ROSEMEAD, Calif.--(BUSINESS WIRE)--Southern California Edison today asked the California Public Utilities Commission (CPUC) to include a wildfire risk component in setting the company’s authorized cost of capital for utility operations for the three-year period starting in 2020.
In its application, SCE is seeking a return on common equity (“Base ROE”) of 10.6% for 2020, compared to its current Base ROE of 10.3%. This level of return reflects capital needs for safe, reliable day-to-day operations and investments the company is making to help achieve California’s ambitious clean energy goals.
In addition to the Base ROE, SCE is seeking an additional ROE of 6% to compensate investors for the higher risks associated with uncertain state policies for utility cost recovery and liability resulting from California’s devastating wildfires (“Wildfire Risk ROE”). SCE will seek to reduce or remove this Wildfire Risk ROE in the future if there is a material reduction in its wildfire risk due to regulatory or legislative reform.
Today’s state filing is consistent with an April 11 filing SCE made with the Federal Energy Regulatory Commission (FERC) asking that agency to include a wildfire risk adjustment in its authorized return on equity for the 20% of SCE’s rate base regulated by FERC.
At the time of the FERC filing and again today, the company emphasized that it does not view the inclusion of wildfire-related adjustments in these proceedings to be a long-term solution to the urgent situation utilities in California are facing, but a near-term necessity in order to attract the capital needed to provide safe, reliable electricity.
All investor-owned utilities in California are required to file an application with the CPUC every three years as part of the cost of capital proceeding. The CPUC process includes opportunities for public input; following a period of hearings and testimony, a final decision from the CPUC is anticipated by year’s end.
The CPUC is charged with setting the authorized cost of capital at a level that is adequate to attract investor capital to provide up-front funding for needed infrastructure and equipment. In practice, this level is determined by comparing market returns on investments for other companies with similar levels of risk; however, SCE recently has experienced downgrades of its credit ratings by major rating agencies as a result of the growing risk of wildfires and California’s current legal and regulatory framework. These downgrades have led to increased costs for obtaining capital.
The company estimates that the average SCE residential customer would see an increase of about $12.20 per month on their average monthly bill of about $100 if the cost of capital application is approved as submitted. The company previously estimated that the ROE authorization requested of FERC would result in an increase of about $2.20 per month for the average residential customer
“Creditworthy investor-owned utilities are critical to the future of California,” said Caroline Choi, senior vice president of Corporate Affairs for SCE and its parent company, Edison International. “We will continue to work with urgency with the governor, legislators and regulators to find comprehensive solutions for wildfire-related cost recovery and liability that restore investor confidence.”
About Southern California Edison
An Edison International (NYSE:EIX) company, Southern California Edison is one of the nation’s largest electric utilities, serving a population of approximately 15 million via 5 million customer accounts in a 50,000-square-mile service area within Central, Coastal and Southern California.
Safe Harbor Statement for Investors
Statements contained in this press release about the Thomas Fire, and other statements that do not directly relate to a historical or current fact, are forward-looking statements. In this press release, the words "believes," "continuing to," "predict," "plan," "may," "will," and variations of such words and similar expressions, or discussions of strategy, plans or actions, are intended to identify forward-looking statements. Such statements reflect our current expectations; however, such statements necessarily involve risks and uncertainties. Actual results could differ materially from current expectations. Important factors that could cause different results include the timing and outcome of the investigations and internal review of the Thomas Fire. Other important factors are discussed in Southern California Edison’s Form 10-K and other reports filed with the Securities and Exchange Commission, which are available on our website: edisoninvestor.com.
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