Southern California Edison Co. (SCE) on Thursday asked FERC to raise the authorized return on its transmission operations as a hedge against the Edison International (EIX) utility’s “extraordinary wildfire risk.”
SCE, one of the nation’s largest utilities, is seeking a 17.12% authorized return on equity (ROE) for the parts of its business regulated by the Federal Energy Regulatory Commission. Utility officials contend the extraordinary risk is caused by the ongoing uncertainty surrounding California state policies on wildfires, which have ravaged the state the past two years at unprecedented levels.
Seeking incentives along with the higher ROE, SCE said the need for help at the federal level also comes from what it calls “challenges” that it faces in helping to implement the state’s aggressive clean energy policies.
In its 283-page filing to FERC, SCE said it was making the request “due to dramatic material changes” to its regulatory and financial conditions since it last submitted a rate formula filing in October 2017, which preceded the first wave of major fires in December 2017.
Worsening the situation for SCE and other major utilities in the state is California’s reliance on inverse condemnation laws that hold the utilities strictly liable for property damages and legal fees resulting from the wildfires.
In the aftermath of such events, the stock price of parent EIX has plunged and credit rating agencies have lowered the utility’s ratings to near the bottom of investment-grade.
“We do not believe a higher return on equity is a long-term solution to the urgent situation utilities in California are facing,” said Caroline Choi, senior vice president for corporate affairs. “However, this is what is needed in the near term in order to attract the capital required to provide safe, reliable service.”
In March, EIX and SCE said they faced more than $4 billion in liabilities from the extensive 2017 and 2018 wildfires in California after taking a $1.8 billion charge during 4Q218.
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