Part of Grid Network »

The Transmission Professionals special interest group covers the distribution of power from generation to final destination. 

14,121 Members

WARNING: SIGN-IN

You need to be a member of Energy Central to access some features and content. Please or register to continue.

Post

FERC Adopts New Base ROE Methodology, Addresses Complaints Against MISO

FERC today adopted a new methodology for determining whether a ROE is just and reasonable under section 206 of the FPA. Applying the new methodology in a pair of complaints against the MISO transmission owners, FERC determined that the MISO transmission owners’ current base ROE should be 9.88%.

In its 2017 decision in Emera Maine v. FERC (854 F.3d 9), the U.S. Court of Appeals for the District of Columbia vacated and remanded FERC Opinion No. 531, which had adopted certain changes to the Commission’s use of the discounted cash flow (DCF) methodology for evaluating and setting the ROE for the New England transmission owners. The court concluded that FERC failed to sufficiently show that the existing ROE was unjust and unreasonable and that setting the replacement ROE at the midpoint of the upper half of the zone of reasonableness produced by a two-step DCF analysis, rather than the midpoint of the overall zone of reasonableness, was just and reasonable.

In response to the court’s ruling, and complaint proceedings against the MISO transmission owners, FERC said today that it will use the DCF model and capital asset pricing model to determine if an existing base ROE is unjust and unreasonable, and, if so, what replacement ROE is appropriate.  FERC found these models are the two methods investors most commonly use to estimate the cost of equity. FERC also stated it will use ranges of presumptively just and reasonable ROEs in its analysis of whether existing ROEs have become unjust and unreasonable.

Today’s order implements FERC’s revised methodology in two complaints against the MISO transmission owners’ base ROE. Today’s order grants rehearing on the first complaint (EL14-12), finds the existing 12.38% ROE unjust and unreasonable, and directs the MISO transmission owners to adopt a 9.88% ROE, effective September 28, 2016, and to provide refunds. Today’s order also dismisses the second complaint (EL15-45) and finds that the record in that proceeding does not support a finding that the 9.88% ROE established in the first complaint proceeding has become unjust and unreasonable.

Paul Dumais's picture

Thank Paul for the Post!

Energy Central contributors share their experience and insights for the benefit of other Members (like you). Please show them your appreciation by leaving a comment, 'liking' this post, or following this Member.

Discussions

Matt Chester's picture
Matt Chester on Nov 22, 2019 1:21 pm GMT

Applying the new methodology in a pair of complaints against the MISO transmission owners, FERC determined that the MISO transmission owners’ current base ROE should be 9.88%

Is this a change from what it had been or was it just making official the number that had already been used?

Paul Dumais's picture
Paul Dumais on Nov 25, 2019 4:58 pm GMT

Matt,

It is a change.  FERC had not issued their final decision in the two MISO ROE complaints until last week.  The DC Court of Appeals vacated and remanded back to FERC a FERC decision in a New England ROE complaint.  The DC Court decision impacted the two MISO cases, as well as four New England cases.  I expect FERC will issue orders in the New England cases once Commissioner Glick can participate in these New England cases (he recused himself through November 29, 2019 on any cases involving his prior employer, Avangrid, which owns transmission utilities in New England).      

Get Published - Build a Following

The Energy Central Power Industry Network is based on one core idea - power industry professionals helping each other and advancing the industry by sharing and learning from each other.

If you have an experience or insight to share or have learned something from a conference or seminar, your peers and colleagues on Energy Central want to hear about it. It's also easy to share a link to an article you've liked or an industry resource that you think would be helpful.

                 Learn more about posting on Energy Central »