By William Opalka
A FERC administrative law judge last Tuesday set the return on equity for transmission projects over two periods in New England lower than what transmission owners sought but higher than what states and commission trial staff advocated.
The 371-page initial decision by Judge Steven Sterner lowered the base and ceiling ROEs for the New England Transmission Owners to 9.59 and 10.42% respectively for December 2012 to March 2014 and set the range at 10.9 to 12.19% for July 2014 through October 2015 (EL13-33, EL14-86).
The decision came in a consolidation of two complaints initiated by state officials against the New England TOs: Eversource Energy, Central Maine Power, National Grid and NextEra.
The case was heard under the new framework FERC set in its June 2014 ruling that switched to a two-step discounted cash flow (DCF) model incorporating short-term and long-term growth rate estimates (EL11-66-001, Opinion 531).
The TOs had sought a base ROE of either 10.24 or 11.14% for the period ending March 2014 and a maximum of 11.14% for the later period. The states had sought 8.75% and 8.16%.
Sterner held an evidentiary hearing last June and July. (See Hearing over New England Transmission ROE Nears End.) A decision was expected by the end of the year, but Sterner on Dec. 18 ruled there was “was insufficient evidence in the record from which he could establish a zone of reasonableness” because no parties had performed the DCF methodology in accordance with Opinion 531.
After the calculations were rerun, FERC staff recommended a base ROE of 8.68 or 8.74% for the 2014/15 timeframe.
The states and FERC staff contended the recovery in the stock market made the TOs more attractive to the investment community and that capital markets were returning to more normal conditions.
Sterner rejected their arguments. “The evidence shows that the same types of anomalous capital market conditions that existed [before December 2012]” prevailed in the time periods of the cases, “distorting the inputs to the DCF model,” he wrote.
“Alternative benchmark methodologies show that the midpoint of the DCF range of reasonableness would not be a just and reasonable base ROE for the NETOs. Under these circumstances, a mechanical application of the DCF model will not satisfy regulatory standards and an upward adjustment from the midpoint of the zone of reasonableness is necessary in order to comply with” Supreme Court precedent, Sterner wrote.
What about April, May, June 2014?