On October 6, 2017, FERC rejected the New England transmission owners’ (“NETOs”) amended compliance filing to reinstate their previous FERC-issued returns on equity (“ROE”), which were lowered due to a now-vacated FERC order. FERC found that reinstating the original ROE would complicate the backdating process for which refunds or surcharges would be ordered and instead ordered the NETOs to continue collecting under their current, pending ROEs.
In 2014, FERC received complaints by customers that the NETOs’ ROEs, set at 11.14%, were unjust and unreasonable. In response, FERC issued Opinion No. 531, which set a zone of reasonableness between 7.04% and 11.74%. FERC concluded that the NETOs’ new just and reasonable ROE should be at the upper midpoint of the zone of reasonableness. In Opinion No. 531-A, FERC set the NETOs’ new base ROEs at 10.57% after determining that 11.14% was unjust and reasonable, while also capping the NETOs’ total ROEs at 11.74% (see October 14, 2014 edition of the WER). FERC required the NETOs to submit a compliance filing to implement their new ROEs, effective as of October 16, 2014. The NETOs submitted their compliance filings to FERC on November 17, 2014.
Consequently, the NETOs and their customers petitioned the U.S. Court of Appeals for the D.C. Circuit (“D.C. Circuit”) for review of Opinion No. 531. Both the NETOs and their customers argued that FERC failed to conduct proper Federal Power Act (“FPA”) section 206 review by inadequately demonstrating why neither the NETOs’ original ROEs nor the new base ROEs were just and reasonable. In April 2017, the D.C. Circuit vacated and remanded Opinion No. 531 to FERC. Specifically, the D.C. Circuit found that the NETOs’ existing ROEs were not unjust and unreasonable simply because FERC found that they did not equate to the ROE FERC would have set under current ROE analysis. The D.C. Circuit agreed with the NETOs that FERC had not shown why setting the ROE at the upper midpoint was just and reasonable.
On June 5, 2017, the NETOs amended their original compliance filing following the D.C. Circuit’s ruling regarding Opinion No. 531. Notably, the NETOs sought to have their original ROE levels reinstated before FERC’s Opinion 531-A lowered their ROEs from 11.14% to 10.57%. The NETOs argued that their filing reflected the “legal effect” of the D.C. Circuit’s decision to vacate Opinion No. 531, arguing that withdrawing the order meant allowing them to collect their pre-Opinion No. 531 ROE of 11.14%.
FERC disagreed and directed the NETOs to continue using 10.57% ROEs until FERC is able to address the issue on remand, under a future order. According to FERC, a court’s vacatur of a FERC order does not give that same court authority over the rate in effect due to the vacatur. FERC stated that it would use its “broad remedial authority” under FPA section 206 to set whatever ROE Staff determines to be just and reasonable effective for the refund period, the time-frame during which increased rates or charges were collected, and the entire period between Opinion No. 531-A and the date of the order on remand. Furthermore, FERC identified little concern over distortion of the NETOs’ and their customers’ behavior due to the rates set in Opinion No. 531-A. As such, FERC did not believe that maintaining the ROE set at 10.57% through Opinion No. 531 until future FERC action would make the NETOs any worse off than if they returned to the 11.14% pre-Opinion No. 531. Markedly, FERC indicated that having multiple ROEs in effect during the period in which FERC will order refunds or surcharges complicates the refund/surcharge process.
A copy of FERC’s order can be found here.