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In This List

Transmission owners in multiple regions ask FERC to rethink new ROE methodology

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Transmission owners in multiple regions ask FERC to rethink new ROE methodology

A number of transmission owners in the Midcontinent ISO, PJM Interconnection and Southwest Power Pool regions, as well as the industry group WIRES, asked the U.S. Federal Energy Regulatory Commission to reconsider its new methodology for determining whether the return on equity for transmission owners is just and reasonable.

Some transmission owners and WIRES worry that the revised methodology will push ROEs lower and could, therefore, reduce incentives to build more transmission lines that are likely to be needed to accommodate the massive build-out of renewables that is expected. The North American Electric Reliability Corp. recently warned that plans for new transmission lines are already not keeping pace with renewables.

"Building and maintaining electric transmission is a risky, multi-billion-dollar, on-going, long-term commitment," the nonprofit pro-transmission group WIRES said in a Dec. 23 rehearing request. "It is critical that the commission's policies provide adequate incentives needed to encourage investment in transmission-owning public utilities."

FERC revised its ROE methodology in November and applied it to the ROE in MISO (FERC dockets EL14-12, EL15-45). The order, also known as Opinion 569, adopted the use of the discounted cash flow model and capital-asset pricing model but rejected the use of the expected earnings and risk premium models. The discounted cash flow analysis helps determine what FERC calls the "zone of reasonableness" for ROE based on a proxy group of similarly situated companies.

In statements and news releases, "the commission indicated that the new methodology would be the guidepost used in all commission proceedings going forward," a group of transmission owners in the SPP said.

But transmission owners in the SPP, PJM and MISO, as well as individual transmission-owning utilities, argued the commission set a new policy in a case that was more limited in scope without proper opportunity for comment and without a reasoned explanation.

The commission's decision "marks an abrupt and dramatic shift in the proposed ROE methodology without providing appropriate notice to the participants in this proceeding and an opportunity for the industry at large to participate," a group of transmission owners in PJM said.

The PJM transmission owners also noted that the commission had separately established a notice of inquiry proceeding (FERC docket PL19-4) on the ROE methodology issue.

"Nonetheless, the commission chose to issue Opinion No. 569 and proposed changes to the ROE methodology based on the record of this proceeding that did not take into account the comments and impacts of the greater industry stakeholders," the PJM parties said.

The SPP transmission owners similarly said, "The commission's decision to evaluate its ROE policy in one proceeding, which examined limited and largely stale data from a number of years ago for a small subset of the industry, is improper."

Transmission is critical to the nation's transition to renewable and other clean energy resources and to "enhancing the reliability and resiliency of the grid, and to integrating new technologies that improve the network's efficiency and security," a group of transmission owners in the MISO region said in a rehearing request. "But Opinion No. 569 sends precisely the wrong signal to transmission utilities and those who provide them with capital."

The MISO transmission owners noted that the investment community has in a number of papers in recent weeks raised "very serious doubts about the future ability of commission-regulated energy companies to attract capital, should the commission stand by Opinion No. 569's determination that transmission investment warrants only single-digit equity returns."