American Superconductor Corporation (NASDAQ:AMSC) Q2 2019 Earnings Conference Call - Final Transcript
Nov 06, 2019 • 10:00 am ET
[Operator Instructions]. Our first question will come from Eric Stine, Craig Hallum.
Just wanted to chat about the FERC authorization. I guess, one, should we view this as kind of a blanket approval for other utilities? Or is this something where it's a template and this kind of sets a precedent that it's going to be fairly easy for a utility to go this route with transmission and be able to put in the rate base?
I think to be really direct, Eric, what we've seen in our conversations with utilities is an open question. Do we look to classify REG as a transmission asset or a distribution asset? And this is something we've talked about on prior conference calls. To get rate recovery on the distribution side involves the state regulator. And that's something that a distribution utility is very familiar with. It's how they spend capital.
What's happening in this case is FERC is getting involved, because in this case, it's being determined -- it behaves more like a transmission asset, which is interesting. In many ways, REG behaves exactly like a transmission asset, with the exception that it operates at safer, lower voltage. We had been in conversations with multiple utilities at their senior management level, and I don't think that they knew what the FERC would or would not approve. I think this does create a case where the FERC has been able to rule in a way that I think is very favorable to the product, that is REG. And I think it serves as additional risk reduction, but potentially accelerate deployment of REG in a variety of cities across the US, for a variety of reasons, which I went through in the call.
We think this is really big news for us, because it gives clarity and certainty that REG recovery is directly possible.
And you mentioned, on the distribution side, dealing with state PUCs, which is common. But I mean, is this something where -- I mean any thoughts on -- if you go the transmission route, whether that kind of speeds the process just in terms of derisking in regulatory approval?
It really depends on a case-by-case basis. So in some cities, they may be tapped at what they're able to do in the way of rate case is and changes in cost to rate payers for a variety of different reasons. I can think of some cities, for instance, when there were some acquisitions, one of the things that they had the promise is that they weren't going to raise the distribution rates.
By having potentially two funding sources, the transmission rates through FERC or the distribution rates through the state regulator, it gives really the utility the option to position this in a way that they can get recovery. Think of it as there's the potential for two pathways to payment and whichever one is better for the ratepayer and better for the utility from an expediency standpoint, would hope to