On May 3, 2012, FERC established an evidentiary hearing to explore whether New England transmission owners’ rate of return on equity continues to be just and reasonable.  The order stems from a September 2011 complaint filed by the Massachusetts Attorney General and various other state officials and commissions (“collectively, “Complainants”) from the New England states (see October 7, 2011 edition of the WER).

Complainants argued that the New England TOs current ROE of 11.4 percent is unjust and unreasonable, and should be lowered to a rate no higher than 9.2 percent. 

The Commission ruled that the dispute could not be settled based on the record and ordered a trial-type evidentiary hearing.  FERC, urging the parties to settle, will hold the hearing in abeyance and appoint a settlement judge to the matter.

Commissioner Phillip Moeller dissented from the order, stating that to allow the complaint to move forward would depart from Commission precedent regarding the discounted cash flow analysis (“DCF”) used to derive the ROE.  Commissioner Moeller stated that, “Complainants’ DCF analysis, which is the basis for the proposed ROE uses an average growth rate data from several financial services” when there is no precedent of the Commission using multiple investor forecasting services, instead “the Commission has consistently used [only] a single investor service.”  In addition, Commissioner Moeller took issue with the Complainants’ construction of their proxy group.  Complainants’ proxy group eliminates companies whose sales are less than 50 percent electric, while Commissioner Moeller states that the Commission generally eliminates companies from proxy groups that “are not regarded by investors as an electric utility rather than use such revenue as part of its screening process.”

A settlement judge will be appointed within 15 days of the order.  If a settlement is not reached, a trial-type evidentiary hearing will be held.

A copy of the order and Commissioner Moeller’s dissent is available here.