SCE says investors need bigger profits because of fire risks

The fallout from Pacific Gas & Electric’s bankruptcy is spreading to Southern California, where customers of the state’s second-largest electric utility could see their energy bills rise by $290 million a year — if federal officials allow the utility to reward shareholders with dramatically higher profits. Freedman described Edison’s request for higher profits as “an attempt to intimidate state lawmakers into taking actions favorable to Edison’s interests.” That theory is backed up by Edison’s news release, which says the dramatic increase to shareholder profits could be removed from rates “once state policymakers have restored certainty and stability to how wildfire-related costs are addressed.” “They’re attempting to extort relief from the state of California by pressing for obscene rates of return from federal regulators, based on the premise that wildfire liability risks require this level of profitability for the transmission system,” Freedman said. “I’ve never heard of a return on equity of that magnitude being granted.” Q&A: Edison CEO talks wildfires, climate change and the utility’s vanishing monopoly » Some experts say Edison’s request for higher profits is reasonable. But in a follow-up interview, Wara said Edison’s request for higher profits is “basically the right idea” — especially when the company has pledged to spend hundreds of millions of dollars on projects to reduce the risk of fires sparked by its poles and wires. “Just saying, ‘Oh, the utilities are bad, and we’re not going to give them their rate of return’ isn’t adequate.” Travis Miller, director of utilities research at investment analyst Morningstar, said Edison’s proposal is “substantially higher than any request we’ve seen in the industry recently.” But he acknowledged Edison’s circumstances are “out of the ordinary.” “Investors are going to require a higher return to invest in a company that has more risk, and certainly Edison has more risk in the current environment than most of the other utilities in the U.S,” Miller said.