Southern California Edison, which is not facing bankruptcy proceedings like neighboring utility Pacific Gas & Electric but is looking at significant potential liabilities related to its admitted or alleged parts in wildfires, Thursday asked the Federal Energy Regulatory Commission to adjust the return on equity allowed in the transmission portion of its business regulated by FERC.
Citing “dramatic, material changes” to its regulatory and financial conditions, Southern California Edison field the request with FERC to include an adjustment for the company’s extraordinary wildfire risk in the authorized return on equity (ROE) for the portion of its business regulated by FERC.
The utility is asking for an ROE of 17.12 percent, plus incentives consistent with previous years. SCE says the request reflects the challenges it faces in helping implement California’s clean energy policies to reduce greenhouse gas emissions and combat the climate change that many believe contributed to the wildfires.
In October 2018, SCE release a statement admitting that its equipment was involved in starting the 2017 Liberty Fire that burned about 300 acres in the Murietta area.
The SCE release came after another press release issued by the Riverside County Fire Department and the California Department of Forestry and Fire Protection (CAL FIRE) indicating the utility’s equipment at fault for the blaze which destroyed one structure and an outbuilding.
“While it may not always be possible to reach conclusions about origin and cause, in this case we do know that the Liberty Fire began during a period of strong Santa Ana wind conditions with red flag warnings in effect in an area severely impacted by years of historic drought,” the earlier SCE statement read. “Based on our ongoing internal review, ignition appears to have occurred when an electrical event occurred at a pole. The area on the pole under review appeared to contain bird nesting material not visible from the ground. The cause of the electrical event, including whether and to what extent the bird nesting material may have been a factor, remains under review by SCE.”
Pacific Gas & Electric filed for Chapter 11 bankruptcy protection and has admitted that its equipment played a role in a deadly northern California wildfire. PG&E also has taken an $11 billion accounting charge due to liabilities expected from its role in the disaster.
In SCE’s case, it says that the return on equity sought is generally consistent with other utilities that have above average risk.
“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 of Corporate Affairs for SCE and its parent company, Edison International. “However, this is what is needed in the near term in order to attract the capital required to provide safe, reliable electricity.”
The company estimated that the average residential customer would see an increase of about $2.20 per month on the FERC-regulated portion of their SCE bill if the request is approved. The proposed effective date of the new ROE is June 12, 2019.
FERC has jurisdiction over SCE transmission equipment that is under the operational control of the California Independent System Operator (CAISO) and must authorize all rates related to the use of these assets, which comprise about 20 percent of the company’s rate base.
In the filing to request a revised formula rate from FERC, the company pointed out that its currently effective FERC rates were last requested in 2017 when conditions in California were significantly different, before the devastating Thomas and Woolsey fires had occurred and prior to a decision by the CPUC to deny San Diego Gas & Electric (SDG&E) cost recovery for 2007 wildfire liabilities.