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

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20091231-0037 FERC PDF (Unofficia1) 12/29/2009 SCE&G's OATT Formula Transmission Rate Filing Docket No. ERIO- Page 6 SCE&G is located. Then, consistent with the Commission's recently articulated guidelines,13 he restricted that proxy group based on the credit ratings of the companies in the group, which he calls the Restricted Sample. For this Restricted Sample, the median is 11.04% and the midpoint is 12.46%. He also used a proxy group that was not restricted by credit ratings, which he calls the Full Sample. For the Full Sample, the median is 11.04% and the midpoint is 11.94%. Based on the several data points from those two samples, and for the reasons explained below, Dr. Vilbert recommends a return on equity for SCE&G of 11.5%. He recommends an ROE between the midpoint and median for several reasons. First, the nation is in the midst of a serious financial and credit crisis and the cost of capital is higher today than prior to this crisis, which suggests that the median should be viewed as conservative. Second, the Commission's policy with respect to the use of midpoint vs. median does not appear to be settled. 14 Moreover, the Commission's stated basis for the use of the median -- i.e., to eliminate extremes in order to capture "central tendencies" of the sample -- is compromised in this case because the sample is so small to begin with. It is reasonable, therefore, to look at both the midpoints and medians of the sample ranges in making a recommendation. Third, SCE&G's circumstances, as testified to by Mr. Addison, suggest it is of higher relative business risk to the sample, which the Commission has recognized as requiring upward adjustment. 15 In the two samples noted above, the midpoints are 90 to 142 basis points higher than the median, and suggest that the median is a conservative ROE estimate for the sample, and an ROE of 11.5 percent roughly splits the difference between the midpoint and the median under the Restricted Sample. For all these reasons, Dr. Vilbert concludes an ROE of 11.5% is justified. Although a 11.5% ROE is justified, SCE&G will accept a return on equity of 11.3% -- lower than that recommended by Dr. Vilbert -- in order to avoid suspension and hearing. 16 13 Westar, 122 FERC ~ 61,268; Potomac-Appalachian Transmission Highline, L.L.C., 122 FERC ~ 61,188 (2008); Atlantic Path 15, LLC, 122 FERC ~ 61,135 (2008). 14 Prior to April 2008, the Commission had consistently relied on the midpoint. See, e.g., Consumers Energy Co., 98 FERC ~ 61,333 (2002). In April 2008, the Commission, in two cases (Golden Spread Electric Cooperative v. Southwestern Pub. Service Co., 123 FERC ~ 61,047 (2008) (Golden Spread), and Virginia Electric Power Co., 123 FERC ~ 61,098 (2008) (VEPCO)), decided to use the median. The Commission's departure from its settled use of midpoint to the use of median is subject to challenge on rehearing and in numerous pending cases where parties have filed testimony challenging the use of median. To date the Commission has not reaffirmed the use of median. In one case decided after Golden Spread and VEPCO (Public Service Electric & Gas Company, 124 FERC ~ 61,303, (2008) (PSE&G)), the Commission accepted an ROE based on the use of midpoint. 15 See PSE&G, 124 FERC ~ 61,303. 16 See Central Maine Power Co., 65 FERC 61,192 (1993) (Commission offers no hearing in exchange for lower rate ofretum on equity.)
20091231-0037 FERC PDF (Unofficia1) 12/29/2009 SCE&G's OATT Formula Transmission Rate Filing Docket No. ERIO- Page 7 Recovery of GridSouth Costs SCE&G seeks recovery of the costs that it incurred attempting to form a regional transmission organization (RTO), i.e., the GridSouth Transco, LLC (GridSouth), in direct response to Commission mandates in Order No. 2000 17 and subsequent related orders. Responding to Order No. 2000, SCE&G, along with Duke Energy Corporation and Carolina Power & Light Company, filed an application seeking approval of GridSouth. In March 2001, the Commission accepted the GridSouth filing and granted GridSouth provisional RTO status, subject to further filings. 18 SCE&G (and the other GridSouth proponents), beginning in the Fall of 2000, initiated a comprehensive effort to bring GridSouth into operation. Land was procured and a facility constructed in Fort Mill, South Carolina. Operating systems and related hardware, some staffing, software, other system supports, and the related design and installation of these systems, were contracted for and pursued. Meanwhile, in July 200 I, the Commission issued an order directing all of the entities in the various RTO proceedings in the Southeastern United States to engage in good faith negotiations to develop a plan for a single Southeastern RTO.19 According to the Commission's order, this mediation effort did not supersede GridSouth efforts; rather, the GridSouth and mediation efforts ran in parallel. In response to the Commission's mediation directive, SCE&G, along with the other GridSouth proponents, participated in the complex mediation that followed. Ultimately, however, the GridSouth effort did not result in an RTO, despite the good faith and substantial efforts of the parties. Nor was any consensus reached on creating a Southeastern regional RTO. In October, 2005, the Commission formally terminated the GridSouth procee d· mg. 20 In an order addressing the accounting treatment of GridSouth expenditures,21 the Commission authorized deferral of the RTO formation related costs (including carrying costs) 17 Regional Transmission Organizations, Order No. 2000, FERC Stats. & Regs. ~ 31,089 (1999), order on reh 'g, Order No. 2000-A, FERC Stats. & Regs. ~ 31,092 (2000), afJ'd sub nom. Public Utility District No.1 o/Snohomish County. Washington v. FERC. 272 F.3d 607 (D.C. Cir. 2001). 18 Carolina Power & Light Company, et al., 94 FERC ~ 61,273 (2001). 19 See Regional Transmission Organizations, 96 FERC ~ 61,066 (2001). 20 GridSouth Transco, L.L.C, 113 FERC ~ 61,053 (2005). 21 Duke Energy Corp., 94 FERC ~ 61,080 (2001) (GridSouthAccounting Order).
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64 FERC ER07-169 Ameren Energy Mark
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EXHIBIT NO. SCE-16 "o o '" .... "w
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Table No. MJV·4 Panel B Commission
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