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FERC Hikes SoCal Ed ROR to 11.6%

FERC Hikes SoCal Ed ROR to 11.6%

Bending another tool in its arsenal to shaping up the electric power market, the Federal Energy Regulatory Commission (FERC) has approved 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 they were voting to encourage participation in regional transmission organizations (RTO), and the construction and upgrading of transmission facilities to enhance reliability and reduce price spikes caused by transmission constraints. The added spur is directed at the RTO filings due Oct. 15.

"I consider the allowance of reasonable return on equity as a key area where the Commission can send a more positive signal to encourage 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 is encouraging RTOs to file "innovative" and "creative" rate proposals, including performance-based rates or schemes which share benefits between transmission owners and consumers.

Massey said the Commission is supporting continued use of constant growth DCF analysis for electric utilities, rather than the formula traditionally used for gas pipelines, because the power companies are at a much earlier stage of development of the competitive market. The aim is to encourage "performance-based transmission as a viable, attractive, stand-alone business." Also, he pointed out that gas pipelines have an internal growth rate three times that of electric utilities.

Chairman James Hoecker said the decision showed "we do not want regional transmission organization policies to penalize the financial health of electric transmission owners. To the contrary. for utilities that commit early to implement the Commission's vision of the bulk power market - including the consumer benefits of competition over the wires - the rules will be more certain and liberalization in key financial areas is more likely, in my view."

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