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

20091231-0037 FERC PDF (Unofficia1) 12/29/2009
Direct Testimony of Michael J. Vilbert
Docket ER 10- -000
Page 11 of35
EXHIBIT
NO_ SCE-13
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As demand grows and generation is built in areas remote from the
demand, more capacity on the transmission system is needed to meet
demand. Congestion on transmission lines, as more and more power is
moved over them, can have a significant impact on reliability. As these
lines reach their capacity, for example, they are less able to make up the
difference when neighboring lines are forced out of service due to
equipment failure, severe weather, or maintenance. Under-investment in
transmission puts additional strain on existing resources, raising the risk of
system disturbances, lengthening restoration time when outages do occur,
and limiting access to remote generation. 18
II Q20. Why do you raise this issue here?
12 A20. The continuing concern that investment in the transmission grid has not been adequate
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means that it is in the interest of both customers and shareholders to provide an adequate
rate of return in order to attract sufficient capital to maintain reliable and efficient electric
service in the long run.
16 Q21. Are you saying that the issues with the transmission grid have arisen because the
17 allowed rate of return was inadequate over a sustained period of time?
18 A21. The cause of under investment cannot be attributed to any single factor. However, the
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capital requirements needed for environmental upgrades for generation assets, and the
ongoing uncertainty associated with the restructuring of the industry, may have led
companies and investors to question whether they had access to the necessary capital. It
may also have raised questions as to whether the allowed returns were adequate, given
that uncertainty.
24 Q22. Will an adequate allowed rate of return solve the problem of iuadequate
25 transmissiou investment?
26 A22. No, it is not sufficient, but it is a necessary and critical component. An adequate rate of
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return alone is not enough to guarantee additional investment. Investment in long-lived,
inflexible assets is extraordinarily risky, and electric transmission assets are very longlived.
In an environment in which full recovery of an investment in such long-lived
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LTRA, P. 17.