On January 29, 2010, the United States Court of Appeals for the DC Circuit (“DC Circuit”) denied a petition by state utility regulators in New England to challenge a Federal Energy Regulatory Commission (“FERC” or the “Commission”) decision that applied a higher return on equity (“ROE”) rate for ISO New England, Inc. (“ISO-NE”) as an incentive to complete transmission projects more quickly. 

In 2003, the owners of New England transmission facilities asked FERC to establish a base ROE for transmission projects in ISO-NE’s expansion plan, plus an incentive of 50 basis points to encourage utilities to join ISO-NE and an additional incentive of 100 basis points for transmission investment.  FERC conditionally approved the 50 basis point incentive, but ordered a hearing requiring transmission owners to demonstrate why the additional 100 basis point adder was needed to encourage investment and whether it should apply to all types of transmission projects or only innovative, less expansive technologies.  Transmission owners provided testimony that the 100 point adder would cost customers $148.2 million dollars in present value terms but would save those same customers $76 million for each year where the incentive moved up the date of completion for transmission projects.  The Commission approved the 100 basis point incentive, concluding that it was within the zone of reasonableness and finding that the incentives were rationally related to the proposed transmission investments.
The petitioners in this case, led by Connecticut Department of Public Utility Control, challenged the FERC order, arguing that the legal standard applied by the Commission was vague and would allow every transmission owner to obtain the additional incentive of 100 basis points.  They also argued that FERC should have required a causal link between the incentive and the purported customer benefit. 

The DC Circuit held that the Commission had a reasonable basis for finding that the incentive would aid customers, given that it would speed up the completion of transmission projects and reward prompt work.  The DC Circuit accepted the Commission’s findings that the incentive was likely to speed up the project’s completion, regardless of the specific actions the incentive would support.  The DC Circuit also relied on the Commission’s findings of the value of proposed projects to aid with congestion and unreliability even though the petitioners did not contest that finding.  
A copy of the DC Circuit’s opinion can be found at: