FERC reduces ROE rate for agreement to keep Massachusetts gas plant running

The US Federal Energy Regulatory Commission modified a July order and reduced the rate of return on equity for a cost-of-service deal to keep two natural gas units in Massachusetts afloat.

In July, the commission set a 9.33% rate of ROE on a deal to keep the Mystic Generating Station running for another two years. However, following requests for rehearing, FERC voted Nov. 18 to modify that order, reducing the rate to 9.19% as of June 1, 2022 (ER18-1639).

The commission also told Mystic to submit a compliance filing within 30 days revising the agreement.

Exelon wanted to retire the 1,700-MW Mystic Generating Station by the end of May 2022, but doing so could threaten reliability and fuel security for ISO New England, the grid operator said. As a result, ISO New England, Exelon and its subsidiary Constellation Mystic Power came to an agreement to continue operating the units from June 2022 to May 2024. That agreement also helps Mystic recover the bulk of the costs associated with a neighboring LNG terminal that fuels the plant.

Connecticut regulators complained that FERC failed to apply a "natural break analysis" to results from the discounted cash flow model used to determine the ROE rate. The commission should have excluded Otter Tail from that analysis, given its high cash flow result that suggested it was an outlier, according to the state regulators.

FERC determined in its reconsideration that Otter Tail was an outlier and should be excluded from the results. Doing so reduced the averages of the study, resulting in a risk premium of 9.19%, the commission said.

Transmission concerns

Commissioner Allison Clements issued the lone dissent, as she did in July, critiquing the commission's ROE policy for applying a "flawed methodology that does not adequately protect consumers and does not yield just and reasonable rates." That policy also extends to transmission rates, she added, and the nation will need significant transmission investments in the coming years.

"This investment can ultimately be a net win for consumers," Clements said. "But the value proposition for consumers is in no small part dependent on this commission's rigorous scrutiny of the rates charged for transmission service, of which ROE is a central component."

Commissioner James Danly wrote in a concurrence that FERC's revised ROE methodology is "too complicated and threatens to cause great uncertainty going forward."

"The inevitable consequence will be the chilling of investment in transmission development," Danly said. "I would likely not have voted in favor of our revised ROE methodology had it come before me in the first instance, but I also have not seen the kind of evidence that would be necessary to justify jettisoning it for yet another revised methodology."