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Ala., Miss. cooperatives complain to FERC over Southern's formula rate

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Ala., Miss. cooperatives complain to FERC over Southern's formula rate

Electric cooperatives in Alabama and Mississippi that receive transmission service from local utilities of Southern Co. are asking the Federal Energy Regulatory Commission to lower the return on equity in Southern's formula transmission rate, saying the current return is unjust and unreasonable.

Southern said the groups' analysis is flawed, and it needs the current ROE to help fund the troubled Vogtle nuclear project in Georgia and weather the effects of federal tax reform.

The two complainants, the Alabama Municipal Electric Authority, or AMEA, and Mississippi-based Cooperative Energy, each supply power to 11 member distribution utilities in their respective states. They are also network transmission customers of Southern and its state-regulated utilities, Alabama Power Co. and Mississippi Power Co.

In a May 10 complaint filed with FERC, AMEA and Cooperative Energy said Southern's current base ROE of 11.25% is too high, and continued implementation of it "would force customers to overpay for transmission service by millions of dollars each year."

AMEA and Cooperative Energy submitted expert testimony of GDS Associates consultant Breandan Mac Mathuna, who said the ROE's establishment in 2003 no longer reflects current economic and capital market conditions. He cited the decline in utilities' cost of capital since 2003, among other metrics, adding that a reasonable ROE, in his view, would be 8.65%, a median amount determined after conducting an analysis with a method used by FERC.

The groups are asking FERC to reduce Southern's base ROE to 8.65% and to order refunds with interest.

Southern filed a response June 18, claiming Mac Mathuna's testimony is a "single, mechanical application" of FERC's discounted cash flow method, and he used it to criticize Southern and to recommend a new ROE. More specifically, the company said Mac Mathuna used "stale and incorrect data" and made incorrect calculations.

If the analysis was done correctly, the upper midpoint ROE would be 12.71%, Southern said. In other words, the company is technically entitled to earn that amount but does not.

Southern said FERC should uphold the current ROE of 11.25% to adequately fund the company "in light of Southern Companies' above-average risk profile associated with ongoing nuclear generation facility construction and the impacts of tax reform."

Mac Mathuna assumed a "new normal" of low interest rates, but Southern's expert witness, Financial Strategy Associates President James Vander Weide, countered by saying they are, in fact, climbing. (FERC Docket EL18-147)