FERC, in an order issued on Oct. 6, rejected the New England Transmission Owners’ (NETOs) June 5 filing seeking to reinstate their previous FERC-allowed returns on equity (ROE), which were lowered under a now-vacated FERC order.
FERC, in its order, required the NETOs to continue collecting their ROEs currently on file, subject to a future FERC order.
According to the order, the NETOs are Emera Maine; Central Maine Power; Eversource Energy Service Company; National Grid; New Hampshire Transmission LLC; The United Illuminating Company; Unitil Energy Systems; Fitchburg Gas and Electric Light Company; and Vermont Transco LLC.
FERC noted that in September 2011, it received the first of what has become four complaints under section 206 of the Federal Power Act (FPA) alleging that the ROE that the NETOs are permitted to collect is unjust and unreasonable.
The complainants fell into two general groups with one group being the “Complainant-Aligned Parties or CAPs,” which consists of state attorneys general, state regulators, state consumer advocates, and certain transmission customers, and the other group being the “Eastern Massachusetts Consumer-Owned Systems or EMCOS,” which included various transmission customers. FERC added that it refers to both groups collectively as “customers.”
At the time of the original complaint, FERC added, the NETOs were allowed to collect a base ROE of 11.14% and their total ROE – i.e., the base ROE plus any ROE adders approved by FERC – was not permitted to exceed 13.5%.
Following a full hearing before an administrative law judge (ALJ), FERC issued Opinion No. 531, which tentatively found that a discounted cash flow (DCF) analysis of a proxy group of companies comparable to the NETOs produced a zone of reasonableness of 7.04% to 11.74%. FERC added that it also concluded that the NETOs new just and reasonable ROE should be set at the upper midpoint of the zone of reasonableness – i.e., the halfway between the midpoint and the top of the zone of reasonableness.
In reaching that conclusion, FERC held that evidence of unusual capital market conditions, principally the evidence of low interest rates, left FERC less confident that a mechanical application of the DCF methodology would produce a just and reasonable ROE. As a result, FERC added, FERC considered three alternative financial models as well as the ROEs approved by state regulators for investment in electric infrastructure under their jurisdiction. Based on that evidence, FERC concluded that an ROE above the midpoint of the zone of reasonableness was appropriate and that the midpoint of the upper half of the zone of reasonableness would be just and reasonable.
Following a paper hearing regarding the long-term growth projection to use in the DCF analysis, FERC concluded in Opinion No. 531-A that the upper midpoint of the zone of reasonableness was 10.57%. Therefore, FERC added, the commission found that the NETOs’ existing ROE of 11.14% was unjust and unreasonable and that a just and reasonable base ROE is 10.57%. FERC noted that it also capped the NETOs’ total ROE at 11.74%, the upper bound of the zone of reasonableness.
The NETOs and customers petitioned for review of Opinion No. 531 before the U.S. Court of Appeals for the District of Columbia Circuit, FERC said, adding that the NETOs argued, for instance, that FERC did not satisfy the first prong of the FPA section 206 inquiry because it did not adequately demonstrate that the NETOs existing 11.14% base ROE was unjust and unreasonable. The customers argued, for instance, that FERC did not satisfy the second prong of the FPA section 206 inquiry because FERC had not adequately shown that the 10.57% base ROE that it set in Opinion No. 531 was just and reasonable.
In Emera Maine v. FERC, the D.C. Circuit agreed with the NETOs and customers and vacated and remanded Opinion No. 531 to FERC, the commission added.
The NETOs submitted the instant filing on June 5, describing the filing as “documenting the legal effect of the court’s decision in Emera Maine v. FERC,” FERC said. The NETOs asserted that because the Emera Maine decision vacated Opinion No. 531, the court’s opinion had the effect of “return[ing] the parties to the status quo ante,” which, the NETOs contend, means allowing them to collect their pre-Opinion No. 531 ROEs.
FERC added that the NETOs are wrong in contending that Emera Maine requires, as a matter of law, that their ROEs must immediately return to their pre-Opinion No. 531 levels. FERC said that it concludes that leaving in place the current ROEs will not make the NETOs any worse off following FERC’s order on remand from Emera Maine because on remand, FERC will exercise its “broad remedial authority” to make whatever ROE that FERC determines to be just and reasonable effective for the refund period and the entire period between Opinion No. 531-A and the date of the order on remand.
In short, FERC said, the NETOs will effectively receive the same ROEs regardless whether they return now to their pre-Opinion No. 531 levels. An immediate return to the NETOs pre-Opinion No. 531 ROEs would, however, significantly complicate the process of implementing FERC’s order on remand, the commission said.
Among other things, FERC said that having multiple ROEs in effect during the period for which FERC orders refunds or surcharges would make identifying and allocating the particular refunds or surcharges into a significantly more complex process because allocating the appropriate surcharges or refunds across the different types of transmission service provided by the NETOs is a complicated and time-consuming task. A need to consider multiple previous ROEs in performing that exercise would add unnecessary complexity to FERC’s task on remand – complexity that ultimately would not benefit any party, FERC said.
In light of those complications and because the NETOs will not be harmed financially by not immediately returning to their pre-Opinion No. 531 ROEs, FERC said that it rejects their compliance filing.
Motion for dismissal
The NETOs, in an Oct. 5 motion filed with FERC, moved for the commission to dismiss the four complaint proceedings in light of the court’s decision in Emera Maine v. FERC. In the alternative, the NETOs ask that FERC consolidate the four complaints for decision and use expedited procedures to resolve them, the NETOs said.
“This filing is motivated both by the substantive impact of Emera Maine … and by the fact that the procedural course the commission is on with respect to these multiple, pancaked complaints has produced nearly endless litigation, resulting in enormous investment uncertainty at a time when the NETOs are investing substantial amounts of capital to complete the modernization of the New England bulk transmission system,” the NETOs said. “The commission’s handling of these pancaked ROE complaints has produced a very unfavorable regulatory climate for investment.”
All four of the complaints should be dismissed because, the NETOs claimed, the complainants have not shown that the NETOs’ existing ROE of 11.14% is unjust and unreasonable as Emera Maine holds is required. Should FERC choose not to dismiss the complaints, the NETOs said that they request that FERC consolidate the complaints for decision.
The evidentiary records in “Complaints I through III” have been closed, the NETOs said, adding that they believe that the existing records – including the record in the Complaint IV proceeding – are sufficient for FERC to address the requirements of Emera Maine and issue a final order.
Among other things, the NETOs said that the issues that need to be addressed in order to satisfy Emera Maine include whether the NETOs’ “existing” ROE is unjust and unreasonable even though it is within the zone of reasonableness.