Bending another tool in its arsenal to shaping up the electricpower market, the Federal Energy Regulatory Commission (FERC) hasapproved an 11.6% rate of return for Southern California Edison,replacing the 9.68% rate set earlier by an administrative law judge(ER97-2335, et al).

Commissioners at last Wednesday’s meeting made it clear theywere voting to encourage participation in regional transmissionorganizations (RTO), and the construction and upgrading oftransmission facilities to enhance reliability and reduce pricespikes caused by transmission constraints. The added spur isdirected at the RTO filings due Oct. 15.

“I consider the allowance of reasonable return on equity as akey area where the Commission can send a more positive signal toencourage further development of the nation’s transmission system,”Commissioner Linda Breathitt commented. “Without financing,expansions just won’t happen.”

Commissioner William Massey said the Commission also isencouraging RTOs to file “innovative” and “creative” rateproposals, including performance-based rates or schemes which sharebenefits between transmission owners and consumers.

Massey said the Commission is supporting continued use ofconstant growth DCF analysis for electric utilities, rather thanthe formula traditionally used for gas pipelines, because the powercompanies are at a much earlier stage of development of thecompetitive market. The aim is to encourage “performance-basedtransmission as a viable, attractive, stand-alone business.” Also,he pointed out that gas pipelines have an internal growth ratethree times that of electric utilities.

Chairman James Hoecker said the decision showed “we do not wantregional transmission organization policies to penalize thefinancial health of electric transmission owners. To the contrary.for utilities that commit early to implement the Commission’svision of the bulk power market – including the consumer benefitsof competition over the wires – the rules will be more certain andliberalization in key financial areas is more likely, in my view.”

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