On October 15, 2018, FERC issued two orders involving rate of return on equity (“ROE”): the first was an order directing parties in two proceedings involving the base ROE of the transmission owning members of the Midcontinent Independent System Operator, Inc. (“MISO”) to submit briefs concerning a proposed change in FERC’s approach to determining the base ROE of public utilities previously outlined in Martha Coakley v. Bangor Hydro-Elec. Co. (“Coakley Briefing Order”) (see October 25, 2018 edition of the WER); the second was an order providing guidance regarding the effect of the Coakley Briefing Order on pending proceedings involving base ROE issues that have been set for hearing and settlement judge procedures.
In the first order, FERC established a paper hearing and directed parties in two ongoing MISO ROE proceedings involving the MISO Transmission Owners’ base ROE to submit briefs concerning FERC’s proposed approach to ROE determinations, as outlined in the Coakley Briefing Order. The order, like the Coakley Briefing Order, proposes to change FERC’s approach for determining base ROE by giving equal weight to four financial models, instead of primarily relying on the discounted cash flow methodology, which had been FERC’s preferred methodology. According to FERC, by relying on a broader range of evidence to determine a public utility’s base ROE, FERC’s ROE determinations will be in closer alignment with how investors inform their investment decisions. FERC stated that this order, as in the Coakley Briefing Order, does not make any final determinations with respect to the proposed new methodology for analyzing the base ROE component of rates but ensures that all parties to these two proceedings will have an opportunity to present evidence and arguments concerning the proposed new approach to determining a public utility’s ROE.
In the second order, FERC provided additional guidance regarding the effect of the Coakley Briefing Order on pending proceedings involving base ROE issues that have been set for hearing and settlement judge procedures. FERC stated that last month its Chief Administrative Law Judge issued an order that held an ROE proceeding in abeyance until FERC resolves the issues set for the paper hearing in the Coakley Briefing Order or FERC issues further guidance concerning ROE proceedings. FERC clarified in this order that in proceedings involving base ROE issues that have been set for hearing and settlement judge procedures, including Federal Power Act section 206 proceedings, it expects the participants to address the Coakley Briefing Order’s proposed new methodology in the context of their respective proceedings, which includes presenting evidence on the merits of the proposed methodology and whether and how to apply the proposed new methodology to the facts of their respective proceedings.