By Chris O’Malley
Five small, rural utilities — hailing from places like Yazoo City, Miss. (population: 11,000) — have won the right to continue their fight against 24 of MISO’s large transmission-owning members, whom the utilities contend are earning too much.
The Federal Energy Regulatory Commission on Thursday set the utilities’ complaint for a hearing under section 206 of the Federal Power Act (EL15-45).
Commissioners said they would leave to the discretion of the Chief Administrative Law Judge whether it would be appropriate to consolidate the case with a similar complaint MISO industrial customers filed against MISO TOs that is set for an August hearing (EL14-12). (See ROE Talks Between MISO Industrials, TOs Collapse.)
This latest case was filed last February by Arkansas Electric Cooperative Corp., Mississippi Delta Energy Agency, the Clarksdale Public Utilities Commission, the Public Service Commission of Yazoo City and Hoosier Energy Rural Electric Cooperative.
The five argue that the TOs’ base return on equity (12.38%, except American Transmission Co. with an ROE of 12.2%) should be no higher than 8.67%. The complainants cited a recent Court of Appeals ruling that found that a complainant need only demonstrate that the existing rate is unjust and unreasonable and do not have to prove the reasonableness of a suggested replacement rate.
TOs Not Persuasive
The MISO TOs argued that the consultant for the five utilities used flawed data and failed to consider other relevant capital models.
But FERC in its June 18 decision said the complainants had used appropriate data and conducted the proper cash flow analysis in making their case.
The commission also rejected the TOs’ request that it dismiss the complaint because their base ROEs fall within the commission’s “zone of reasonableness.”
“The commission has previously rejected the contention that every ROE within the zone of reasonableness is necessarily just and reasonable, and we do so again here.”
Among other MISO TOs whom the five utilities have challenged in their ROE complaint are ALLETE, Entergy, ITC Midwest and Northern States Power.
New Methodology
FERC last year changed the way it sets rates for electric utilities, switching to a two-step discounted cash-flow methodology similar to what it uses for natural gas and oil pipelines.
A number of stakeholders have argued that the current financial market allows transmission companies to use more leverage while still maintaining an investment-grade bond rating.
MISO industrials argued that the capital structures of certain MISO TOs have unreasonably high levels of common equity and should be capped at 50% common equity. Last October, FERC rejected the industrials’ capital structure argument but granted a hearing on the base ROE.