FERC Revises Public Utility ROE Methodology; Issues Policy Statement for Natural Gas, Oil Pipelines

On May 21, 2020, the Federal Energy Regulatory Commission (FERC) revised its methodology for the base return on equity (ROE) component of public utility rates under section 206 of the Federal Power Act.

FERC also issued a Policy Statement in a related action that applies the revised ROE methodology to natural gas and oil pipelines, with certain exceptions.

In November 2019, FERC said in Opinion No. 569 that it would use the discounted cash flow (DCF) methodology and capital asset pricing model (CAPM) to determine the reasonableness of an existing base ROE, and, if found unreasonable, determine an appropriate replacement ROE. Applying this new methodology, Opinion No. 569 found Midcontinent Independent System Operator (MISO) transmission owners’ base ROE should be 9.88 percent.

On May 21, 2020, the Order on Rehearing further refined the methodology established in Opinion No. 569, finding that the MISO transmission owners’ base ROE should be set at 10.02 percent.

See Opinion No. 569 here: https://www.ferc.gov/whats-new/comm-meet/2019/112119/E-11.pdf

See Order on Rehearing here: https://www.ferc.gov/whats-new/comm-meet/2020/052120/E-1.pdf

See FERC Policy Statement here: https://www.ferc.gov/whats-new/comm-meet/2020/052120/E-2.pdf

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