costs or revenues are. The utility precedents are clear: they use total return methods & determine what reasonable costs are; include only “used and useful" assets in the rate base; and charge certain expenses "below the line" to stockholders, rather than to ratepayers.