On January 24, 2020, FERC issued its rehearing order on several different issues regarding the recovery of costs associated with the abandoned Potomac-Appalachian Transmission Highline Project (“PATH”). Previously, in January 2017, FERC reduced PATH’s return on equity (“ROE”) during its abandonment phase from 10.4 to 8.11 percent, and denied PATH’s recovery of expenditures related to certain public relations activities. On rehearing, FERC:
- Upheld its prior determination that the project’s abandonment significantly reduced its risk profile;
- Declined to address PATH’s arguments that FERC erred in reducing its ROE to 8.11 percent, and instead established a paper hearing addressing whether and how FERC’s proposed revised base ROE methodology should apply; and
- Reversed its prior denial for PATH to recover expenditures related to public information campaigns about the benefits and licensing of the project.
Regarding PATH’s risk profile, FERC explained that the project faced significantly reduced risk compared to other proxy companies because PATH is a single asset company whose only asset has been abandoned. As a result of its abandonment, FERC explained, PATH no longer faced risks associated with operations and maintenance, defaulting on debt, transmission siting, and environmental impact or other regulatory approval proceedings. FERC therefore denied PATH’s request for rehearing of its prior determination that PATH’s risk profile had been significantly reduced, and concluded that reducing PATH’s ROE would ensure that the level of return to PATH’s investors continued to be commensurate with the level of risk those investors faced.
FERC also dismissed PATH’s arguments that FERC erred in finding PATH’s 10.4 percent ROE to be unjust and unreasonable. PATH argued that in order to find existing rates unjust and unreasonable under Federal Power Act (“FPA”), FERC must find the existing rates entirely outside the zone of reasonableness. PATH pointed out that there was no dispute that the 10.4 percent figure was within the zone of reasonableness. FERC disagreed, concluding that neither the FPA nor FERC precedent requires FERC to accept all rates within the zone of reasonableness as just and reasonable. However, FERC declined to reach the merits of PATH’s arguments an 8.11 percent ROE was unjust and unreasonable. Rather, FERC established paper hearing procedures on the limited issue of whether and how to apply the revised ROE methodology in the Coakley Briefing Order (see October 25, 2018 edition of the WER) and MISO Briefing Order (see November 20, 2018 edition of the WER) to determine PATH’s ROE. Initial briefs are due within 60 days from the date of the Order.
Finally, FERC reversed its prior decision to deny PATH recovery of amounts expended to inform the public about the PATH project with the goal of obtaining certificates of public convenience and necessity from state regulators. FERC previously found that PATH had improperly included these expenditures in various accounts instead of in Account 426.4 of the Uniform System of Accounts (Expenditures for Certain Civic, Political, and Related Activities) where FERC stated they properly belonged. On rehearing, FERC agreed with PATH that the costs at issue did not belong in Account 426.4 (which are not recoverable under PATH’s formula rate), and instead permitted PATH to record the promotional and public outreach expenses as an operating expense. FERC also permitted PATH to recover expenses for advertising activities, which FERC determined were public outreach activities rather than activities of a political nature. Because these findings would require PATH to recalculate its total revenue requirement and account for refunds paid after FERC’s original order, FERC required PATH to submit a new accounting compliance filing and refund report within 60 days.
FERC’s order on rehearing is available here.