On July 31, 2014, a consortium of state attorneys general, state regulators, state consumer advocates and transmission customers 1 filed a complaint at FERC against New England transmission owners (NETOs), seeking to reduce their authorized return on equity (ROE).2

In Opinion No. 531, the Commission adopted a new methodology for determining the just and reasonable ROE in electric cases.3 Applying the methodology detailed in Opinion No. 531 to the most recent six months of financial data, the complaint asserts that (a) the appropriate Base ROE is 8.84 percent, not 11.14 percent and (b) the ROEs currently on file exceed the upper end of the range of proxy company results. 

Two other related complaints are also pending at FERC. 

On September 30, 2011, several parties filed a complaint initiating Docket No. EL11-66, alleging that the NETOs’ 11.14 percent ROE was unjust and unreasonable.  On June 19, 2014, FERC issued Opinion 531, which tentatively established a just and reasonable ROE of 10.57 percent, subject to the results of a paper hearing on the projected growth rate component of the newly-adopted ROE methodology.  Opinion No. 531 did not grant interim relief, so consumers are still paying the filed ROE, subject to refund.

On December 27, 2012, a complaint was filed initiating Docket No. EL13-33.  The complainants in that proceeding also alleged that the NETOs’ ROE was unjust and unreasonable. On June 19, 2014, the Commission set that complaint for investigation and an evidentiary hearing, to be preceded by settlement negotiations.  The Commission rejected claims that the complaint was barred because it was premised on the same facts and allegations underlying the complaint in

Docket No. EL11-66.  Instead, the Commission explained that it allows successive complaints when presented with a new analysis.

The existing and proposed ROEs for all three pending dockets are summarized in Table 1, below.

The Commission has historically set the ROE at the center of the zone of reasonable returns based on a proxy group of companies with comparable risks.  Opinion No. 531 set the ROE halfway between the midpoint and the upper end of the zone because the Commission found that the capital market conditions during the relevant study period were anomalous.  In the new proceeding, the complainants argue that the allegedly anomalous market conditions that existed during the study period in in Docket No. EL11-66 no longer exist, and that the ROE should now be set at the median (8.84 percent) or midpoint (9.44 percent) of the proxy group.

The complainants are seeking a significant reduction from the existing ROE and the ROE tentatively adopted in Opinion No. 531.  The NETOs are likely to argue that base ROEs in the 8.84 percent to 9.44 percent range would be inadequate to attract sufficient capital to support needed infrastructure investments.  Their answer to the complaint is currently due on August 21, 2014.

Table 1

NETO Base ROE Proposals

Click here to view the table.

  1. The Initial Decision recommended a higher 10.6% ROE for the fifteen-month refund period from October 2011 to December 2012.
  2. Subject to the outcome of the paper hearing on the long-term growth rate and petitions for rehearing.