SCEG OATT Formula Transmission Rate Filing.pdf - SCANA ...

20091231-0037 FERC PDF (Unofficia1) 12/29/2009
Direct Testimony of Michael J. Vilbert
Docket ERJO- -000
Page 2 of35
EXHIBIT NO. SCE-13
the cost of equity that the Federal Energy Regulatory Commission (the "FERC" or the
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"Commission") should allow it an opportunity to earn on the equity-financed portion of
its rate base for electric transmission assets. To answer this question, I have implemented
the discounted cash flow ("DCF") method favored by the Commission and applied it to
two samples of regulated electric utilities.!
6 Q5. Are you sponsoring any exhibits?
7 AS. Yes. I am sponsoring Exhibit No. SCE-14 to Exhibit No. SCE-16. This latter exhibit
8 contains the tables and workpapers supporting Tables I, 2 and 4 of my direct testimony.
9 Q6. Please summarize how you approached the task of estimating the appropriate
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IS
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A6.
return on equity for SCE&G's transmission assets.
The first step is to select the appropriate sample (or proxy) group, which I did after
review and consideration of prior Commission decisions.
The Commission has found
that the appropriate proxy group for use in calculating the return on equity ("ROE") using
the DCF method is made up of companies from the region in which the utility is located?
This is because the Commission has concluded "that being located in the same
geographic and economic region is relevant in determining whether companies face
similar business risks.")
The Commission has typically relied on proxy groups drawn
from the RTO market area in which the applicant is located,4 although the Commission
has in some cases utilized proxy groups, beyond a single RTO market area, that include
entities in the entire WECC. 5
SCE&G is not a member of an RTO. Therefore, consistent
with the WECC cases, I have selected a sample of regulated transmission owning electric
I The cost of capital analysis presented herein is specific to the Company's transmission investment, and the
analytical methods used here are those adopted and approved by the Commission.
2 See, e.g., Westar Energy, Inc., 122 FERC 1161,268 at P 93 (2008) ("Westar'~; Tal/grass Transmission, LLC,
et al., 125 FERC 1161,248, at PP 74-75 (2008) ("Tal/grass'l
3 Startrans 10, L.L.c., 122 FERC 1161,306, at P 25 (2008) ("Startrans"); See also, Westar, 122 FERC 11
61,268, at P 93 (to the same effect).
4 Tal/grass, 125 FERC 1161,248. See also, Potomac-Appalachian Transmission Highline, L.L.c., 122 FERC 11
61,188 (2008) ("PATH'); Pepco Holdings, Inc., 124 FERC 1161,176 (2008) ("Pepco").
5 Southern California Edison Co., 122 FERC 1161,187, at P 26 (2008) ("So Cal Edison"); Startrans, 122 FERC
1161,306, at P 25.