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MISO parties seek rulemaking on new FERC grid ROE policy

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MISO parties seek rulemaking on new FERC grid ROE policy

Federal regulators should consider launching a rulemaking proceeding to hammer out the details of a new policy for setting the allowable return on equity for transmission investments, according to a petition from transmission customers and consumer advocates in the Midcontinent ISO region.

The request is significant because it shows both the broad impact of a recent order by the Federal Energy Regulatory Commission regarding transmission ROEs and the uncertainty that order has created about how the policy will apply nationwide.

FERC's order came in a proceeding involving transmission-owning members of ISO New England, but MISO stakeholders are seeking to intervene in that proceeding in light of concerns about how the policy will affect ROE litigation in their region. The commission in October laid out its potential new policy in ruling on a complaint (FERC docket EL11-66) challenging the approved ROE for ISO-NE transmission owners, but the MISO parties said the agency alternatively should launch a rulemaking so all affected parties can weigh in.

Because FERC intends to apply the policy to future proceedings, "the generally applicable issues raised in the briefing order are better suited for a rulemaking proceeding that allows parties to comment on how the new framework may be applied in New England and outside of New England," according to the petition filed Nov. 5.

Under FERC's proposed new policy, the agency would set transmission ROEs using several different models rather than relying solely on the discounted cash flow methodology. In deciding whether an existing ROE is just and reasonable, FERC would set a composite zone of reasonableness using three models. If an ROE has been shown to be unjust and unreasonable, FERC then would add a fourth model to help set the ROE.

The new approach would create a wider band of acceptable ROEs, and the wider band could make room for a higher total ROE after incentives are added.

MISO appears to be one region where the new policy could come into play. FERC decided one MISO ROE case (FERC docket EL14-12) in 2016 based on the commission's prior policy laid out in Order 531, which specifically addressed the ROE for New England transmission owners. That order is pending rehearing at FERC. The commission has not yet decided on a second MISO ROE case (FERC docket EL15-45).

The MISO stakeholders argued that a rulemaking is needed because the New England order made significant changes to an ROE policy that will apply nationwide. A separate proceeding also would help FERC defend its policy in court, the petition said.

"The commission would have a more fully developed record to support its policy changes and reduce the potential for litigation that may ensue if it applies new policies adjudicated in New England in ongoing ROE proceedings outside of New England," the MISO stakeholders said.

It is not surprising that parties outside of New England are asking FERC to address the uncertainty the ROE order created, Christi Tezak, managing director at ClearView Energy Partners, said in an email. "We too found that the order did not explain clearly how FERC's actions on that case would flow through to other cases which relied on Opinion 531."

For instance, when FERC will issue orders on the MISO cases or what the new policy means for pending complaints and rate cases remains unclear, Tezak said. "Such uncertainty is generally perceived negatively by investors in companies that own long-lived assets such as transmission."

Tezak said the MISO stakeholders' desire to participate in the development of any commission decision that would ultimately apply to them is understandable. "One way to do that would be to keep the [New England transmission owner] proceedings more limited and initiate a new, broader rulemaking to air broader issues and concerns, given the methodology change and how it applies to rate cases, too."

Kate Winston is a reporter for S&P Global Platts, which, like S&P Global Market Intelligence, is owned by S&P Global Inc.