Citing “dramatic, material changes” to its regulatory and
financial conditions, Southern California Edison today filed a
request with the Federal Energy Regulatory Commission (FERC) to
include an adjustment for the company’s extraordinary wildfire risk
in the authorized return on equity (ROE) for the portion of its
business regulated by FERC.
The extraordinary risk stems from uncertainty about state
policies for cost recovery and liability resulting from
California’s devastating wildfires in recent years. The company’s
overall request for an ROE of 17.12%, plus incentives consistent
with past years, also reflects the challenges it faces to help
implement the state’s clean energy policies. These include
investments in new technologies and clean energy projects, which
are helping the state meet its ambitious targets for reducing
greenhouse gas emissions and combatting the climate change that
exacerbates California’s catastrophic wildfires.
The company’s expanding risk profile related to wildfires has
resulted in recent downgrades to its credit ratings, causing it to
incur higher costs for capital investment. The increase in ROE
is necessary for an investor-owned utility like SCE to be able to
continue to attract capital from investors, who must consider the
extra risk associated with an investment in the company.
If not for the adjustment associated with wildfire risk, the ROE
being requested by SCE would be generally consistent with other
utilities with above average risk. The company stated that once
state policymakers have restored certainty and stability to how
wildfire-related costs are addressed, the adjustment to ROE
attributable to wildfire risk can be reduced or removed from
rates.
“We do not believe a higher return on equity is a long-term
solution to the urgent situation utilities in California are
facing,” said Caroline Choi, senior vice president of Corporate
Affairs for SCE and its parent company, Edison International.
“However, this is what is needed in the near term in order to
attract the capital required to provide safe, reliable
electricity.”
The company estimated that the average residential customer
would see an increase of about $2.20 per month on the
FERC-regulated portion of their SCE bill if the request is
approved. In addition to the wildfire risk, SCE also is dealing
with uncertainty in the state regulatory arena as it awaits a
California Public Utilities Commission (CPUC) decision on a General
Rate Case it filed more than 2½ years ago. In addition, SCE later
this month will be considering the same circumstances and risks
when it files its triennial cost of capital request with the
CPUC.
The proposed effective date of the new ROE is June 12, 2019.
FERC has jurisdiction over SCE transmission equipment that is
under the operational control of the California Independent System
Operator (CAISO) and must authorize all rates related to the use of
these assets, which comprise about 20% of the company’s rate base.
In the filing to request a revised formula rate from FERC, the
company pointed out that its currently effective FERC rates were
last requested in 2017 when conditions in California were
significantly different, before the devastating Thomas and Woolsey
fires had occurred and prior to a decision by the CPUC to deny San
Diego Gas & Electric (SDG&E) cost recovery for 2007
wildfire liabilities.
With the ever-growing risks associated with potential wildfires
and the inverse condemnation with strict liability approach applied
to California utilities, SCE, as well as SDG&E, recently have
experienced downgrades of their credit ratings by major credit
rating agencies, leading to increased costs for obtaining
capital. SCE has calculated that it needs a base ROE of 17.12%
to continue to maintain and upgrade its transmission infrastructure
in order to ensure reliability of Southern California’s power
delivery grid while adequately covering the higher risks associated
with operating the system.
In addition, SCE is seeking continuation of previously approved
incentive adders, including: 0.5% as a member of CAISO; 0.75% for
the Rancho Vista Transmission Substation Project; 1.25% for the
Tehachapi Renewable Transmission Project; and 1% for the
Devers-Colorado River Project.
The company stated in its filing that the requested ROE is
reasonable compared to industries with similar risk
profiles. In addition to wildfire risks, utility operations in
California face higher risks than other states due to public
policies associated with climate change, advanced technology
requirements and mandates for renewable energy portfolio and
battery storage.
The damage caused by recent wildfires in California is
unprecedented. The request to increase ROE is considered by
the company to be a short-term, unfortunate necessity to ensure
that SCE remains able to attract investors until a more
comprehensive solution is reached.
“We are encouraged by the urgency Governor Newsom and other
policymakers have stated for dealing with this issue, but, in the
meantime, we need to do all we can to address the risk of further
ratings downgrades and their negative impact on our cost of
capital,” said Choi.
About Southern California Edison
An Edison International (NYSE:EIX) company, Southern California
Edison is one of the nation’s largest electric utilities, serving a
population of approximately 15 million via 5 million customer
accounts in a 50,000-square-mile service area within Central,
Coastal and Southern California.
Safe Harbor Statement for Investors
Statements contained in this press release about the Thomas
Fire, and other statements that do not directly relate to a
historical or current fact, are forward-looking statements. In this
press release, the words "believes," "continuing to," "predict,"
"plan," "may," "will," and variations of such words and similar
expressions, or discussions of strategy, plans or actions, are
intended to identify forward-looking statements. Such statements
reflect our current expectations; however, such statements
necessarily involve risks and uncertainties. Actual results could
differ materially from current expectations. Important factors that
could cause different results include the timing and outcome of the
investigations and internal review of the Thomas Fire. Other
important factors are discussed in Southern California Edison’s
Form 10-K and other reports filed with the Securities and Exchange
Commission, which are available on our
website: edisoninvestor.com.
Edison International and Southern California
Edison Company have no obligation to publicly update or revise any
forward-looking statements, whether due to new information, future
events, or otherwise.
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version on businesswire.com: https://www.businesswire.com/news/home/20190411005446/en/
Media Contact:Charles Coleman, (626) 302-7982
Investor Relations:Sam Ramraj, (626) 302-2540
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