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FERC judge rules that New England transmission rates should be reduced


From the August 16, 2013 issue of Public Power Daily

Originally published August 16, 2013

By Robert Varela
Editorial Director
In a closely watched fight over transmission rates of return on equity (ROE), an administrative law judge ruled that ISO New England transmission owners’ ROE of 11.14 percent is no longer just and reasonable and should be reduced. The Aug. 6 initial decision by Federal Energy Regulatory Commission Law Judge Michael Cianci now goes to the commissioners for a final decision.

Judge Cianci determined that a return of 10.6 percent would be just and reasonable during the "locked-in" period of Oct. 1, 2011-Dec. 31, 2012 (the period triggered by the filing of a complaint over the rates) and a return of 9.7 percent should be used going forward. 

The complaint was filed by a coalition of state officials, industrial customers and others, including the Massachusetts Municipal Wholesale Electric Co. and consumer-owned utilities in eastern Massachusetts.

The judge rejected the transmission owners’ argument that the current ROE of 11.14 percent should be retained merely because it falls within a broad zone of reasonableness. "A bright line litmus test of this sort is contrary to FERC precedent and is simply illogical when applied to the facts of this case," he said.

The judge also rejected the transmission owners’ call for abandoning or revising use of the discounted cash flow methodology to calculate returns on equity. He ruled that the traditional discounted cash flow analysis, as set by commission precedent, "should be followed in this case," and said that "any deviation, or adoption of alternative methodology, must necessarily come from the commission."
 

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