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

20091231-0037 FERC PDF (Unofficia1) 12/29/2009
Direct Testimony of Michael J. Vilbert
Docket ER I0- -000
Page 4 of35
EXHIBIT NO. SCE-13
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methodology?
When applied to the Full Sample, the Commission's preferred DCF methodology results
in a "range of reasonableness" for the cost of equity of between 7.72 and 16.16 percent,
with a median of 11.04 percent and a mid-point of 11.94 percent. The range of
reasonableness for the sample restricted by bond rating becomes 8.76 to 16.16 percent,
with the median unchanged at 11.04 percent and a higher midpoint of 12.46 percent.
7 Q9. Does SCE&G recover the revenue requirement for its transmission assets through a
8 formula rate?
9 A9. No, not at this time. However, in this proceeding, the Company is proposing a formula
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rate for recovery of its transmission revenue requirement.
the testimony of company witness, Mr. Alan C. Heina.
This proposal is discussed in
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Are there other ways to estimate the cost of capital for a FERC regulated electric
transmission company?
Certainly. There are many different approaches, and I have used other methods in other
proceedings. Moreover, the determination of the cost of capital requires the application
of informed judgment as well as science. Of the several ways to estimate the cost of
capital, I believe a "risk positioning" method is generally superior; but in the past the
Commission has consistently not relied upon alternative estimation methods. In other
testimony, I have been critical of some of the assumptions underlying the DCF method,
and the FERC DCF method does not directly consider differences in financial risk among
the sample companies or between the sample companies and the target company. While I
believe that the Commission should not mechanically reject other methods of estimating
the cost of capital, I also believe that whatever method the Commission ultimately
chooses to use, the method should be consistent from proceeding to proceeding.
25 Qll. Why did you not implement alternative approaches in connection with this
26 proceeding'?
27 A II. The FERC prescribes the DCF method and has used it in many previous cases to