FERC Clarifies ROE Policy for Electric Transmission Projects

In four orders issued at FERC’s last monthly meeting, FERC clarified its Return on Equity (ROE) Policy for electric transmission projects.  FERC explained that it will not require that a proxy group be composed solely of companies in the same geographic region as the applicant.  Some companies had previously inquired whether several orders that FERC issued in 2008 required the proxy group to be composed only of companies in the same geographic region as the applicant.

For ROEs for electric transmission projects FERC held that proxy groups should be determined on a case-by-case basis and they may include companies within and outside the applicant’s geographic region.  While an applicant may choose to rely solely on companies in its geographic region, it may alternatively identify companies with comparable risk outside its geographic region and provide support for the use of companies outside its geographic region.  Other interested parties will have the opportunity to challenge the composition of the proxy group.

FERC clarified its policy in Atlantic Path 15, LLC order.  A summary of the four orders applying this clarified policy is provided below:

1.      Atlantic Path 15, LLC, Order Granting Rehearing in Part, Denying Rehearing in Part, and Directing Compliance Filing, 133 FERC ¶ 61,153 (2010) (Docket Nos. ER08-374-001 and EL08-38-001): This order grants in part and denies in part a request for rehearing and clarification of its February 19, 2008 order addressing Atlantic’s proposed tariff change to decrease transmission rates for service over a transmission line upgrade and related substation upgrades. Specifically, FERC clarifies that it is not mandating the use of regional proxy groups in this or other cases, and also clarifies that its decision to make an up-front return on equity determination will depend on the facts and circumstances of the individual cases. Also, FERC grants rehearing of the February 2008 Order’s determination that accepted Atlantic’s use of a historical test year, and directs Atlantic to submit a compliance filing.

2.      Potomac-Appalachian Transmission Highline, L.L.C., Order Granting Rehearing in Part, Denying Rehearing in Part, and Directing Compliance Filing, 133 FERC  ¶ 61,152 (2010) (Docket Nos. ER08-386-000 and ER08-386-001): In this order, FERC grants rehearing of its up-front determination of the appropriate ROE for PATH’s project and sets PATH’s proposed proxy group and its base ROE for hearing and settlement judge proceedings.  Consistent with the policy explained above, FERC states that it will not mandate that a proxy group must be composed of companies in the same geographic region as the filing company.  In addition, PATH’s proxy group should be screened for unsustainable growth rates.  As the initial order did not specify the individual incentives apart from the overall ROE, FERC specifies them on rehearing as follows: 50 basis point ROE adder to its base ROE for PJM membership; 150 basis point incentive ROE adder to its base ROE for the risks and challenges related to the project.

3.      Startrans IO, L.L.C., Order Denying Rehearing, 133 FERC ¶ 61,154 (2010) (Docket No. ER08-413-002): In this order, FERC denies a request for rehearing of its March 31, 2008 order, and affirms its conclusion that it was appropriate for Startrans to use a regional proxy group in calculating its proposed return on equity of 13.5 percent.  However, FERC also clarifies that it is not mandating the use of regional proxy groups in this or in other cases.  Further, it clarifies that the decision to make an up-front ROE determination will depend on the facts and circumstances of individual cases.

4.      The Nevada Hydro Company, Inc., Order Denying Rehearing, 133 FERC ¶ 61,155 (2010) (Docket No. ER06-278-007): This order addresses requests for rehearing of the ROE approved in FERC’s March 24, 2008 order accepting in part and denying in part Nevada Hydro’s request for transmission rate incentives for its proposed TE/VS Interconnect and Lake Elsinore Advanced Pump Storage project. FERC denies rehearing but clarifies that Nevada Hydro will not be limited to using a region-wide proxy group consisting only of members of the WECC in a subsequent rate filing pursuant to FPA section 205. FERC further clarifies that it does not require up-front ROE determinations in all cases, and that it and has made no determination whether to adopt an up-front ROE determination in connection with Nevada Hydro’s anticipated section 205 filing. Further, FERC states that whether it will make an up-front ROE determination will depend on the facts and circumstances of the individual cases.

To access the Atlantic Path 15, LLC order, please click here.

To access the Potomac-Appalachian Transmission Highline, L.L.C. order, please click here.

To access the Startrans IO, L.L.C. order, please click here.

To access the The Nevada Hydro Company, Inc. order, please click here.

For more information, please contact Toni Frost at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or Linda Kizuka at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or 202-296-1500.