Balancing regulatory needs, financial realities critical to building transmission – utility CFOs

Utilities need the right regulatory construct to mitigate some of their risk of building new transmission, utility CFOs said March 20.

In a panel discussion during the 4th Annual EnergyBiz Leadership Forum titled, “The CFO Perspective: Managing Utility Finances,” utility financial leaders said there is no question more transmission is needed, but said more regulatory certainty would help move these expensive projects forward.

“Over 2012, 13, and 14, we have just slightly less than $3.5bn that we expect to spend on transmission in New Jersey,” said Public Service Enterprise Group’s (PSEG) executive vice president and CFO Caroline Dorsa. “These projects are multi-billion dollar, they’ve very long-term, they’re needed for reliability,” and they’re clearly necessary, she added.

Incentives granted by FERC can reduce the company’s risk and speed their development. “Depending on the complexity or risk of the projects, we have adders; sometimes 25 basis points, on one project, 125 basis points based on the complexity of the project,” she said.

Forward-looking formula rates also help, she added, by eliminating what she called “regulatory lag time” that would result when recovering the capital expense through rate cases.

“If you had regulatory lag for [large-scale projects] it could be truly problematic,” Dorsa said.

“This [regulatory] construct works extremely well,” she added, saying “It’s the kind of construct that puts right next to each other the benefit for the customer and the benefit for the shareholder.”

She said: “As businesses and with the long-term view that we try to take, the opportunities to do well for the shareholder always have to be by doing well for the customer. This regulatory construct marries the two and enables us to …deliver reliability at the most cost-effective means.”

Other areas of the country are seeing their first major transmission builds in many decades, according to Maria Pope, senior vice president and CFO with Portland General Electric (PGE).

PGE recently made the first major regulatory filings for the Cascade Crossing line, which will connect with Idaho Power’s Boardman to Hemingway line as well as PacifiCorp’s Gateway projects.

“It’s an onerous process, it is something that does give CFOs pause because there’s a substantial investment, and [because of] all of the permitting, environmental work,” she said.

Agreeing with Dorsa’s earlier comments, Pope added, “It’s staggering the amount of investment before we even start looking at any hard assets.”

Idaho Power is a subsidiary of IDACORP (NYSE:IDA).