On March 21, 2019, FERC issued a Notice of Inquiry (“NOI”) seeking information regarding whether and how to revise its policy for determining the rate of return on equity (“ROE”) used in setting rates charged by jurisdictional public utilities. The NOI also seeks comment on whether any changes to the Commission’s ROE policies for public utilities should be applied to interstate natural gas and oil pipelines. Specifically, the NOI requests information in eight areas: (1) the role of FERC’s base ROE in investment decision-making and what objectives should guide the Commission’s approach; (2) whether uniform application of FERC’s base ROE policy across the electric, interstate natural gas pipeline and oil pipeline industries is appropriate and advisable; (3) performance of the discounted cash flow (“DCF”) model; (4) proxy groups; (5) the choice of financial model(s) used; (6) the mismatch between market-based ROE determinations and book-value rate base; (7) how FERC determines whether an existing ROE is unjust and unreasonable under the first prong of Federal Power Act section 206; and (8) model mechanics and implementation.

FERC stated that the NOI seeks further information to re-evaluate its ROE policies in the wake of the decision of the U.S. Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) in Emera Maine v. FERC, 854 F.3d 9 (D.C. Cir. 2017), which reversed and vacated FERC’s Opinion No. 531. In Opinion No. 531, FERC set the ROE for New England Transmission Owners at the midpoint of the upper half of the zone of reasonableness produced by a two-step DCF analysis. The D.C. Circuit found that FERC failed to show that setting the ROE at the midpoint of the upper half, rather than the midpoint, was just and reasonable. Subsequently, FERC issued two orders proposing a methodology for addressing the issues that were remanded to it in Emera Maine and establishing a paper hearing on whether and how this methodology should apply to the four complaint proceedings concerning both the New England and MISO transmission owners’ ROE (see November 20, 2018 edition of the WER). FERC proposed to change its approach for determining base ROE by giving equal weight to four financial models, instead of primarily relying on the DCF methodology, which had traditionally been its approach. In each order, FERC directed participants to submit initial and reply briefs. Numerous initial and reply briefs have been filed regarding the New England transmission owners’ ROE, as the deadline for reply briefs in that proceeding passed on March 8, 2019. In December 2018, FERC granted an extension of time for briefs due in the MISO-related proceeding. Subsequently, reply briefs are now due by April 10, 2019. While the NOI overlaps with the same issues considered by these two existing proceedings, the NOI provides an opportunity for all interested stakeholders to comment on FERC’s ROE policy in light of the decision in Emera Maine.

FERC also listed various questions under each topic that commenters may consider, but also advised that commenters need not address every topic or answer every question enumerated.

Initial comments on the NOI are due 90 days after publication in the Federal Register; reply comments on the NOI are due 30 days after the due date for initial comments.

A copy of the NOI is available here.