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

20091231-0037 FERC PDF (Unofficia1) 12/29/2009
Direct Testimony of Jimmy Addison
Docket ERI 0·_-000
Page 13 of 19
the risk of penalty exposure.
Exhibit No. SeE-I
In addition, the new reliability metrics offer a predicate for
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possible liability exposure. All this creates busines~ risk for SCE&G.
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Second, new reliability standards being developed will, if approved, require duplication
of transmission facilities to provide redundancy so that service to firm customers is not
lost due to unplanned outages. The level of redundancy required in the future is far
greater than the standard is today and likely will mean enormous additional transmission
costs.
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Third, siting transmission facilities is increasingly difficult and expensive. SCE&G faces
upward pressure on total transmission costs at a time when it will undergo the greatest
expansion of its transmission system. All of these issues increase SCE&G's business
risks.
12 Q.
WHAT ARE THE IMPLICATIONS
FOR SCE&G OF THE FOREGOING
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BUSINESS RISKS ON SCE&G'S
RETURN ON EQUITY?
14 A.
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Based on my experience in raising capital for SCE&G over the years, the business risks
facing SCE&G that I have described are well understood by the financial markets, and
playa major role in SCE&G's ability to raise capital. In simplest terms, the riskier the
proposition is perceived to be, the higher the cost of capital. SCE&G will not be able to
fund the required capital investment solely from internally generated funds, and for this
reason, SCE&G must access the capital markets for additional debt and equity to finance
the investment in new transmission assets. In times when large-dollar projects are
undertaken and the associated business and financial risks increase, investors look for